This working paper tracks the evolution of the General Agreement on Trade in Services (GATS) negotiations since its inception, and provides a concise overview of the current state of negotiations. The paper covers key issues under the purview of the GATS from an Indian perspective, and makes important policy suggestions for India on certain sensitive sectors.

By Kasturi Das
Research Officer, Centad

Summary
This working paper tracks the evolution of the General Agreement on Trade in Services (GATS) negotiations since its inception, and provides a concise overview of the current state of negotiations. The paper covers key issues under the purview of the GATS from an Indian perspective, and makes important policy suggestions for India on certain sensitive sectors like retail, higher education, audio-visual and legal services. To download the full paper in PDF format, click here.

Unlike goods, trade liberalisation in services through multilateral negotiations is a relatively new phenomenon. The Uruguay Round (1986-94), which culminated in the establishment of the WTO, with effect from January 1, 1995, brought services within the ambit of the multilateral trade negotiations for the first time.

Notwithstanding the opposition posed by a number of developing countries, the Uruguay Round did succeed in setting in place a sort of a framework agreement called the GATS.

Key features of the GATS

The GATS brought under its purview the entire gamut of services trade, as classified into 161 service activities under 12 broad sector heads in the GATS sectoral classification list.

However, this breadth of coverage was achieved at the cost of certain flexibilities. One of the key flexibilities embedded in the GATS is the discretion that a member country of the WTO enjoys in deciding which of the services sectors it wants to schedule for undertaking liberalisation commitments under the GATS rules. This is often termed a ‘positive list’ approach or a ‘bottom-up’ approach.

In order to capture the complex nature and diverse forms of international transactions in services, the GATS adopted a novel approach of classifying the entire range of services trade into four ‘modes’:

  • Mode 1 (cross-border)
  • Mode 2 (consumption abroad)
  • Mode 3 (commercial presence)
  • Mode 4 (movement of natural persons)

The GATS, among other elements, consists of a series of general provisions that largely apply across the board to all measures affecting trade in services.

However, the GATS also includes a set of ‘specific commitments’ that applies only to service sectors that are enlisted in a member’s GATS schedule. For each specific sector scheduled by it, a member undertakes ‘specific commitments’ on market access (MA) and national treatment (NT) for each mode of services trade.

Importantly, members need not grant full MA and can deny NT by inscribing limitations on MA and/or NT in their respective schedules.

Services in the Uruguay Round

The achievement of the Uruguay Round, in terms of liberalisation of the services trade, was rather modest. Members at best bound the status quo for the most part, and sometimes even backtracked on the status quo.

GATS 2000 negotiations

In line with the ‘built-in’ agenda of the GATS, regarding successive rounds of negotiations towards achieving progressive liberalisation in the services trade, a new round of services negotiations, termed ‘GATS 2000’, was launched in January 2000. The guidelines for these negotiations had two mandates: (i) market access, and (ii) rule-making.

The GATS 2000 negotiations were subsequently subsumed by the Doha Development Agenda in November 2001.

The plurilateral ‘request-offer’ approach

As per the guidelines, market access negotiations on services initially proceeded on the basis of the bilateral ‘request-offer’ approach. However, due to various reasons, some technical and some political, the bilateral approach failed to generate sufficient momentum at the GATS 2000 negotiations.

Against this backdrop, the Hong Kong Ministerial Declaration of December 2005 mandated the adoption of a plurilateral ‘request-offer’ approach as a complementary method of negotiation with the aim of expediting the market access negotiations on services.

Since then, the GATS 2000 negotiations proceeded primarily on the basis of the plurilateral approach, until July 24, 2006, when the Doha Round was temporarily suspended owing to the failure of G6 countries (Australia, Brazil, the EU, India, Japan and the US) to arrive at a landing zone on key issues relating to domestic support and market access in agriculture.

GATS negotiations and India

India’s negotiating position on services has undergone a paradigm shift since the Uruguay Round. From being a leading opponent of the GATS, India has now emerged as one of the forerunners of services trade liberalisation under the GATS.

India’s negotiating stance on services is partly attributable to the growing importance of the services sector in its economy. With a vast pool of educated and skilled workers in its workforce the country has a huge interest in the export of Mode 1 and Mode 4-based services and is hence aggressively participating in the ongoing GATS 2000 negotiations.

The plurilateral ‘request-offer’ approach and India

India’s initial offer, submitted in January 2004, was rather conservative. It came out with an ambitious revised offer in August 2005. In the post-Hong Kong Ministerial period, India has received plurilateral requests in a range of services. It is learnt that India would be expected to meet the requests primarily in the areas of telecommunications, finance, parts of the energy sector, distribution (retail) and courier services, including express delivery.

India has indicated that it can meet requests substantially in sectors like construction and related engineering services and maritime transport services. Requests are also likely to be fulfilled partially in energy and telecommunications.

However, as things stand now, it would be difficult for India to meet the requests in legal services, retailing services, private education and audio-visual services, owing to domestic sensitivities in these areas.

As far as India’s offensive interests in Modes 1 and 4 go, an assessment of the offers placed by some of the developed countries that constitute the key target markets for Indian service-providers, clearly reveals that there has been very modest movement in India’s favour.

Policy suggestions

Under these circumstances, India should hold back any further ambitious offers in services; these offers may be used as a bargaining chip in future negotiations to push through its aggressive agenda in Modes 1 and 4, the paper suggests.

The paper also suggests that India should refrain from considering any compromise on its interests in agriculture and non-agricultural market access (NAMA) for pushing through its offensive interests in services.

Given the pessimistic scenario in Modes 1 and 4, there are not enough grounds for India to make compromises related to the livelihood of millions of vulnerable farmers or the survival of many domestic industries.

November 2006