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Services Negotiations in Doha Round: Concerns of South Asia

Services Negotiations in Doha Round: Concerns of South Asia. WTO Doha Round and South Asia: Linking Civil Society with Trade Negotiations National Consultations on 12 th , 15 th, 17 th , 19 th and 22 nd September 2005, at Islamabad, Dhaka, Delhi, Kathmandu and Colombo. By Pranav Kumar

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Services Negotiations in Doha Round: Concerns of South Asia

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  1. Services Negotiations in Doha Round:Concerns of South Asia WTO Doha Round and South Asia: Linking Civil Society with Trade Negotiations National Consultations on 12th, 15th, 17th, 19th and 22nd September 2005, at Islamabad, Dhaka, Delhi, Kathmandu and Colombo. By Pranav Kumar CUTS Centre for International Trade, Economics & Environment, India Email: pk@cuts.org

  2. Presentation Coverage • Global trade in services • Services sector in South Asia • Services trade – S. Asian strength • Major market access barriers • Services negotiations – S. Asia approach • Services trade – a win-win situation • Possible negotiating strategy

  3. Global Trade in Services (some features) Trade in services has grown faster than merchandise • 60% of global output • 30% of global employment • 20% of global trade • World services trade growth – 155% between 1990-2002; mfg. – 97% and Ag. – 40%

  4. Global trade in services (contd.) The composition of FDI has shifted towards services: • Early 1970s – one-quarter of the world FDI • 1990 – less than one-half • 2002 – two-third of total FDI The composition of services FDI is also changing

  5. Global Trade in Services (contd.) Developing countries’ share has increased: • In last 15 years - a four fold increase in services export from developing cts. • Increase in share in global services exports – 14% in 1985-89 to 20% in 2000. • Share in global outward FDI in services climbed from 1% in 1990 to 10% in 2002.

  6. Global Trade in Services Holds an immense potential in terms of further expansion of world trade: • By 2050 the world services exports would exceed merchandise • In case of USA this situation would come much earlier – by 2037

  7. Services Sector in South Asia • In terms of its contribution to national economy – follows global pattern • Services exports – no uniformity across five countries • India emerging as one of the leading exports of services in world, others are lagging behind

  8. Services Sector in South Asia Share in GDP and Total Exports (2003) *Total exports are merchandise and services together; world average is 20%

  9. Services Sector in South Asia Services Ex. (mn.US$) and its Share (%) in World Ex. Source: Int. Trade Stat. 2004, WTO; Figures in brackets indicate % share in world services export

  10. Services Trade: South Asia’s Strength • Greatly endowed in semi-skilled and low-killed labours • Natural comparative advantage in providing labour-intensive services • Vast pool of professional service providers – health care, accountancy, engineering, legal, architecture etc. • Cross-border trade - BPOs

  11. Services Trade: South Asia’s Strength In Terms of GATS Framework (Mode-wise) • Mode 1(Cross-border trade): business process outsourcing; India is strong • Mode 2 (Consumption abroad): tourism, medical tourism; India, Sri Lanka and Nepal have advantage • Mode 4 (Movement of natural persons): All South Asian countries

  12. Outsourcing: India an Emerging Force • India ranks 6th among the world top recipients of outsourcing business Source: IMF, BOP Statistics Yr. Book

  13. Outsourcing: India an Emerging Force • India is also one of biggest outsourcers. With value of $11bn ranked 11th in the world in 2002. • Exhibits a strong revealed comparative advantage (RCA) in services relative to goods. • This increase in RCA index in services is on account of the computer, information, communications and other commercial services.

  14. Outsourcing: India an Emerging Force India’s RCA in Services Source: WTO Staff Working Paper ERSD 2004-06

  15. Outsourcing: India and Emerging Force • Strong RCA in selected sub-sectors reflected in changing composition of India’s exports in favour of software. • Between 1997-98 and 2001-02, the share of software in services exports increased from 19 to 34%. • Within the software, there was a shift from ITS to BPO and off-shoring became the dominant mode of delivery.

  16. Outsourcing: India an Emerging Force Changing Composition and Mode of Delivery of India’s Software Exports

  17. Outsourcing: India an Emerging Force

  18. What Contributed to this BPO Revolution? Strengths • India has a relatively young, well educated, english-speaking population • A plethora of software engineers and a pipeline of 60,000 professionals entering the system every year • Cutting edge technology, rapidly improving infrastructure, reducing telecom costs, and superior process and project ,management skills • Support from the government and private sector

  19. What Contributed to this BPO Revolution? Opportunities • Worldwide IT spending will exceed US$1 trillion by 2008 • Estimates suggest that a greater portion will come in the form of off-shoring

  20. What Contributed to this BPO Revolution? Projections • Exports of IT related services from India are expected to increase from US$7.9bn in 2001-02 to US$57bn by 2008-09 – NASSCOM & McKinsey Report • Global market in off-shore financial services could be as large as US$356bn by 2008-09 of which a large share would go to India – Deloitte Research Report • India will remain the most preferred destination for outsourcing – Forbes and Merrill Lynch Reports

  21. Mode 2: Consumption Abroad • Tourism is a traditional foreign exchange earning sector. • In South Asia, tourism sector is contributing significantly to India, Nepal and Sri Lanka economies. • India is also fast emerging as one of the leading destination of medical tourism.

  22. Mode 4: Temporary Movement of Natural Persons • Despite the dev. in tech. for electronic delivery, mode 4 remains imp. for a range of services delivery. • Given that there is really no substitute for human labour, at least in some occupations (e.g., the caring, personal services and a range of prof. services), the demand for mode 4 is likely to increase over time.

  23. Mode 4: Temporary Movement of Natural Persons • All major South Asian countries have comparative advantage in supplying the services of low and semi-skilled workers. • India, Bangladesh and Pakistan have interest in supplying both skilled and unskilled workers but more so in later category.

  24. Mode 4: Temporary Movement of Natural Persons Current Trends: Bangladesh • Primary orientation towards the Middle East and the concentration of semi-skilled and unskilled categories. • Mainly engaged in construction worker, domestic maids and nurses. • Increasingly, B’deshi maids and nurses are also going to SE Asia. An estimated stock of around 250,000 B’deshi workers in Malaysia. • Flows to Ind. countries are mostly permanent in nature and restricted to high- and semi-skilled workers.

  25. Mode 4: Temporary Movement of Natural Persons Current Trends: India • There is a considerable amount of evidence on migration from India in IT and health services. • Industry sources estimate - out of 132,986 new IT professionals in 2001-02, about 64,350 left India to provide on-site services abroad. • There has been a decline in this trend in the recent years because of outsourcing.

  26. Mode 4: Temporary Movement of Natural Persons • Unlike IT prof., movement of Indian health care workers is towards ind. and Middle East and Gulf countries as well. • Estimated 60,000 and 35,000 doctors of Indian origin in the UK & the US respectively. • Nurses migration has been much lower than migration of physicians. • For low and semi-skilled workers the main destinations have been Middle East & Africa.

  27. Mode 4: Temporary Movement of Natural Persons Current Trends: Pakistan • Temp. migr. has mainly been to the Middle East, for contract-based work. • Bulk of this movement is in unskilled categ. Prof. migrants constitute less than 10%. • Pak exports labour to other regions like North America, Europe, the Far East and Australia. • Data indicates that most of Pak labour flows to developed countries has been in the skilled and prof. Categories.

  28. Mode 4: Temporary Movement of Natural Persons Current Trends: Sri Lanka • An estimated 1.2mn SL workers abroad. 70% is estimated to be in Middle East & over 60% are female migrants. • In addition to the Middle East, other destinations include Singapore, Malaysia, Canada, US, UK and Australia. • The most striking feature of migration from Sri Lanka is the dominance of the housemaids category – 56% of all departures in 2001. • Migration of skilled laborers are mainly permanent in nature.

  29. Major Market Access Barriers Cross-border trade • Legislation is pending in many US’ States that will introduce an outsourcing ban with respect to govt. contracts. • By April 2004, 36 States introduced in excess of 100 bills aimed at restricting outsourcing. • Public procurement and other public contracts be performed within the US. Some states go even further, requiring that only persons authorised to work in the US perform the contract.

  30. Major Market Access Barriers Stakeholders’ Perception on BPOs • Backlashing: No immediate and direct threat so far. • Data security: Constant pressure to upgrade data security; problem of certification. • Moving up on the value chain: Providing more end-to-end solutions. • Dependence on one or two nations: Mainly the US and the UK. • Competition from other nations: No immediate fear.

  31. Market Access Barriers Tem. Movement of Natural Persons (TMNP) • Economic Needs Test • Strict visa procedures • Non-recognition of professional qualifications • Imposition of discriminatory standards or burdensome licensing requirements • Wage-parity requirement • Payment of social security without corresponding benefits • Requirement of registration with or membership of professional organisation

  32. Market Access Barriers TMNP: Some Empirical Facts • South Asian doctors must pass the Educational Council for Foreign Medical Graduates (ECFMG) exam in the US. • Medical graduates wanting to go to US have to clear the US Medical Licensing Exam. (USMILE) • In the UK they are required to take a PLAB (Professional and Linguistic Assessment Board) exam. • South Asian nurses are required to pass the Commission on Graduates of Foreign Nursing Schools (CGFNS) exam.

  33. Market Access Barriers TMNP: Some Empirical Facts • In Australia, the ENTs are conducted by advert. the position in newspapers and empt. agencies. Employers must provide info. on who responded to the advert. and why the applicants were not hired. • In the UK, employers must demonstrate that the post cannot be filled by a UK or EEA national by proving that the post has been advertised widely in the previous 6 months and no satisfactory response has been received.

  34. Services Trade LiberalisationA “Win-Win” Situation TMNP • Temporary workers are to work in those sectors where there is shortage of labour. For instance, nursing, teaching at lower level. • Secondly, they are not competing with the locals. Will work in those sectors where locals are not interested. • GATS visa – addresses the concerns of both developed and developing countries

  35. Services Trade LiberalisationA “Win-Win” Situation Off-shoring • Of the approximately $1.45-$1.47 of value derived from every dollar spent offshore, US firms receive $1.12-$1.14, while foreign firms receive only 33 cents of the value – McKinsey Report

  36. Commitments in Mode 4 Under GATS Framework • Commitments are horizontal rather than sectoral. • Bias towards higher skill categories. Includes business visitors, personnel engaged in setting up commercial presence (intra-corporate transferees) and “specialty occupations”. • Plethora of restrictions attached to commitments • Lack of clarity and definitions at various levels.

  37. Services in “July Package” • Fresh deadline for submission of revised offers • Stress on high-quality offers, particularly in sectors and modes of export interest to DCs • Special attention to be given to LDCs • Emphasis on mode 4 • To intensify efforts on rule-making under GATS • Targeted technical assistance to DCs

  38. South Asia’s Strategy in Doha Round • An year before the Doha Round, India made a comprehensive submission on Mode 4 in Nov. 2000 • India has been very proactive. Made its initial conditional offer in January 2004. Revised further as per July Agreement. • Sri Lanka also made its initial offer in September 2003. • Bangladesh and Nepal are exempt from making any offers. • Pakistan too revised its initial offer as per July Agreement.

  39. South Asia’s Strategy in Doha Round • India, Pakistan with other developing nations made submissions on liberalisation under Mode 4 • Bangladesh too supported India, Pak proposal on mode 4 • India, Pakistan and Sri Lanka through different group submissions demanded effective implementation of Art IV of GATS • India signed a joint statement with 15 other countries urging CTSSS to accelerate services negotiations

  40. Future Negotiating Strategy On Mode 4 • Expansion of commitments in categories de-linked with Mode 3 • Elimination or easing of variety of restrictions attached to mode 4 commitments -- elimination of ENTs -- multilateral guidelines for recognition and requirement of qualifications. • Stand alone multilateral agreement on Mode 4 – separate from GATS

  41. Future Negotiating Strategy Possible elements of stand alone agree. • Introduction of a short-term GATS visa • No economic needs tests • Relying on the supplying nations for qualification recognition • Strict provisions for return migration • Put more responsibility on supplying nations

  42. Future Negotiating Strategy On Implementation of Article IV • Immediate operationalisation of commitments made under LDCs modalities • Provide S&DT to developing countries through specific commitments • Ensure tangible increase in DCs participation in world services trade • Facilitating strengthening of domestic service industry and providing policy flexibility

  43. Future Negotiating Strategy Role of Stakeholders • Industry to industry alliance between developing and developed nations is very important. • Both US Coalition of Services Industry and European Services Forum supports developing countries’ stand on Mode 4 • Business chambers in South Asian countries should take initiative to form similar coalitions • In India FICCI is setting up coalition of services industries.

  44. Future Negotiating Strategy Some Systemic Issues • Negotiations proceed through a laborious process of requests and offers. • The present approach seems to be leading us nowhere • Definitional Issues in Mode 4 – lack of uniform definition, statistics not compiled according to mode 4 criteria, time-period of temporary movement

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