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GATS revised offer may push for further relaxation

G. Srinivasan

The importance of outsourcing as a business model and the shift in focus from Mode 4 to Mode 1, particularly in software services, which saw a boom in back office establishment here for foreign clients, has raised a lot of stake for India under GATS talks. Hence, the revised offer might insist on a greater push for liberalisation in cross-border trade in services under Mode 1

New Delhi , May 29

THE Cabinet Committee on WTO is to meet early next week to endorse India's revised offer on opening up of the services sector. The deadline for submission of India's proposals under the General Agreement on Trade in Services (GATS) draws to a close on May 31, 2005.

Sources in the Government told Business Line here that since negotiations under the GATS commenced in January 1, 2004, its initial `limited' offer and `binding' commitments on global trade in services need to be suitably revised, taking into account the response from other trading partners to its proposals.

Hence, a vastly revised offer in services is being put together through a Cabinet note on the subject for clearance by the Cabinet Committee on the WTO.

Even as India has suo motu raised FDI limit in telecommunications to 74 per cent, the sources maintained that insurance, legal and auditing services would not be easily liberalised unless India is able to wrest adequate and rewarding gains in services of crucial interests to it.

The sources said that so far, India has made `requests' to trading partners to consider liberalisation in computer-related , architecture, health, audio-visual, tourism, maritime and financialservices.

India too, in turn, has received `requests' from about 50 countries out of the 148 WTO fraternity to take commitments in a range of service sectors concerning transparency in domestic regulations, simplification of procedures, elimination of differential treatment of foreign service suppliers and facilitation of the movement of natural persons.

India being a dominant remittance-receiving country, negotiations on the question of movement of natural persons as service providers (Mode 4) assumes significance, the sources said.

The sources also saidthat commitments taken by most developed countries for movement of natural persons are linked to the reciprocal freedom for their businesses to establish `commercial presence' — as for instance, in the opening up of branches by foreign banks — and are additionally subject to a host of limitations and administrative hurdles such as visa and immigration procedures, economic needs tests, work permit norms and non-recognition of qualifications etc.

The sources further said that so far, the response of developed countries does not inspire confidence as relatively few commitments have been made in sensitive sectors such as education, health and other social service and in other areas of interest such as Mode 4 and Mode 1.

India has strong revealed comparative advantage (RCA) in services, partly fuelled by the phenomenal growth of other business services, including software exports, finance, communication, management and consultancy services in the last few years.

The importance of outsourcing as a business model and the shift in focus from Mode 4 to Mode 1, particularly in software services, which saw a boom in back office establishment here for foreign clients, has raised a lot of stake for India under GATS talks.

As global outsourcing expenditures would jump from $320 billion in 2003 to $827 billion in 2008, India with its preferred destination status for outsourcing, is perturbed over the backlash against outsourcing.

Hence, the revised offer by India might insist on a greater push for liberalisation in cross-border trade in services under Mode 1 with a view to averting such backlashes and building effective safeguards to nip in the bud any non-tariff barriers to outsourcing.

The sources said an off-shore model of delivery of services under a liberalised regime on services trade too, presents plenty of opportunities for India at least in some services as when a temporary movement of customers to countries such as India for medical or dental treatment.

In this context, even as the developed countries desire the opening up of insurance sector in India to overseas insurance companies to make a mark here,

New Delhi firmly believes that if the Mode 2 liberalisation in the context of health services were to yield desired results, it should be backed by supportive measures by other members, e.g., portability of insurance, the sources said.

The Cabinet Committee on WTO consists of the Ministers of Commerce and Industry, Finance, Defence, Rural Development Agriculture, Communications and Information Technology, Textiles and Science and Technology, besides the Prime Minister.

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