India needs new alliances at WTO

By Pradeep S Mehta

If India has to move the agenda on services forward, it has to create an alliance of like-minded group of demandeur countries. Only then can we hope to make India a strong player in the services sector, says Pradeep S Mehta.

NEGOTIATIONS at the WTO are mostly done with the clear strategy of give and take. There is always something in it for everybody but not everything for anybody. For example, the agreement on textiles and clothing was done when we gave in to the agreement on trade-related intellectual property rights (TRIPs). While the textiles deal is now officially dead, the TRIPs is fully alive, except for a few cantankerous issues such as patents on life forms, which are yet to be ironed out.

Secondly, negotiations, therefore, take place in framework which offers the scope for trade-offs. Unlike other international issues, such as environment or oil or security, without this window, trade negotiations will not move much. Rounds of negotiations are launched to host such frameworks. The current round of negotiations, the Doha round, is the first one under the WTO, after it was established by the seven-year long Uruguay round (UR) under the GATT.

The WTO also subsumed trade in textiles and in agriculture, which were earlier outside the jurisdiction of GATT. Further, three new accords were created: the general agreement on services (GATS), trade-related investment measures (TRIMs) and TRIPs. Each one of them involved hectic negotiations, and we in India, put our best push on GATS.

The trade negotiations platform has always been mortgaged to farm goods, because of the huge subsidies which are paid to farmers in rich countries, such as the US and the European Union. However, there are both rich and poor countries, which are net agriculture exporters. These, such as Australia, Canada, Brazil, Malaysia, have banded together under the Cairns Group. When the UR was launched in 1986, they pressed for and succeeded in getting farm goods inside the framework. That was the trade off, which facilitated the launch of UR. But it was not an easy task. The round itself was stuck on what and how much the subsidising rich countries will agree to reduce in the area of agriculture.

Every time a deal was proposed in agriculture the whole process would come to a halt. The WTO ministerial meeting at Seattle in 1999 collapsed mainly on the differences among the rich countries on how to resolve this impasse. The intervening ministerial at Doha in 2001 succeeded because commitments were made. Alas, the political will was weak due to political problems, so the next meeting at Cancun in 2003 too flopped.

The Cancun meeting may have flopped, but it saw the emergence of the southern alliance: the G-20. India is a member of G-20 along with other developing countries, such as Brazil, China and South Africa. The alliance forced the rich countries to the poor countries’ concerns on board. As a result, after haggling over a period of nearly nine months, the July package was agreed to at the Geneva meet in July,2004. This short history has been recounted to appreciate where we, in India, stand vis-à-vis our trading interests and how the international trading system functions. Agriculture is no great deal for India, as a trader. It is extremely crucial for Indians, because a huge number of them depend upon it for their livelihood. Our main problem is the lowering of tariffs in sensitive farm goods, but in the July framework, we will be able to maintain the desired protection. Our main areas of interest are two: firstly on manufacturing, where we are faced with a reduction of tariffs on a reciprocal basis, which is under debate. Our second and major area of interest is the export of services.

Why is services a major area of interest and what should we be doing? If one looks at the construct of our economy, services now constitute around 50% of the GDP, with manufacturing at 28% and agriculture at 22%. During the 1990s, services grew at an average annual rate of 9%, contributing nearly 60% of the overall growth rate. Simultaneously exports of services grew at over 17% per annum in the 1990s, one of the fastest in the world. If one compares it with global merchandise trade, between 2000 and 2003, the annual growth rate of services trade has been 7% as compared to 5% of merchandise trade.

The service industry has also been dominating the global flows of capital. According to the UNCTAD World Investment Report, 2004, the total FDI stock in 1970s was only a quarter of the gross capital; in 1990 it was less than half, and by 2002 it had risen to 60% or an estimated $4 trillion. Over the same period, the share of the primary sector in FDI stock declined from 9% to 6%, while that of manufacturing fell much more, from 42% to 34%.

Given this scenario, India is in a very enviable position to expand her share of the services sector by leaps and bounds. But there was very little movement in this area, as far as negotiations are concerned. That’s the reason why India made a bold pitch just before the winter break in 2004: “If we don’t get a better deal on services, India will find it difficult in accepting the whole Doha package.”

This caused some consternation in Geneva, and was not received too well by Brazil- our strong G-20ally. The dramatic salvo fired by India, in fact, has shown signs of fragmentation in the developing country caucus, but one imagines India will do what is best in her interest. For long, we have been demanding better commitments in Mode 1 (cross border supply, such as offshoring) and in Mode 4 (movement of natural persons, such as skilled IT professionals). That apart, there were many other countries, such as Chile, US, EU, Taiwan, Mexico and Singapore who, in a joint statement, asked for the negotiations to be accelerated in order to “secure a positive outcome in services itself and in support of wider Doha round’s objectives”.

If India has to move the agenda on services forward, it would be sensible to create an alliance of like-minded group of demandeur countries. Somewhat like the Cairns group on agriculture, which too comprises of rich and poor countries. Only then can we hope to achieve our goals of making India a strong player in the services sector.