The Hindu Business Line : Many a mode in the services trade

GANDHIJI said, "An eye for eye only ends up making the whole world blind." However, when Commerce and Industry Minister Kamal Nath says, "What we ultimately offer will depend on what is offered to us," it's about world trade in services. We know services are what the Finance Minister trawls into for adding to the revenue kitty, but global `trade in services' is what is currently engaging the attention of policymakers around the world.

Important numbers doing their rounds are about India's earnings through services exports estimated at $30 billion, and the Boston Consulting Group's estimates of this potential to increase to $200 billion by 2020. A communiqué of the Australian High Commission carried in Borneo Bulletin (www.brunei-online.com) claims that Australia's services offer, during the World Trade Organisation (WTO) negotiations in Geneva, has set "a new benchmark for global trading partnership". The highlight of its revised offer is "the commitment on the temporary movement of skilled workers which will give greater certainty to skilled foreign workers — including contractual service providers — seeking temporary entry to Australia." On May 18, Canada submitted its revised General Agreement on Trade in Services (GATS) market access offer. It includes "a new category of intra-corporate transferees, which will facilitate the temporary entry of individuals who enter Canada for career development purposes," informs www.dfait-maeci.gc.ca.

It was in the mid-1980s that cross-border services were recognised as a form of trade and were incorporated into the WTO's GATS.

For a comprehensive definition see GATS, Article I in Part I. It reads: "Trade in services is defined as the supply of a service: (a) from the territory of one Member into the territory of any other Member; (b) in the territory of one Member to the service consumer of any other Member; (c) by a service supplier of one Member, through commercial presence in the territory of any other Member; (d) by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member."

Interestingly, `services' includes any service in any sector except services supplied in the exercise of governmental authority. It is not that governments don't deliver service, because GATS hastens to explain that `a service supplied in the exercise of governmental authority' means any service that is supplied neither on a commercial basis, nor in competition with one or more service suppliers. Services are divided into a dozen sectors viz. business (including professional and computer), communication, construction and engineering, distribution, education, environment, finance (including insurance and banking), health, tourism and travel, recreation (plus cultural and sporting), transportation, and other services. These 12 areas are further divided into 161 sub-sectors. For example, `air transport services' falling under `transportation' is in turn broken into passenger transportation, freight transportation, rental of aircraft with crew, maintenance and repair of aircraft, and supporting services for air transport.

A publication of the Trade in Services Division of the WTO Secretariat explains the four `modes of supply', viz. "cross-border, consumption abroad, commercial presence in the consuming country, and presence of natural persons." Thus, Mode 1 is where the service itself crosses national frontiers, even as geographical separation is maintained between seller and buyer. The site www.indiainbusiness.nic.in gives examples: "An architect can send his architectural plan through electronic means; a teacher can send teaching material to students in any other country; a doctor sitting in Germany can advise his patient in India through electronic means."

The WTO commentary gives as examples for Mode 2 "consumer travelling to the supplying country, perhaps for tourism or to attend an educational establishment" and "the repair of a ship or aircraft outside its home country". Quite straightforward form of trade, it adds, because it is not necessary to admit the service supplier into the consuming country. For, that comes in Mode 3, which requires the commercial presence of the foreign supplier in the territory of another WTO member, as in the case of branch offices or agencies to deliver banking, legal advice or communications services.

The need for supplier's offices in the consumer's country arises because "many service transactions require the provider and the consumer to be in the same place. Mode 3 is probably the most important mode of supply of services, and also raises `the most difficult issues for host governments and for GATS negotiations,' states the WTO. Because, unlike GATT that had to wrestle with touchy issues such as subsidies and technical standards only later in the day, "GATS has been forced to grapple with internal policy issues such as rights of establishment that are inherent in the commercial presence of foreign interests."

In Mode 4, things get touchier, because of the presence of natural persons, "or in less opaque language, the admission of foreign nationals to another country to provide services," as the WTO Secretariat demystifies. Mode 3 may coexist with Mode 4 when the foreign supplier's office is staffed, not with local personnel, but with foreign employees.

A standalone case of Mode 4 is where persons visiting from a foreign country, as a supplier's staffs or independent individuals, provide service. GATS clarifies that the agreement has nothing to do with "individuals looking for employment in another country, or with citizenship, residence or employment requirements."

The site http://commerce.nic.in is worth watching for unfolding developments, if only the Ministry updates regularly. However, don't miss the Manual on Statistics of international trade in services, a 190-page document from which the chart explaining four modes of supply has been extracted. The manual has been prepared by the United Nations, European Commission, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations Conference on Trade and Development, and the WTO.

For further study, I'd suggest Peter K. Morrison's presentation, How do WTO Rules affect the Accountancy Profession posted at www.ifac.org; a November 2004 staff paper on the impact of Mode 4 on Trade in Goods and Services available at www.wto.org; Jane Knight's paper on Trade in Higher Education Services: The Implications of GATS; and the work of Daniel Mirza and Giuseppe Nicoletti questioning, "What is so Special about Trade in Services?"

A former UK premier Harold Macmillan a.k.a. `Mac the Knife' once remarked that memorial services are the cocktail parties of the geriatric set. There is a similar risk that talks on trade in services can become mere cocktail parties of the developed nations unless the developing ones are able to make pragmatic offers during negotiations.

ZeroBase@TheHindu.co.in

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