Business

What Hong Kong `deal' means for IT sector

India's hopes lie in enhanced commitments on movement of skilled persons

THE HUE and cry over the sixth World Trade Organisation (WTO) ministerial meeting, held in Hong Kong in December 2005, has died down but not quite.

The initial euphoria over having clinched a deal `favourable' to developing countries has now culminated in a practical examination of the channels through which the deal could actually be translated into a constructive one.

Focus on trade in services

Six ministerial conferences, the first one in Singapore in 1996 and the latest in Hong Kong have marked the evolution of the WTO as a truly global trade organisation from 1995 to 2005.

The ministerial conferences that are the highest level of authority within the WTO, meet once in every two years and bring together all member countries, to make important decisions on significant trade matters.

The four key items on the agenda for the Hong Kong ministerial were services, agriculture, non-agricultural market access (NAMA) and special and differential treatment for developing countries.

Negotiations on trade in services were the focal point of the Hong Kong ministerial talks. The General Agreement on Trade in Services (GATS), 1994 foretold total liberalisation of services including banking, finance, electricity, water supply, telecommunications, health, education, and other sectors. This was in keeping with the conception of a universal multinetworked channel of services sans trade barriers.

Nevertheless GATS also explained that ultimately individual countries had to decide whether they were ready to open up a service sector to international players.

Cautious approach

Liberalisation of services under GATS was to be consonant with the level of development, and developing countries could naturally slow down the process of opening up their services to other countries.

At the same time, developed countries were encouraged to open up services where developing countries had a fair advantage of a level playing ground and export plus.

The developing countries have been slow and cautious in their approach, analysing the impact of GATS on opening up a service sector in their economy. In recent times, there has been tremendous pressure on developing countries to speed up the process of trade liberalisation in services and provide more avenues for the service providers of developed countries to access their markets.

A country perspective

The European Union had advocated reworking on the original WTO Agreement on Trade in Services 1994 and had put together this proposition as an Annex C to the pre-Hong Kong draft of the ministerial declaration.

The stress was on constraining developing countries to liberalise more service sectors through setting definite targets and pursuing negotiations. However, after widespread dissent voiced by developing countries, the WTO clarified that Annex C had not been accepted as part of the final ministerial declaration but was still up for discussion along with the main draft.

It is known that India is one of the major players in services and a global force to reckon with in IT and business services.

The intrinsic advantages that India enjoys over several other countries in this sector underlined its stance at the Hong Kong ministerial too. India was active in exploring chances of opening up the EU and the U.S. to the movement of natural persons in cross-border supply of services (Mode 4 of GATS). This perspective was the outcome of its substantial interests in information technology.

On the other hand, the developed country agenda at the Ministerial including that of the EU and the U.S. was not directed at a more liberal regime for the movement of natural persons, since unemployment in their economies was a glaring problem in itself.

On the contrary, both the EU and the U.S. underscored the need to establish a commercial presence in developing countries (Mode 3 of GATS). They called for more liberal policies on foreign direct investment in certain key sectors so that entry of EU and U.S. services through Mode 3 could be given a boost.

The final deal

The final draft of the Hong Kong declaration agreed on December 18, 2005, speaks about further liberalisation in Mode 3, that is, the `commercial presence' category of service providers. This will usher in increased FDI in a vast gamut of service sectors such as banking, insurance, construction and related engineering, tourism, education, telecommunication, computer related and professional services. It also provides for removal or substantial reduction of economic needs tests in countries such as relaxing the norm that local employment should be generated.

It advocates allowing greater flexibility on the types of legal entity permitted, thus moving away from requirements like joint ventures with local companies.

The Hong Kong declaration also outlines that the movement of natural persons in cross-border supply of services (Mode 4 of GATS) will be improved by more commitments on the categories of contractual services suppliers, independent professionals and others, without insisting on commercial presence. It also affirms enhanced commitments on the categories of intra-corporate transferees and business visitors.

These terms will result in benefits of more H1B visas from the U.S. and other developed countries for skilled Indian professionals. The influx of BPO companies into India will also rise.

However, the declaration advocates a plurilateral system for future negotiations between countries on trade in services, instead of the present bilateral system.

Trade liberalisation

This would force several developing countries to engage in pluripartite negotiations and make offers in response to the requests of developed countries. Thus India, when engaging in talks with the U.S., the U.K. and France, will probably concede more than in bilateral talks with the U.S. This is in stark contrast to the earlier flexibility that developing countries could always exercise during GATS talks to accept a developed country's offer or not.

Coupled with these apprehensions is the nagging reflection whether India has conceded more than what was necessary at Hong Kong. India's eagerness to open up social sectors such as health and education in return for increased concessions in the IT and BPO sectors was criticised by many who felt that such a move would have grave consequences on the common man's accessibility to the former sectors. Thus costly facilities in health and education will make the common man poorer and concessions in IT will make India's IT companies richer. On the other hand, Indonesia, Philippines, South Africa, Venezuela and Cuba held their ground on the inequity of the declaration until the very end of the negotiations on services.

They finally agreed to the declaration, only after having recorded their reservations to it.

The schedule of commitments in the Hong Kong ministerial declaration will be finalised by October.

India will have to retain its grip on increased concessions in IT while reducing its commitments in social sectors such as health and education.

The best way to do so would be to mobilise consensus on a predominantly bilateral approach for service talks, rather than a plurilateral approach.

India's dexterity in getting the best deal in GATS will pave the way for trade liberalisation coupled with social development.

LAKSHMIDEVI SOMANATH-SURYA

Advocate, Surana & Surana International Attorneys

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