The Hindu Business Line : Focus on services in WTO

New Delhi is doing well to bring the services negotiations into the limelight, thereby gradually turning the world’s attention towards a sector which needs a revamp if international trade is to be truly liberalised.

Ranabir Ray Choudhury

While the logjam in Geneva on agriculture and industry continues, there seems to be a concerted effort to get the services sector into the limelight once again. Why this is so is anybody’s guess, the easiest one being that the Doha Round includes trade liberalisation in the services sector and in industry, agriculture and other areas. In fact, reminders have been sent to the international community from time to time by none other than WTO officials themselves, drawin g attention to the fact that without an agreement on services, the Doha Round would get nowhere under the “single undertaking” stipulation.

Thus, in May 2005, the WTO Director-General, Mr Pascal Lamy, declared unequivocally that “services definitely is part of the single undertaking of the WTO and there has to be an agreement in the area for the Doha Round to be complete”. He added that “commitments in the area of outsourcing and the freer movement of temporary workers” among countries “could not be swept under the carpet by developed countries”. In Davos, in January 2007, the Commerce Minister, Mr Kamal Nath, emphasised India’s major concern in the services sector, namely, cross-border supplies and movement of natural persons, adding that the General Agreement on Trade in Services (GATS) had not only mandated a progressive liberalisation but had also required increasing participation of the developing countries in the services trade.

Towards liberalisation

On liberalisation, Article XIX (1) of GATS says that “members shall enter into successive rounds of negotiations, beginning not later than five years from the date of entry into force of the WTO Agreement and periodically thereafter, with a view to achieving a progressively higher level of liberalisation. Such negotiations shall be directed to the reduction or elimination of the adverse effects on trade in services of measures as a means of providing effective market access. This process shall take place with a view to promoting the interests of all participants on a mutually advantageous basis and to securing an overall balance of rights and obligations”.

On participation of developing countries in the global services trade, Article IV(1) says that the process should be furthered by WTO members through “(a) the strengthening of their domestic services capacity and its efficiency and competitiveness, inter alia through access to technology on a commercial basis; (b) the improvement of their access to distribution channels and information networks; and (c) the liberalisation of market access in sectors and modes of supply of export interest to them”.

What the focus should be as far as the services sector is concerned is, therefore, very clear; what is not is the timing of the emphasis on negotiations on the sector. As mentioned earlier, one straight reason could be the “single undertaking” requirement for the Doha Round as a whole. But this appears to be a weak proposition in view of the fact that the requirement has been there right from the beginning, which leaves the precise timing of the move unexplained.

Needed, political push

One is tempted to suggest that there is now an almost settled realisation among members of the WTO that there will be no clear resolution of the problems besetting the agriculture and NAMA spheres and that, consequently, it would be pointless to harp on them for very much longer. Efforts will continue to be made, both behind the scenes and on the world’s stage, to hammer out an accord. But given the past exercises conducted in this direction and their outcome, it is perhaps clear to the principal players that no further progress is possible without a big political push, the prospects for which are now more bleak in view of, among other thing, the impending US Presidential elections. So why not bring up the subsidies-trade issue which, for the developing countries, can be used as yet another whipping boy vis-À-vis the developed world?

Reviving services sector

This may or may not be so, but the fact remains that New Delhi is doing well to bring the services negotiations into the limelight, thereby gradually turning the world’s attention towards a sector where progress in Geneva has been unimpressive till now but which needs a thorough revamp if international trade is to be truly liberalised.

Among others, a senior official of the Commerce Ministry told a gathering in New Delhi last week that it was unfortunate that agriculture and industry were hogging all the attention when the services sector, if properly liberalised, could have greater employment spin-offs.

He said (as reported) that India’s interest “in reviving the services negotiations” stemmed from the fact that it had the potential “of generating employment, putting the vast pool of available skills at work, and optimising the benefits arising from having a young workforce”.

True, domestic policy for the services sector also needs a change, in that it has to shed its regulation-bound image and switch to one that is more liberal and flexible. As the official rightly said, there is really no need to be apprehensive of increased competition resulting in adverse effects for domestic business.

Heightened competition in the goods sector flowing from a lowering of tariff barriers has shown conclusively that Indian enterprise can withstand the challenge posed by imports, the ultimate gainer being the average consumer because of higher production efficiency leading to a reasonable price level.

New Delhi is currently engaging Brussels in an effort to liberalise bilateral services-trade conditions, which will be a test for the EC in view of the fact that it has to adopt a consistent line in its negotiating stance both at the bilateral level with India and in Geneva. The resolution of discrepancies, if any will, of course, be dependent on the priority given to the two sets of negotiations.

If bilateralism is seen to be on the ascendant now at the cost of multilateralism, one can safely expect concessions from Brussels which will gladden New Delhi’s heart but pour cold water on the hopes of those who are still keen on putting their money on the WTO. But perhaps one is making haste when such haste is unnecessary.

Time will reveal the true direction in which matters are moving vis-À-vis the future of the WTO, which till now has done yeoman’s service for the poor world, which is the principal reason why one cannot be certain about its future.