Protecting India’s trade interests

By: and |
Published: March 25, 2016 12:04:23 AM

The country must put forward a progressive agenda for promoting global trade in services

India’s proposal on trade facilitation in services could focus on border and behind the border restrictions affecting India’s services exports. (Source: Indian Express)India’s proposal on trade facilitation in services could focus on border and behind the border restrictions affecting India’s services exports. (Source: Indian Express)

India has recently ratified the Trade Facilitation Agreement of the WTO, concluded at its Bali Ministerial Conference in December 2013. Already consented to by 70 countries till March 1, 2016, it will enter into force once two-thirds of the WTO members ratify it. This agreement only deals with goods trade and provides for expediting the movement, release and clearance of goods, including goods in transit but not of services. Facilitating services exports and imports is not yet discussed in the WTO, in spite of the important role played by services in international trade. India must put forward a progressive agenda for promoting global trade in services.

Services constitute an important component of the country’s domestic economy as well as of its international trade, contributing more than 60% to GDP and around 33% to total exports. India’s exports in services remain concentrated in IT/ITeS sectors, which contribute more than one-third to the country’s services exports. Trade potential in other services—such as professional services, health including nursing and paramedical—is not yet fully realised by India owing to policy and capacity constraints at domestic level as well as restrictions imposed by major importing countries. To realise this untapped potential, India should advance multilateral negotiations on trade facilitation in services in order to remove these restrictions. This is also important given the recent signing of the Trans-Pacific Partnership (TPP) and significant advancement in Trade in Services Agreement (TiSA) negotiations. Multilateral negotiations will help in minimising possible trade diversion effects of these mega deals. In fact, important WTO members who are not yet part of TiSA are likely to welcome India’s initiative.

India’s proposal on trade facilitation in services could focus on border and behind the border restrictions affecting India’s services exports. However, the country should not focus only on visa-related (mode 4 in services trade terminology) demands—such as visa fee, processing time and multiple entry—in its proposal, rather it should equally emphasise on issues such as data security and qualification recognition for online supply of services (mode 1), transparent and time-bound approval process for commercial establishment (mode 3) and non-discriminatory treatment to its service providers. India could also borrow from the Canadian submission in the WTO on ‘Improved transparency of mode 4 commitments’ that aims at better assessment of the actual liberalisation value of services commitments. So far, India’s demands in multilateral and bilateral trade negotiations remained primarily for facilitating its professionals’ movements, which over time have become more of a stumbling block, taking negotiations nowhere.

Given political sensitivities associated with foreign labour movement, India has to move beyond such demands in its trade negotiations. Ironically, India has not been able to fully utilise such preferences in its existing services FTAs with Singapore, Korea, Japan and Malaysia.

Another important area for services trade facilitation is the removal of discriminatory requirements (economic needs test) for foreign service providers, such as allowing hiring of a foreign professional only if domestic expertise is not available. As identified in the MERCOSUR proposal before the WTO, such tests constitute one of the most important market access and national treatment barriers, and affect a wide range of services.

The restrictive effects are further compounded by the fact that the criteria for their application are generally vague or non-existent, thereby allowing discretion in their administration and undermining the certainty and predictability of market access and national treatment commitments.

Applying domestic regulations in an objective and transparent manner should also be included in this proposal. The WTO allows member countries to impose domestic regulations (prudential regulations) for public policy objectives. However, the line between prudential and trade protectionist regulations is thin and blurred, and hence most developed countries use domestic regulations in a disguised way to protect their markets. This is also evident from the fact that both TPP and TiSA, and trade initiatives led by the US and other developed countries do not have any specific provisions to prevent misuse of domestic regulations, as against mandatory provisions on market access and national treatment related issues. The proposal should not only include cross-cutting disciplines on domestic regulation, but also sectoral disciplines in order to capture sector-specific realities. At the same time, India should be alert to oppose cherry-picking by developed countries to focus only on transparency issues, as attempted in October 2015 just before the Nairobi Ministerial.

India’s strategy in trade negotiations has so far been generally reactive. Instead of being reactive, the country should have a forward-looking agenda for services liberalisation on its own and table its proposal on trade facilitation in services in the WTO. India should also make efforts to sensitise other countries on services facilitation issues to make a coalition of like-minded countries. Trade facilitation in services will act as a bargaining chip for India in future negotiations and will help protect the country’s trade interests.

Rajeev Kher is former commerce secretary, Government of India; Pralok Gupta is assistant professor at Centre for WTO Studies, IIFT, Delhi. Views are personal,

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