The Hindu Business Line : GATS and freedom online

India must use the Internet to expand the reach of its online services and open a wider market for its professionals, who can offer their talent to overseas clients.

THERE are four ways in which trade in services happens between countries.

Services can be exported from one country to another; an e-book can be sent by e-mail or an Indian teacher can teach physics online to a British student. Both the supplier and the purchaser remain in their home countries. Such `cross-border supply' is mentioned as Mode 1 under the General Agreement on Trade in Services (GATS) agreement of the WTO (World Trade Organisation).

The consumer can travel to the provider country to receive the service. A tourist travels to the beaches of Goa. African patients can come to India to get a bypass surgery done. Such `consumption abroad' is Mode 2.

A supplier company can establish its business in the purchaser country.

An Australian university can enter into a joint venture with an Indian college or open a campus here. The University of Michigan provides testing services across the world. This is a modified form of Foreign Direct Investment. Such `commercial presence' is Mode 3.

The supplier individual can travel to the purchaser country to provide his or her services, as a nurse from Kerala who works in a Dubai hospital or Indian software engineers working in American companies. Such `presence of natural persons' is Mode 4.

The supplier company establishes its office in the purchaser country in Mode 3. It is not necessary for the citizens of the supplier country to physically enter the purchaser country for this purpose. For example, the testing service provided by the University of Michigan is administered by Indian college professors. On the other hand, Mode 4 necessitates migration of a large number of persons from the supplier to the purchaser country for the period of supply.

Most Indian experts hold that developed countries have a comparative advantage in Modes 1, 2 and 3. On the other hand, developing countries have a comparative advantage in Mode 4. They have abundant supply of individuals who are eager to provide their services in foreign countries at cheap rates.

The GATS agreement has reached a stalemate. Both sides insist on opening of services in Modes suitable to them. We must reconsider our insistence on Mode 4 because the Internet has changed the nature of supply of services. Twenty years ago, most cars running on the roads in America were manufactured in that country. Improvements in transport technologies have made it possible to manufacture cars in East Asia and transport them to the US. Earlier, a Thai worker would have to migrate to Detroit to build a car for the American consumer. Now he can do so sitting in Thailand.

A similar change is happening in the services sector now via the Internet. Take education for instance. There are many indicators that provision of online educational services is growing rapidly. Mr Paul Tracy, Editor of Street Authority Market Advisor writes, "The education industry has returned over 25 per cent year-to-date and more than 60 per cent over the past year. Over the past five years the industry has returned a staggering 35 per cent annually, ranking it as the top performer over that time period. Compared to the S&P 500, which has returned above 21 per cent over the past year and has lost 2 per cent in the most recent five-year period, the education industry's performance has been phenomenal."

Mr Paul Jay Edelson, Dean, School of Professional Development, Stony Brook University, says: "In 1978 when the North Central Association accredited the University of Phoenix the groundwork was laid for a seismic change in the ground rules of higher education. When the school adopted online learning in the 1990s, one of the first colleges in the US to do so, their programmes became available not only to everyone in the North Central Region, but also to other adults, living anywhere in the US.

"The University of Phoenix expanded in the 1990s to become one of the largest enrolled universities in the US. One magazine, Change, published by the American Association for Higher Education, depicted on its cover the University of Phoenix as a fire breathing dragon scorching colleges left and right. On-campus population, however, was grateful to Phoenix for providing alternatives."

According to the eLRN Network, the US Army awarded a $453-million contract in 2000 to PricewaterhouseCoopers to provide distance education to an estimated 80,000 soldiers over the next five years.

Mr John Chambers, President and CEO of Cisco Systems, says: "The next big killer application for the Internet is going to be education. Education over the Internet is going to be so big, it is going to make e-mail usage look like a rounding error."

Mr David Asirvatham of Multimedia University, Malaysia, writes: "The e-learning market is growing rapidly. In China, the number of e-universities has increased from four in March 1999 to 43 by June 2001. Student population for online education is expected to increase from 240,000 to 5 million over the next decade. In US, the online student population will increase from 600,000 in 2000 to 2.23 million by 2004. The global e-learning market is expected to expand from $6.3 billion in 2001 to $23 billion by 2004."

The Software Technology Parks of India says on its Web site: "The training segment of the Indian IT industry had a good year during 1999-2000. Growth took place both at the level of student education as well as professional/corporate IT courses. According to industry estimates, about Rs 1,750 crore or $400 million worth of revenue was generated by the training segment, representing a growth of 34 per cent over the previous year."

Currently, our private education providers such as NIIT and Aptech are centred in Asia but they can sell their services in the developed countries as well.

The need for India's educationists to migrate to the developed countries will recede in the same measure as the export of online services increases. The importance of Mode 4 will reduce correspondingly. Thus while continuing to demand the relaxation of Mode 4, we should not get stuck with it. Our objective should be to emerge as the global provider of online services.

There is another problem in Mode 4. If we seek freedom for our citizens to migrate to the US, we will have to provide similar freedom to the people of Bangladesh to migrate to India.

Apparently the Home Ministry is opposing free movement of labour for this reason. We must rise above this fear. Our mantra should be that of Vasudaiva Kutumbakam — Let the people of the world migrate freely. But this issue cannot be wholly ignored.

The time has come for us to adopt an aggressive stance in the supply of online services. The government must set up an `Online Services Export Promotion Corporation'.

We must demand that our lawyers, doctors and architects are allowed to provide online services to American consumers. While we must maintain pressure on Mode 4, we must aim to benefit from the growth of online education.

(The author is a New Delhi-based freelance writer. He can be contacted at bharatj@nda.vsnl.net.in)

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