The Hindu Business Line : GATS' Mode 4 rule — Imperative that India takes firm stand

The significance of Mode 4 inheres in the fact that its scope is not restricted to the IT sector alone and it holds immense potential with regard to a range of activities that have `knowledge' in common: Finance, accountancy, health services, consultancy, and so on.

WHILE it is heartening to learn that the US Senate has cleared a proposal to raise the annual quota of H1B visas, thereby enhancing the potential access of Indian software professionals to information technology (IT) jobs in the US,ambiguity continues to mark the current status of trade in services as covered by the General Agreement on Trade in Services (GATS), especially so with respect to Mode 4 that deals with `movement of natural persons'.

Rightly or wrongly, theIndian economy is heavily dependent on the service sector, which accounts for approximately 59 per cent of gross domestic product.

The West may have an advantage in exporting capital-intensive services, but India has an edge in the export of labour-intensive services that, of course, means the movement of natural persons.

As such, it is imperative that the Government strives for an early completion of the market access negotiations, which have been bogged down by certain apprehensions of developed countries in the West.

They fear that higher market access, if granted to skilled and semi-skilled workers from developing countries, will trigger a massive immigration.

Some of them — the US, for instance — further point out that the development of technology has been such that delivery of services can be undertaken without any major movement of natural persons.

Their posture is reminiscent as that of King Canute. The truth is that globalisation has created a link between the movement of capital (Mode 3 or commercial presence) and natural persons (Mode 4), and developed countries simply cannot expect to have one withoutthe other.

In August this year, the Indian delegation at the World Trade Organisation (WTO) had submitted a revised offer in the ongoing negotiations under the GATS of the WTO. It may be recalled that India had earlier made offers in the Doha Round relating to sectors/sub-sectors covered in the commitments made in the Uruguay Round.

The seven service sectors covered were: Businessservices, communication services, construction and related engineering services, financial services, health-related and social services, tourism and travel-related services and transport services.

The expanded offer made last August included four other sectors — distribution services, education services, environmental services, and recreational, cultural and sporting services — bringing the total number to 11.

The Government should not dilute this offer as it is eminently reasonable. In its communication submitted on July 2, 1999, the Government assessed the nature of liberalisation in trade in services under GATS that had taken place under Mode 4 and the extent to which the objectives of Article IV of GATS (for increasing participation of developing countries in the services trade) had been met through the liberalisation of services supply in Mode 4.

The communication had pinpointed the various limitations against movement of professionals and the problems with the commitments that the members had made — along with some suggestions for their resolution.

It had stressed the "considerable asymmetry" in the commitments between the different modes of supply and with the "minimum level" of commitments by the developed world on Mode 4. Even these minimal commitments had been marred by limitations: Immigration and labour market policies, wage parity and economic needs tests, to name a few.

In addition to sticking to its guns on the need to remove the asymmetry in the commitments, the Government must continue to go slow on trade pacts with the US and the European Union (EU), pending the resolution of outstanding issues.

It may be recalled that in July, sources in the Prime Minister's Trade and Economic Relationship Committee had announced the decision to adopt a measured pace in the acceptance of bilateral economic/trade agreements with Washington and Brussels in view of the distinctly unexciting Mode 4 offers in services made by the US and the EU.

However, subsequent to that, the Manmohan Singh Government seems to be compromising on its position on a gamut of critical economic issues.

It is in this context that the Union Commerce and Industry Minister, Mr Kamal Nath, deserves praise for his position at trade negotiations in Geneva, held to discuss issues prior to the Hong Kong ministerial meeting, that the July framework which set out the principles and guidelines for the ongoing Doha Round, was not up for re-negotiations.

It is to be hoped that the pro-American lobby at the Centre will not prevail and persuade the Government to capitulate to developed countries on bilateral economic ties, in general, and Mode 1 (cross-border movement of services) and Mode 3 (establishment of commercial presence), in particular — until the latter make more equitable Mode 4 offers. As for the Indian IT sector, its interests will, ironically enough, be safeguarded not by Nasscom alone but by the managements of big technology companies in the West.

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