Trade Facilitation Agreement: Time for India to outline offensive interest at the WTO

March 21, 2017 5:44 AM

The Trade Facilitation Agreement as applied to services can be India’s bargaining counter at the World Trade Organisation

While the media has highlighted the issue of services in the TFA, this was not the only intended goal of the agreement. To understand this, it is necessary to look at the history of WTO. (Reuters)

Manoj Pant

On March 2, the Trade Facilitation Agreement (TFA) of the World Trade Organisation (WTO) came into force. The TFA’s importance stems from the fact that it is the first multilateral agreement that has been agreed to in the WTO after the Doha Round of 2001. And one that evolved with a rare consensus. While individual countries will have to get the TFA ratified by their respective legislatures—and this could take a few years—the agreement will come into force soon.

Contrast this with the discussion around public stock-holding of foodgrains, where only the ‘peace clause’ has prevented cross-sector retaliation as some developed countries view foodgrain public procurement policies (as in India, for example) as ‘trade restricting’. Presumably, this issue will once again come up in the next WTO Ministerial in Argentina later this year. However, let me focus on what the TFA means for India in terms of implementation and strategic negotiations at the WTO?

While the media has highlighted the issue of services in the TFA, this was not the only intended goal of the agreement. To understand this, it is necessary to look at the history of WTO.

One must note that, in 1995, the WTO extended trade liberalisation to all the sectors apart from commodity trade in industrial goods, which was already covered under the General Agreement on Tariffs and Trade (GATT). However, while tariff reduction commitments under the WTO now cover all commodities (with limited exceptions), in the case of services trade, the relevant agreement (the General Agreement on Trade in Services; GATS) only implied discussion on trade restrictions in sectors where countries made ‘positive’ commitments unilaterally. Herein lies an implementation issue.

In the case of commodity trade, the TFA implies that many non-tariff barriers (NTBs) will now be systematically reduced over time. In fact, most of these NTBs concern border measures such as customs regulations and inland transport issues, which economists have argued increase ‘trade costs’. This development was a natural extension of border tariff reduction commitments made by all countries since around 1995. However, for services, it is not clear whether the TFA would automatically apply across all sectors where countries have not made unilateral commitments under the GATS?

India’s concerns on what the TFA means for services trade is warranted. In commodity trade, India’s share of world exports has inched up from around 0.5% in the 1950s to 1.5% today. On the other hand, its share in global exports of commercial services is almost 3.5%. Of this, software exports, while not the largest in terms of value, is the fastest growing segment. Yet, in the US (one of India’s largest destinations for services exports), the existing commitments are limited by exclusions under immigration laws, internal state laws, etc. So, in negotiations, these limitations will serve the same protectionist purpose as ‘exclusions’ in the case of commodity trade. Yet while ‘exclusions’ under commodity trade are on a standstill due to the ‘grandfather’ clause of 1995 (no new exclusions could be introduced), no such limitation applies in services trade since many of the NTBs here can be traced to internal legislation.

Nor is this problem restricted to the US. Closer home, none of the members of the ASEAN (with the exception of Singapore) have been willing to extend the FTA to services trade despite an explicit understanding on this when the FTA was inked in 2009. In other agreements, the Regional Comprehensive Economic Partnership (RCEP) being negotiated with ASEAN and six other Asian countries including China was limited to commodity trade. It was also reported that India has asked for expansion of the agreement to services trade. There is no news (other agreements being negotiated under the RCEP) if any of the responses are positive.

This is one implementation issue. How does one negotiate areas of interest in services trade since there is no ‘negative list’ of services and many of the barriers are related to internal legislative issues in member countries? How would negotiations be extended in many areas where countries have made no unilateral submissions under the GATS and which are of interest to India? Indian negotiators need to look at all this.

The other issue relates to India’s readiness with a classification of services necessary when negotiating tariff and other issues. It is imperative for the commerce ministry to start preparing such a list in line with the harmonised system (HS) classification used in commodity trade negotiations. One is not aware if such an exercise is on.
Yet all is not lost and the TFA can be a legitimate strategic instrument. To understand this, one needs to go back to India’s negotiating strategy at the WTO.

Till recently, India’s stand at the WTO has been largely defensive. Over the last 20 years or so, Indian negotiators have had one major ‘red line’—stall any further commitments under agricultural tariffs beyond the levels bound in 1995. This was probably sensible given the politically sensitive nature of this sector and the operation of India’s public distribution system. It was also not too difficult at that time, as the US and the EU were struggling with their own systems of domestic subsidies. Yet, starting from the Tenth Ministerial in Kenya in December 2015, the process of challenge to the ‘peace clause’ and the establishment of a new Special Safeguard Agreement (SSG) for developing countries has begun, which will involve staggered commitment by developing countries to tariff reductions in the agricultural sector.

It is time for India to outline offensive interests at the WTO, and the TFA in services is a good starting point. To see what country commitments in services can be obtained can be an offensive strategy at the WTO (and in other regional agreements). This is a legitimate strategy since the TFA is a multilateral agreement, unlike the plurilateral Trade in Services Agreement (TiSA) currently being negotiated. The ‘single undertaking’ clause of 1995 has been used to make many developing countries commit to politically sensitive issues on patents and copyright. Maybe the TFA as applied to services can be India’s bargaining counter at the WTO. Are our negotiators ready? Only time will tell.

The author is professor of Economics, School of International Studies, Jawaharlal Nehru University

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