India sets the stage for a clash with US, EU at WTO

If timing is what matters in life as well as global trade negotiations, India could not have asked for a more inauspicious time than now for circulating the draft negotiating text for improving several provisions of the World Trade Organization’s General Agreement on Trade in Services (GATS), according to services experts who spoke to Mint.

On Wednesday (22 February), India submitted a 13-page draft legal text for negotiating what is called the “Trade Facilitation Agreement for Services” (TFS). New Delhi wants significant improvements in “relevant aspects of GATS Article III (transparency), Article IV (increasing the participation of developing countries), Article VI (domestic regulation), Article VII (Recognition), Article XIX (negotiations on specific commitments), and the Annex on Movement of Natural Persons supplying services under the agreement (Mode 4), with a view to addressing issues relevant for facilitating trade in services.

India said there is an urgent “need to facilitate increasing participation of developing and especially least-developed country members in trade in services, including inter alia through assistance and support for capacity building with a view to strengthening their domestic services capacity, efficiency and competitiveness”.

The draft text, reviewed by Mint, includes 10 articles in Section I covering three modes of supply of services. India, for example, is seeking substantial improvements in Mode 1 dealing with cross-border supply of services, Mode 2 concerning consumption abroad (medical tourism), and crucially Mode 4 dealing with short-term services providers or movement of natural persons.

The Indian proposal has rightly omitted Mode 3 dealing with commercial presence, an area that has seen maximum liberalization/market access over the past 21 years since the WTO’s establishment in 1995.

Indeed, it is an open secret that the global trade in services is dominated by “asymmetrical” access in which the industrialized countries secured maximum market access through commercial presence in Mode 3 while turning a deaf ear to improvements in Mode 4 of short-term movement of services providers. The WTO has acknowledged the “asymmetry.”

The 14 articles set out in the Indian draft legal text that is going to be negotiated covers a range of transparency-related provisions, administration of measures such as single-window clearance, fees and charges, administration of economic needs test, cross-border insurance coverage for promoting medical tourism in Mode 2, and “provisions facilitating movement of natural persons (grant of temporary entry, multiple entry and social security contributions)” in Mode 4.

It also includes provisions for better cooperation among competent authorities and institutional arrangements such as establishing “committee on trade facilitation in services” and “national committee on trade facilitation in services”.

In Article 14, it says the TFS Agreement when it is negotiated and agreed “shall” require the developed countries to implement the provisions as and when enters into force.

But developing country members “shall not be required to apply the provisions for a period of [X] years from their date of entry into force.” Further, the developing countries can ask for extension “before the end of this transitional period” for implementing the disciplines.

Negotiations for the trade facilitation agreement in goods which came into force last week started in 1996 at the WTO’s first ministerial meeting in Singapore. The TFA for goods is driven by the industrialized countries led by the US and the EU which led the Colarado group that forced the agreement at the WTO’s ninth ministerial meeting in Bali, Indonesia.

In sharp contrast, the proposed TFS by India is primarily a developing country problem since the developing countries provide skilled personnel from construction to advanced IT services in hundreds of millions.

Against this backdrop, the difficult issues in India’s proposal include “cross border insurance coverage” in respect of health related services availed in another member” and “ members shall endeavour to expedite the processing of immigration formalities in respect of service consumers who are seeking medical services or such other services that are urgent and/or essential”.

In Article 9 concerning “provisions facilitating movement of natural persons,” India is asking WTO members to negotiate on “grant of temporary entry,” including “develop[ing] a scheme for GATS visa applicable for categories of natural persons committed in their schedule of specific commitments”, granting “multiple entry” to services suppliers, and exempting short-term services providers from social security contributions in the foreign country where the services is going to be provided.

India also wants that where social security contributions are not exempted, then the member which has collected contribution “shall refund such contribution, or the unused portion thereof, to the short-term services provider at the time such short-term providers return to his/her home country.

Two days after India circulated its proposal on TFS, the US, the country that imposes maximum barriers, which is now being led by President Donald Trump, has spoken its mind that it is going to opt for bilateral free trade agreements instead of multilateral deals.

On Friday (24 February), Trump “reiterated his plan to negotiate only bilateral trade agreements, saying there will be no more “big quagmire deals that are a disaster” like the Trans-Pacific Partnership”, according to Washington Trade Daily.

“We’re going to do one-on-one, one-on-one,” the president told the Conservative Political Action Committee’s conference. “And if they misbehave, we terminate the deal. And then they’ll come back, and we’ll make a better deal,” Trump said. “We will fix our broken and embarrassing trade deals that are no good...,” the president said.

Indeed, the US, according to the Financial Times on 27 February, is “exploring alternatives for taking trade disputes to the WTO in what would amount to the first step away from a system that Washington helped to establish more than two decades ago.”

In short, India could face a mountain of opposition from the US, the European Union, and other major industrialized countries which had consistently opposed significant changes in the domestic regulation provisions concerning services.

Perhaps, India can claim a public relations victory for tabling its proposal on TFS, but there will be a frosty response from the US and other countries for years to come for negotiating any improvements in domestic regulation.