Need for Trade Facilitation in Services

The TFS Agreement, in conjunction with enhanced liberalization commitments, would help realize the fuller potential for trade in services.

Global trade in services represents a contradiction in the macroeconomic sphere. It has about 70.5% of share in world GDP and 50.9% share in employment. However, relative to this, its share in global exports is lower than that of trade in goods, despite having a higher share in GDP. This dichotomy suggests that there are more barriers existing for trade in services as compared to trade in goods.

To address this, at the WTO’s Working Party on Domestic Regulation (WPDR) Meeting in October last year, India tabled a paper on the ‘Concept Note for an Initiative on Trade Facilitation in Services.’ This was followed by the submission of an ‘elements paper’ in November. The objective was to outline the idea of a Trade Facilitation in Services (TFS) Agreement. The motivation behind the proposal came from the increasing share of services in domestic and international transactions, but the continued lag in the volume of trade.

Service trade faces barriers and procedural bottlenecks despite its huge share in international trade. The TFS hopes to follow in the footsteps of the Trade Facilitation Agreement (TFA) recently adopted by the WTO. The aim is to reduce transaction costs associated with ‘unnecessary regulatory and administrative burden on trade in services, such as transparency, streamlining procedures, and eliminating bottlenecks.’

The final intention of the TFS Agreement is not to seek additional market access but to ensure that already existing market access, gained from current and future liberalization commitments, is effective and meaningful. The scope of the TFS proposal would encompass measures by members affecting services trade along all modes of supply. It also includes a caveat for ‘special and differential treatment’ for developing countries and least developed countries (LDCs). There is a provision included for technical assistance and support for capacity-building.

The element paper on the TFS agreement that India has circulated suggests an agreement based on the TFA model. While some of the issues addressed would be cross cutting and relevant to all modes of supply of services, others would be specific to each mode. The idea is to ensure free flow of data, single window clearance for foreign investment, a timeframe for licensing clearances governing services supply, more transparency around measures impacting service trade, and other such concrete steps. This would also make a great contribution to creating a better business environment, having a positive impact on the ‘ease of doing business.’

The TFS includes, as a crucial element, ‘facilitating movement of natural persons’. This specific provision is in order to address Mode 4 delivery of services as defined in the General Agreement on Trade in Services (GATS). Mode 4 covers natural persons who are service suppliers, or work for service suppliers, and are present in another WTO member country to supply a service. This element has become especially important in the current international context. There is growing discontent surrounding migration which negatively impacts services trade. Curbs on entry and exit have a direct impact on levels at and ease with which business is conducted.

The TFS paper suggests facilitative provisions for the meaningful supply of Mode 4 services as well as a clarification and publication requirement that allows for providing and making publicly available, explanatory material on all relevant immigration formalities. Facilitative provisions could include multiple entry permits as well as ‘exemption of committed categories of natural persons from payment of additional costs and charges, including social security payment.’

Facilitating cross-border investment as well as consumption abroad, besides more transparent administration, were also included as specific requirements. Labor market and economic needs tests are also provided for.

The Indian proposal has generated a lot of interest in the WTO. Two major issues have come up and been addressed. The first is the issue of additional market access. India has clarified that the TFS agreement in no way implies a necessary requirement for providing additional market access. It only means to make services trade smoother in the existing trade context. In short, it hopes to reduce the transaction costs incurring in the current trade environment and does not expect more market access as a means to it.

The second and more heavily debated issue has been the issue of ‘mandate.’ Members have raised the concern that there is no mandate for trade facilitation in services in the WTO. India has argued that services trade is implicitly embedded in various sections of the GATS, while trade facilitation is an explicit concept. TFS is, in many senses, a natural progression to the TFA, considering that trade in services accounts for 70% of global GDP. The TFS, in India’s opinion, is fundamental to making services trade more meaningful and effective. The country has expressed its willingness to ‘constructively engage with all members on the constituent elements of a TFS’ in order to arrive at an agreement which is of value to all members.

The role of services is also extremely crucial to the various reform measures and economic growth schemes that India has adopted, like the demonetization agenda and the ‘Make in India’ mission. The portfolio of services is ever-expanding, especially in the Government’s push to make India a less cash economy. This has given incentive to multiple service providers like banking and financial services, telecom, accounting, and especially technological services. Better services are also seen as the key to improving the competitiveness of the manufacturing sector. Legal, logistical, and transport services, besides new technology, are some of the critical elements of this. The expansion of services and the element of better competitiveness is of central importance for the entire global trading community. It will have returns for all WTO members, not just India.

Given this context, and India’s ever-growing global services footprint, it is not surprising that the country has taken the initiative in moving for a TFS Agreement. It is expected that the TFS Agreement, in conjunction with enhanced liberalization commitments, would help realize the fuller potential for trade in services. It would both complement and supplement the progressive liberalization of this. By moving the proposal for a TFS Agreement, India has opened the floor for negotiation for more interactive trade in services at the multilateral level.

 

Source: CII Communique April 2017

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