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India’s Trade SituationNote: Current Account = (Net trade in goods and services) + Income (net paid to Indian employees; thus includes remittances. These are called ‘invisibles’) + Current transfers (inflow of money that doesn’t need to be repaid, doesn’t give ownership of foreign assets etc.: donations, aid, ODA etc.)Remittances contribute significantly to a steady inflow of foreign exchange. While export earning are usually strongly pro-cyclical, remittances remain pretty stableCurrent account deficit reflects the gap between a nation’s domestic savings and investments Till 1991, the levels of protection in the Indian economy were very high at about 117%; on top of that about 82% of all imports were subject to non-tariff barriers as well. Post reforms, between 1991 and 2011, India’s foreign trade has expanded significantly:Trade now accounts for about 30% of India’s GDP, from 16% in 1991Exports/ GDP grew by 11 percentage points, and imports/ GDP by 18India’s share of world’s foreign trade increased from 0.5% in 1991 to 2.1% in 2014 (1.7% of exports and 2.5% of imports)Services have been growing at about 25% p.a. for the last 2 decadesHowever, imports have grown at a much more rapid pace than exports, resulting in a widening of the negative trade balance: it was -3% of GDP in 1991, and -10% in 2011Even during the high-growth phase of the economy in mid-2000s, exports never kept pace with importsBoth direction and composition of India’s trade remain highly skewed, and the trade policy objective of diversification is yet to be achieved, and trade is concentrated on a few countries and a few commodities.Direction of trade:51% of all trade is with UAE, China, USA, and Saudi Arabia, thus making India’s trade highly vulnerable to the domestic troubles of these countriesWith most of its top trading partners, India maintains significant trade deficitsHowever, in terms of both exports and imports, India’s focus has been shifting from developed countries in Europe and America to developing ones in Asia and AfricaIn 2002, Asia accounted for about 30% of India’s total imports. This has now doubled to about 60%Composition of trade:Exports: India has been gradually moving away from labour intensive sectors like textiles, leather, handicrafts etc. to capital and skill-intensive sectorsAbout 60% of India’s export earnings come from 4 commodity groups: garments, gems, engineering goods, and petroleum productsImports:Share of petroleum imports is about 35% of total importsHigh-tech capital goods account for about 18% of all importsDistress purchases of gold are pretty common, taking it’s import share to 12% recently from its average level of about 7% Policy Considerations: India’s CAD has been quite volatile in the post-reform phase. While we used to have a marginal surplus till about 2002, since then we’ve maintained a deficit, which fluctuates based on domestic as well as global conditions. Manufacturing accounts for about 85% of all of India’s merchandise exports, and they are growing at a modest pace. Lack of a focused approach in identifying, sustaining, and building the country’s competitive advantage, the concentration of exports in low-value categories, and relatively poor inflow of FDI in export-oriented industries are the reason for the relatively poor performance of India’s exportsIn terms of imports, the focus on oil and gold imports detracts from other important impediments that are also structural and policy induced:India has the world’s third largest coal reserves in the world, yet it imports substantial amounts of coal for internal consumption (about 3.5% of all imports are of coal)A third of India’s fertilizer consumption is imported because of inadequate production capacity within IndiaIndia is the world’s largest edible oil consumer, and imports lots of edible oilThus, feasible import substitution in various commodities should be exploredA large CAD is a cause for concern as it has shown huge fluctuations in the last decade- it increased from about 2% in 2003 to 10% in 2011, and in the last quarter of 2014 was a manageable 1.6%. In the short run, boosting investor confidence remains the key to attracting stable capital flows that can help cover the CAD. Overdependence on these is foolish, because of their volatility. Investor confidence can be boosted by fiscal consolidation, reducing inflation, and careful opening up of the capital account. Exchange rate depreciation can boost exports and reduce the CAD.However, over the long-term, there are several measures that can be undertaken for a more stable current account, by focusing on accelerating exports:Fiscal consolidation raises domestic savings and reduces CAD- absurd subsidies like LPG and Diesel should be done away with; reduces import burden, improves fiscal healthControlled inflation (avoiding high inflation) helps manage exchange rates, and also prevents distress imports of gold as a store of valueAddressing supply bottlenecks in coal and other inputs will reduce import burdenDomestic investments in infrastructure such as ports, airports, roads etc. will help remove the bottlenecks to movement of goodsWe need to reduce dependence on oil imports, by both new explorations and investments in alternative forms of energyFDI in IndiaNote: If an investor holds more than 10% equity in an Indian firm, it is called FDI; less than 10% equity holders qualify as FIIs/ FPIs. There is now a growing consensus on the relevance of capital controls as aspects of the policy toolkit for the governments of emerging economies. The benefits of maintaining a completely open capital account, if any, are ambiguous at best. FDI flows represent longer-term investments made abroad bringing together capital, technology, and managerial know-how, market-access in some cases, along with entrepreneurship. They are thus seen as catalysts for domestic development. FPIs, in contrast, tend to be short-term and speculative in nature. They are often seen to be bringing volatility to the financial and exchange rate markets. Immediately post-independence, India was pro-FDI, to develop a base for local manufacturing capability and entrepreneurship. As these developed to some extent in the 1960s, India’s stance became more restrictive. Restrictions were then imposed on FDI that was not accompanied with technology transfer, and that seeked more than 40% ownership. This continued for the next 4 decades, till the reforms of 1991. Today, foreign ownership up to 100% is allowed in most manufacturing sectors- in some sectors even on automatic basis- except for defense equipment where it is limited to 26%. Determinants of FDI flow: Market size, urbanization, infrastructure, proximity to major sources of capital, and policy factors (such as tax rates, investment incentives, performance requirements etc.) are major determinants of FDI flows. Apart from market size, India doesn’t do well on most of these factors, as can be seen by its abysmal rank of 142 in the World Bank’s Doing Business report. However, despite these constraints, India routinely ranks as one of the top 3 destinations across the world for FDI flows. This shows that investors are attracted to a country’s potential and are willing to put up with hardships rather than going to countries with easier business conditions but poorer prospects of making profits. Quality of FDI Inflows:Sectoral Composition: This is one of the indicators of quality, as the host country would benefit more from FDI that flows into modern technology-intensive sectors, rather than from traditional sectors, where it would have a crowding-out effect for domestic investment. Before 1991, most of the FDI used to flow into manufacturing, especially the high-tech kind, due to selective filtering policy. Today, services account for an ever-larger share of FDI, and account for 35% of all FDI (manufacturing: 40%). This is in contrast to China, where policy directs most of the incoming FDI to export-oriented sectors, which has help China emerge as the factory of the world.Unlike China, India has not been able to direct FDI towards export-oriented sectors. FDI in India continues to flow in primarily to tap into the domestic market, and the share of foreign affiliates in exports is only about 10%. It should consider imposing export obligations as a condition for FDI to promote export-orientation of these firms.Effect on domestic economy: This largely depends on government policies. In certain industries, local content requirements (LCRs) have proved useful to promote vertical inter-firm linkages, and hence help the domestic firms learn and grow. Similarly, India should explore imposing technology transfer requirements on foreign enterprises (although international evidence as to its efficacy is mixed)Policy Lessons for FDI: Even though India has been able to attract significant FDI, we are yet to harness their development potential fully. India has received FDI of mixed quality and the development impact has been uneven. It is known that government policies play an important role in determining the quality or development impact of FDI and in facilitating the exploitation of its potential benefits by host country’s development.Policy should focus on promoting export-oriented FDI, which minimizes the possibilities of crowding-out of domestic investments and generates favorable spillovers for domestic investments by creating demand for intermediate goods. Government intervention may also be required to promote diffusion of knowledge brought in by foreign enterprises. An important channel for this is vertical inter-firm linkage with domestic enterprises. Intellectual property rights: Implications of TRIPS, TRIMS, GATS and new EXIM policyThe text of TRIPS, TRIMS, and GATS was prepared during the Uruguay round of GATT talks, between 1986 and 1994, with the resolutions coming into effect from 1995 onwards.The basic philosophy underlying any WTO text is neoclassical macroeconomics, which states that anything that can be provided by the private sector, should be. When governments operate in what is potentially a ‘market’ their actions bring distortions. The agreements therefore focus on removing barriers that would ‘distort’ trade in industry or services.TRIPS: Agreement on Trade Related Aspects of Intellectual Property RightsBasics:TRIPS requires member states to provide strong protection for intellectual property rights; this is a WTO agreement that sets down minimum standards for many forms of IP regulation as applied to nationals of WTO countriesRatification of TRIPS is a compulsory requirement of World Trade Organization membership; thus, any country seeking to obtain easy access to the numerous international markets opened by the World Trade Organization must enact the strict intellectual property laws mandated by TRIPSUnlike other agreements on intellectual property, TRIPS has a powerful enforcement mechanism. States can be disciplined through the WTO's?dispute settlement?mechanismThus, through TRIPS, WTO makes it mandatory for its member countries to follow basic minimum standards of IPR and bring about a degree of harmonization in domestic laws within the fieldIPRs covered under TRIPS include Copyrights, Trademarks, Industrial Designs, Patents (including new varieties of plants), Geographical Indications etc. - generally, these can just be covered under the ambit of ‘patents for innovations’In addition to the baseline?intellectual property?standards created by the TRIPS agreement, many nations have engaged in bilateral agreements to adopt a higher standard of protection. Collection of these bilateral standards is collectively known as TRIPS+, and are increasingly becoming a common feature of many FTAsBy entering into FTAs with the developed countries, developing countries see some advantages in tariff reductions. In return, developed countries seek better market access and investment opportunities, and also seek to raise the minimum levels of protection for IPRs as they have a comparative advantage in technology products and services At the same time, developing countries find it difficult to put forward the issues of their concern through the FTA negotiations including the harmonisation of TRIPS and CBD, access to medicines, and protection against the bio-piracy of their biological genetic resources, farmers' rights and associated traditional knowledge, ability of their farmers to continue their subsistence and livelihood related farming practices As a consequence, FTAs create an imbalanced set of rights and obligations in favour of developed countries by ratcheting up the levels of IPR protection Since TRIPS came into force it has received a growing level of criticism from?developing countries,?academics, and?non-governmental organizations:TRIPS's wealth concentration effects (moving money from people in developing countries to copyright and patent owners in developed countries) and its imposition of?artificial scarcity?on the citizens of countries that would otherwise have had weaker intellectual property laws, are common bases for such criticismsProponents of strong IPR say money is needed for R&D; however, IPR laws in places like Africa don’t really affect revenues of big firms, whose primary profits come from developed markets, where their products are safe from competition anywayPanagaria:TRIPS doesn’t really fall under the domain of WTO’s core mandate, which is trade liberalizationProponents of TRIPS say that as technology became more important in goods and commodities, having higher proportion of invention and design (intellectual creativity) in their value, IPR became important in international tradeTrade liberalization benefits everyone, including the country undergoing such liberalization. On the other hand, WTO’s championing of non-trade agendas, such as TRIPS, and labour and environment laws, are inefficiency inducing, and often benefit rich countries while hurting poorer onesTRIPS leads to ever-larger patent protection timelines, and high prices for products, especially medicines, that can be cheaply produced if the innovation is made public quickly enoughStudies also show that the price effect of TRIPS is not limited only to patented products, but generally leads to higher prices of other goods in the market as wellDoha Declaration on Public Health:The framework of stringent intellectual property rights established by the TRIPS Agreement enables pharmaceutical manufacturers to charge prices above marginal cost of production. This affects the ability of governments to monitor and protect public health because of their obligations to protect IPRs of the manufacturers. This means that Governments may find their capacity to ensure affordable access to medications restrictedIn 2001, in response to concerns of developing countries regarding limited or no access to medicines at affordable prices, the WTO members agreed to issue the Doha Declaration to clarify the TRIPS Agreement in the context of Public Health. This was a huge win for the G33 countries. The declaration states that the TRIPS Agreement would not prevent members from taking steps to protect public health and makes clear that each member has the right to create certain exceptions to its IPR laws to enable it to grant compulsory licenses for manufacture of essential goods such as life-saving drugs even if the consent of the holder of the IPR is not forthcomingA 2003 agreement loosened the domestic market requirement, and allows developing countries to export to other countries where there is a national health problem as long as drugs exported are not part of a commercial or industrial policyChallenges to Doha declaration: After Doha,?PhRMA, the United States and to a lesser extent other developed nations began working to minimize the effect of the declarationThe official documents left a number of legal and technical problems unresolved: e.g., the term ‘epidemics’ hasn’t been defined, which might mean that chronic diseases such as AIDS, TB, Malaria etc. are not covered under the exemptionsFuture Issues Concerning TRIPS negotiations: Debate is on about TRIPS provisions that ask member countries not to exclude life forms and plants from their IPR lawsProtection of the innovations of indigenous and local farming communities and the continuation of the traditional farming practices including the right to save, exchange seeds, and sell their harvest Protection of the rights of indigenous communities and prevent any private monopolistic intellectual property claims over their traditional knowledge Grant of the same level of protection of geographical indications in other products as is granted to wines and spiritsIPR laws in India and TRIPSKey: India hasn’t been afraid to stand its ground, and while adhering to TRIPS clauses, has ensured that its industry (especially pharmaceuticals industry) does not suffer. This is evidenced by the fact that although India has now allowed product patents in pharmaceuticals, clause 3(d) still allows it to overturn patents that impinge upon public health delivery. Similarly, it has increased the timeline for patent from 7 to 20 years, but has made the granting of new patents significantly tougher, and much more merit based, so the value of a patent has grown significantly. The number of patent applications has been growing at about 12% p.a. since the new Patent Act of 2005, which is a healthy growth rate by any standards Although TRIPS agreement was finalized in 1994, it took India over a decade to make its laws compliant; this was achieved in 2005Several domestic laws such as the Patent Act, Trademarks Act, Copyrights Act etc. have been modified from time to time to make them TRIPS compliantIn 1970s, India moved from the colonial-era strict patent laws to more relaxed ones, to promote indigenous manufacturing. The 1970 Patent Act abolished product patents for food, pharmaceuticals, and chemicals, and restricted grant of patents in these fields only to process patents. The maximum duration of a product patent was fixed at 7 yearsThe 1970 Patent Act, thus, provided an impetus to the generic drugs industry in India; between 1970-1995, the sector grew at 15%+ p.a. The amendments made to the 1970 PA in 1999, 2002, and then in 2005 made it TRIPS compliant:2002 (2nd amendment): ‘License of right’ deleted, ‘burden of proof’ reversed, microorganisms made patentable2005 (3rd amendment): Product patents allowed in pharmaceuticals, food, and chemicals, compulsory license now required for export of patented pharmaceutical productsThus, under WTO pressure, when the Indian parliament passed the new patent law in 2005, it not only brought back product patents, but also granted all patents a term of 20 years. Moreover, the new law paved way for the formation of the Intellectual Property Appellate Board, a specialised judiciary to hear IP cases?There is of course a major commercial reason for copyright enforcement, and that has to do with the global cross-sectoral marketing of productsThe emergence of strong contenders in the domestic software and Bollywood business have led to the emergence of a new culture of IP in India, consonant with the global IP regimeGiven the changes to many acts such as Patent Act, Copyrights Act, agreement to join the Berne convention, Trademark Act etc., along with liberalization of telecom and many other services, show that the global ‘proprietary’ agenda has become a significant part of India’s social and economic featuresThis transition has been chaotic. Patent litigations have increased three-fold since 1995, and many of these have been highly controversial and long-drawn affairs. Interestingly, it appears that the courts are also grappling with how to balance the pro-innovation and anti-competitive effects of IPRThe Indian Patent Office and courts face significant challenges in interpreting and applying the new Patent Act’ s provisions. In the short-term, opponents of stronger patent protection may be able to take advantage of ambiguities in the interpretation of various provisions of the patent law. But this can have serious long-term consequences, as a lack of confidence in the patent system could adversely impact indigenous innovation to a large extent and foreign direct investment to a small extentUSA and India: (May 2015) The office of the USTR has once again placed India on its ‘priority watch list’ citing what it believes to be India’s poor record in protecting IPRs. India’s stance is that its IPR laws are TRIPS compliant, and haven’t been significantly challenged at the WTO. To change these laws only based on US pressure would reflect badly on the government (Read: )The U.S. administration is irked over the government’s announcement of a series of 1,000-MW grid-connected solar photovoltaic (PV) power projects that has a mandatory condition?that all PV cells and modules used in solar plants set up under this scheme will be made in India.There is already an ongoing dispute at the World Trade Organisation, where the U.S. has complained against India over the Jawaharlal Nehru National Solar Mission’s domestic content requirement (DCR) for solar cells and solar modules in projects that it awards.ISB paper: Despite enforcement and judicial hurdles, the outcomes of stronger IPRs in India have mostly been beneficial:The amount of R&D activity in India has increased since TRIPS. Stronger IPR has spurred Indian companies to invest in R&D and encouraged multinational corporations to outsource more R&D work to IndiaThe average number of patent applications filed per year with the Indian Patent Office (IPO) by Indian residents grew by about 10% since 1995, and by about 12% from 2005 onwards- number of trademark applications increased from 10% growth to 17% It looks like under TRIPS, getting a patent issued has got tougher, but once granted, the patent is seen as a mark of quality and is valued higher as compared to before(Several commentators seem to be saying that patent applications grew ‘dramatically’; see what line to take here)Impact on India’s pharmaceutical sector: Several domestic laws such as the Patent Act, Trademarks Act, Copyrights Act etc. have been modified from time to time to make them TRIPS compliantThe advent of TRIPS has done wonders for the Indian pharmaceutical sector; for the first time in years, the industry was challenged, and consequently had to make investments in Drug Discovery Programmes, greater capacity addition in production of generic drugs, organized efforts to manufacture patented drugs under license, and efforts to get deals for marketing patented drugs to the Indian marketAll of this has led to greater dynamism in the industry While this is true, ‘big pharma’ firms from developed countries haven’t been allowed a free run in India, due to carefully drafted exemptions Pre-TRIPS, Indian firms has started exporting large amounts of drugs to LDCs; post-TRIPS, the orientation is changing towards developed countriesOne unique provision of the Indian Patent Act is embodied in Section 3, clause (d). This provision prevents patenting of minor improvements in chemical and pharmaceutical entities unless the invention results in the enhancement of known efficacy of that substance. This provision is a safeguard for public health purposes and sets a higher threshold for granting pharmaceutical patents. In January, Gilead Sciences (a US company) was denied a patent by the Indian Patent Office for its drug Sofosbuvir that cures Hepatitis C, owing to application of Section 3(d)Section 3(d) has been extremely contentious since its introduction in 2005.?The transnational pharmaceutical industry regards it as establishing an unacceptably high barrier to patenting, as do many foreign governments. But many observers, including the United Nations Programme on HIV/AIDS and civil society groups, defend 3(d) and point to India as a model for developing countries attempting to use TRIPS flexibilities to promote public healthIn 2013, pharma giant Novartis?lost a six-year legal battle?after the Indian supreme court ruled that small changes to its leukaemia drug Glivec did not deserve a new patentThis gives a clear distaste in India for ‘evergreening’- the practise of big pharma firms to make small changes to drugs whose licenses are about to expire, simply to renew their licenses. In such cases, India has started giving out ‘compulsory licenses’The best thing is that India broke no TRIPS laws; it’s decision is valid under TRIPS, but so far countries had just been too scared to try itDue to India’s considered stance, it’s pharmaceutical industry is still growing at a strong 15% p.a. rateIndia and other developing countries have been raising the issue of protection of traditional knowledge and the relationship between the CBD and the TRIPS Agreement for the last few years in the WTOWith TRIPS and GATT the level of competition rose with stronger requirements, and India needs policy options to catch up the leading firms. The typical SMEs Indian system has to face a competition with established MNCs, bringing in new kind of business models and dynamic capabilitiesPlant varieties: India is one of the only countries in the world to have passed sui generis ('of its own kind') legislation granting rights to both breeders and farmers under the Protection of Plant Varieties and Farmers Rights Act, 2001. Where a country excludes plant and animal inventions and plant varieties from patentability, it is expected to protect them under an effective sui generis system as mandated by TRIPSTRIMS: Agreement on Trade-Related Investment MeasuresBasicsTRIMS are rules that apply to the domestic regulations a country applies to foreign investors, often as part of an industrial policy. These restrict preferential treatment of domestic firms, and thereby enable international firms to operate more easily within foreign marketsPolicies that have traditionally been used to both promote the interests of domestic industries and combat restrictive business practices are now banned; some examples are:Local content requirements (which require that locally produced goods be purchased and used) Trade balancing rules (require that an enterprise’s purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports) Domestic sales requirements and export restrictionsExport performance requirementsForex and local equity share restrictionsManufacturing requirements (require domestic manufacturing of certain parts) Technology transfer requirements Employment restrictions Fiscal incentives to promote the above-mentioned behavior are also seen as trade distorting, and are hence bannedUnder the WTO TRIMS Agreement, countries were required to rectify any measures inconsistent with the Agreement, within a set period of time after the agreement came into force (in 1995, so all the timelines below have passed):Transitional period: developed countries had a timeframe of 2 years, developing countries of 5 years, and LDCs of 7 years to implement TRIMS measuresEquitable provisions were allowed, letting national governments impose existing rules on new FDI coming in during the transitional phaseSome exceptions for developing countries, such as allowing them to deviate temporarily from the TRIMS provisions on ground of adverse Balance of PaymentsSeveral criticisms of TRIMS agreement exist: It prevents the imposition of any performance clauses on foreign investors in respect of earning foreign exchange, foreign equity participation, and transfer of technology It requires foreign companies to be treated on par with, or even better than, local companies It prevents the imposition of restriction on areas of investment and it requires the free import of raw materials, components and intermediatesIndia and TRIMSIndia had notified different provision that would violate TRIMS, and had removed all such clauses well before the transition period lapsed. India today has no outstanding obligations to WTO in this regard (this is the official line on the Commerce Ministry website)While the above is the official line, India regularly imposes local content requirements for sourcing from SMEs, restrictions on foreign equity shares in FDI in some sectors (although such sectors are very few now) etc. In 2002, India had to do away with local content requirements and trade balancing requirements in the automobile sector, following a WTO rulingIndia was dragged to the WTO dispute resolution mechanism by the US in 2013, regarding India’s domestic content requirements under the Jawaharlal Nehru National Solar Mission, for solar cells and solar modules; the US claims that this amounts to preferential treatment to national industry, and hence violates Article III of GATT and 2.1 of TRIMS. This dispute is ongoing, and judgment is expected in August 2015India’s response might include the fact that most of the sourcing requirements are from government, and this is exempt from WTO rulesEnvironmental groups from across the globe, and many from the US, have strongly expressed that the US should not discourage emerging economies such as India from creating an optimal environment for use of renewable energyIf the ruling goes in favour of the US and against India, it can spark a north-south divide with respect to climate justice actions. The US government is strongly defending its action before the WTO by stating that it supports the deployment of clean energy technologies all across the world, including India.? However, if a country’s clean energy initiatives adversely affect the US manufacturers and workers, whereby there is a rise in the cost of clean energy, it would result in the undermining of the shared vision with regard to promotion of use of renewable energyA ruling in favour of India will serve as a great encouragement to emerging economies such as India which wish to reduce the dependence on fossil fuels and increase the use of renewable energy, and at the same time create a sustainable industryAs a follow-through within a couple of months, India also dragged the USA to WTO alleging that the US, both at the federal and state levels, is offering subsidy programmes in the sector for local content requirements, making the entry of Indian companies difficult and breaching global trading rules.GATS- General Agreement on Trade in ServicesBasicsGATS Articles: These are discussed here with reference to the Indian education sector.Article 1: This defines four modes of supply in any service sector trade:Mode 1: Cross-border supply:E-learning, correspondence course etc.Market for such courses is expected to be huge in India, and universities from the west have a massive comparative advantageMode 2: Consumption abroad:Involves movement of consumers; say, students going abroadBarriers include visa requirements, recognition of prior qualifications, quotas on number of students, restrictions on employment while studying etc.Mode 3: Commercial presence:Issues of FDI and IPRs will feature in this modeInternal ‘brain drain’ of academics from domestic to foreign players might occurMode 4: Presence of natural persons:Will affect teachers or researchers going abroad on a temporary basisPerceived barrier is tight immigration policy, recognition of qualifications etc.So far, most of Mode 4 liberalization has been ‘horizontal’ (people moving from one country to the other for the same firm), and concentrated among the top layer of employees (executives, managers, specialists etc.)India has a comparative advantage in labour resources, so opening up movement of all categories of employees is in India’s favour(GATS Part 2 covers articles 2-5)Article 2: Most Favoured Nation clause; this has been a fundamental principle, first of GATT and then of WTO- any benefits being accorded to one nation has to be accorded to all WTO member nationsArticle 3: TransparencyEach member has to promptly and annually inform WTO of the introduction of any new laws, or any changes to existing laws that significantly affect trade in servicesThe issues of transparency is an uneasy one for developing countries such as India, as it makes the regulatory mechanism public, and brings out its weaknesses. In the education sector, this would involve making transparent regulations related to fee structure, financing of an institute, land acquisition, etc., where rules aren’t always followed by the bookA ‘clean’ regulatory mechanism will be beneficial for the general population as it will eliminate monopolistic tendenciesArticle 4: Increasing participation of developing countriesProposals include: improving third world’s domestic capacity and efficiency via access to technology on a commercial basisAccess to distribution channels and information networksLiberalization of market access in sectors and modes of supply of export interest to the third worldProblems in negotiation here arise because the third world isn’t a homogeneous block, with BRICS countries having much higher development levels as compared to most other countries Article 5: Recognition of qualifications as well as work experienceWould involve international standardization of quality and content of a particular degree, and recognition of a certain university based on predetermined criteriaFor the 3rd world, such international accreditation is one of the most difficult impediments in the process of opening up developed markets for their services; if such standards are set high, they would block movement of professionals from the 3rd world, while making such movement easier for the developed countries GATS Part 3: Covers market access and national treatmentThere are 6 limitations defined on market access, relating to number of service providers, value of transactions, number of service operations, number of natural persons, specific types of legal entities, and participation of foreign capitalQuotas are often used by developed countries, and limitations on FDI by developing countriesNational treatment means an Indian university cannot be accorded any special treatment as compared to a foreign oneSome other provisionsWhile the overall goal of GATS is to remove barriers to trade, members are free to choose:Which sectors are to be progressively "liberalised", i.e. marketized and privatisedWhich mode of supply would apply to a particular sectorTo what extent liberalisation will occur over a given period of timeServices Sector Classifications addressed in the GATS are defined in the so-called "W/120 list",?which provides a list of all sectors which can be negotiated under the GATSMembers' commitments are governed by a "ratchet effect", meaning that commitments are one-way and are not to be wound back once entered into. The reason for this rule is to create a stable trading climateHowever, Article XXI does allow Members to withdraw commitments, and so far two members have exercised this option (USA and EU)USA has been very vocal in GATS negotiations:The US position of liberalizing services is obvious, given that services account for over 80% of US employment, and over 65% of GDPThe entertainment industry in the US is increasingly being come to known as the ‘copyrights industry’; it contribute between 5-7% of the US GDP, thereby making the US a big proponent of liberalizing AV servicesSide note: in AV services, the debate across the globe is whether culture should be considered a tradable commodity, or as an expression of heritage that needs to be protected from unbridled globalizationEU’s stance is one of protectionism; India and US favor liberalization, given their strong entertainment industries (think TV channels, movies in theatres, songs on the radio)GATS and IndiaWhile national governments have the option to exclude any specific service from liberalisation under GATS, they are also under pressure from international business interests to refrain from excluding any service ‘provided on a commercial basis’Important public utilities such as water and electricity most commonly involve purchase by consumers and are thus demonstrably ‘provided on a commercial basis’ The same may be said of many health and education services which are sought to be 'exported' by some countries as profitable industriesThe single biggest apprehension about GATS is the opening up and liberalization of sensitive social sectors like education, health, water, and energyGATS could lead to erosion of autonomy and sovereign right of governments to lay down policy, regulate, and legislateSeveral proponents of GATS say that concessions made under GATS by India need not necessarily be counter-productive to India, but their effects will depend on our diplomatic and negotiating capabilities. They say that as long as we can make use of cross-sectoral and cross-modal leverages, outcomes need not turn out unbalancedHowever, such arguments forget that in any such negotiations, sections of the society with a comprehensive political voice are likely to gain (such as the middle class, who would want easing the restrictions on Mode 4 of GATS, which deals with movement of labour in the services sector across national boundaries), while poor rural population is likely to lose, in the form of privatization of essential services (Modes 1 and 3)GATS does specify that members may take measures to ‘protect public morals or public order’, but these terms aren’t concretely defined. Any dispute arising from differing interpretations will be adjudicated not by India’s courts, but by a WTO tribunal, which brings forth serious questions on India’s autonomyImportant: Thought listed and discussed separately, the Articles in GATS have a high degree of overlap. For example, if Mode 4 in Article 1 is accepted by India, without proper negotiations about Article 5 which deals with recognition of qualifications, it will not lead to better circumstances for Indian workforceIf Mode 3 (Commercial presence) is liberalized before Mode 4 (movement of natural persons), FDI flows in India will precede international skilled migrationThe ‘sequencing’ of acceptance during negotiations of different Articles in therefore very importantGeneral Notes on WTO, Sectoral Implications etc.WTO was the successor of the GATT, which ran from 1948. It came into existence in 1995 under the Marrakech agreement (where the Uruguay Round ended negotiations). Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the?Uruguay Round?(1986–1994).The WTO is attempting to complete negotiations on the?Doha Development Round, which was launched in 2001 with an explicit focus on developing countries. As of June 2012, the future of the Doha Round remained uncertain:?The conflict between free trade on industrial goods and services but retention of?protectionism?on?farm subsidies?to domestic?agricultural sector?(requested by?developed countries), and the substantiation?of?fair trade?on agricultural products (requested by?developing countries) remain the major obstacles. This impasse has made it impossible to launch new WTO negotiations beyond the Doha Development Round. As a result, there have been an increasing number of bilateral?free trade agreements between governments.A trade facilitation agreement known as the?Bali Package?was reached by all members in 2013, the first comprehensive agreement in the organization's history.Since it’s coming into existence, there have been various challenges to the legitimacy of the WTO as a viable trade-mediating organization. Concerns have been cited about the ‘democratic deficit’ of the organization, where developed countries are believed to have a much larger sway. Also, over its various ministerial meetings, there has been a significant move away from multilateralism and towards PTAs. This has become more pronounced since the Cancun meeting, where developing countries, led by the G4, demonstrated their negotiating capability. Since then, the US, EU, and China are increasingly relying on bilateral and regional route to pursue their trade interests. Recognizing the rise of PTAs, the WTO has finally taken a step towards rationalizing its approach towards them. A start has been made with the setting up of the ‘transparency mechanism’, whereby member countries are bound to disclose details of their PTAs for the WTO’s scrutiny. However, while a step in the right direction, this mechanism for now simply remains an information disclosure mechanism, and nothing else. WTO has also failed to factor in the fact the trade liberalization does not happen in isolation, and has wider socio-economic repercussions, with impact on questions of equity and justice. Uruguay Round (1986-1994)This was the 8th GATT round, and GATT’s deficiencies were well recognized by now. TRIPS, TRIMS, and GATS came into being after this (pre-WTO). The Uruguay Round has been successful in increasing binding commitments by both developed and developing countries, as may be seen in the percentages of tariffs bound before and after the 1986–1994 talks.Ministerial ConferencesThe highest decision making body of the WTO is the Ministerial Conference, which usually meets every 2 years. It brings together all WTO members (countries and unions). There have been 5 ministerial conferences so far:Singapore (1996): Emergence of ‘Singapore Issues’, which refer to disagreements about 4 working groups set up during this meeting. These issues were: Transparency in?government procurement?Trade facilitation?(customs issues)?Trade?and?investment, and?Trade?and?competitionThese issues were opposed by most developing countries, and disagreements prevented a resolution despite repeated attempts to revisit them, notably during the 2003 Ministerial Conference in?Cancún,?Mexico, whereby no progress was made. Since then, some progress has been achieved in the area of trade facilitation (‘July Package’ under the Doha round) Geneva (1998)Seattle (1999): Ended in failure, after massive demonstrations that had to be contained by use of police force. Negotiations never startedDoha (2001): Doha Development Round was launched here, and China was inducted as the 143rd country in WTO (see below for more details)This is the current trade-negotiation round of WTO; started in 2001. Doha round talks are overseen by the Trade Negotiations Committee (TNC).The intent of the round, according to its proponents, was to make trade rules fairer for developing countries. However, by 2008, critics were charging that the round would expand a system of trade rules that were bad for development and interfered excessively with countries' domestic policy space.Since 2008, talks have stalled over a divide between developing and developed nations on major issues, such as agriculture, industrial?tariffs?and?non-tariff barriers, services, and trade remedies. There is also considerable contention against and between the EU and the USA over their maintenance of?agricultural subsidies—seen to operate effectively as trade barriers.The negotiations are being held in five working groups. Some important topics under negotiation are:?market access, development?issues, WTO rules,?and trade facilitation.As of 2014, the future of the Doha round remains uncertain, and one of the major sticking point is agricultural subsidies, that India steadfastly refuses to back down on. Cancun (2003): Aimed at forging agreements on the Doha round. The?G20 developing nations?(led by India, China,?Brazil,?ASEAN?led by the?Philippines) resisted demands for agreements on the ‘Singapore issues’, and called for an end to?agricultural subsidies?(most important contention) within the EU and the US. The talks broke down without progress, and the collapse of the talks was seen to be a major victory for the developing countries, who were now seen to have the confidence and cohesion to reject a deal that they viewed as unfavorable. This was reflected in the new G20 trade block, led by the G4 (India, China, Brazil, South Africa)Geneva (2004): Not a ‘full’ ministerial meeting; several achievements: EU accepted the elimination of agricultural subsidies by a ‘date certain’Singapore issues were moved off the Doha agendaDeveloping countries accepted trade facilitation (custom duties etc.) as a subject to be negotiatedAfter intense negotiations, members reached what has come to be known as the ‘Framework Agreement’ or the ‘July Package’, which covers agriculture, non-agricultural market access, services, and trade facilitation Hong Kong (2005): This was considered vital if the four-year-old Doha Development Round negotiations were to move forward sufficiently. Key achievements:Countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006Further concessions to developing countries included an agreement to introduce duty-free, tariff-free access for goods from the Least Developed Countries, following the?‘Everything but Arms’?initiative of the?European Union?That is, industrialized countries agreed, in principle, to open up their markets for developing countriesOther major issues were left for further negotiation to be completed by the end of 2010Bali Package, 2013Official discourse:Addresses a small portion of the Doha programme, principally, bureaucratic ‘red-tape’, by means of the ‘Trade Facilitation Agreement’Because of the controversial nature of reforming laws on intellectual property, trade in services and subsidizing crops for?Food Security, the talks focused on?trade facilitation, which means lowering cross-border tariffs and other regulations that impede international trade.The main aim was lowering of tariff barriers, and it promised to be the first agreement reached through the WTO that is approved by all its members.The only binding target is reforming customs bureaucracies and formalities to facilitate trade. The accord includes provisions for lowering import?tariffs?and?agricultural subsidies, with the intention of making it easier for developing countries to trade with the developed world?in global markets. Developed countries would abolish hard import quotas on agricultural products from the developing world and instead would only be allowed to charge tariffs on amount of agricultural imports exceeding specific limits. However, all other agreements apart from TF-related are given on a best-faith basis, where no developed country has undertaken legal promises to reduce agricultural subsidies.The?trade facilitation?measures agreed in Bali could cut the cost of shipping goods around the world by more than 10%, by one estimate, raise global output by over $400 billion a year (another estimate says $1 trillion), with benefits flowing disproportionately to poorer countriesFrom EPW etc.: The real story, and why India has vetoed the TF agreement in August 2014 (after it was approved in December 2013 by the UPA government)Agreement on TF (meaning, requirements, provisions and exemptions for developing countries and LDCs)Possible impact on third world and India (market access issues, hollowing out of domestic manufacturing, more imports, increasing trade imbalance)India’s sticking point: (‘green box’ provisions, AoAs and ERPs, US/ EU farm subsidies, India’s farm subsidies etc.)WTO’s Dispute Settlement MechanismA plus for WTO has been its dispute settlement mechanism- disputes in WTO are essentially broken promises. WTO members have agreed that if they believe fellow-members are violating trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally. That means abiding by the agreed procedures, and respecting judgements.A procedure for settling disputes existed under the old GATT, but it had no fixed timetables, rulings were easier to block, and many cases dragged on for a long time inconclusively. WTO introduced greater discipline for the length of time a case should take to be settled, with flexible deadlines set in various stages of the procedure. The Uruguay Round agreement also made it impossible for the country losing a case to block the adoption of the ruling. Rulings are automatically adopted unless there is a consensus to reject a ruling — any country wanting to block a ruling has to persuade all other WTO members (including its adversary in the case) to share its view.The Dispute Settlement Body consists of all WTO members, and has the sole authority to establish panels of experts to consider the case. It also has the power to authorize retaliation in case of non-compliance of its rulings. Either side can appeal the panel’s ruling, and appeals have to be based on points of law; they cannot re-examine existing evidence or examine new issues. The strength of the mechanism is evidenced by the frequency with which both developed and developing countries utilize it. India has been one of the biggest players in the mechanism. WTO: Domestic Support- Amber, Blue, and Green Boxes‘Green box’ roughly translate into a green ‘go’ signal, and amber could be considered a cautionary light, there is no red box. Instead, the WTO has invented a ‘blue box’ which is used for what the organization considers production-limiting programsTo further complicate matters, you could consider yourself ticketed for running a red light if the amber box subsidies exceed pre-set reduction commitment levels. In addition, there are exemptions for many of the boxes, including those designed to help make developing countries more trade competitiveGreen boxPolicies not restricted by the trade agreement because they are not considered trade distortingThese green box subsidies must be government-funded — not by charging consumers higher prices, and they must not involve price support. They tend to be programs that are not directed at particular products, and they may include direct income supports for farmers that are decoupled from current production levels and/or pricesAmber boxAgriculture's amber box is used for all domestic support measures considered to distort production and tradeAs a result, the trade agreement calls for 30 WTO members, including the United States, to commit to reducing their trade-distorting domestic supports that fall into the amber boxU.S. agricultural subsidies listed as changing production and/or changing the flow of trade include commodity-specific market price supports, direct payments and input subsidiesBlue boxAny support payments that are not subject to the amber box reduction agreement because they are direct payments under a production limiting programThe blue box is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal levels. It covers payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their landOpponents of the blue box want it eliminated because the payments are only partly decoupled from production, or they want an agreement in place to reduce the use of these subsidies. Others say the blue box is an important tool for supporting and reforming agriculture, and for achieving certain ‘non-trade' objectives, and argue that it should not be restricted as it distorts trade less than other types of supportAgriculture and WTOSee: : the AoA was brought in in 1995, India didn’t have to make many commitments:Under domestic support, although price distorting subsidies are prohibited, India’s schemes of input subsidies and farm price supports (MSP) were both under the 10% ceiling in the base year. Also, as a developing country, these were counted in the ‘Special and Differential Treatment’ box, which provides enough flexibility for developing countries for their prevailing set of domestic policiesIndia had no market subsidies apart from the ones in which developing countries had already been exempt from reduction commitments during the implementation period (i.e., the first 10 years, till 2004)It was only in market access that India committed to tariff-bound rates representing a ceiling on tariffs that could potentially be leviedThus, India did not have to alter many policies significantly in all but a few areas on account of the AoA. Opinion on the utility and effectiveness of the WTO as a forum for negotiating rules on agricultural tariffs and subsidies is split. According to one view, in most developing countries agriculture is not so much a matter of commerce as one of livelihood. It may, therefore, not be appropriate to treat it at par with industrial goods. Accordingly, disciplines on agriculture should not be included in trade agreements at the WTO. Contrary view: WTO negotiations are the only available vehicle for seeking a reduction in developed-country subsidies, which have significantly distorted global trade and agricultural productionNegotiations towards an Agreement on Agriculture are being undertaken on what are called three pillars -- domestic support, market access, and export competitionDomestic Support: For domestic support policies, subject to reduction commitments, the total support given in 1986-88,measured by the total Aggregate Measurement of Support (AMS) had to be reduced by 20% in developed countries (13.3% in developing countries). Reduction commitments refer to total levels of support and not to individual commodities.Special and Differential Treatment?provisions are also available for developing country members. These include purchases for and sales from food security stocks at administered prices provided that the subsidy to producers is included in calculation of AMS. Developing countries are permitted untargeted subsidised food distribution to meet requirements of the urban and rural poor. Also excluded for developing countries are investment subsidies that are generally available to agriculture and agricultural input subsidies generally available to low income and resource poor farmers in these countries.Agricultural subsidies (domestic support) provided by developed countries: Restrict the access of developing-country exports Depress world food prices Subsidised exports by developed countries pose a threat to food and livelihood security in developing countries by depressing domestic market pricesThe July Framework distinguishes between two broad categories of domestic support: Trade-distorting support: Under the existing WTO regime, the EU and the US have the flexibility to provide very high levels of trade-distorting support, and current?level of trade-distorting subsidy provided by them is less than the ceiling under the WTOThe US has been offering to lower the ceiling for maximum support; however, the new ceiling it is offering is still more than the actual level of support it provides. Thus, the offered 53% reduction in ceiling would have resulted in only ‘paper reduction’, without any actual cut on the ground. In fact, the US would have the space to?increase?trade-distorting subsidies.This has been a matter of considerable disappointment for developing countries like India and other G20 members, particularly because the US is seeking effective tariff reduction from developing countries in exchange for paper reduction in its subsidies Non-trade-distorting (‘Green Box’) support:Under the green box category, almost US$ 90 billion subsidies are provided by the US, the EU and Japan There is evidence that green box subsidies significantly enhance production through different economic effects. In short, green box subsidies provided by developed countries are adversely affecting the interests of farmers in developing countries While the Doha Round negotiations do not envisage any reduction commitment or ceiling on green box subsidies, proposals have been made by G20 countries to limit such payments to farmers with low levels of income, landholding and production. This might indirectly prevent big farmers and agri-business from receiving handouts under green boxIndia wants reduction of green box subsidies, as these are trade distorting tooFor ‘Amber box’ subsidies, the cap is set at 1986-88 price levels (which is frankly kind of ridiculous)(However, remember that almost every economist agrees that India’s input subsidies are a menace, and if these were directed instead to public investments, the returns would be far greater. Pronab Sen said that even simply monetizing the farm subsidies and giving direct cash transfers to farmers will mean that India can meet its WTO commitments easily)Thus, even if the most ambitious proposal of reducing trade-distorting domestic support is agreed upon, it would still provide considerable leeway to developed countries to grant billions of dollars of farm support. Further, the absence of strict disciplines on green box could undermine gains that may be achieved through a reduced ceiling on trade-distorting subsidies. Market Access:Market access issues include ‘tarrification’ (all non-tariff barriers such as quotas, variable levies, minimum import prices, discretionary licensing, state trading measures, voluntary restraint agreements etc. need to be abolished and converted into an equivalent tariff); ‘Special safeguard’?provision allows the imposition of additional duties when there are either import surges above a particular level or particularly low import prices as compared to 1986-88 levels.Developed countries have consistently demanded that developing countries, including India, reduce their agricultural tariffs. However, it is widely understood that tariff liberalisation by developing countries could have severe consequences (such as large-scale unemployment, poverty and hunger) unless they are accompanied by a substantial reduction in, if not removal of, developed-country farm subsidies.Thus, developing countries under WTO have the right to self-designate certain products as Special Products (SPs), which are subject to flexible tariff reductionSelf-designation of SPs is required to be guided by indicators based on criteria such as food security, livelihood and rural development concernsSome developed countries have suggested that SPs be restricted to not more than five products; this would severely undermine the ability of developing countries to protect the livelihood of their farmers against a surge in cheap and subsidised imports from developed countriesIndia has been arguing for worldwide phasing out of the ‘tariff-quota system’, under which the developed countries have been setting prohibitively high rates of protection (under this system, a quota, say the first Q imports, are accorded a low level of tariff; anything above that faces a prohibitively high level of tariff)It is sometimes argued that, in order to address food shortages in India, the country should not be averse to reducing agricultural tariffs during the WTO negotiations. This argument is fallacious, as India can apply low customs duty to facilitate food imports while continuing to keep high bound rates on agricultural products.Export Competition:Includes various forms of direct and indirect export subsidies, export credits, export insurance, food aid, etc. Hong Kong Ministerial meeting decided to eliminate export subsidies by 2013. However, the actual impact of the elimination of export subsidies may be rather limited, given the fact that the amount of these subsidies -- less than $ 10 billion per year -- is significantly less than the amount of domestic support.India’s Stand on Agricultural Negotiations:Given the immense importance of agriculture in India, India’s stance at the WTO is mainly defensive in trying to maintain its own subsidies, while also going offensive by trying to get the developed countries to reduce their own subsidies (focus is on defence)We have considerable flexibility to increase customs duties on most agriculture products, as there is a substantial gap between the existing bound rates and applied customs dutyStrong pitch for according adequate tariff protection to certain products by designating them special products. These include cereals, edible oils and oilseeds and dairy products As part of G33, India has strongly supported the need for developing countries to have a Special Safeguard Mechanism (SSM) which would allow them to impose additional tariffs when faced with cheap imports or when there is a surge in imports. However, developed countries and some developing countries have sought to impose extremely restrictive requirements for invoking SSM, which would render this instrument ineffectiveWhile India’s negotiating strategy has been defensive, in general, there are several products in which it may have an export interest. These include cereals, meat, dairy products, some horticultural products and sugarElements of offensive strategy include asking for a cap under ‘green box’ subsidies, and rejecting any expansion of ‘blue box’ subsidies (provided for limiting production)Non-Agricultural Market Access:The negotiations on industrial tariffs are mainly on two issues: how to reduce tariffs by working out a formula for tariff reduction, and what percentage of products will be covered by tariff bounds.Under GATT negotiations, developing countries were not required to reduce tariffs on a product-by-product basis. Under the Uruguay Round commitments, they were required to undertake tariff cuts in the least onerous manner – through average tariff reductions (low reduction on products requiring high tariff protection and higher reduction on products not requiring special protection). India’s negotiating position has evolved considerably and changed significantly from its initial approach to tariff reduction and its earlier stand on how unbound tariff lines should be treated for purposes of tariff reduction. From the outset, India does not appear to have supported the least onerous approach to tariff reduction through average tariff cuts. Instead, it favoured the relatively more onerous approach of a simple percentage cut on each product. In April 2005, even this approach was abandoned in favour of a still more onerous formula -- the non-linear ABI (Argentina-Brazil-India) Formula, which is a variation of the Swiss Formula. Thus, India’s approach has evolved from seeking a less tedious approach to tariff cuts to proposing and accepting tariff cuts based on the Swiss Formula, which would result in significant tariff reductions. The Doha mandate provided for the reduction or elimination of tariff and non-tariff barriers on products of export interest to developing countries. This would have been an issue of particular interest to India as its exports in competitive sectors like apparel, leather and footwear, etc., face significant tariff barriers in developed-country markets. So far no proposal has been made, either by India or any other developing country, seeking reduction or elimination of tariffs on products of interest to developing countries. The main and substantial gain made by India so far in the NAMA negotiations relates to having the flexibility to protect certain sensitive products by keeping them outside the scope of the applicable tariff reduction formula. As commitments on bound tariffs are almost irreversible, deep cuts in bound tariffs would make it difficult for India to use tariff protection as a tool for industrial policy in the future. In other words, India may not be able to protect some sectors of its domestic industry through appropriate levels of customs duty, even if there is a surge in imports of low-priced manufactured goods.Given the employment potential of some of the informal sectors, including fish, natural rubber, etc., it is important for India to seek import protection in these areas. At the same time, India should not ignore the possibility of enhanced exports generating additional employment in other sectors.?Unlike many developing and developed countries, India is not a member of many regional/free trade agreements. Thus, India’s exports become uncompetitive to the extent of margin of preference enjoyed by its competitors in the domestic market of preference-granting countries. This disadvantage would be addressed after NAMA tariffs come down.?ServicesWhile India has defensive interests in agriculture and NAMA, in services it can afford to be on the offensive, given the edge that it has in most areas in this sector over other countries, both developed and developing.India’s offensive interests in services?India seeks more liberal commitments on the part of its trading partners for cross-border supply of services, including the movement of ‘natural persons’ (human beings) to developed countries, or what is termed as Mode 4 for the supply of services. Even with respect to Mode 2, which requires consumption of services abroad, India has an offensive interest.In sharp contrast, the interest of the EU and the US is more in Mode 3 of supply, which requires the establishment of a commercial presence in developing countries. Accordingly, requests for more liberal policies on foreign direct investment in sectors like insurance have been received. These developed countries are lukewarm to demands for a more liberal regime for the movement of natural persons.?India would also like to see issues like economic needs test, portability of health insurance and other such barriers in services removed. As far as delivery of services through commercial presence (Mode 3) is concerned, there is an increasing trend of Indian companies acquiring assets and opening businesses in foreign markets in sectors such as pharmaceuticals, IT, non-conventional energy, etc. This is further evidenced by the increase in Outward Foreign Direct Investment (OFDI) from $ 2.4 billion in 2004-05 to $ 6 billion in 2005-06. India may, therefore, have some interest in seeking liberalisation in Mode 3, although it may need to strike a balance with domestic sensitivities in financial services.??India has received many pluri-lateral requests for the opening of a number of services. However, while the demanders have high ambitions in terms of the market access they want, they are not willing to open up their own economies to the same degree, particularly in Mode 4. While the EU is fully committed to the pluri-lateral process, the US continues to indicate the high importance it gives to the bilateral request-offer. In fact, India has threatened to withdraw its offers if better offers, which may enhance India’s services exports, are not forthcoming from its trading partners. Mutual recognition of degrees, allowing portability of medical insurance, reducing barriers to movement of professionals, etc., are some of the areas of interest to India.??An important issue relating to the delivery of services and liberalisation is domestic regulatory reforms. Appropriate domestic regulations are necessary to prevent market failure as well as to address issues like quality control, accreditation and equivalence, effective registration and certification systems, revenue sharing, etc., for protecting and informing consumers. In addition, regulatory frameworks can also advance transparency. Any market access commitments that India might make during the ongoing negotiations must be preceded by an effective regulatory framework. The hiatus in the negotiations could be utilised for putting into place appropriate regulatory regimes in different service sectors.Some experts are of the view that under the Uruguay Round commitments, developed countries already have a liberal trade regime in Mode 1 (which covers Business Processing Outsourcing or BPOs) with regard to some of the service sectors of interest to India. Further research needs to done to assess the extent of autonomous liberalisation undertaken by developed countries, which can be locked in during the negotiations, and consequent gains that can accrue to India. Further, even in the absence of additional liberalisation, India’s service exports would continue to grow in view of its cost advantage and demography. India could also explore the possibility of finalising mutual recognition agreements with the main importers of services, so that differences in national regulatory systems do not act as barriers to its exports. ................
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