The Hindu Business Line : Trade in services — It is a question of market access

India's economic strength lies in the burgeoning services sector and the realisation of potential in this area hinges on quick and viable completion of negotiations. The key issue finally boils down to having market access.

THE failure of Cancun somewhat sends a signal that the success of the negotiations will depend on a quid pro quo. If the West is to make most of its gains on Mode 3, one can expect it to offer sufficient market access to developing countries on Mode 4. Even the Doha Ministerial in 2001 had given prominence to this paradigm shift (give and take may be the order of the day) for the first time when it articulated and put forward strongly the interests of the developing countries.

As services under General Agreement on Trade and Services (GATS) are delivered in four modes, India's strengths lie in Modes 1 and 4, that is, ``cross border supply'' and ``movement of natural persons''. Similarly, looking at the West, it is understood that its strengths lie in many areas, but vis-à-vis India definitely in Mode 3.

The West sees enormous prospect in Mode 3 in India. It also finds the latter's size and purchasing power tantalising and, hence, scope for expansion of such capital is vast. It is keen to optimally exploit the opportunities distinctly noticeable in the areas of telecommunication, finance, accountancy, and retailing.

India, on the other hand, has established its credentials as a competitive and quality provider of services in the Modes 1 and 4. Mode 1, which refers to `cross border supply' such as exporting supply of services to another country without entering into the territory of the same country, such as the activities relating to the BPO is a great success in India. The continuous flow of such activities to India has allowed it to emerge as a new frontier of the BPO. It is happening in a big way in the IT sector where India's core competence is well-known.

India looks even much more promising in Mode 4, which is ``movement of natural persons''. Already, a pool of highly trained and skilled software professionals is shaping and tackling the contours of Corporate America. Many see India's digital workers as the torch-bearers of new prosperity, and India as the deserving ally of America Inc.

The advantage of Mode 4 does not lie only in the core competence of IT but can be expanded to many sectors where knowledge is the key input such as education, health services, finance, accountancy, consultancy, and so on. A number of competent Indians proficient in these sectors are ready to take on the challenges ahead. Overall, India is well-poised to take the full advantage of complete liberalisation of services. The success story of software need not be the only one; rather it can be replicated over all these sectors.

More important, India's economic strength lies in its burgeoning services sector. Today, it is a prominent service-based economy; about 56 per cent of its GDP comes from this sector. It has even more potential to contribute to its GDP, provided the core competitive advantages in this sector are fully exploited. Such realisation of potential existing in this sector for both the developed and developing countries, therefore, underscores the need for a quick and a viable completion of negotiations. The key issue finally boils down to having market access and conclusion of negotiations. Services negotiations started officially under GATS Council in 2000. The Doha Ministerial Meeting in November 2001, for the first time, brought the issue into sharp focus by setting up a pro-active agenda. Since then, negotiations have moved into a more intensive phase of discussion by fixing deadline for conclusion of negotiations as part of a single undertaking for January 1, 2005.

In between, the GATS' initiative to the member governments to enter into successive rounds of negotiations to progressively liberalise trade in services by adhering to the scheme of market access on `request' and `offer' is considered a good beginning and holds significance. But, till now, no breakthrough has come and divergence of opinion on Modes 3 and 4 and the recalcitrant attitude of the West are making negotiations difficult to complete.

Just as the West has surplus capital to invest, India has skilled and trained workers. While they have the comparative advantage in exporting capital-intensive services, India has it in exporting labour-intensive services involving movement of natural persons. Developed countries' apprehension about allowing higher market access to skilled and semi-skilled workers of developing countries will lead to immigration of such service providers to their countries is baseless. In the first place, such fears are unfounded and, second, immigration is not the issue mentioned in the commitment.

Moreover, the world of late, experiences globalisation of production where movement of capital (mode 3-commercial presence) and natural persons (mode 4) are in tandem. Optimal gains of this phenomenon depend on the market access that respective developed and developing countries get on modes 3 and 4.

Developed countries' impending agenda of pushing the market access negotiations on mode 3 at various fora without providing market access to developing countries on mode 4 will end up in a deadlock. Successive rounds of negotiations after Cancun are only witnessing this. The jury is still out. Negotiations are on, hope this impasse will get over in the coming WTO Ministerial Conference due in 2005 in Hong Kong. Hong Kong, fast emerging a serviced-based economy itself, should take the message seriously and try to do something meaningful.

(The author is faculty member, Indian Institute of Foreign Trade, New Delhi.)

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