14 Focus WTO Nov[1].-Dec. 2006

VOL. 8 NO. 4 SERVICES NOV.-DEC. 2006

Executive EditorAnil K. Kanungo

Associate EditorMs. B. Pankti

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FOCUS WTO From the Director’s DeskVOL. 8 NO. 4 • NOV.-DEC. 2006

INDIA’S economic strength lies in its burgeoningservices sector. Today, India is a prominent servicebased economy, about 55 per cent of its GDP comingfrom this sector. It has even more potential tocontribute to its GDP provided comparativeadvantages in this sector are fully exploited, and thiscan only happen when the negotiations in this sectorare carried forward in WTO with the bona fideintention of promoting free trade.

The importance of trade in services is well known to both, developedas well as developing countries. From the very beginning, therefore,the services have been taken as a separate negotiating group in linewith the negotiating group on trade in goods. The contribution ofservices sector in total value added output is phenomenal in today’scontext, on an average two per cent of developed countries contributeto about 60 per cent of total value of output and a large chunk ofdeveloping countries even contribute significantly to their GDP. Sucha huge contribution of services to various economies, therefore,underscores the need for a quick and a viable completion ofnegotiations.

Since 2000, services negotiations at WTO have been carried out on abilateral request -offer framework. As this approach didn’t advancethe liberalization of services, the last WTO Ministerial at Hong Kongemphasized the need for a plurilateral approach. The plurilateral processintensified the negotiations in services as developed and developingcountries actively participated in the process. It provided a platformfor developing countries like India to bargain as a group. It enabledcountries to prioritize their demands and have a better judgement ofthe likely demands of their trading partners. Such plurilateralnegotiations haven’t even produced any real outcome as the outcomedirectly depends on the willingness of developed countries like theUS to liberalize the key sectors or modes of interest to developingcountries like India.

Dr. (Mrs.) Vijaya Katti

FOCUS WTO, November-December 2006 1

Lead ArticleLEAD ARTICLELEAD ARTICLELEAD ARTICLELEAD ARTICLELEAD ARTICLE

*The author is a Senior Fellow, IndianCouncil for Research on InternationalEconomic Relations, New Delhi.

Plurilateral negotiations wereinitiated in the Hong KongMinisterial to supplement thebilateral request-offer process inthe GATS. This paper discussesthe key features of thesenegotiations and its implicationsfor India. The plurilateralprocess intensified thenegotiations in services,provided a platform fordeveloping countries such asIndia to bargain as a group,enabled countries to prioritizetheir demands and have a betterjudgement of the likely demandsof their trading partners.Although both developed anddeveloping countries activelyparticipated in the negotiations,the actual outcome woulddepend on the willingness ofdeveloped countries such as theUS to liberalize key services/modes of interest to developingcountries. In spite of thesuspension of the Doha Round,plurilateral requests provided anopportunity to developingcountries such as India tocontinue the process of domesticconsultation for liberalization ofthe service sectors, identifyregulatory deficiencies andinitiate reforms.

Plurilateral Negotiations in ServicesImplications for IndiaArpita Mukherjee*

THE position of a country inthe WTO (World Trade

Organization) negotiations in aparticular sector is dependent onthe performance and globalcompetitiveness of that sector.Services today is the dominantsector of the Indian economy,accounting for more than 50 percent of the GDP (Gross DomesticProduct). India’s trade in serviceshas shown an upward trend. In1995, India ranked 34th among theWTO member countries in exportsof commercial services whichimproved to the 10th position by2005.1 Over the years, India hascreated a niche for itself as anexporter of knowledge-basedservices such as software andhealth. India has autonomouslyliberalized major service sectorsand there is a significant need andscope for inflow of foreign directinvestment and technical know-how, especially in the infra-structure sector. Thus, the countryhas both export and import interestin liberalization of trade in servicesand this is reflected in itsnegotiating position. From adefensive position in the UruguayRound, where India had opposedeven the inclusion of services in theWTO negotiations, India is a majorproponent of service sectorliberalization in the Doha Round.

The Doha Round ofnegotiations started with arequest-offer approach as wasgiven in the NegotiatingGuidelines and Procedures (NGP)which was adopted by the WTO

members in March 2001. In thisapproach, countries make bilateralrequests to their trading partnersin areas of export interest but offersand commitments are multilateral.Prior to the Hong Kong Ministerialin December 2005, countries hadsubmitted bilateral requests to theirtrading partners and somemembers made initial and revisedoffers. However, there waswidespread dissatisfaction with thecoverage and quality of offers andthe slow progress of thenegotiations.2 Members questionedthe efficiency of the bilateralrequest-offer approach andwhether it should besupplemented by other negotiatingmethods. In this context,plurilateral negotiation wasconsidered as one of the possibleways to speed up the negotiatingprocess.

1. Hong Kong MinisterialThe Hong Kong Ministerial

Declaration outlined the need tointensify negotiations towardsachieving meaningful liberaliza-tion. The Annex C of theDeclaration stated that in additionto the bilateral negotiationsmembers can enter intoplurilateral negotiations theresults of which will be extendedto all WTO members on an MFN(most-favoured-nation) basis.Although it was the first timewhen this approach received alimelight, the approach was notnew to the GATS (GeneralAgreement on Trade in Services)

2 FOCUS WTO, November-December 2006

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negotiations. Both Article XIX ofthe GATS and the NGP hadrecognized the role of plurilateralnegotiations in addition to bilateraland multilateral negotiations. Thetimeline for submitting theplurilateral requests was 28February 2005, for making a secondround of revised offer was 31 July2006 and for submitting the finaldraft schedule of commitmentswas 31 October 2006.

There were views both forand against selecting thiscomplementary approach. TheWTO members in favour of thisapproach including India believedthat this would bring together acritical mass of developed anddeveloping countries that are themain players in servicesnegotiations. It would speed upthe negotiating process andreduce the negotiating effortssince countries which are neitherthe demandeurs nor markets ofexport interest can be left out ofthe negotiating process. It wouldalso help to identify thecommonalities of interest inspecific sectors/modes of exportinterest which would enable thetarget countries to have a bettersense of the priorities of therequesting members. Somedeveloping countries expressedconcerns about this approach.They argued that developedcountries as a group can exertpressure on developing countriesto open key service sectors.Others, especially smalldeveloping countries, expressedconcerns about the resources andcapacity constraints in parti-cipating in the negotiations. Mostof these concerns were taken carein the Annex C of the MinisterialDeclaration which stated that theGATS architecture and flexibilityfor developing countries would be

preserved. The participation isvoluntary and Annex C reco-gnized the resource constraints ofsmall developing countries.

2. Plurilateral NegotiationsThe plurilateral negotiation

process intensified after the HongKong Ministerial. Around 30-35WTO members participated in thenegotiations either as arequesting member or as part ofthe target group. The deadline of28 February 2006 for submissionof the requests was largely met.Around 22 collective requestswere made including 16 requestspertaining to sectors/sub-sectors,three in modes of supply andthree for elimination orexemptions of existing MFN. Thesectoral requests covered allmajor service sectors includinglegal, architectural/engineering/integrated engineering, computerand related services, postal/courier including expressdelivery, telecommunications,audio-visual, construction andrelated engineering, distribution,education, environment, finance,maritime transport, air transport,logistics, energy and servicesrelated to agriculture. Plurilateralrequests were made in Modes 1and 2 (cross border trade andconsumption abroad), Mode 3(commercial presence) and Mode4 (temporary movement ofnatural persons). Apart from arequest which applies across theboard to all scheduled MFNexemptions, there were specificrequests for removal/reduction ofexisting MFN exemptions inaudio-visual and financial servicesectors respectively.

Many of the plurilateralgroups were mixed groups withboth developed and developingcountries forming the requesting

and target groups. There were afew exceptions such as Mode 4where developing countriesformed the requesting group andthe target group was developedcountries. The developedcountries made majority of therequests. For instance, Japanparticipated as requestingmember in 13 sectors while theUS, Australia and EU participatedin 12 sectors each. Althoughdeveloping countries havereceived more requests than theirdeveloped country partners,some of them played an activerole in pushing forward theiroffensive interests. Mexico joinedin 10 requests involving sixsectors. India was the coordinatorof request in Modes 1 and 2 andMode 4. It co-sponsored requestin computer and related servicesand architecture, engineering andintegrated engineering. Evencountries such as Malaysia whichhad a defensive position inservices negotiations maderequests in education andcomputer and related services.Developing countries such asPhilippines, Indonesia, China,India, Thailand, Malaysia, SouthAfrica and Brazil were some ofthe main recipients. None of theLDCs (least developed countries)received request and were almostout of the plurilateral negotiationprocess. This was consistent withthe Hong Kong MinisterialDeclaration which stipulated thatthey would not be expected toundertake new commitments.

A difference between theplurilateral and bilateral approachwas that in most of the groups therequesting members were also thedeemed recipients of thecollective request. The countrieswere expected to bind what theywere asking from the target


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group. This would enhance thecredibility of the request. Therewere no legal compulsions to bedeemed recipients.3 Anotherdifference with the bilateralapproach was that the requestswere more focused and groupscould prioritize their demands.For instance, the plurilateralrequest on audio-visual servicesdid not cover radio and televisionsegment where most countrieshave imposed market access andnational treatment restrictions dueto security issues, sensitivity andcultural protection. In sensitivesectors such as distribution,target countries were given theflexibility to have a transitionperiod for liberalization. In theplurilateral requests sensitivitiesof making commitments in sectorssuch as social sectors (education)have been taken into account.

The analysis of the plurilateralrequests show that there has beenno change in the basic negotiatingstrategy. For instance, the EUexpressed reservation inparticipating in any requestsaddressing audio-visual andcultural services, and education,while the US is not keen to openup transport sectors. This hadbeen their negotiating stance evenin the Uruguay Round. It alsoshows that every country has someoffensive and defensive interests.

Two rounds of plurilateralmeetings were held in March/April and May 2006. In thesemeetings sectoral experts fromdifferent countries participatedand there was intense discussionand sharing of information.Countries clarified their doubts ona number of issues such as sectoralclassification and domestic policyregimes. Recipient countries startedtheir domestic stakeholders’

consultations and some evenhinted the extent to which theycould meet the requests.

The success or failure of thisapproach would have beenreflected in the revised offerswhich were due for submission on31 July 2006. However, the DohaRound of negotiations weretemporarily suspended on 24 July2006 after the talks in agriculture(market access and domesticsupport) and NAMA (Non-Agricultural Market Access)between six major members –Australia, Brazil, the EU, India,Japan and the US broke down in23 July 2006. Hence the revisedoffers were not tabled. It wouldnow take some time for thenegotiations to gain momentum.

3. Plurilateral Negotiationsand IndiaIndia has been a major

proponent of services liberalizationand has supported the inclusion ofplurilateral negotiation in theHong Kong Ministerial Decla-ration. Since the beginning of thisround, India has been pushing forimprovements in commitments inMode 4 and Mode 1 and this isreflected in its plurilateral requests.Specifically, India wants developedcountries to bind their existingregime in all sectors in Mode 1(barring sensitive ones) and offercommitments for CSS (contractualservice suppliers) and IP(independent professionals) underMode 4.

The plurilateral request inMode 4 sought new improvedcommitments in CSS and IPdelinked from commercialpresence. It also clarifieddefinitions and categories of CSS/IP for which commitments havebeen requested. The target group

of developed countries has beenasked to remove/substantiallyreduce ENTs (economic needstests). It stated that wage parityshould not be a precondition forentry and the duration of stayshould be one year or for theduration of contract (if longer) withthe provision of renewal. It referredto transparency in Mode 4commitments. In Mode 4, India isalso pushing for developingdisciplines on domestic regulationswhich is mandated in Annex C.

India coordinated theplurilateral request in Modes 1 and2 which was submitted along withcountries such as Chile, Mexico,Pakistan, Singapore andSwitzerland to both developed anddeveloping countries. Therequesting group of countriesprovided a list of sectors/sub-sectors in which they would wanttheir trading partners to undertakefull market access and nationaltreatment commitments. In theplurilateral request, commitmentsare sought at two-digit level forcertain sectors such as computer-related services to take intoaccount technological develop-ments. Members have beenrequested to make commitments insuch a way that it reflects commer-cially meaningful opportunities.

An analysis of the plurilateralrequests show that the level ofambition has been reduced. Forinstance, in Mode 4 there is norequest for service providers’ visaor GATS visa. In Modes 1 and 2,the plurilateral request attempts toaddress some key concernsrelating to cross-border trade suchas a broader sectoral coverage andforeseeing future backlash but isless optimistic than a negativelisting of commitments as wasproposed by the Friends Group.


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Since the revised offers havenot been tabled it is difficult toanalyze the impact of theplurilateral negotiations. However,the two rounds of plurilateralnegotiations indicated that therewould have been more bindingcommitments in Modes 1 and 2which would be beneficial forcountries such as India, whichwants to secure a liberal marketaccess condition for outsourcing. InMode 4, some developed countriessuch as the EU and Australiaindicated that they acknowledgethe categories – CSS and IP andwould offer some commitments inthese categories. With thesuspension of the round it is nowunclear to what extent they wouldhave committed and how theywould have adjusted their workpermit and visa regimes toundertake such commitments. Onits part, India too was open toundertaking commitments in thesetwo categories. However, India’smost important trading partner -the US - expressed reservations inbroadening commitments inModes 1 and 2 and 4. Proponentsin favour of plurilateralnegotiations believe that Indiaalong with other developingcountries could have exerted morepressure on the US through thisapproach, especially since otherdeveloped countries are preparedto undertake commitments, ratherthan doing that on an individualbasis bilaterally.

On its part, India receivedrequests in 14 sectors, Mode 3 andMFN exemptions for audio-visualservices. During the two roundsof plurilateral negotiations, Indiamade it clear that it would meetthe request substantially in sectorssuch as construction and relatedengineering services, logistics,

energy and maritime. However,it would not be able to meetrequests in certain sensitivesectors such as legal, retailing,and audio-visual services. Indiaalso indicated that it had alreadysubmitted one of the best revisedoffers in August 2005 and it wouldoffer further commitments only ifits trading partners positivelyrespond to its requests especiallyin Mode 4 and Modes 1 and 2.

Overall, in the plurilateralnegotiations there are somesectors/modes in which India hasoffensive interest, while it isdefensive in opening up the others.Some of the sensitive sectors inIndia such as audio-visual, retailand legal services are the ones inwhich developed countries such asthe US and the EU are pushing forgreater market access commit-ments. The actual outcome of thenegotiations would depend onhow well each country balances itsoffensive and defensive interestsand what it is willing to trade offfor greater market access incountries of export interest.

The plurilateral requestsprovide opportunities for countriessuch as India to initiate domesticconsultation and debate. In fact,the Ministry of Commerce andIndustry has circulated consultationpapers on liberalization of sensitivesectors such as education and legalservices. This also provides anopportunity to initiate domesticreforms which are essential toremain competitive in a globalizedworld irrespective of whether thecountry offers multilateralcommitments or not.

4. ConclusionsA major advantage of the

plurilateral approach is that itintensified the services

negotiations, made it more focused,reduced negotiating time andeffort and enhanced interactionand sharing of information amongmajor players in the servicesnegotiations. Developing countriessuch as India had a platform toarticulate their interest in specificmarkets. As a group it increasedtheir bargaining power in areassuch as Mode 4. They also had abetter judgment of the likelydemands of their major tradingpartners and could formulatenegotiating strategies accordingly.Countries such as India have beenable to prioritize the requests andhave a better understanding of thecross-sectoral and cross-modaltrade-offs. The requests enabledcountries to identify regulatorydeficiencies and initiate domesticreforms.

The success or failure of theplurilateral negotiations wouldhave been reflected in the revisedoffers. However, with thesuspension of the WTOnegotiations, it is difficult to predictits outcome. With countries such asthe US not very keen in offeringcommitments in areas of exportinterest to developing countriessuch as India observers predict thatDoha Round would be a lowambition round.

NOTES1 http://www.wto.org/english/

news_e/pres06_e/pr437_e.htm.2 As of December 2005, only 69 initial

offers and 30 revised offers weresubmitted.

3 It is important to note that US was nota requesting member in Mode 4 in anyof the sectoral requests, it washowever a deemed recipient. This wasbecause the US Congress had notgiven a mandate to the US negotiatorsto discuss Mode 4.

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NEWSNEWSNEWSNEWSNEWS(NA(NA(NA(NA(NATIONAL/INTERNATIONAL/INTERNATIONAL/INTERNATIONAL/INTERNATIONAL/INTERNATIONAL)TIONAL)TIONAL)TIONAL)TIONAL)

India to Push for EUProfessional VisaINDIA will push for a separate category of visasfor independent professionals and contractualservice suppliers (CSS) in the European Union (EU)as part of the bilateral trade & investmentagreement being negotiated. The country wantsindependent professionals to be given short-termvisas for looking for contractual assignments in theEU. The trading bloc will be urged to delink issuanceof visas to CSS from commercial presence.

The issue will be taken up with EU negotiatorsnext week in a meeting of the India-EU high-leveltrade group in New Delhi. The group will bemeeting for the first time after the proposedtrade and investment agreement was given anofficial go-ahead at the EU Summit in Helsinki inOctober.

Official sources said that while India and theEU had agreed to the broad contours of a servicesagreement, specificities in areas like mutualrecognition agreements (MRAs), professional visasand disciplines outside the multilateral GeneralAgreement on Trade in Services (GATS) needed tobe thrashed out.

At present, it is difficult for contractualsuppliers who do not have an establishment inEU countries to get visas. While there is no formalrestriction on the issuance of visas withoutcommercial presence, officials point out that suchapplicants are not considered favourably.Independent professionals who want to go to theEU countries to look for assignments are also notissued visas. “If a separate category of individualprofessionals and contractual suppliers is created,EU will be obligated to give visas to such serviceproviders,” an official said.

Sources added that India was trying to pushthe case for a separate category of visas forindividual professionals and CSS bilaterally with EUcountries. The issue was discussed with FrenchForeign Trade Minister Christine Lagarde duringher recent visit to India.

The India-EU trade and investment agreementenvisages eliminating duties on 90 per cent of tarifflines in seven years, liberalizing all four modes ofservices, including movement of professionals, andproviding national treatment for investors. India isthe EU’s 10th largest trade partner and contributes1.5 per cent of total EU trade.

(The Economic Times, 12 December 2006)

Finmin Clearing Auto Routefor FDI in Financial ServicesBanks, SEs, NBFCs & Nidhi Cos amongBeneficiaries from Easier NormsNORMS governing the flow of foreign investmentinto financial services like banking and commodityexchanges could be eased soon. The FinanceMinistry and the Department of Industrial Policy &Promotion (DIPP) have initiated consultations withRBI to permit automatic approval for allowingforeign direct investment (FDI) up to the sectoralcap in these key segments.

The review covers non-banking financialservices (NBFC), nidhi companies and stockexchanges too, according to Government sources.

There had been a status quo on these segmentsafter RBI said early this year that it would prefer towait for some more time. It had also raised querieson FDI in banks and commodity exchanges. However,last week, Government officials held meetings withthe financial services regulator on the issue.


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While rationalization of the FDI policy at thebeginning of this year put foreign investment onthe automatic route for all transactions that requireclearance by RBI, SEBI, IRDA or other regulators,norms specified under FEMA regulations do notpermit such transactions in the case of financialservices players like banks.

RBI has not notified the changes effected by theDIPP through Press Note 4 in the case of banks andcommodity exchanges, sources said. Therefore,there will be no automatic clearance for suchtransactions. RBI wants decisions on FDI proposalsin such sectors to be made after consultations withthe Finance Ministry rather than grant an automaticclearance.

In other sectors which are covered by theautomatic FDI clearance route, RBI does not put anyproposal on hold.

“All proposals under the ‘automatic’ route arecleared unless there is any technical deficiency.However, the same principle cannot apply to sectorslike banks and commodity exchanges,” sources said.

A number of proposals for FDI in private banksthrough the automatic route have already been puton hold due to the policy disconnect. The firstproposal to hit a roadblock due to this glitch was aproposal by IFC to pick up a stake in Federal Bank.RBI feels that FEMA regulations cannot be amendedto allow such proposals to pass throughautomatically since it has to provide clearance forthis under these regulations.

RBI had sought clarification on FDI in agriculturetoo since implementation of Press Note 4 throughFEMA would have resulted in all areas ofagriculture opening up to foreign investment.Subsequently, the Government clarified that FDI inagriculture would be restricted to certain categoriesonly.

Officials said a similar clarification is nowexpected in the case of financial services. The finaldecision in this case would rest with the FinanceMinistry as key areas like banking, commodityexchanges, stock exchanges, NBFCs and nidhicompanies are involved. The Government hasalready initiated a separate debate on FDI in stockexchanges and it is expected that the foreigninvestment ceiling for this segment would be 49 percent.

In the case of banks, FDI up to 74 per cent isallowed but such proposals required clearance bythe Foreign Investment Promotion Board (FIPB) inthe context of FEMA provisions. This clearance,which was always conveyed through the Depart-ment of Economic Affairs in the Finance Ministry,was done away with through Press Note 4.

Since implementation of this decision is hangingfire due to policy disconnect, the review by theFinance Ministry and DIPP is expected to sort outprocedural glitches, preventing flow of FDI in thesekey sectors.

(The Economic Times, 4 December 2006)

Non-Tariff Barriers Curb ServiceExports: Minister“Developed Nations are Somehow ShyingAway from India”EVEN as India’s engagement with the globaleconomy has intensified, the Union Commerce andIndustry Minister, Shri Kamal Nath voiced concernover the developed countries’ attempts to raise non-tariff barriers on services exports from the country.

Speaking at a plenary session on “India’s globalgrowth agenda” at the India Economic Summit 2006,organized by the World Economic Forum, ShriKamal Nath said the country’s engagement with theglobal economy is likely to exceed $400 billion thisfiscal and targeted at $500 billion next year. Hehighlighted that many issues on services exports arenot related to migration. “If you want to sendsomebody from an IT services company in India tothe US for one month for some software services,you can’t. That’s not immigration. This is a non-tariff barrier,” he said.

Shri Kamal Nath said that the world oftomorrow is not going to be a world of tariffs, butof rules. “That is why World Trade Organization isimportant. We need it to tackle issues like non-tariffbarriers,” he said.

He said multilateral trade rules are importantto India as it is to the US or the EU.

Globalization

On the issue of globalization versusprotectionism, Shri Kamal Nath said greater


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champions of globalization (developed countries)are now somehow shying away from India. “We,who are scared of globalization, are becomingproponents of globalization,” he said.

The Satyam Computer Services Founder andChairman, Shri Ramalinga Raju, highlighted thepresence of non-tariff barriers in the developedworld for services exports from the country.

Inadequate Avenues

“We are very concerned about the globaldeveloped markets not giving adequateopportunities for free flow of services. Non-tariffbarriers are being imposed. These (non-tariffbarriers) come by way of mixing the immigrationissue with service delivery issues,” Shri Raju said.

He pointed out that multilateral discussions aredominated by concerns around agriculture.“Agriculture concern is real, because it concerns 65per cent of the Indian population. But we do havethe right to say that the Commerce Ministry mustdo as much batting for 65 per cent of theopportunities, which is the services sector,” he said.

The Confederation of Indian Industry President,Shri R. Seshasayee, said protectionism would nothelp the developed countries, as they will lose themarket. The more you get competitive, the moreyou see the spectre of protectionism. In the overallinterest, we need to pursue the agenda ofglobalization,” he said.

(The Hindu Business Line, 28 November 2006)

“More Liberalization to BoostGrowth in Retail, Banking”Services Sector Growing at 7%: Ajay DuaA more liberalized policy framework would helpthe services sector expand faster and propel theeconomy to achieve higher growth rates in the nextfew years.

Liberalization of the regulatory frameworkswould be particularly relevant for sectors like retailand banking, the Secretary of the Department ofIndustrial Policy and Promotion, Dr Ajay Dua, said.

Addressing the inaugural session of the IndiaEconomic Summit 2006, Dr Dua said, “The services

sector accounted for around 54 per cent to theeconomy and in the next five years its share wouldgo up to 60 per cent. The services sector is growingat seven per cent annually and can grow at a higherrate with further liberalization of regulatoryframework.”

The sectors that need more openness and afurther liberalized regulatory mechanism are theones like retail, banking, accounting and healthcare,he said and added that though the high growthrates are propelled by services and manufacturing,growth in the labour intensive sectors like footwearwere not expanding in the desirable manner.


Small Services Earn IndiaBig BucksTop Dollar: Forex Inflows from Not-so-HotBusiness Services Gross $12.9 bn in2005-06SEEMINGLY insignificant items such as businessmanagement and consultancy, advertising and tradefairs, legal advice and architectural & engineeringservices have earned the country a gross $12.9 billionin 2005-06. Lost in the basket of miscellaneousservices, the little known earnings from thesestreams make up for more than half of softwareservices that are more widely talked about.

The contribution of these services to the Indianeconomy was revealed by a study on “invisibles”in India’s balance of payments. These services underthe head “Business Services” and include accountingand auditing services and environmental services(income out of trading in carbon credits) – earnedthe country a gross of $12.9 billion in FY06 against$23.6 billion from software services.

INFLOWS THROUGH BUSINESS SERVICES

Year Gross Net

1999-00 643 -5092000-01 334 -6882001-02 519 -9822002-03 807 -1,0052003-04 1,206 -1,2542004-05 5,167 -2,1512005-06 12,874 2,471

Source: RBI.


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And, for the first time, these services earned asurplus of $2.5 billion compared to a deficit of $500million to $2 billion annually over the past six years.According to sources at the central bank,individually many of these services earnedinsignificant amounts. But in the past few years,income has grown so much that it has becomenecessary to report them separately.

Architectural and engineering services,comprising predominantly engineering servicesraked in a net of $3 billion in FY06. According toNasscom, $10-15 billion of the $750 billion spent onengineering services globally is offshored. And,India corners about 12 per cent of this offshoremarket. This segment holds a lot of potential as theglobal spend on engineering services is expected togrow more than $1 trillion, with outsourcing alsoexpected to rise.

India has the single largest pool of engineeringtalent among emerging countries and is capable oftaking on more work than Russia and Chinacombined.

The current Indian graduate talent pool suitablefor engineering services represents 28 per cent ofthe total in low-cost countries. But on the flip side,not all are equipped with the skill-set required tosucceed in the market.

Another business service – management andconsultancy generated $1.6 billion in FY06. Of the12 items classified as business services, eight arenet forex earners while the deficit under two heads– advertising and trade services has significantlynarrowed. Gross advertising revenue jumped from$162 million in FY05 to $435 million in FY06. As aresult, the deficit under this head halved to $172million from $352 million in the previous year.

Another area which has done well isenvironmental services. Net earnings, though smallat present went up to $8 million in FY06 from a mere$1 million in the previous year.

With many polluting units (with emissionsbeyond the threshold level permitted by the KyotoProtocol) in Europe committed to reduce theiremission levels through purchase of credits fromnon-polluting units (those with emissions below thethreshold level) from lesser developed countries,India has a strong potential in this area.

Besides software and business services, evenfinancial services have emerged as net earners offoreign exchange. Net inflows on account of financialservices amounted to $1,087 million in 2005-06,according to the latest balance of payments figures.

Flows from financial services in the balance ofpayments are non-interest receivable and payablein respect of a financial entity. These essentiallycomprise brokerages, commissions and discountsearned by banks and other authorized dealers forvarious financial services rendered and guaranteefees on certain overseas borrowings.

(The Economic Times, 27 November 2006)

Traded Service NeedsNo Tax, PleaseSHOULD the Government levy service tax onadvice offered by management consultants in Indiato their clients abroad, say private equity firmscontemplating acquisitions here?

Several tax administrators feel that such adviceshould attract service tax (ET, Nov 20). This wouldbe a mistake and reflects the lack of clarity that stillpersists on identifying what constitutes export of aservice.

If the buyer of the management consultant’sadvice, say the PE firm, has a permanentestablishment in India, then there is little scope forconfusion. The sale of advice is deemed, byadministrative convention, a domestic sale,eminently eligible for levy of service tax.

When the buyer of the advice has no permanentestablishment in India, and the payment is made inforeign exchange, there is no case for levying servicetax on this bit of service export. The reason sometax authorities put forward for taxing such a servicesale is that private equity firm uses the advice inIndia, thus rendering it a domestic sale, on theground that when a service is consumed in Indiaitself, it is not considered an export. This argumentdoes not quite hold.

On receiving the consultant’s advice on thesuitability of an Indian company for acquisition bythe private equity firm, there are a number of possibleresponses. If the advisory says don’t buy, and the PEfirm fails to execute an acquisition in India, it woulddefinitely have used or “consumed” the advice.


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If the advisory is positive on the acquisition,the PE firm could still decide not to go ahead withthe acquisition, for reasons unrelated to eligibilityof the target acquisition.

In that case also, the service exported from Indiawould have been consumed. The use of the advisoryconsists, therefore, in management decision-makingbased on the advice rendered, not its execution.

This decision-making takes place abroad. Whenthe PE firm receives a positive “buy” advisory andthen goes ahead to purchase the target company inIndia, for any tax authority to rule that the advicehas been consumed in India would be conflateexecution with management decision-making. Thatwould be an error.

In any case, it is time the Government broughttaxation in line with the requirements of emergenttrends in global trade. In the ongoing talks on tradein services at the WTO, one class of service trade islabelled as “consumption abroad”, falling under thesecond of the four modes in which service exportstake place, according to WTO convention. The foreignbuyer of the traded service in question travels to theexporting country to consume that service there.

Tourism, the usual kind and the emergingmedical variety, are obvious examples. For reasonsof administrative convenience, such service exportshave not been exempted from taxation.

When a tourist buys a tube of toothpaste, shepays sales tax. When she buys a hair-do from alargish seller of beauty services, she would payservice tax as well. In countries that haveimplemented a goods and services tax, often goodspurchased locally and taken outside, that is, notconsumed locally, are eligible for tax reimbursement.Rarely does this extend to services.

Take a specialized service like film editing ordubbing. It is consumed when the service isrendered. So, if someone comes to India to get filmsprocessed, or a tender document or a complex legalcontract drawn up, India would be exporting servicesunder Mode 2, but India’s taxation policy wouldtreat these transactions as domestic transactions.

What differentiates an export from a domestictransaction is whether the purchase is by a non-resident or not. Sale of a good or a service as aresult of which foreign exchange accrues to theeconomy should be counted as an export.

As India’s service exports grow in volume andcomplexity, there would be a need to tailor adminis-trative convenience to the basic logic of commerce.

If a foreigner comes to India to buy a specializedservice competitively priced in this country, thatservice sale has to be recognized as an export.Countries export goods and services, not taxes. Soexported goods are shorn of taxes, by draw-back,exemption or other means. Traded services deservesimilar treatment.


Services Sector Sops Not at OurCost, Says HRD MinistryNO further offers under the General Agreementon Trade in Services (GATS), says the Ministry ofHuman Resource Development. The Ministry is clearthat it doesn’t want to allow use of concessions inthe education sector as a bargaining chip for gainsin other services sectors during negotiations. Itargues that education services sector is one of theleast committed sectors by other countries as well.

The Ministry of Human Resource Developmentis in the process of finalizing a paper that could wellbecome the ministry’s official response to theDepartment of Commerce consultation paper ofhigher education and GATS.

Calling for a conservative approach to GATS,the HRD paper suggests that “there is little reasonfor yielding anything beyond the already madeoffers, which too, appear currently more than werenecessary.” It makes the case that India should retainall the options in the education sector “to be exercisedat a time most suitable in national interest.”

The Ministry of Human Resource has argued thatthere is little reason to go beyond the offer that Indiaalready has made. “For one, GATS calls forprogressive liberalization of regimes and offers madeand accepted cannot be withdrawn.” Further giventhat under GATS a country can’t discriminate betweentrading partners, the paper argues, “that opening anysector today for any country would mean openingthe sector for all countries under GATS.”

The Mckinsey-Nasscom report suggests that inreturn for concession in Mode 4 areas, India needsto open up several service industries such financial


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services and education. On the possibility of suchtrade-offs, the Ministry is clear that nationaleducation policy must not be compromised as a quidpro quo for concession in other sectors.

In July, HRD Minister Shri Arjun Singh wroteto Prime Minister Dr. Manmohan Singh asking himto keep national interests in mind and ensure abroader discussion on the issue in the Cabinet, ratherthan a limited one by the Cabinet Committee onWTO Matters.

As per the GATS negotiations, there are fourmodes of education services. Mode 1 or cross bordersupply would cover distance education programmesoffered by universities and open universities, andany education service provider.

In its July 2005 offer, India placed no limitationon access in this mode, except that service providerswould be subject to regulations, as applicable todomestic providers in the country of origin. Mode2 or consumption abroad, refers to travel by Indianstudents abroad for education, in this too nolimitations had been placed.

Mode 3 or commercial presence presents the realproblems. Here too the Indian offer didn’t limitaccess, however, fees to be charged would be fixedby an appropriate authority so that it did not leadto charging capitation fees or profiteering.

Also, service providers would be subject todomestic regulation. In the case of foreign investorshaving prior collaboration in India, FIPB approvalwould be required. Mode 4 or movement of naturalpersons, access in this mode has been described asunbound.


EU Lawmakers Pass Law to BoostServices CompetitionEUROPEAN Union (EU) lawmakers broke downnational barriers for lawyers, real estate agents,advertising executives, carpenters and other typesof workers seeking to do business outside theirhome countries.

The law passed by the European Parliament inStrasbourg, France, seeks to spur growth in thegreatest part of the EU’s 11.4 trillion-euro ($14.6trillion) economy. Business groups have questioned

the effect of the measure after it was diluted toappease unions.

The lawmakers strengthened worker andenvironmental safeguards to ease WesternEuropean fears of low-wage, loosely regulatedcompetition from the east. The approval papers overthe rift opened a year and a half ago when Frenchvoters rallied against the spectre of the ‘‘Polishplumber’’ and rejected an EU constitution.

‘‘The economy is important, stability isimportant, yes, but the most important thing is thepeople for whom we’re creating these policies,’’Evelyne Gebhardt, the German Socialist sponsor ofthe measure in Parliament, said in debate. ‘‘We’veensured that the rights of the employees are at theforefront.’’

Critics of those changes included businessgroups as well as European Central Bank PresidentJean-Claude Trichet, who said on October 16 he‘‘regretted the watering down of the first draft’’ ofthe services directive.

EU governments, whose ministers approvedmost of the wording in Wednesday’s legislation inMay, must give final approval before the law isadopted by the bloc’s 25 countries within threeyears. ‘‘The adoption of this text is a good, if notlast step in the right direction, for business andcompetitiveness as a whole,’’ said Xavier Durieu,secretary general of the EuroCommerce trade groupfor retailers and distributors, in a statement. ‘‘Thefocus must now come back to the member statesand their sense of responsibility in transposing fairlyand evenly this text.’’

The law sweeps away economic needs tests andother barriers, leaving governments only limitedgrounds to bar service providers from elsewherein the EU. Each country also must streamlineadministrative procedures, focused in a single pointof contact for foreign businesses, and accept formsfiled electronically. ‘‘This is crucial for fosteringentrepreneurship and promoting growth and jobs,’’Charlie McCreevy, internal market commissioner,said in the Parliament. He hailed the agreementamong the Parliament’s biggest political groups asseeming impossible just a year ago, when tradeunions and other opponents fought the initiativefor eroding wages and labour standards.

(The Financial Express, 16 November 2006)


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India Dynamic in CommercialServices, Says WTOEVEN as India ran a trade deficit of close to $40billion in 2005, it showed a modest surplus in tradein commercial services of $4 billion and moved upto the 11th and 13th slots among the leadingexporters and importers in that sphere.

Merchandise TradeIn its International Trade Statistics released

recently in Geneva, the World Trade Organization(WTO) said that among a group of 50 leading exportersin merchandise trade, India has reached 29th positionaccounting for $95.1 billion, with a share of 0.9 percent in world trade last year. This is up by 26 per centcompared to the previous year. Among leadingimporters in world merchandise trade, India hasreached 17th slot, accounting for $134.8 billion with ashare of 1.3 per cent in world trade.

Commercial ServicesIn commercial services, with its inherent

advantages in several services, India has improvedits position by accounting for a share of 2.3 per centin global trade among 40 leading traders last yearby reaping receipts of $56.1 billion. In the import ofcommercial services, India ranks 13th accounting for$52.2 billion with a share of 2.2 per cent. The WTOdescribes India as a dynamic exporter among theleading commercial service traders, along withChina, Brazil, Poland and Hungary.

EU as One Entity

India’s ranking improves if the 25-member nationEU is taken as a single entity. Thus, India’s rankingunder this head (excluding intra-EU trade) in worldmerchandise trade goes from 29th to 20th slot with ashare of 1.2 per cent in global trade in goods. This isa 26 per cent increase as compared to 2004. Amongleading importers in world merchandise trade, India’sranking goes from 17th to 11th slot with a share of1.7 per cent in global merchandise imports. This is upby 39 per cent as compared to 2004.

Similarly, in commercial services trade, India’sexports with EU as one entity and excluding intra-EU trade shows vastly improved ranking. Thus incommercial services, India’s export position amongthe leading countries moves to 6th slot from the11th with 2.3 per cent share globally, while in

imports its ranking moves down from 13th to 7thplace, accounting for 2.2 per cent share globally.

Price FactorThe 110-page report gives a synoptic picture of

global trade developments across products andregions in 2005. It said price developments exerteda strong sway on global trade patterns last year.The further spurt in prices of fuels and miningproducts contrasted with the deceleration in exportprices for agricultural products and manufacturedgoods. It said prices of all manufactured goods wereheld down by the price decline in electronic goods.

Largely due to price developments, merchan-dise trade expanded faster than commercial servicetrade for the third year in a row in 2005. The dollarvalue of world merchandise exports rose by 13 percent to $10.16 trillion and commercial servicesexports rose by 10 per cent to $2.41 trillion in 2005.

Among the world’s 50 leading merchandiseexporters, the major suppliers of fuels and miningproducts increased their merchandise exports by atleast one third; Russian Federation (33%), SaudiArabia (44%), Iran (35%), and Venezuela (43%),Kuwait (57%) and Nigeria (36%).

China stands out among major traders exportingmanufactured goods with an increase of itsmerchandise exports of 28 per cent in 2005. Iron &steel and chemicals showed an above average tradegrowth in manufactured goods, while automotiveproducts, clothing and textiles encountered a belowaverage growth in 2005.

However, the WTO report said the phase-outof the Agreement on Textiles and Clothing had amajor impact on trade flows in those product groupslast year with China, India and Pakistan enhancingtheir share in global exports of textiles and clothing,while suppliers from South and Central America andAfrica are losing market share.


India’s Booming ServicesIndustry UpbeatINDIA’S globally applauded services industry seesseven to eight per cent growth in July-Decemberon expectations of new investments, repeat ordersand expansion plans, an industry study reveals.


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“The services sector expects a growth betweenseven and eight per cent from July-December andhas major expansion plans,” the Confederation ofIndian Industry (CII) said in a report.

The first-ever Services Sector Business OutlookSurvey conducted by the CII says 92 per centcompanies are planning investments of over Rs 10million ($222,000) during the six-month period and28 per cent plan investments of Rs 50 million ($1million) and above. Better sales, new projects, repeatorders and customers and billing rates are drivingthe positive outlook with as many as 60 per centindicating that they are moving up the value chain.

A whopping 83 per cent voted new customersas the reason for the positive business outlook. Thesurvey included companies engaged in business,communication, construction and relatedengineering services, distribution, education,environment, finance, health, tourism and travel,recreation, culture and sports.

With the services sector contributing 54 per centto India’s economic growth, the positive outlook hasled 83 per cent respondents to expect a correspondinggrowth in employment opportunities.

“Things look bright on the export front as well,”according to the survey. An 81 per cent of therespondents expect a rise in the value of exports,with new customers and billing rates during July-December adding to the optimism.

However, respondents feel that constraints onthe movement of natural persons (by many of thecountries) would remain unchanged, states CII.

One third of the respondents felt the constraintson the movement of natural persons may increaseduring the next six months and have called formeasures to mitigate existing restrictions on suchmovement.

India and several developing countries havebeen pursuing the matter of greater freedom in themovement of people for employment through theWTO.

The CII survey says the service industry is alsoupbeat about the economy. More than half (54%)the respondents expect the GDP to grow at over8.0 per cent during 2006-07. This reflects itsperformance during the first quarter of the current

financial year when it grew at 8.9 per cent comparedto 8.5 per cent in the previous year. This is due tothe buoyancy in the manufacturing and servicessectors, states the CII.

(www.ciionline.org, 6 November 2006)

Pact with EU could go Beyond FTANon-Tariff Barriers, Exporting Services andMovement of Professional in SpotlightTHE Trade and Investment Agreement (TIA) thatIndia and the European Union have agreed tonegotiate on is likely to go beyond a Free TradeAgreement and take into account various issues suchas non-tariff barriers, export of services andmovement of professionals between the two tradingpartners.

Currently, the EU is India’s largest tradingpartner with bilateral trade valued at $20 billion.But India contributes just 1.5 per cent of total EUtrade and is the 10th largest partner for EU.

List of RecommendationsRecognizing the potential for increasing bilateral

trade and economic exchanges, the High-LevelTrade Group set by India and the EU last year hasnow made a comprehensive list of recommendationson trade in goods and services, investments and ontechnical and sanitary and phytosanitary barriersto trade, intellectual property rights andcompetition policy.

It has also been decided that the proposed TIAwould cover over 90 per cent of the tariff lines offoreign trade.

Explaining the significance of the proposed TIA,a senior official told Business Line that despite tradeliberalization and lifting of quotas, Indian exportshave repeatedly got struck down in the EU, mostlyon account of non-tariff barriers.

“Normally, these issues could have been sortedout at the WTO forum, but there is realization thatprogress at the WTO has become very difficult giventhe different positions being held by the US, theEU and the developing countries.

This has probably prompted the EU to relentfrom its earlier stand of going in for only multilateralnegotiations to bilateral ones now,” the official said.


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Tariff Reductions

About the proposed tariff reductions, the officialsaid India was already committed to reducingimport tariffs and was also proposing FTAs withAsean and other countries.

“Already a significant part of Indian importsare on the zero-duty track and an agreement withthe EU would only provide a road map forconcessional imports in a phased manner,” headded.

CII Suggestion

According to the Confederation of IndianIndustry, the two biggest areas that would needdeeper negotiations would be mutual recognitionagreements for Indian services in the EU and fortechnical standards for goods.

This would be important for higher access tothe services market there through movement ofprofessionals. Also, considerable work would haveto be done to identify specific NTBs that impact theflow of goods and services, the CII said, and addedthat it would build a comprehensive list of suchbarriers that impact Indian goods and services trade.

(The Hindu Business Line, 15 October 2006)

India, EU Group Calls forAll-Sector LiberalizationINDIA and the European Union should liberalizeall segments of services trade, including movementof professionals, the high-level trade group (HLTG)set up for the proposed India-EU trade andinvestment agreement has said. National treatmentfor investors and elimination of duties on 90 percent of tariff lines and trade volume in seven yearstime are also part of the group’s recommendations.The group would submit its report at the India-EUpolitical summit following which a decision wouldbe taken on commencement of negotiations.

Speaking to ET, sources said that negotiationsmay not begin immediately but would start earlynext year after the US elections were over and theWTO talks were back on track. “The US, it seems,is putting pressure on the EU to delay thenegotiations as it feels that it might impact therevival of the Doha round of talks. Negotiationswill begin in two-three months time,” a source said.

In the area of services, the HLTG has suggestedfacilitating the mutual recognition of professionalqualifications in various sectors and related issuesand liberalizing commitments in Modes 1, 2, 3 and4 as well as exploring areas of mutual interest tofacilitate the mutual recognition of professionalqualifications in various sectors and related issues.

This would come as a shot in the arm for Indianprofessionals who would have easier access to themarkets of the 25 EU countries.

In goods, the report suggests that duties shouldbe eliminated on 90 per cent of tariff lines and tradevolume within seven years of the entry into forceof the agreement. Modalities for the treatment ofsensitive products would be agreed, includingreview clauses and partial liberalization.

In investment, the HLTG has proposedimproved market access and provision of nationaltreatment to investors. However, it adds that thehost and home states would retain their right toregulate.

According to sources, the national treatmentwas likely to be given on the basis of a positive listwhich would include an agreed number of areas.So, if India wants, it could exclude the entirefinancial services sector or parts of it like insurance.

(The Economic Times, 11 October 2006)

Services at Forefront as India,EU Plan CECANATIONAL treatment, mutual recognition ofprofessional qualification and competition policywould initially be in focus, as India and Europe areset to commence talks for a ComprehensiveEconomic Cooperation Agreement (Ceca),Government said.

National treatment is extending the treatmentthat is being given to national companies to foreigncompanies too. It is a safeguard against negativediscrimination for foreign companies. India isproactive about getting the national treatment for itscompanies in EU in the wake of several Indiancompanies taking over the EU companies, sources said.

An India-EU Ceca has the potential todramatically change the pattern of India’s foreigntrade, with the 20-country bloc being the single


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largest trading partner of the country. India’s tradewith the EU doubled in the last five years, even asEU’s share in India’s foreign trade decreased by 5per cent in the same period.

The proposal for India-EU trade and economicpact was recently taken up by European ParliamentPresident Josep Borrell with Commerce andIndustry Minister Shri Kamal Nath.

Shri Kamal Nath said Indian investment inEuropean companies instead created a synergy bymaking European companies more competitive. Forinstance, the landing gear and doors of Airbus planesare being made in Bangalore adding to thecompetitiveness of Airbus.

However, the EU is expected to argue stronglyin favour of a stringent competition policy to counterthe possibility of Indian companies having amonopoly in certain sectors and also for creating alevel-playing field for their companies.

The talks on mutual recognition agreement forprofessionals will be on the lines of such an agreementwith Singapore. Official sources, however, said itwould take 3-4 years to sign a Free Trade Agreement(FTA) between the two countries. The FTA wouldalso comprise a dispute settlement mechanism.

“The EU is a high level cost economy, whileIndia is a labour abundant economy. There areobvious complementarities and to exploit them, itwould be useful to ink an FTA which iscomprehensive enough to cover trade in goods,services and investment.

However, India is perceived to have anadvantage in services. And therefore, we need todo our best to get the trade barriers removed, likesigning a mutual recognition pact on professionalqualifications,” RIS Director General Nagesh Kumarsaid.

(The Financial Express, 7 October 2006)

Govt. to Commence Talks with US,UK on Opening Legal SectorIN the first step towards facilitating the openingup of the country’s legal sector to foreign lawyers,the Government has set up two working groups oflegal experts to commence a dialogue with theircounterparts in the US and the UK.

Commerce and Industry Minister Shri KamalNath said the objective of forming the groups wasto allow lawyers to participate in talks and find outthe problems and the areas of convergence before afinal decision is taken on opening up the sector. ShriNath said the UK group was formed under the India-United Kingdom Joint Economic and TradeCommittee (JETCO), while the US group was underthe India-US Business Council.

Shri Kamal Nath emphasized the need toamend the Partnership Act to allow Indian lawfirms to be multi-disciplinary and have more than20 partners.

Prime Minister Dr. Manmohan Singh had calledfor opening up of India’s legal sector. The CommerceMinistry, on its part, had already circulateddiscussion papers for opening up of legal servicesin preparations for taking a stand at a WTOdiscussion.

The Bar Council of India (BCI) Chairman ShriJagannath Patnaik, told FE that the BCI was stillopposed to the entry of foreign lawyers, directlyor indirectly, by using Indian lawyers as cover fortheir practice. “The main reason why we do nothave any disciplinary control of foreign lawyers,”he said. The BCI, so far, has not participated in talkswith the Government on the issue.

Supreme Court Bar Association President andsenior counsel Shri M.N. Krishnamani said theformation of separate working groups for the USand the UK was a good idea. He said beforeallowing entry to foreign lawyers, the Governmentshould ensure a reciprocal arrangement. Entryshould be given to those foreign lawyers whosecountries would allow Indian lawyers to practice inthat country, he said.

Due to resistance from the BCI and a majorityof lawyers, the Government has so far not takenany stance in legal services sector at the WTO. TheGovernment has also not allowed FDI in the sectordue to the same reason.

However, India has got requests from severalcountries like the US, the UK, Japan, Brazil andChina to liberalize the legal sector for foreign lawfirms.



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High-Level Group for ServicesSector in OffingMOOTING the liberalization of the legal andeducation sectors, Prime Minister Dr. ManmohanSingh said the Centre was considering setting up ahigh-level group in the Planning Commission. Thegroup will look into all aspects influencing theperformance of the services sector and suggest policymeasures to sustain its competitiveness.

The high-level group would comprise membersfrom the Government, business and academia, Dr.Manmohan Singh said while addressing the ServinXPO, the International Congress and Exposition onTrade in Services.

“I hope the recommendations of this groupwill act as a road map for the services sector,” hesaid. The Prime Minister said the service sectorsyet to make a mark on the Indian economy werethose which had not faced global competition andhad a weak regulatory framework. “TheGovernment has a job cut out for those sectors,”he said.

Singling out the legal services sector in thiscontext, he said, “With the increasing integrationof the Indian economy with the global economy,we need expertise in international law, commerciallaw and third country law. For this, a more openlegal sector is necessary.”

The Commerce Ministry has already circulatedconsultation papers for the opening up of legaland educational services. Dr. Manmohan Singhsaid in the education services, the country neededhuge investments to set up more universities andinstitutes. “We need a policy regime, whichfacilitates and promotes investment from bothpublic and private sectors in education services,”he said.

“I am told $3 billion is spent annually bystudents going to study abroad. This could be easilyretained in India if domestic educational facilitiesare expanded,” Dr. Manmohan Singh said. He saidhealth services was an emerging sector holdingimmense potential for the country.

Dr. Manmohan Singh said the country shouldexploit the opportunities in medical outsourcingand tourism. “For this, an accreditation

mechanism for hospitals and laboratories needto be established,” he said, adding there was aneed to develop standards that met internationalcustomer requirements. On the IT and BPOsector, he said by 2010, $110 billion of businesscould be off-shored with India in a position tocapture half this market.

He pointed out that services account for over50 per cent of the country’s GDP and that servicesexports, too, had increased and accounted for athird of India’s total exports of goods andservices.

“In fact it is services exports and foreignremittances that are keeping our current accountdeficit and our balance of payments in a comfortableposition. The largest single item in our export basketis the remittances sent back home by workers inforeign countries,” Dr. Manmohan Singh said.


PM Favours Opening Up ofLegal SectorHigh Level Group Soon to Help SustainService Sector CompetitivenessTHE Prime Minister, Dr Manmohan Singh, pitchedfor a “more open legal sector” in the country, statingthat expertise in international law, commercial lawand third country law is necessary as the Indianeconomy increasingly integrates with the globaleconomy.

He also underscored the need for establishingan accreditation mechanism for hospitals andlaboratories even while pointing out that healthservices are an emerging area that hold immensepotential for India.

Addressing a special session at the InternationalCongress and Exposition on Trade in Services,organized by the Federation of Indian ExportOrganizations (FIEO), Dr. Manmohan Singh said thecountry’s educational system must be expanded totranslate the “demographic dividend” into a“development dividend”.

He also indicated that the Government wouldsoon set up a high level group in the PlanningCommission to look into all aspects influencing the


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performance of the services sector and suggest policymeasures that would need to be taken to sustain itscompetitiveness in the coming years. This groupwould consist of members from Government,business and academia and its recommendations areexpected to act as a roadmap for this sector.

While indicating that offshoring was here to stay,the Prime Minister said that by 2010 as much as $110-billion business could be offshored and that thecountry was in a position to capture half this market.

“The direct and indirect employment impactcould exceed a crore job within five years. This couldcontribute an additional 1 per cent per year to ourGDP growth,” Dr. Manmohan Singh said.

He stressed the need to pay focused attentionto factors that affect the competitiveness of eachsub-sector. “Each sub-sector has its uniquecharacteristics. These need to be identified andmeasures taken to improve the supply capabilitiesof each sub-sector”, the Prime Minister said.

In education services, Dr. Manmohan Singh saidthat there is a need for greater investment, both bythe private and public sectors. “I am told that morethan $3 billion is spent annually by students goingfrom India to study abroad. This could be easilyretained in India if we are able to expandeducational facilities to meet everyone’s needs,” hesaid.

Services would continue to bear aproportionately larger burden of propelling thecountry’s economy to a higher growth trajectoryeven as all efforts were being made to boostagricultural and industrial growth.

The Prime Minister said the success of the servicesector “cannot be sustained if we do not improveour skill and knowledge base”.

Meanwhile, the Commerce and IndustryMinister, Shri Kamal Nath, said liberalcommitments from developed countries in allmodes, particularly in cross border supply andMode 4, would strongly incentivise negotiationsfor developing countries and enhance the latter’sability to respond to plurilateral requests. He saidthat flexibility to developing countries in takingcommitments is a must.

(The Hindu Business Line, 6 October 2006)

Service Exports Policy on WayPRIME Minister Dr. Manmohan Singh said that theUPA Government will shortly put together a policyframework to open up services like health, highereducation, and tourism to private and foreigninvestment, promote global competition and boostexports.

In order to finalize the policy to push upexport of services, the Prime Minister will shortlyconstitute a high-powered committee under theDeputy Chairman of Planning Commission,Montek Singh Ahluwalia. Representatives fromthe Ministries of Commerce, Communications,Information Technology would be joined byofficials from leading service providers, theacademic community and exporters into thepanel.

The panel will also examine the regulatoryframework before the services are opened up toforeign competition. “It is service exports, as wellas foreign remittances, which are keeping ourcurrent account deficit and our balance of paymentsin a comfortable situation,” said Dr. ManmohanSingh, who was speaking at the InternationalExposition on Trade in Services organized by theFederation of Indian Export Organization (FIEO)and the Commerce Ministry.

“We need to take advantage of India’sdemographics reflected in the large number ofpeople in the working age who will provide a skilledworkforce to support the economic machine inWestern economies,” Shri Arun Maira, Chairmanof the Boston Consulting Group, told HindustanTimes.

Former Planning Commission Member ShriN.K. Singh said regulatory issues, an enablingfiscal framework and administrative andprocedural simplification were needed to boostexport of services. “Seeking a symmetry betweenemerging demands and skills formation shouldbe focused upon,” Shri N.K. Singh told HT. ThePrime Minister said investments in educationalservices would lead to retaining $3.0 billion thatstudents from the country spend on overseaseducation.

(The Hindustan Times, 6 October 2006)


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Engg. Services Next Big Thing,but India May Miss the BusAFTER tweaking code, testing software, answeringcalls and processing documents, it’s probably timefor India Inc to look at engineering servicesoutsourcing (ESO). And with good reason.Engineering services is a $750 billion-a-year globalindustry and promises to be the next big frontierfor offshore firms. While only $10-15 billion of the$750 billion is at present offshored, the potential ishuge; about $150-225 billion by 2020. Already, globalcompanies in telecom, automotive, aerospace,utilities, construction and industrial machinery arelooking at India to cut costs via ESO. India has thepotential to corner a share of $12 to $16 billion by2010, but the more likely scenario is a size of a mere$3 to $5 billion! To take a big bite of the ESO pie,India has to fight off competition from Israel, China,Canada, Mexico and Eastern Europe.

As in the case of BPO, companies chasing ESOmight be saddled with low value, low marginbusiness unless they aggressively fight for a shareof the high value, high margin product and systemsengineering market, says a Nasscom-Booz AllenHamilton study on ESO.

When asked to elaborate on the reasons for thegap between potential market and what Indianmight actually get, Nasscom Vice President SunilMehta told ET, “India’s brand name is not as strongin ESO as it is in IT services and BPO. India needsto build significant manufacturing capability to tapthe ESO space. If we miss it, lot of the ESO workcould go to China, particularly in the telecom andembedded software space.”

To support the engineering services market,India will need about a quarter million engineersby 2020. While the current engineer graduate baseis adequate, it is not suitable for ESO tasks. Suchservices call for a good grasp of engineeringfundamentals. To meet the demand, “we not onlyneed to improve the quality of engineers but alsothe quantity,’’ says Shri Mehta.

Despite the hiccups, companies like GM, Intel,Texas Instruments, Daimler Chrysler, Bosch, ABB,Bechtel, Caterpillar are sourcing engineering servicesfrom India via captive units or through third partyproviders like Satyam, Wipro and Infosys. Says Sid

Pai, Managing Director, TPI India (an advisory firm),“about 95 per cent of the work we do relates to ITand BPO and about 5 per cent is engineering services.The latter is growing as there is lot of interest amongclients. Though in engineering services, it’s earlydays yet and key driver is the cost arbitrageadvantage that India offers.’’


Singapore to Recognize IndianProfessionals SoonINDIA and Singapore are close to signing a mutualrecognition agreement (MRA) on professionalqualifications. The move is part of the India-SingaporeComprehensive Economic Cooperation Agreement(CECA), and will be the first of its kind India willhave with any country in the services sector.

The two countries have already finalized a listof seven professions—chartered accountancy, costaccounting, company secretaryship, nursing,medicine, dentistry and architecture. “Theagreement is expected to be signed in the next threeto four months,” an official said, adding concretesteps in this direction had already been taken.

An MRA will ensure that professionalqualifications from Indian universities and instituteswill be recognized by the partner country—in thiscase Singapore—for the professionals to practice there.Currently, many countries in the developed worldput professionals qualified in India under variousscreening tests, before allowing them to practice.

“The agreement really removes the entrybarriers. It’s even bigger than getting a visa.Especially, when one takes into context the fact thatit is so difficult for Indian professionals like doctorsto practice in the US and Europe. They need to passa series of tests, though they have degreesrecognized in India,” said Dr. Rajiv Kumar, Directorand Chief Executive, Indian Council for Researchon International Economic Relations.

“But now all those doctors can have a flourishingpractice in Singapore. Even architects will bid forbig projects there. But time has come for moreservices, like law and education, to be added to thebouquet. Indians can compete with anyone in thosesectors. Some vested interests are creating all thefear,” he added.


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“The agreement is the first step. Aftersubsequent reviews, we will like more servicessectors to be added. There will be a gradual increasein the number of professionals going to that countryfrom India. India can also benefit from the expertiseof professionals from Singapore in some of thesesectors,” said Shri T.S. Vishwanath, Head of CII’sInternational Trade Policy.

However, a section of the services industrywants the Government to ensure a level-playingfield for Indian professionals by giving themadequate protection.


Biz Services Exports Up 139%in Q1INDIA’S exports of business services—comprisingaccounting, legal and auditing, managementconsultancy, tax consultancy and public relationsservices—jumped a phenomenal 139 per cent in Q1this fiscal over Q1 of 2005-06 to $4.55 billion.

“This is an encouraging trend. We expect exportof services to grow by an average 30 per cent a yearin the next five years,” Commerce Secretary, ShriG.K. Pillai told FE. Many Indian auditing andconsultancy firms had increased exposure tooverseas markets in recent past, he added.

Even though India is yet to decide on when toopen up legal and auditing services to foreigninvestment and participation, business services exportsdoubled to $10.38 billion in 2005-06 over $5.17 billionin 2004-05. But, Q1 of this fiscal is equal to 44 per centof the total in 2005-06 and 88 per cent of the total in2004-05. The maximum spurt is being witnessed inexports of financial services. In Q1 this fiscal, financialservices exports were up 170 per cent to $725 million.In 2005-06, such exports were up 232.8 per cent to$1.7 billion against $512 million in 2004-05.


Commerce Ministry Sounds outLegal Eagles on ReformsTHE Commerce Ministry, which faces domesticopposition over the proposal to open the legalservices sector to foreign law firms, has decided tocatch the bull by its horns. Since its discussion paper

on liberalizing legal services did not elicit much ofa response from its chief opponent — the Bar Councilof India — the Ministry has sent copies of the paperto every member of the Council and has called fordiscussions.

Speaking to ET, official sources said that it wasthe Bar Council and not individual lawyers whowere against liberalization. In fact, officials claimedthat young lawyers just entering the profession werekeen that the sector be opened up. “We haveobserved in our various interactions with law schoolsthat youngsters are keen to embrace the newopportunities that liberalization is going to offer.We have to somehow convince the Bar Council,” anofficial said.

According to the Commerce Ministry paper, theglobal legal services market is worth $20 billionannually, which could be tapped by Indian firmswhich were extremely competitive and providedexcellent services.

The paper added that Indian lawyers, with theirknowledge of English and the common lawtradition, should be able to capitalize on thisgrowing trade in services. The discussion papersought opinion on whether foreign legal consultantsof foreign firms should be allowed into the countryafter carrying out domestic reforms. “We don’t wantto force our views on the Bar Council. We just wantan honest discussion to take place,” an official said.

The Commerce Ministry, which has not yetmade any offers for opening up the legal servicessector at the WTO, has received offers from anumber of countries like the US, Brazil and Chinafor liberalizing the sector.


India Eyes Share in $30 bnGlobal Trade in EducationMinistry Releases Paper on Opening UpHigher EducationCAN India use the negotiations under GeneralAgreement on Trade in Services (GATS) as anopportunity to attract investment and explore exportmarkets? How much flexibility can be given to foreigneducation providers in the areas of setting fees,admission, hiring of teachers, course and syllabi?


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Whether compulsory self-disclosure by foreignand private education providers could be introducedto address the problems of misrepresentation? Whatare the barriers faced by the Indian educationalinstitutions in opening campuses abroad?

These are some of the posers in a consultationpaper released by the Commerce Ministry onopening up the higher and technical education inthe country.

The paper recommends that India should havea foolproof regulatory framework to regulateforeign and domestic private players. It adds that aviable financing model with participation from bothpublic and private sectors should be put in place.

The paper also expresses concern over the factthat only a miniscule 0.37 per cent of GDP is spenton higher education and the figure has been fallingin recent years.

It says India has one of the lowest publicexpenditure on higher education per student at $406compared with China’s $2,728, Brazil’s $3,986, US’s$9,629 and Germany’s $11,948.

On the positive side, India tops the list ofcountries, with 17,973 higher education institutes,including 348 universities and 17,625 colleges.However, despite an incredible growth in the highereducation sector, the total enrollment form onlyabout 11 per cent of the relevant age-group (17-23)population, the paper says.

It points out that global trade in higher educationis estimated at over $30 billion per annum. WhileIndia figures in the list of major education importingcountries along with China and Indonesia, the majorexporting nations in the sector are the US, the UK,Australia, Canada and the New Zealand. Currently,100 per cent FDI in higher education services onautomatic route is permitted in India.

(The Financial Express, 9 September 2006)

Trends in Global Exportsof ServicesRECENT years have witnessed a rise in globalservices exports, with India, China, Japan andIreland being the largest contributors. FromUS$819.6 bn in 1990, global services exports roseto US$2125.0 bn in 2004 and further to US$2415.0

bn in 2005. India and China reported thestrongest growth in services exports, followedby Ireland, Italy, Hong Kong and Japan. India‘sshare in global services exports rose to 2.8 percent in 2005 from 1.9 per cent in 2004, moving itup to tenth place in 2005. This was a significantjump of six places over the 2004 ranking, reflectedin greater software exports and improvedcoverage of transactions.

India’s services exports grew over 70 per centin 2005 to US$67.6 bn. This is the strongest growthrecorded by any of the top ten global servicesexporters. The key determinants of this rise wereIndia’s software exports, which grew from US$0.7bn in 1995-96 to US$23.6 bn in 2005-06, accountingfor about 38.9 per cent of India’s total servicesexports in 2005-06.

China’s services exports more than doubledduring the period 2001-05, from US$32.9 bn in 2001to US$81.2 bn in 2005. China accounted for 3.4 percent of global services exports and was ranked asthe eighth largest services exporter in 2005. The US,UK, Germany, France and Japan continue to be thetop five services exporters since 1990, togetheraccounting for 37.3 per cent of the world’s total

LEADING EXPORTERS IN WORLD TRADEIN COMMERCIAL SERVICES

(per cent share in global exports)

1990 2000 2004 2005

Rank Global exports 819.6 1,472.2 2,125.0 2,415.0in 2005 (US$ bn)

1. United States 16.2 18.8 15.0 14.62. United Kingdom 6.6 7.8 8.1 7.63. Germany 6.3 5.6 6.3 5.94. France 8.1 5.5 5.2 4.75. Japan 5.1 4.6 4.5 4.46. Italy 5.9 3.8 3.9 3.97. Spain 3.4 3.6 4.0 3.88. China 0.7 2.0 2.9 3.49. Netherlands 3.5 3.3 3.4 3.110. India 0.6 1.2 1.9 2.811. Hong Kong, China 2.2 2.6 2.5 2.512. Ireland 0.4 1.1 2.2 2.3

Note: Commercial Services comprise transportation services, traveland other commercial services (such as communication,construction, insurance, financial, computer & information,royalty & licence fees and other business services).

Source: WTO.


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services exports. Even though the US continuesto be the top services exporter, its share in globalservices exports has been steadily declining inrecent years from 18.8 per cent in 2000 to 16 percent in 2003, and further to 14.6 per cent in 2005.As seen in the table, India, China and Ireland haveregistered a continuous rise in their share in globalservices exports. In India, services sector hasemerged as the fastest growing sector in termsof exports, with implications on productivity,employment, trade and fiscal prospects for theeconomy. The services sector has contributed tostructural transformation in terms of substantialvalue added and skill intensive services such assoftware. Indian services exports were US$60.6bn in 2005-06 as compared to US$17.1 bn in 2001-02. Between 1970-71 and 2005-06, the share ofservices in GDP increased from 38.3 per cent to53.6 per cent. Growth in services sector hasprovided considerable resilience to the overallgrowth of the Indian economy.

Reflecting the importance of services in GDP,their share in global GDP has risen from 61 percent in 1990 to 68 per cent in 2003. The rise inshare of services in GDP has been more rapid incase of low and middle-income countries, from45 per cent to 53 per cent during 1990-2003. Theservices sector in India accounts for about 52 percent of the GDP.

(Eximius Export Advantage, September 2006)

HRD Talks Tough as CommerceMinistry Yields on CampusTHE Human Resource Development Ministry hasobjected to the Commerce Ministry’s proposal toalter India’s offer on education services to the WTO.

In order to put brakes on the CommerceMinistry’s plans to improve the offer on highereducation, HRD Minister Shri Arjun Singh haswritten to Prime Minister Dr. Manmohan Singhasking him to keep national interests in mind andensure a broader discussion on the issue in theCabinet, rather than a limited one by the CabinetCommittee on WTO matters.

The current draft of India’s offer on servicesproposes that while foreign educational institutionsoffering higher education will be subject to domestic

regulations, on matter of salaries for faculty andfixing fees, it should be left out of the purview ofthe University Grants Commission. The HRDMinistry has expressed its disagreement over thealtered offer in education services. The Cabinetrecently referred to a Group of Ministers, theforeign education providers bill which will bringall foreign education providers under the UGCumbrella.

The HRD Ministry says that it doesn’t want toallow use of concessions in the education sector asa bargaining chip for gains in other services sectorsduring negotiations. It argues that education servicessector is one of the least committed sectors by othercountries as well.

Instead, the Ministry argues that commitmentsmade through the revised offers of July 2005 farexceed what can be considered necessary in nationalinterest. The Ministry suggests that there exists astrong case to actually withdraw India’s earliercommitments.

As per the GATS negotiations, there are fourmodes of education services. Mode 1 or crossbordersupply would cover distance education programmesoffered by universities and open universities, andany education service provider. In its July 2005 offer,India placed no limitation on access in this mode,except that service providers would be subject toregulations, as applicable to domestic providers inthe country of origin. Mode 2 or consumptionabroad refers to travel by Indian students abroadfor education; in this too no limitations had beenplaced.

Mode 3 or commercial presence presents the realproblem. Here too, the Indian offer didn’t limitaccess, however, fees to be charged would be fixedby an appropriate authority so that it did not leadto charging capitation fees or profiteering. Also,service providers would be subject to domesticregulation. In the case of foreign investors havingprior collaboration in India, FIPB approval wouldbe required. In the case of Mode 4 or movement ofnatural persons, the Government does not plan tobind its policy.

(The Economic Times, 17 July 2006)


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India Warns of BackingOut on WTO OffersINDIA has warned that it may withdraw some ofits services offers if developed countries do notrespond to its requests in the area of off-shoreservices (Mode 1) and movement of workers andprofessionals (Mode 4).

In a seminar on services negotiations at theWTO organized by ICRIER, Commerce SecretaryShri S.N. Menon said India was looking forward toa balanced outcome. He said India expected theoffers, scheduled to be submitted next month, tocorrect the existing imbalance.

“We have not received satisfactory offers fromour trading partners in our main areas of interests—mode 4 and mode 1. We may go back on the offersthat we have placed on the table,” Shri Menon said.

On an optimistic note, however, he added thatIndia expected cooperation from developedcountries especially in movement of natural persons,which was of primary interest to India.

The Secretary explained that till developedcountries improve their offers, it would be difficultfor India to expand its offers by including newsectors and improving existing commitments.

WTO members are supposed to submit theirrevised offers in services by 31 July and their finalschedules by October-end.

India has so far received 14 plurilateral requestsfor liberalizing a whole range of sectors, includingtelecom, financial services, energy, legal, maritime,retail, education, environment and construction.

(The Financial Express, 7 June 2006)

Services Talks: India SeeksLiberal CommitmentsTo Respond to Requests fromDeveloped CountriesINDIA said that liberal commitments from thedeveloped countries in areas of cross border supplyand easier visa norms for movement of servicepersonnel under WTO would strongly increasedeveloping countries’ ability to respond to requests

from the developed world on sectors such as legal,distribution (retail) and education.

Addressing an ICRIER seminar on DevelopingCountries and Services Negotiations, the CommerceSecretary, Shri S.N. Menon, said that flexibilityto individual developing countries in takingcommitments has to be fully preserved.

Services Negotiations

He said that this was necessary as a number ofdeveloping countries are in various stages ofregulatory reform and that the levels ofdevelopment of individual services sectors showedwide variation.

Services negotiations in the WTO have beenproceeding following the request-offer approach.At the Hong Kong WTO Ministerial, the ministershad mandated that the bilateral request-offerprocess of services talks be supplemented byplurilateral approach to provide greater momentumto the negotiations. As a part of the plurilateralprocess, India has received 14 plurilateral requests.Some of the important plurilateral requests receivedby India are in sectors such as telecom, financial,maritime, legal, express delivery, education,environment, energy and construction services anddistribution.

(The Hindu Business Line, 7 June 2006)

WTO for Easing Migration Normsfor ProfessionalsTHE WTO is looking at the possibility ofintroducing new regulations to ensure that thequalification requirements for migratingprofessionals and verification procedures imposedby member countries are not unduly burdensome.

Addressing a seminar organized by FICCI inNew Delhi, WTO Director (Trade in ServicesDivision) Dr. Hamid Mamdouh said the world bodywas examining the scope of introducing newregulations in the area of qualification requirement,and that it was proving to be a difficult task. “It is avery difficult procedure, as this is an area which isbeing protected zealously by a number of members.We certainly want that qualification requirementsshould not act as an unnecessary burden,” he said.


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India, which is primarily interested in removingrestrictions on the movement of workers from onecountry to another, is an advocate for betterqualification requirement rules.

Dr Mamdouh said the extent to which countrieswere willing to move in the services negotiationswould only be evident after the revised offers weresubmitted by 31 July. He said although memberswere quick to submit requests, when it came tomaking offers, they were very slow.

According to the schedule agreed upon duringthe Hong Kong Ministerial of the WTO, the finaldraft schedules are to be submitted by membersbefore 31 October 2006.


India Applies Brakes on WTOProposalsINDIA will not improve its offers in services untilother members of the WTO, including the EU andthe US, respond favourably to its requests forliberalizing the movement of professionals andworkers (Mode 4) and off-shore services likebusiness process outsourcing (Mode 1).

It has also been decided that legal, retailing,education and audio-visual services will not beliberalized now, regardless of what other countriesoffer. All WTO members are expected to come upwith another round of offers, in July this year, withthe objective of concluding negotiations by the year-end.

Speaking to FE, officials said India hadalready made “ambitious” revised offers andthere was no question of further improving untildeveloped countries bettered their offers in Mode1 and Mode 4. In Mode 4, India soughtcommitments in cross border supply ofprofessional services, computer related services,other business services, health and education,tourism and financial data transfer.

The country also demanded transparency andrelaxation in qualification and licensing proceduresin various countries. In Mode 1, India wantsdeveloped countries to bind their commitments, atthe existing levels, to ensure that in the future, theydo not impose restrictions.

In both areas, the responses of developedcountries have been less than satisfactory. India,together with some other developing countries,also made requests for liberalization under Mode4 in the plurilateral discussions on services beingheld by about 35 countries, parallel to themultilateral request-offer process. In theplurilateral negotiations, India has receivedrequests in 14 sectors, including telecom, finance,distribution, legal, postal and courier, energy andeducation. While India ruled out making offersin legal, retail, education and audio-visual, it isopen to further liberalizing the other sectorsprovided its aspirations are taken care of bydeveloped countries.


More on Mode 4An Offensive Position on Mode 4 is RightINDIA’S proposal to the WTO for discipliningqualification norms for service providers is a positivestep, as movement of natural persons (Mode 4) is acrucial concern for developing countries andfailure to take an offensive position on this couldmean a huge loss of opportunity. Especially giventhe highly defensive position of key developedcountries.

In the post-Hong Kong talks in late March-early April, only one of the two exclusiverequests by developing countries related toimproved market access under Mode 4. Amongother things, it asked that economic needs tests(ENTs, which allow foreign suppliers only ifthere’s no domestic supplier) be removed or cutsignificantly. The response was (expectedly) over-cautious. But benefits to developing countries ofdeveloped country commitments are seriouslylimited without meaningful offers on Mode 4.Developing country service exporters continue tosuffer ENT’s requirements of nationality/residence, regulations, qualifications recognition,visas, wage parity, social security contributions,etc., especially for professional service providersunder Mode 4 or cross border trade, as in businessprocess outsourcing. On the other hand, limitsset by developing countries, such as on foreignequity, have either been autonomously


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liberalized or are in process; and GATS hasallowed flexibility on this so far.

India wants qualification norms to be pre-established, publicly available and based ontransparent criteria. But, significant gains will betough, unless developing countries harden ondeveloped countries’ insistence that they commitmore on opening up services especially underMode 3 (commercial presence). Far moreimportant is the latter’s huge domestic resistance,based on security issues and growing animositydue to jobs lost to outsiders. The highly defensivestrategy of developed country governments,purely defined by politics, is even to thedetriment of their commercial interests of gainingmore in Mode 3. If not on the WTO platform,perhaps strategies such as a comprehensiveeconomic partnership that India now wants topursue with the US and EU would deliver moretangible results.

(The Financial Express, 17 May 2006)

Take it ForwardRetain and Grow the Edge inServices ExportsTHAT India has a human resource edgecontributing to its success in export of services iswell known, a fact corroborated in the latestWorld Trade report, according to which India hasmoved up from 16 to 10, while China has movedup from 9 to 8. In a clear recognition of the strideswe’ve made in this area, the report describes thepace of progress as “considerable” for India (33%annual average growth during 2000-05) comparedto “slight” for China, whose exports grew 22 percent.

However, competition from China, a netimporter of commercial services, unlike India, ishotting, especially in IT. Even as India’s fast-growing ICT industry allows it the claim tobecoming a global software superpower, saysGartner Research, China is becoming a critical sourceof low-cost labour for the growing offshore/‘‘nearshore” service needs of US, European andAsian enterprises. And Chinese companies areaiming at qualifying for international standards.

Continued high-level investment in R&D andeducation is expected to contribute in China’sgrowth into an ICT powerhouse in a decade. Evenin other segments, China has seen some degree ofliberalization across banking, insurance, telecom andtransport services, dominated by state-ownedenterprises for long.

India’s edge so far has been due to low-costeducated manpower; it is a leader in the low andmedium-technology areas. It is time for India to goup the value chain, for which both quality highereducation and development of innovativecapabilities are key. Not only for IT, but for theentire range of commercial services, education andskills training are necessary.

On market access, cross border supply of services(Mode 1) and movement of natural persons (Mode 4)are crucial. Hence, post-Hong Kong, it’s time forcomprehensive and fast-paced work on examiningrequests and offers and arriving at clear proposals inthe ongoing talks. This must be coupled with domesticreforms on qualification and licensing requirementsand processes to help our service suppliers overcomebarriers to trade in the global markets and furtherefforts to lower transaction costs.

(The Financial Express, 9 May 2006)

FDI in the Services SectorTHE Importance of the services sector in economicgrowth has amplified with time. Higher averagegrowth rate of the services sector compared toagriculture and industry has resulted in animprovement in its share in global GDP from 61 percent in 1990 to 68 per cent in 2003. The share of theservices sector in GDP has risen not only in case ofhigh income countries (from 65 to 71 per cent), butalso in case of low & middle-income countries (from45 to 53 per cent) during 1990-2003. Particularly inIndia, the services sector, consequent to consistenthigh growth performance, accounts for the majorityor 52 per cent of the country’s GDP. Globally,increasing Foreign Direct Investment (FDI) flowsinto services have played a pivotal role in thegrowing trend. This is displayed by the significantgrowth in the share of service-oriented FDI in globalFDI stock from around 25 per cent in early 1970s tomore than 60 per cent at present.


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FDI in services, both outflows as well as inflows,though dominated by the developed countries, ison a growing curve in case of developing countriesalso. The share of developing countries in globaloutward FDI stock has escalated from a modest 1per cent in 1990 to more than 10 per cent in recentyears, and currently more than a quarter of globalservice oriented FDI flows are directed todeveloping countries. The emergence of developingcountries in global FDI flows into services could bepartly explained by the widening horizon of services,which are increasingly attracting FDI. Earlier, FDIin services used to be concentrated in trade andfinance. However, recent years have witnessedconsiderable growth in FDI in areas such astelecommunications. IT enabled services andelectricity & water access to better information andcommunication technologies, educated manpower,and conducive institutional infrastructure havefacilitated FDI into services in the destinationcountries. Countries have also liberalized theirservices FDI regimes, thereby attracting greaterdegree of inflows. Privatization programmes havealso facilitated increasing number of mergers &acquisitions in the services sector. In fact, servicesaccounted for more than 60 per cent of global crossborder M&As by the end of 1990s.

FDI in services strengthens the financialresources of a country and facilitates transfer oftechnology. Services Transnational Corporations(TNCs) bring in hard technology such as plant andequipment, as well as soft technologies likeinformation, knowledge, management andmarketing skills. FDI into services also enhancesexport competitiveness of sectors such as tourism.In recent years, offshoring of services has emergedas a distinct feature in global services FDI flows.Offshoring is being done either through theestablishment of foreign affiliates or by outsourcinga service to a third-party service provider. Whileoffshoring benefits the sourcing country in termsof cost implications, it enhances export opportunitiesof the destination country. The growth in IT-relatedexports from India in recent years could be cited asan instance in this regard.

The Asian Experience

In tune with global trends, the share of servicesin Asia’s FDI stock has risen from 43 per cent in

1995 to more than 50 per cent currently. The shareis particularly prominent in case of Hong Kong(93%), Macau (87.4%), Pakistan (71.7%), Singapore(63.8%) Sri Lanka (59%) and Thailand (56.8%). Itshows that Asian economies are considerablyservice-oriented and there exists an efficientinfrastructure for services such as finance,telecommunication, commerce, ITES, tourism. It hasbeen observed that majority of the service orientedFDI in Asia are directed to finance, transport,telecommunication, tourism and business services.Cross border M&A sales have contributed to thegrowth in services FDI in Asia with majority of suchcases taking place in North-East and South-EastAsia. Another important feature of the Asian storyhas been the increasing efforts towards attractingservices FDI through regional integration. Thegamut of trade agreements is being widened toComprehensive Economic Cooperation Agreement(CECA), with liberalization of the services sectorbeing an important constituent of the latter. TheASEAN India CECA, the Bay of Bengal Initiativefor Multi-Sectoral, Technical and EconomicCooperation (BIMSTEC) may be cited in this regard.With such initiatives in place and in the offing, FDIinflows in services in India could be expected toincrease substantially.

WTO and Services

Services are also an integral part of the WTO sincetheir inclusion in the Uruguay Round of negotiations,which led to the General Agreement of Trade inServices (GATS). The negotiations are underway sinceDecember 2000 and participants in the servicesnegotiations have been exchanging bilateral initialrequests since June 2002. India submitted its revisedoffer covering 11 sectors and 94 sub-sectors in August2005. India’s revised offer covers commitments in newservices. Commitments on FDI levels have also beenenhanced in existing sectors such as computer relatedservices, engineering R&D, technical testing, telecom,financial services, construction and relatedengineering services, and tourism services. Given theincreasing importance of FDI in services, it is expectedthat GATS would play a crucial role towardsliberalization of service FDI regimes and wouldcontribute towards creating a conducive environmentfor further growth of FDI in the services sector.

(Eximius Export Advantage, March 2006)


Books/Articles Notes

BOOKS/ARTICLESBOOKS/ARTICLESBOOKS/ARTICLESBOOKS/ARTICLESBOOKS/ARTICLESNONONONONOTESTESTESTESTES

BOOKS

Trade in Services: Advantage Indiaby Shailendra Kumar, Bookwell Publications,New Delhi, 2005.

ALL will agree that during the mid nineties theworld economy as a whole witnessed anunparalleled growth of trade in services. Its growthand significance became so critical that major tradingcountries and interested parties brought it underthe fold of WTO in 1995, thus establishing anagreement known as General Agreement on Tradein Services (GATS) to govern the conduct of entireworld trade in services. Today world services tradestands at US$ 2.10 trillion, a huge jump from itsprevious days. In fact in many developed countries,it accounts for more than 70 percent of their GDPand in a large number of developing countries itcontributes in a sizeable manner, i.e., more than 50percent to their GDP.

If trade in service- when visualized in terms ofgrowth- has become the buzzword of presentmultilateral trading regime, its past in the fifties,sixties or early seventies wasn’t so insignificantwhen one takes into account the services it providedin the sectors of transportation and communication.In fact such services have been in vogue for centuriesand formed the backbone of industrial revolution,even modern days economies. These services nevercame under the ambit of direct trading because ofits social and voluntary objectives, that it had toserve to the society and the state at large. The otherdisadvantage with this sector was that because ofits peculiar characteristics such as non-quantification,non-storability and simultaneity of production andconsumption, services couldn’t become tradable,hence remained beyond the fringes of world trade.All this reasons three to four decades ago wouldhave denied any trade officials or economists to

believe that services had anything to do with trade.Actually, trade in services was considered anoxymoron (Bhagwati and Hirsch, eds.).

Today’s scenario is a complete turn around.Everything for trade.With the technologicaladvancement and technological innovation, ideasand processes and their applications are gettingconverted into many unforeseen opportunities, andunder a multilateral trading regime theseopportunities are creating enormous wealth. Sectorslike IT and outsourcing are leading the pack. Indiabeing a front runner in this sector is currentlyenjoying a competitive advantage over othercountries. It is a proven fact that India’s corestrengths lie in services sector, especially in IT andsoftware. But it is not to suggest that its corecompetence only lies in IT, rather can be expandedto many sectors where knowledge is the key inputsuch as education, health, finance, tourism,accountancy and consultancy.

How India can face such challenges, convertplethora of opportunities into wealth creation andsecure a competitive place over other economies inthis fast changing dynamic world under amultilateral trading regime governed by WTO isvividly analysed and documented in this book.

The book in total has 16 chapters andencompasses a wide range of sectors. It has virtuallydealt with almost all the service sectors under thesun. It goes beyond the traditional areas of finance,insurance, transport, communication and tourismto new and dynamic ones such as IT, electroniccommerce, environmental, educational, maritime,energy, audiovisual, advertising and courierservices. It assesses the growing implications ofmultilateral trade liberalization of services in India.It gives a comprehensive account of India’s tradableservice sector, its present opportunities and futurepotentials in the context of on-going round of servicenegotiations. The book has an exhaustive reference



and index section which proves to be helpfulparticularly when there is a lack of literature anddata on the subject.

A striking feature of this book is its long anddetailed chapterisation. Some of the chapters whichprovide useful insights need a special mention. Tobegin with, Chapter I which deals with internationaltrade in services gives an interesting historicalperspective about the trade in services and how ithas politically, socially viewed earlier. A clear-cutsociological angle is established to understand theimportance of services in post industrialized worldand how for the first time it came to be recognizedas an activity which is wealth creating in nature.

The Chapter IV titled GATS and its implicationsfor India is analysed in a systematic way as it talksabout in detail how the entire activity of serviceswill be governed, and how domestic rules andregulations need to framed or reframed keeping inmind the requirements of the directions, ways andmeans of world trade in services is conducted.

As India’s economic prowess today lies on mode4, the book has eminently discussed this burningissue in services negotiations by devoting onechapter. Chapter V which deals with movement ofnatural persons (Mode 4) takes into account theconfusion hovering around the public debate aboutthe migration and movement of natural persons. Itforcefully argues in favour of India to demandspeedy liberalization of world services trade on mode4. It goes up to the extent to suggest that India can bea real agenda setter in services negotiations. Thechapter also looks at the visa problems, rules and talksof how the movement of natural persons are gettingcurtailed due to the visa constraint.

Other notable feature of this book is its chapterXV on audiovisual, advertising, and courier services.The point is these services may have formed part ofthe ongoing negotiations, but are not adequatelydiscussed and neither in the public focus. As theybecome the drivers of the new economy, there is animperative need to take them to the board ofnegotiations. To that extent, the book has given somethoughts to the issue. The potential of this particularsector is clearly visible as world services trade isalready technology driven.

The book in totality looks to be useful for peopledirectly or indirectly concerned with the issue.

ARTICLES

Domestic Regulation and the WTO: The Caseof Water Services in Developing Countries,by Colin Kirkpatrick, and David Parker, WorldEconomy, October 2005, Vol. 28 Issue 10,pp. 1491-1508.

THE paper considers the relationship betweennational regulatory autonomy and GATSliberalization in water services, since tradeliberalization of environmental services and waterservices in particular has been widely advocated asa means of increasing private sector participation inthe water sector in developing countries.

The paper also reviews empirical evidence onthe impact of private sector involvement in theprovision of water services in developing countries,and a number of reasons why water privatizationhas been problematic in lower-income countries areidentified, including transaction costs and regulatoryweaknesses.

The study concludes that developing countrieswith limited regulatory resources should adopt acautious approach to services liberalization bysequencing market liberalization measures to matchthe development of their regulatory institutionalcapacity.

GATS: Long-term Strategy for theCommodification of Education by ScherrerChristoph, Review of International PoliticalEconomy, August 2005, Vol. 12 Issue 3,pp. 484-510.

THE General Agreement on Trade in Services(GATS) covers cross-border provision of education.The negotiations which are underway to expandthe scope of the liberalization commitments in GATSfor educational services have indeed turned to bequite controversial among students, educationalprofessionals and unions. This is shown in the factthat while all the WTO member countries had to signGATS, only 53 of them have undertaken commitmentsin education.

The article describes the strategies that allowededucation to be seen as a tradable commodity. Itanalyzes the specific role of GATS procedures and ofthe already existent GATS commitments in the process



of the commodification of education. It assesses thecompetitive lead of Anglo-Saxon providers.

It looks at what is at stake in the current roundtaking the case of the EU as an example. The EU standsfor countries that have not yet made manycommitments and are now under pressure to liberalizeeducation. The article argues that the concerns aboutthe future impact of GATS are to be taken seriously.In line with the spread of neo-liberal constitutionalism,GATS provides a political and legal framework forderegulation and privatization of education. GATScan be used to secure the power of capital in the longterm by privileging private owners of educationalservices in relation to the public and to the actualproviders of these services, the faculty.

Service Providers on the Move - A CloserLook at Labour Mobility and the GATS, OECDPapers, 2003, Vol. 3 Issue 2, p. 2.

THIS article deals with mode 4 of the GATSagreement, which concerns movement of naturalpersons. Global events like increased trade andinvestment, global business networks, skillsshortages in developed countries, development ofexport capacity in skilled labour by developingcountries signify the importance of the issue oflabour movement among the WTO member nations.At the same time, the permanence of the GATScommitment and the fluctuating nature of labourmarkets make it a serious concern among them.

While new forces push for more labour mobility,concerns regarding the impact of temporarymovement on domestic labour markets ask forcaution. Though temporary movement is indeeddifferent from migration, both are increasinglyconfused in public debate because of shortage of short-term as well as long-term labour in many countries.

The paper delves into this difficult issue, wheretemporary movement is important from the pointof both the receiving and sending countries.Notwithstanding its small scale in total, temporarymovement is very important for some industriesand countries. The factor that the commitments inthis mode are far more complicated than in someother modes adds to the difficulty. Length of stayis rarely specified and many commitments aresubject to economic needs tests and a range of othermeasures such as quotas and pre-employment

requirements. Access can be further hampered bythe lack of recognition, for qualifications obtainedoverseas and non-transparent or unduly burden-some licensing requirements.

This mode 4 offers an interesting range ofchallenges in terms of liberalization of trade inservices, and the choice before the member nationsis how to balance a range of factors in closecooperation with stakeholders at both the nationaland international levels.

The “Nature” of Environmental Services:GATS, the Environment and the Struggle overthe Global Institutionalization of Private Lawby Martin Weber, Review of International PoliticalEconomy, August 2005, Vol. 12 Issue 3, p. 456.

THE article advocates that as trade in servicesliberalization is proceeding, there has been aconcerted effort to challenge and critically examinethe implications and reality of GATS agreement interms of its growing marketization. The area thatthe article focuses on is global ecology, which hasremained a contentious issue in both the regionaland multilateral contexts.

The relation of GATS with ecology can betermed as contradictory, in terms of theenvironmental implications of trade liberalizationunder GATS, vis-a-vis its own GATS Trade inEnvironmental Services Agenda (TIES). The writerterms the implications to be far reaching, and tracesthe origin of this contentious issue since itsbeginning, from the NAFTA negotiations, WorldSocial Forum till it reached its summit in the Doharound of negotiations, which included thecommitment to promoting environmental goals,pursuing the comprehensive positioning of WTOrules with reference to MEAs, and the re-affirmationof the fundamental compatibility of invigoratedglobal trade and environmental objectives bymaking environmental services a part of its trade inservices agenda.

The article also defines at length the variousnuances of the nature of environmental servicestrade, starting from the difficulty in identifying suchservices, and other complexities related to definitionof tradable commodity. It also explores thecontradictions via a critical deconstruction, whichaids the identification of sites of political engagement



vis-a-vis the substantiation of “global modernity”through economic integration.

The General Agreement on Trade in Services(GATS): What’s in it for Social Security?by Nicola Yeates, International Social SecurityReview, Jan.-Feb. 2005, Vol. 58 Issue 1.

THIS article explores what bearing the GATS has,or will have, on social security policy andadministration and what the effects might be. The“built-in agenda” of the GATS to liberalize servicestrade through subsequent rounds of negotiationsemphasizes the need to monitor its implications onnational security systems.

It explores the questions of impact through areview of legal, political and policy issues relatingto the status of social security within the GATS andthe consequences of applying the Agreement’sprovisions to social security. The author alsoanalyzes the International Labour Organization’sdefinition of social security which leaves out privateand non-statutory schemes that are determined bymarket forces, while having a look at the provisionsfor public and statutory schemes.

The discussion distinguishes between the supplyof social security services on the one hand and accessto and use of social security services, on the other.It also distinguishes between substantive questionsregarding the scope of the GATS and proceduralissues regarding governments’ scheduling practices.However, the issue of competition between financialservices providers is not clearly indicated in theGATS rules, which can be a major source ofcontention among countries.

The issue of social security for natural personsmoving from one member country to anothercountry on a temporary basis is important. Oneexample of how complicated this issue can be is theIndian Government’s argument regarding this: “Thedeveloping countries’ professionals are beingsubjected to payment of social security contributionsin the host country even though they are not eligibleto get the benefits from such contributions since theirperiod of stay under GATS is invariably lower thanthe minimum period required for such benefits toflow to them. The direct or indirect effect of all theselimitations is to raise costs of entry and operationfor service providers, reduce the scope for

technology and skill transfer, and force substitutionof domestic with foreign service personnel.”

The legal uncertainty in safeguarding theinterest of movement of natural persons and theirsocial security is leading towards a lot of confusionand doubts in the minds of member countries. Thearticle also highlights the difficulties of securingmultilateral cooperation among countries withdifferent levels of “development”, strategic interestsand priorities, and social security systems.

GATS and Liberalization of Services:Implications for India by Krushna MohanPattanaik, Journal of Services Research,April-September 2006, Vol. 6 Issue 1.

WITH trade in services emerging as a major sourceof economic growth despite internal constraints andexternal barriers, understanding the usefulness ofdomestic regulatory reforms for this sector isimportant. India’s need to focus on regulatoryreforms in relation to services trade is the mainfocus of this article. It also throws light on whatkind of trade barriers India observes in relation toservices trade and their impact on this sector.

As analyzed by the author, trade barriersgenerally serve as protection against competitions.However, in terms of trade in services, it is theinefficiency of the government in dealing with outsidecompetition which leads them to impose barriers, andsuch hindrances are liable to cause inefficiency.

Liberalization of services necessitates someshort and medium term adjustment costs. To reapthe benefits of liberalization and to deal with theproblems that it might create in the short andmedium term, liberalization of services must beaccompanied by domestic reforms. The writeranalyzes the example of mode 4 trade in services,which is movement of natural persons. Sincedeveloping countries have abundant labour, theyshould try for increased mobility of labour towardsdeveloped countries. Developed countries may seekto do mode 3 trade, being capital intensive.Therefore, if a developing country would strive toliberalize, they should liberalize their domesticinvestment regime to reap better benefits.

In India’s case, liberalization goes hand in handwith successful trade in services. Informationtechnology, being fully liberalized service, reaps in



impressive returns whereas protected sectors likelaw and accountancy records lower rate of returns.Therefore, in this article, the writer lists some policyprescription for developing regulatory frameworkunder which sector liberalization would not betotally unguarded, and would yet be marketoriented. A level playing and fair regime is a must,according to the author, for registering significantlyprofitable trade in services.

Liberalizing Network Infrastructure Servicesand the GATS by M. Geloso Grosso, OECD TradePolicy Working Papers, No. 34, OECD Publishing,2006, http://econpapers.repec.org/scripts/

THIS study reviews key issues in liberalizingnetwork infrastructure services includingtelecommunications, postal/courier, energy, waterand sewage in the national and multilateral contexts.The review is done in two parts. While Part Iinvestigates how regulatory objectives can beachieved in liberalized markets by exploringexperience with competition in several servicessectors previously provided solely by governments,Part II deals with network infrastructure servicesand GATS in particular.

Liberalization of network infrastructure servicesin an international context is not easy, as they haveenormous regulatory and economic implications,and is a concern for ensuring public policy objectives.The recent increase in trade in these services has infact led to stronger competition. In developingcountries, in particular, liberalization is seen as away to increase investment and improveinfrastructure performance. Due to lack of domesticcapacity and finance, when developing countrygovernments decide to open these services tocompetition, it usually includes a decision to acceptforeign participation. The study presents concreteexamples from both OECD and non-OECD countriesof how governments have used various regulatoryinstruments to achieve public policy objectives.

Part II of the report suggests that, if appropriatelydesigned, bound liberalization under the GATS cancontribute to the advancement of these developmentgoals. By creating a more transparent and predictablelegal framework, the GATS can contribute to improvethe investment climate and help attract FDI in thesesectors. This can in turn provide needed capital andtechnical and managerial expertise to build and expand

the networks and services. If appropriately designed,bound liberalization under the GATS can contributeto the advancement of national objectives byimproving investors’ confidence when countriesdecide to allow private sector participation in theseservices.

Special and Differential Treatment under theGATS, OECD Trade Policy Working Papers, No.26, OECD Publishing, 2006, http://puck.sourceoecd.org/vl=15735643/cl=14/nw=1/rpsv/cgi-bin/wppdf?file=5l9x44h03t6l.pdf

THIS report sets out the particular approach tospecial and differential treatment (SDT) in theGeneral Agreement on Trade in Services (GATS).It presents some initial empirical evidence on theuse and effectiveness of SDT provisions in the GATS,both in terms of market access in sectors of exportinterest to developing countries and services-relatedtechnical assistance.

A number of recent OECD studies are cited inthe paper to underline the importance of servicestrade liberalization for developing countries. Forexample, OECD estimated the welfare effects ofservices liberalization in a range of developingcountries and sectors, including air transport,telecoms, banking, distribution and professionalservices (OECD, 2005c), and the results suggest thatwith the exception of one country (Morocco), thegains to each country from unilateral servicesliberalization far exceed those from unilateral reformin agriculture and manufacturing. Since theproduction of many services is labour-intensive, ittherefore is a potential source of comparativeadvantage for developing countries.

One hindrance towards liberalization of theservices trade, felt by the developing countries isthe adjustment costs associated with removingbarriers and re-regulation, which immediately maybe more visible than the gains. But such costs aremoderate and the impact of liberalization on theeconomy is tremendous. Against this background,attention has focused on the utility and value ofexisting Special and Differential Treatment (SDT)provisions and the options for how they may bestrengthened.

The paper identifies six services sectors ofparticular export interest to developing countries:



maritime services, health and social services,distribution services, computer and related services,audio-visual services, and construction andengineering services. In the other sectors barringaudio-visual, developed countries have given morecommitments compared to developing countries.However, under the GATS agreement, the countrieshave to date (with the possible exception of thesectoral negotiations on basic telecommunications andfinancial services) only experienced relatively limitedmarket opening. The paper raises one importantquestion as to whether the flexibility in the GATS isone of the main reasons for the lack of progress.

Inter-modal Linkages in Services Trade,by R. Chanda, OECD Trade Policy WorkingPapers, No. 30, OECD Publishing, 2006, http://econpapers.repec.org/scripts/search.asp?

THE objective of this paper is to provide an integratedperspective on services sector trade and relatedmultilateral negotiations under the GATS so thatcountries can better leverage cross modal and cross-subsectoral trade opportunities, address constraintsin a holistic manner, and maximize the overall gainsfrom services trade. This is discussed in the light ofthe four modes of supply under the GATS, namelycross-border supply, consumption abroad,commercial presence, and movement of naturalpersons, termed modes 1, 2, 3, and 4, respectively.

There is much evidence to indicate inter-dependence across these four modes in services trade.There are essentially two types of linkages, namelypositive and negative linkages, which the authorillustrates using evidence from companies, countries,and surveys, and from a wide range of services.

The paper is divided into six sections. After theintroduction, Section 2 discusses the positive linkagesacross modes, providing examples from a range ofsectors. Section 3 discusses the positive linkages thatexist in the information technology (IT), businessprocess outsourcing (BPO) and health services.Section 4 discusses substitution effects acrossmodes. Section 5 discusses the negative linkagesacross modes in terms of intermodal distortions,and cross-cutting limitations. Section 6 concludesby outlining some domestic policy measures andstrategies, as well as modalities for the GATSnegotiations, which may help address the linkagesacross modes.

The extensive range of examples included,sector-wise and company-wise, to show howservices are traded through multiple modes ofsupply offer a useful insight into how othercompanies can formalize their strategies to enterservices trade and stand benefited to the maximum.The paper also lists some possible clusters andassociated modes that could be considered toindicate groupings of services under GATS.

The Linkages between Open ServicesMarkets and Technology Transfer, OECDTrade Policy Working Papers, No. 29, OECDPublishing, 2006, http://titania.sourceoecd.org/vl

THIS study analyzes the role of open servicesmarkets in the transfer and diffusion of technologyfrom developed countries to developing countries.It then investigates how open services markets canreduce the cost of technology transfer and help tobuild better absorptive capacities.

Part 1 of the study highlights the interlinkagesbetween the different modes of supply under theGATS and how this help in improving economicstatus of the receiving countries. When foreign firmscreate subsidiaries in the receiving economy, severaltypes of linkages can be created with local firmseither as suppliers (backward linkages) or customers(forward linkages), or even as competitors(horizontal linkages). Information and knowledgeare likely to flow from foreign services providersto the local economy. This would point to theimportance of interlink between all the four modesof supply which contributes to technology diffusion,and therefore, it is critical for trade policies to allowforeign technologies to enter the domestic market.

In Part II, the study investigates how open servicesmarkets can reduce the cost of technology transferand help to build better absorptive capacities,illustrating it with examples from five services sectorsthat play a central role in the process: business services,telecommunications, financial services, highereducation and training, and logistics services.

Part III analyzes the productivity gains fromservices trade liberalization and how open servicesmarkets encourage the diffusion of technologyinside the receiving economy.

The paper also presents policy implications andfuture directions in this regard. •


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DOCUMENTSDOCUMENTSDOCUMENTSDOCUMENTSDOCUMENTS

Council for Trade in ServicesSpecial Session

Special Session of the Council for Trade in ServicesREPORT BY THE CHAIRMAN TO THE TRADE NEGOTIATIONS COMMITTEE

Since my last report to the Trade Negotiating Committee in April, the Council for Trade in Servicesin Special Session met informally on 8 May, and formally on 24 May and 23 June 2006.

I. Review of Progress1. Fifteen groups met for the second time from 15-23 May to continue plurilateral negotiations inaccordance with Annex C of the Hong KongDeclaration. Intensive bilateral talks took placeduring this period as well. While Memberscontinued to discuss technical issues and exchangeinformation in a very positive spirit, they admittedthat these meetings were not as productive as theprevious round in March and April. They noted thatlack of progress in other areas of negotiations(especially in agriculture and NAMA) had impacton the services negotiations. Although someMembers stressed that the services negotiationswere important in their own right and should goahead in accordance with the Hong Kong mandate,others made it clear that their ability to makeservices commitments would depend on progressoutside of the services negotiations. Nevertheless,Members all agreed that the momentum generatedin the services negotiations should be maintained.A number of Members indicated that they wereholding domestic consultations with a view tosubmitting their revised offers by the end of July,as set out in the Hong Kong Declaration.2. Members noted that the implementation of theLDC Modalities was an important subject in theservices negotiations. They particularly noted thatmechanisms for according special priority to LDCsunder Article IV:3 of the GATS shall be developed

and completed before 31 July of this year as set outin the Hong Kong Declaration. They recognized thatif they were to meet the deadline, they would needto agree on a text as soon as possible. Whilesubstantive discussions were held in both formaland informal meetings, based on the text submittedby the LDC Group, Members still had divergentviews on a number of important issues relating tothe implementation of the LDC Modalities. Inaddition, the delegation of Zambia on behalf of theLDC Group presented the Group’s collective requestin Mode 4, contained in Job (06)/155. The LDCGroup requested Members to make commitmentsin four categories of natural persons, with eachcategory applying to a number of specified sectorsof export interest to this group.

3. With regard to the subsidiary bodies, the Chairof the Working Party on Domestic Regulation(WPDR) reported that Members had continued tohold substantive discussions on the proposals,including proposed legal texts, with regard toregulatory disciplines under Article VI:4 of the GATSwith a view to fulfilling the Hong Kong ministerialmandate. While the submission of new and revisedproposed texts generated considerable momentumin negotiations, the Working Party was still facingthe arduous task of bridging important gaps amongdelegations on the content of the disciplines. TheWorking Party on GATS Rules (WPGR) continuedits discussions on emergency safeguard measures,


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subsidies and government procurement. While anumber of issues had been raised and discussed,overall, there was not much change in the long-heldpositions on various issues. The Committee onSpecific Commitments (CSC) took note of theChairman’s suggestion of editorial conventions forthe submission of the second round of revised offers.The Committee also held discussions on therelationship between old and new commitments,

Working Party on GATS Rules

Government Procurement in ServicesCOMMUNICATION FROM THE EUROPEAN COMMUNITIES

The following communication, dated 19 June 2006, from the delegation of the EuropeanCommunities is being circulated to the Members of the Working Party on GATS Rules.

1. In its communications on governmentprocurement in services of July 2002, May 2003, May2004 and June 2005, the European Communities(hereinafter the EC) submitted proposals for aframework that could be developed under theGATS, including an Annex to the GATS onprocedural rules for government procurement andthe possibility to make specific commitments inGATS Schedules to open up to internationalcompetition government procurement in services.

These communications underlined the flexibility ofsuch framework and the benefits that could bedrawn from it. The underlying principle would bethat each WTO Member would undertake relevantgovernment procurement commitments only in thesectors it wishes to open to internationalcompetition in accordance with the procedural ruleslaid down in the Annex.

2. In its communication submitted in May 2004 (S/WPGR/W/48), the EC gave concrete examples

1. The Hong Kong Ministerial Declaration instructsWTO bodies to expeditiously complete theconsideration of proposals on S&D treatment andreport periodically to the General Council, with theobjective of ensuring that clear recommendations fora decision are made no later than December 2006. Inthe light of that decision I make the following report.

2. Since the Hong Kong meeting, the Special Sessionof the Council for Trade in Services has addressedthe issue of S&D treatment at four formal meetingsand two informal meetings. Members havecontinued to view this task as one of the most


Special Session of the Council for Trade in ServicesREPORT BY THE CHAIRMAN TO THE TRADE NEGOTIATIONS COMMITTEE

the scheduling issue of residency requirements, aswell as classification issues.

II. Future Work

4. The next formal meeting of the Special Sessionof the Council for Trade in Services is to take placeon 14 July 2006.

(TN/S/28, 31 July 2006; www.wto.org.)

important to be addressed by the Special Session in2006. I have urged Members to contribute furtherthinking, and make new submissions on the issueof S&D treatment in the GATS.

3. At the formal meeting of the Special Sessionwhich took place on 14 July, the African Grouppresented a refined version of an earlier text onthis issue. Delegations indicated that they wouldprefer to discuss the paper at the next meeting ofthe Council, once they had time to study its contents.

(TN/S/30, 31 August 2006; www.wto.org.)


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showing that undertaking government procurementcommitments under the GATS was feasible. In itscommunication of June 2005 (S/WPGR/W/52), theEC defined a set of procedural rules to bedeveloped in an Annex to the GATS on governmentprocurement in services.

3. The EC is hereby putting forward a newcontribution that aims at proposing the text of thisAnnex to the GATS on government procurement inservices. This contribution further builds upon theWTO Secretariat Note S/WPGR/W/49 on thegovernment procurement provisions contained ineconomic integration agreements. As Singapore hadunderlined in its Statement of 24 November 2004,most of the agreements reviewed in that SecretariatNote contain procedural rules typically coveringsuch topics as non-discrimination, valuation ofcontracts, technical specifications, procurementmethods, qualification of suppliers, procedural rulesregarding invitations to participate, time limits fortendering and delivery, tender documentation, andaward of contracts. These elements provide thestructure of an Annex to the GATS, and the ECcommunication of June 2005 has précised the typesof rules that could be developed under the relevantheadings.

4. Going one step further, the text of the herebyproposed Annex to the GATS on governmentprocurement borrows as much as possible from theprovisions contained in existing economicintegration agreements and already in force. Giventhe need for the proposed provisions to be adaptedto the situation of developing countries, asSingapore had emphasized in its communication ofNovember 2004, a specific S&D regime taking intoaccount the specific development, financial and tradeneeds of developing countries has been set up inTitle 5.

I. Summary of the Proposed GATS Annex onGovernment Procurement in Services

Title 1: Objectives

5. The proposed text indicates that the Annex resultsfrom the negotiations mandated by Article XIII:2of the GATS. It confirms that all the provisions ofthe GATS apply to government procurement ofservices, with the exception of Articles II, XVI andXVII (in accordance with Article XIII:1).

Title 2: Definitions

6. This Title defines a number of terms used in thetext of this Annex, in particular open, selective andlimited tendering procedures.

7. For the sake of clarity, it is precised that the term“procuring entity” refers only to entities listed inthe Schedule of specific commitments of eachMember, so that the procuring entities encompassedby the commitments of a Member are clearlydefined.

Title 3: Scope

8. The scope of the Annex is defined in accordancewith the wording of GATS Article XIII:1. For thepurpose of clarity, since a number of provisions ofthe draft Annex relate to procedural rules affectingindividual procurements of services, it is specifiedthat any action by a covered procuring entity relatingto government procurement falls under the scopeof this Annex.

9. As suggested in the latest EC communication,the text includes a provision precising that thisAnnex covers government procurement of services,defined as government procurement contracts inwhich services are the primary subject of thecontract.

10. The text states that Members have thepossibility to negotiate and undertake commitmentsrelating to government procurement of services intheir Schedules of specific commitments.

11. The Annex states that, with the exception of theMFN clause, its provisions only apply to sectors inwhich specific government procurement commitmentshave been taken under the Schedule, with thelimitations set therein. Thus, apart from the MFNtreatment, the scope of these provisions is limited tocontracts pertaining to the sectors and the procuringentities defined in each Member’s schedule.

12. The case where a contract involves severalservice sectors, that raised discussions in theWorking Party, is addressed through a specificprovision.

13. A provision also excludes covered procurementsintended to enable an activity when this activitybecomes exposed to competition in a Memberterritory.


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Title 4: Exclusions and Exceptions to this Annex

14. Article XIV and XIVbis of the GATS alreadyinclude a range of exceptions, that do not need tobe repeated in the Annex on governmentprocurement. Parties to the GPA have negotiatedadditional exceptions, in particular in order toprotect intellectual property or concerning measuresbased on social grounds. The proposed text providesfor similar exceptions.

Title 5: Special and Differential Treatment forDeveloping Countries

15. It is recalled that the positive list structure ofthe GATS and the flexibility of the proposedapproach, notably the possibility to schedule partialcommitments including specific limitations, meanthat WTO Members would retain full discretionabout the coverage of the commitments they wouldundertake to open their government procurementmarkets to international competition. In additionto this “built-in flexibility”, this Title provides fortwo other kinds of flexibilities helping developingcountries to open up progressively theirgovernment procurement markets in the servicesectors they see fit:

16. The first provision is the possibility fordeveloping countries to make use of a pricepreference programme or an offset for a transitionalperiod, under certain conditions. The secondprovision allows a developing country Member toapply an implementation period if necessary to bringits domestic regime into conformity with theprovisions of this Annex provided it complies withbasic principles of national treatment and non-discrimination. The use of these special provisionswould have to be mentioned in the Schedule ofspecific commitments of the concerned Members.

Title 6: General Principles

17. The text provides for National Treatment,subject to the limitations indicated in a Member’sschedule.

18. As suggested in the previous communications,the text provides for the application of the MFNtreatment to government procurement in services.This provision would apply across the board assuggested through previous discussions held in theWorking Party on GATS Rules.

19. This Annex provides for a one-off possibility toschedule MFN exemptions at the time of its entryinto force, to take account of the fact that MFNexemptions relating to government procurementwere not scheduled at the time of entry into forceof the GATS because Article II GATS was notapplying to government procurement. Thescheduling of MFN exemptions relating togovernment procurement could follow the usualframework of the GATS lists of MFN exemptions,with an additional list attached to this Annex.

20. In addition, the suggested text includes anexception to the MFN principle to ensure that themore favourable treatment that GPA parties mayaccord to each others in the framework of the GPAregime is not extended on an MFN basis to nonGPA parties.21. A specific paragraph provides basic principlesto ensure a proper use of electronic means, moreand more commonly used in procurements.

22. Another general principle provided by the textis the absence of application of rules of origin forservices supplied under government procurementdifferent from the rules applied for the same servicesin the normal course of trade.23. Like in many economic integration agreements,the suggested Annex includes a provision thatprohibits offsets, except under the special anddifferential treatment for developing countries.

Title 7: Thresholds and Valuation Rules24. Threshold values would be indicated in theMembers’ Schedules. Although the presentframework is very flexible, the experience pleadsfor the existence of only two thresholds: one forconstruction services, and another one for all otherservices. In addition, the EC reiterates the practicalinterest of harmonized thresholds amongstMembers.

25. The suggested Annex includes provisionscommon to most of economic integrationagreements regarding the valuation of contracts. Inparticular, Members’ procuring entities are notallowed to split or divide government procurementcontracts with the intention of avoiding orcircumventing the application of specificcommitments for procurement above certainthresholds.


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Title 8: Publication of Procurement Information26. The text requires the publication of any measureof general application and general procedurecovering government procurement in services in anofficial publication to be listed in the Schedule ofspecific commitments.

Title 9: Publication of Notices27. Effective access to government procurementopportunities is closely linked to competitive andtransparent procedural rules. This Title covers thepublication of a notice of intended procurement andthe information it should include.

28. The draft Annex provides the possibility ofpublishing notices of planned procurement, allowingservice suppliers to be informed in advance of futureprocurements. As an additional flexibility, entitiesoperating in the utilities sectors may use such anotice of planned procurement as a notice ofintended procurement, under some conditions.

Title 10: Information on Intended Procurement

29. The proposed Annex indicates simple usualrules: the information made available should allowsuppliers to submit tenders in a responsive manner.Besides, the procuring entity should reply torequests from suppliers for documentation orinformation.

30. The suggested text provides for simple andusual rules regarding technical specifications. Theseshould allow tenders to provide a wide range ofpossible technical solutions. In particular, technicalspecifications shall be in terms of performance orfunctional requirements rather than design ordescriptive characteristics, and based on recognizedstandards.

Title 11: Conditions for Participation

31. This Title provides for a set of common rulesregarding non discrimination, transparency, andopenness of the qualification process for suppliers.

32. Specific provisions address the case of selectivetendering, with procedural rules regardinginvitations to participate and examination ofrequests by suppliers for participation in aprocurement.

33. The Annex allows multi-use lists of suppliers,under some conditions relating to applications for

qualification and inclusion in the list. Entitiesoperating in the utilities sector are provided withan additional flexibility with the possibility to use anotice inviting suppliers to apply for inclusion on amulti-use list as a notice of intended procurementunder a few conditions.

34. Finally, the proposed text is intended to ensurethat service suppliers are informed of the outcomeof their requests for qualification, or of thetermination of their qualification, with appropriateexplanations upon request.

Title 12: Time Periods

35. The text provides for general principlesgoverning the fixing of time periods by Members.In addition, it is suggested to adopt a commonrange of time periods. Taking into account theinformation provided by the WTO Secretariatabout existing provisions on this matter inplurilateral or bilateral agreements, the textindicates as a general rule a minimum period of40 days between the date of publication of thenotice of intended procurement and the final datefor the submission of tenders.

36. When the procuring entity requires suppliersto satisfy qualification requirements in order toparticipate in the procurement, a minimum periodof 25 days is provided between the date ofpublication of the notice of intended procurement,and the final date for submission of applications tobe invited to tender by suppliers. A period of 40days is provided between the date of issuance ofthe invitation to tender and the final date forsubmission of tenders.

37. The text provides that these limits may bereduced in certain specified circumstances, but tono less than 10 days.

Title 13: Negotiation

38. As it is the case in some agreements, ashighlighted by document S/WPGR/W/49, theAnnex opens the possibility of conductingnegotiations.

Title 14: Limited Tendering

39. The Annex allows the use of limited tendering,under conditions and circumstances closelycircumscribed as it is the case in several economic


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integration agreements: for example in the absenceof suitable response to a prior procurement,situations of extreme urgency brought about byevents unforeseeable by the procuring entity, andobjective necessity or relevance to contract with aparticular supplier.

Title 15: Treatment of Tenders and Contract Award

40. The text asserts basic principles relating to theprocedures of treatment of tenders and theconditions to be met by the latter to be consideredfor award.

41. The general rule is that contracts are awardedeither to the lowest tender or to the tenderdetermined to be the most advantageous in termsof the specific evaluation criteria set earlier in theprocurement notice or tender documentation. Arange of possible award criteria is provided in thetext.

Title 16: Transparency of Procurement Information

42. The proposed text is intended to ensure thattenderers are promptly informed of the outcome ofthe award process and have access upon request toexplanations relating to the rejection of their tenders.In addition, procuring entities are required topublish a notice of contract award.

Title 17: Domestic Review

43. Without prejudging the outcome of ongoingdiscussions on Domestic Regulations, and for thepurpose of specifically implementing GATSArticle VI:2 for government procurement ofservices, a range of measures is provided underthis Title, relating to challenges of a breach ofthe Annex by service suppliers. These measuresare related to, but not only, the provision of areview procedure, consultations between acomplaining supplier and the concerned procuringentity, designation of an impartial administrativeor judicial authority to receive and review achallenge, judicial review of review bodies,procedures for interim measures, or correctiveor compensation actions.

II. Conclusions44. The EC looks forward to discussing thisproposed Annex to the GATS on governmentprocurement in services.

ANNEX TO THE GATS ONGOVERNMENT PROCUREMENT

Title 1: Objectives

1. Pursuant to the mandate given by Article XIII:2of the Agreement, the Members have agreed to thefollowing Annex with the objective of elaboratingupon the provisions of the Agreement with respectto measures affecting government procurement.With the exception of Articles II, XVI and XVII ofthe Agreement, and unless otherwise stated, allprovisions of the Agreement are applicable to thematters regulated in this Annex.

Title 2: Definitions

2. For the purposes of this Annex:

(a) Commercial services mean services of a type thatare generally sold or offered for sale in thecommercial market place to, and customarilypurchased by, non-governmental buyers fornon-governmental purposes;

(b) Limited tendering procedures are thoseprocedures where a procuring entity contacts asupplier or suppliers of its choice only underthe circumstances specified in Paragraph 50;

(c) Multi-use list means a list of suppliers that aprocuring entity has determined satisfy theconditions for participation in that list, and thatthe procuring entity intends to use more thanonce;

(d) Notice of intended procurement means a noticepublished by a procuring entity invitinginterested suppliers to submit request forparticipation and tenders;

(e) Procuring entity means an entity covered underspecific commitments on governmentprocurement in the Schedule of each Member;

(f) Offsets in government procurement meansany condition or undertaking that encouragelocal development or improve a Member’sbalance-of-payments accounts, such as the useof domestic content, the licensing oftechnology, investment, counter-trade, andsimilar actions;

(g) Open tendering procedures are those procedureswhereby any interested supplier may submit atender;


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(h) Selective tendering procedures are thoseprocedures whereby, consistent withParagraphs 37 and 38 and other relevantprovisions of this Annex, only supplierssatisfying the conditions for participation maysubmit a tender.

Title 3: Scope

3. This Annex applies to laws, regulations,requirements, or any action by a covered procuringentity, concerning the procurement of servicespurchased for governmental purposes and not witha view to commercial resale or with a view to use inthe supply of services for commercial sale.

4. For the purposes of this Annex, coveredprocurement includes the procurement of goodsincidental to the supply of services if the value ofthese incidental goods does not exceed that ofthe services themselves, but not goods contractsper se.

5. In accordance with GATS Article XVIII, Membersmay negotiate commitments with respect tomeasures within the scope of Paragraph 3 andinscribe them in their Schedules.

6. With the exception of Paragraph 16, theprovisions of this Annex apply to measuresconcerning procurement of services only in thesectors where specific commitments on GovernmentProcurement have been undertaken according to aMember’s Schedule of specific commitments, underthe conditions and limitations set therein.

7. In case a single procurement contract involvesmore than one service sector, it shall be subject tothe provisions of this Annex if all the service sectorsconcerned are covered by a Member’s commitmentspursuant to this Annex. In such a case, and wherethe provisions of this Annex provide for differentobligations, it shall be subject to the provisions ofthe Annex applying to the predominant servicesector concerned.

8. Procurements covered under a Member’s specificcommitments on government procurement andintended to enable an activity by a procuring entityshall not be subject to the provisions of this Annexif, in the Member in which it is performed, theactivity is directly exposed to competition onmarkets. Each Member shall notify the Council forTrade in Services about such activities.

Title 4: Exclusions and Exceptions to this Annex

9. Nothing in this Annex shall be construed to preventany Member from taking any action or not disclosingany information that it considers necessary for theprotection of its essential security interests relatingto the procurement of arms, ammunition, or warmaterials, or to procurement indispensable for nationalsecurity or for national defence purposes.

10. Subject to the requirement that such measuresare not applied in a manner that would constitute ameans of arbitrary or unjustifiable discriminationbetween the Members where the same conditionsprevail or a disguised restriction on internationaltrade, nothing in this Annex shall be construed toprevent any Member from imposing or enforcingmeasures:(a) necessary to protect intellectual property; or(b) relating to services of handicapped persons,

philanthropic institutions, or prison labour.

Title 5: Special and Differential Treatmentfor Developing Countries

11. In the implementation and administration of thisAnnex, Members shall take special consideration ofdeveloping countries’ development, financial andtrade needs and circumstances. In this context, thereshall be appropriate flexibility for individualdeveloping country Members for transitionalmeasures as provided for under Paragraphs 12 and13.

12. Based on its development needs, a developingcountry Member may adopt or retain one or moreof the following transitional measures for amaximum period of 10 years, in accordance with aphase-out schedule, set out in its Schedule of specificcommitments, and in a manner that does notdiscriminate among the Members:

(a) a price preference programme, provided thatthe programme:(i) provides a preference only for the part of

the tender incorporating services originatingin the developing country Member applyingthe preference or services originating inother developing countries Members thathave preferential agreements with thedeveloping country Member applying thepreference; and


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(ii) is transparent, and the preference and itsapplication in the procurement are clearlydescribed in the notice of intendedprocurement covered by this Annex;

(b) an offset, provided that any requirement for,or consideration of, the imposition of the offsetis clearly stated in the notice of intendedprocurement and the notice inviting suppliersto apply for participation in procurementcovered by this Annex;

13. In order for a developing country Member tobring its measures into conformity with this Annex,it may apply a specified implementation period,which shall be the period necessary for it to adoptmeasures relating to specific provisions of thisAnnex, provided that the developing countryMember complies with Paragraphs 15 and 16.

14. Any developing country Member wishing toapply an implementation period under Paragraph13 shall list in its Schedule of specific commitmentsthe implementation period, and where applicable,specific procedural obligations and any interimmeasures that it will take with regard to thoseobligations.

Title 6: General Principles

National treatment and non-discrimination

15. With respect to all measures within the scopeof this Annex and subject to any conditions andqualifications set out in its Schedule of specificcommitments, each Member shall accord to servicesand service suppliers of any other Member treatmentno less favourable than that it accords to its ownlike services and service suppliers.16. (a) With respect to any measure within the scope

of this Annex, each Member shall accord toservices and service suppliers of any otherMember treatment no less favourable than thatit accords to like services and service suppliersof any other country.

(b) A Member may maintain a measure inconsistentwith (a) provided that such a measure is listedat the date of entry into force of the presentAnnex. The list of such exemptions shall beadded to this Annex.

(c) By way of derogation from (a), where a Memberwhich is also a Party to the Agreement onGovernment Procurement (GPA) grants, as a

result of its obligations under the GPA, morefavourable treatment to services and servicesuppliers of another GPA Party than it does toWTO Members which are not GPA Parties, it shallnot be required to grant such treatment to servicesand service suppliers of any other Member.

Conduct of procurement

17. A procuring entity shall conduct coveredprocurement in a manner that is consistent with thisAnnex, using methods such as open tendering,selective tendering and limited tendering.

Use of electronic means

18. When conducting covered procurement byelectronic means, a procuring entity shall:

(a) ensure that the procurement is conducted usinginformation technology systems and softwarewhich are generally available and interoperablewith commonly used information technologysystems and software, including those relatedto authentication and encryption of information;and

(b) maintain mechanisms that ensure the integrityof requests for participation and tenders,including establishment of the time of receipt,and the prevention of inappropriate access.

Rules of origin

19. For purposes of covered procurement, noMember may apply rules of origin to servicessupplied by another Member that are different fromthe rules of origin the Member applies at the sametime in the normal course of trade to supplies of thesame services from the same Member.

Offsets

20. With regard to covered procurement, procuringentities shall not seek, take account of, impose, orenforce offsets, except in the situation and underthe conditions mentioned in Paragraph 12.

Title 7: Thresholds and Valuation Rules

Thresholds

21. The provisions of this Annex apply to anyprocurement contract of a value of not less than therelevant threshold indicated in the concernedMember’s Schedule of specific commitments ongovernment procurement.


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Valuation

22. In estimating the value of a procurement forthe purpose of ascertaining whether it is a coveredprocurement, a procuring entity shall:

(a) neither divide a procurement into separateprocurements nor select or use a particularvaluation method for estimating the value of aprocurement with the intention of totally orpartially excluding it from the application of thisAnnex; and

(b) include the estimated maximum total value ofthe procurement over its entire duration,whether awarded to one or more suppliers,taking into account all forms of remuneration,including premiums, fees, commissions, interest;and where the procurement provides for thepossibility of option clauses, the estimatedmaximum total value of the procurement,inclusive of optional purchases. Whenprocurement involves the supply of incidentalgoods or services in addition to its main object,the valuation of the procurement includes thevaluation of these incidental goods or services.

Title 8: Publication of Procurement Information

23. Each Member shall promptly publish any law,regulation, judicial decision, administrative rulingof general application, standard contract clauses thatis mandated by a law or regulation and isincorporated by reference in notices and tenderdocumentation and procedure regarding coveredprocurement, and any modifications thereof, in anofficially designated electronic or paper medium thatis widely disseminated and remains readilyaccessible to the public and that is listed in itsSchedule of specific commitments.

Title 9: Publication of Notices

Notice of intended procurement

24. For each intended covered procurement, exceptin the circumstances described in Paragraph 50, aprocuring entity shall publish a notice of intendedprocurement inviting interested suppliers to submittenders or, where appropriate, request forparticipation. Each such notice shall be published inthe appropriate medium referred to in Paragraph23, and shall be accessible during the entire periodestablished for tendering for the relevantprocurement.

25. Each notice of intended procurement shallinclude a description of the intended procurement,any conditions that suppliers must fulfil toparticipate in the procurement, the name of the entityissuing the notice, the address where suppliers mayobtain all documents relating to the procurement,the time limits for submission of tenders or, whereapplicable, any time limits for the submission ofrequests to participate in the procurement, a list andbrief description of any conditions for participationof suppliers, and the dates for delivery of theservices to be procured.

Notice of planned procurement

26. Procuring entities are encouraged to publish asearly as possible in each fiscal year a noticeregarding their future procurement plans. Thisnotice should include the subject-matter of theprocurement and the planned date of the publicationof the notice of intended procurement.

27. Entities operating in the utilities sector may usea notice of planned procurement as a notice ofintended procurement provided that it includes asmuch of the information in Paragraph 25 as isavailable.

Title 10: Information on Intended Procurement

Tender documentation

28. Tender documentation provided to suppliersshall contain all information necessary to permitthem to submit responsive tenders. Unless alreadyprovided in the notice of intended procurement,such documentation shall provide at least a completedescription of the procurement, any conditions forparticipation of suppliers, all criteria to beconsidered in the awarding of the contract, and anyother terms or conditions, including terms andconditions of payment.

29. Where procuring entities do not offer free directaccess to the entire tender documents and anysupporting documents by electronic means,procuring entities shall make promptly available thetender documentation at the request of any supplierof another Member.

30. Procuring entities shall promptly reply to anyreasonable request for relevant information relatingto the intended procurement, on condition that suchinformation does not give that supplier anadvantage over its competitors.


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Technical specifications

31. In prescribing the technical specifications for theservices being procured, a procuring entity shall,where appropriate:

(a) specify the technical specification in terms ofperformance and functional requirement ratherthan design or descriptive characteristics;

(b) base the technical specification on internationalstandards, where such exists; otherwise onnational technical regulations, recognizednational standards, or building codes.

32. Where design or descriptive characteristics areused in the technical specifications, a procuringentity should, where appropriate, include wordssuch as “or equivalent” in the tender documentationand consider tenders of equivalent services thatdemonstrably fulfil the requirements of theprocurement.

33. There shall be no requirement or reference to aparticular trademark or trade name, patent, designor type, specific origin, producer or supplier, unlessthere is no sufficiently precise or intelligible way ofdescribing the procurement requirements andprovided that words such as “or equivalent” areincluded in the tender documentation.

Title 11: Conditions for Participation

General

34. Any conditions for participation in procurementshall be non discriminatory and limited toconditions essential to ensure that the potentialsupplier has the capability to fulfil the requirementsof the procurement and the ability to execute thecontract in question.35. Nothing in this Annex shall preclude theexclusion of any supplier on grounds such asbankruptcy or false declarations or conviction forserious crime such as participation in criminalorganizations.

36. Procuring entities shall recognize as qualifiedsuppliers all suppliers who meet the conditions forparticipation in a particular intended procurement.Procuring entities shall base their qualificationdecisions solely on the conditions for participationthat have been specified in advance in the notice ofintended procurement or in the tenderdocumentation.

Selective tendering

37. A procuring entity that intends to use selectivetendering shall, in the notice of intendedprocurement, invite suppliers to submit a requestfor participation and shall give a description ofthe intended procurement, the qualificationrequirements, the name and the address of theprocuring entity, and the time-limits for thesubmission of the request to participate.

38. Where a supplier submits a request to participate,and all required documents relating thereto withinthe time-limit provided for in Paragraph 46, aprocuring entity, whether or not it uses a multi-uselist, shall examine the request and may not excludethe supplier from consideration in respect of theprocurement on the grounds that the procuring entityhas insufficient time to examine the application.

Multi-use lists

39. A procuring entity may maintain a multi-use listof suppliers, provided that a notice inviting interestedsuppliers to apply for inclusion on the list is publishedannually, or made available continuously by electronicmeans in one of the appropriate media listed in theSchedule of specific commitments.

40. The notice referred to in Paragraph 39 shallinclude at least a description of the services forwhich the list may be used, the conditions forparticipation to be satisfied by suppliers, the nameand address of the procuring entity, and the periodof validity of the list as well as the means for itsrenewal or termination.

41. Procuring entities maintaining muti-use lists shallensure that suppliers can apply for qualification atany time, and that all qualified suppliers are includedin the lists within a reasonably short time.

42. Entities operating in the utilities sector may usea notice inviting suppliers to apply for inclusion ona multi-use list as a notice of intended procurement,provided that:(a) the notice sets out, in addition to the information

required in Paragraph 40, as much of theinformation required in Paragraph 25 as isavailable and contains a statement that itconstitutes a notice of intended procurement;

(b) the procuring entity promptly provides tosuppliers who have expressed an interest in agiven procurement sufficient information to


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permit them to assess their interest in theprocurement;

(c) a supplier having applied for inclusion in the multi-use list in accordance with paragraph 41 shall beallowed to tender in a given procurement, only ifthere is sufficient time to examine whether itsatisfies the conditions for participation.

Information on procuring entities’ decisions

43. A procuring entity shall promptly advise anysupplier that requests qualification of its decisionas to whether the supplier is qualified. Where aprocuring entity rejects a supplier’s application toqualify or ceases to recognize a supplier as qualified,the entity shall inform the supplier and, on requestof the supplier, promptly provide the supplier witha written explanation of the reasons for its decision.

Title 12: Time Periods

44. Time-limits established by the procuring entitiesduring a procurement process shall be sufficientlylong to enable suppliers to prepare and submitrequests for participation where appropriate, andresponsive tenders, in relation to the nature andcomplexity of the procurement, the extent ofsubcontracting anticipated, the normal time fortransmitting tenders by mail from foreign as wellas domestic points, and the possibility for theprocuring entities to send notices or give access totender documentation through electronic means.

45. Except insofar as provided in Paragraph 47,procuring entities shall provide no less than 40calendar days between the date on which the noticeof intended procurement is published and the finaldate for the submission of tenders.

46. Where a procuring entity requires suppliers tosatisfy qualification requirements in order toparticipate in a procurement, the entity shall provideno less than 25 calendar days between the date onwhich the notice of intended procurement is publishedand the final date to submit their application to beinvited to tender and no less than 40 calendar daysbetween the date of issuance of the invitation to tenderand the final date for submission of tenders.

47. Under the following circumstances, procuringentities may establish a time period for tenderingthat is shorter than the periods referred to inParagraphs 45 and 46, provided that such timeperiod is sufficiently long to enable suppliers to

prepare and submit responsive tenders and is in nocase less than 10 calendar days prior to the finaldate for the submission of tenders:

(a) where a notice of planned procurement underParagraph 26 has been published 40 days andnot more than 12 months in advance;

(b) in the case where the procuring entity procurescommercial services, the procuring entity mayreduce the time period referred to in Paragraph45 to not less than 15 days, provided that itpublishes by electronic means, at the same time,both the notice of intended procurement andthe tender documentation, and that tenders canbe received by electronic means;

(c) where a state of urgency duly substantiated bythe procuring entity renders impracticable theperiods specified in Paragraphs 45 and 46.

Title 13: Negotiation

48. A Member may provide for its procuringentities to conduct negotiations:(a) in the context of procurements in which they

have indicated such intent in the notice ofintended procurement; or

(b) where it appears from the evaluation that noone tender is obviously the most advantageousin terms of the specific evaluation criteria setforth in the notices or tender documentation.

49. A procuring entity shall:(a) ensure that any elimination of tenderers in

negotiations is carried out in accordance withthe evaluation criteria set out in the notices ortender documentation; and

(b) when negotiations are concluded, provide acommon deadline for the remaining tenderersto submit any new or revised tenders.

Title 14: Limited Tendering

50. Provided that it does not use this provision forthe purpose of avoiding competition amongsuppliers or in a manner that discriminates againstsuppliers of the other Members, or that protectsdomestic suppliers, a procuring entity may use alimited tendering procedure only in the followingcircumstances and subject to the followingconditions, where applicable:

(a) provided that the requirements of the tenderdocumentation are not substantially modified,


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where no tenders were submitted or nosuppliers applied to meet the conditions forparticipation, or where no tenders that conformto the essential requirements of the tenderdocumentation were submitted or where nosuppliers satisfied the conditions forparticipation;

(b) where the services can be supplied only by aparticular supplier and no reasonable alternativeor substitute services exist for the followingreasons:(i) the requirement is for a work of art;

(ii) the protection of patents, copyrights orother exclusive rights;

(iii) due to an absence of competition fortechnical reasons;

(c) for additional deliveries by the original supplierof services that were not included in the initialprocurement where :(i) a change of supplier for such additional

services cannot be made for economic ortechnical reasons, such as requirements ofinterchangeability or interoperability withexisting equipment, software, services, orinstallations procured under the initialprocurement; and

(ii) such separation would cause significantinconvenience or substantial duplication ofcosts to the procuring entity;

(d) insofar as is strictly necessary where, for reasonsof extreme urgency brought about by eventsunforeseeable by the procuring entity, theservices could not be obtained in time underopen or selective tendering procedures;

(e) where a procuring entity procures a prototypeor a first service that is developed at itsrequest in the course of, and for, a particularcontract for research, experiment, study ororiginal development. Original developmentof a first service may include limited supplyin order to incorporate the results of fieldtesting and to demonstrate that the service issuitable for supply in quantity to acceptablequality standards, but does not includequantity supply to establish commercialviability or to recover research anddevelopment costs;

(f) for new services consisting of the repetition ofsimilar services which conform to a basic projectfor which an initial contract was awardedfollowing an open or selective procurementmethod and for which the procuring entity hasindicated in the notice of intended procurementconcerning the initial service, that a limitedprocurement method might be used in awardingcontracts for such new services;

(g) in the case of a contract awarded to a winner ofa design contest provided that:

(i) the contest has been organized in a mannerthat is consistent with the principles of thisAnnex, notably as regards the publicationof a notice of intended procurement; and

(ii) the participants are judged by anindependent jury with a view to a designcontract being awarded to a winner.

51. Each Member shall ensure that, whenever limitedtendering is used, the procuring entity shall maintaina record or prepare a written report providing specificjustification for the contract awarded.

Title 15: Treatment of Tenders and Contract Award

52. Procuring entities shall receive and open bidsfrom suppliers upon procedures and conditionsguaranteeing the respect of the principles oftransparency and non-discrimination.53. To be considered for award, a tender must, atthe time of opening, conform to the essentialrequirements of the notices or tenderdocumentation and be submitted by a supplier whichcomplies with any conditions for participation.54. Unless a procuring entity determines that it isnot in the public interest to award a contract, it shallaward the contract to the supplier that the entityhas determined to be fully capable of undertakingthe contract and whose tender is either the lowestprice or the tender that the entity has determinedto be the most advantageous solely on the basis ofthe requirements and evaluation criteria specifiedin the notices or tender documentation. In the lattercase, award criteria shall be linked to the subjectmatter of the contract in question, and may includeamongst others, quality, price, technical merits,environmental characteristics, running costs, cost-effectiveness, after-sales service and technicalassistance and delivery period of completion.


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55. A procuring entity shall not cancel procurementor modify awarded contracts in a manner thatcircumvents the obligations of this Annex.

Title 16: Transparency of Procurement Information

56. Procuring entities shall promptly informtenderers of decisions regarding the award of thecontract and, on request, in writing. Procuringentities shall, on request, provide any eliminatedtenderer of the reasons for the rejection of its tenderand of the characteristics and relative advantagesof the selected tender.

57. Procuring entities shall promptly publish afterthe award of the contract a notice in an officiallydesignated publication that may be an electronic orpaper medium. Such notice would at least include adescription of the services procured, the name andaddress of the procuring entity, the name andaddress of the successful tenderer, the value of thesuccessful tender and the date of award.

Title 17: Domestic Review

58. Each Member shall provide a timely, effective,transparent, and non-discriminatory administrativeor judicial review procedure through which asupplier may challenge a breach of this Annex,arising in the context of a covered procurement, inwhich it has, or has had, an interest. The proceduralrules for all challenges shall be in writing and madegenerally available.

59. In the event of a complaint by a supplier, arisingin the context of covered procurement in which thesupplier has, or has had, an interest, that there hasbeen a breach of this Annex, each Member shallencourage the procuring entity and supplier to seekresolution of the complaint through consultations.The procuring entity shall accord impartial andtimely consideration to any such complaint in amanner that is prejudicial neither to the supplier’sparticipation in ongoing or future procurement norto the supplier’s rights to seek corrective measuresunder the administrative or judicial reviewprocedure.

60. Each supplier shall be allowed a sufficient periodof time to prepare and submit a challenge, which inno case shall be less than 10 days from the time whenthe basis of the challenge became known or reasonablyshould have become known to the supplier.

61. Each Member shall establish or designate at leastone impartial administrative or judicial authoritythat is independent of its procuring entities toreceive and review a challenge of a supplier arisingin the context of a covered procurement.

62. Where a body other than an authority referredto in Paragraph 61 initially reviews a challenge, theMember shall ensure that the supplier may appealthe initial decision to an impartial administrative orjudicial authority that is independent of the procuringentity that is the subject of a challenge.

63. A review body that is not a court shall either besubject to judicial review or shall have procedureswhich provide that:(a) the procuring entity shall respond in writing to

the challenge and disclose all relevant documentsto the review body;

(b) the participants to the proceedings shall havethe right to be heard prior to a decision of thereview body being made on the challenge;

(c) the participants to the proceedings shall haveaccess to all proceedings;

(d) decisions or recommendations relating tosupplier challenges shall be provided, in a timelyfashion, in writing, with an explanation of thebasis for each decision or recommendation.

64. Each Member shall adopt or maintainprocedures that provide for:

(a) rapid interim measures to preserve the supplier’sopportunity to participate in the procurement.Such interim measures may result in suspensionof the procurement process. However,procedures may provide that overriding adverseconsequences for the interests concerned,including the public interest, may be taken intoaccount when deciding whether such measuresshould be applied. In such circumstances, just causefor not acting shall be provided in writing; and

(b) corrective action where a review body hasdetermined that there has been a breach of thisAnnex or compensation for the loss or damagessuffered, which may be limited to the costs forthe preparation of the tender or the costsrelating to the challenge.

(S/WPGR/W/54, 20 June 2006; www.wto.org)

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Special Session of the Council for Trade in ServicesREPORT BY THE CHAIRMAN TO THE TRADE NEGOTIATIONS COMMITTEEThe Council for Trade in Services in Special Session met on 7 April 2006.

I. Review of Progress

1. Members noted that the plurilateral request-offernegotiations had been proceeding very smoothly. Twentyplurilateral meetings took place from 28 March to 6 Aprilbetween groups of requesting and requested Members,based on 22 collective requests submitted in accordancewith paragraph 7 of Annex C of the Hong KongMinisterial Declaration. Members agreed that theseplurilateral meetings were very helpful in focusing onspecific sectors and modes of supply. The exchangesbetween Members at these meetings were highlyinformative and constructive, including clarification oftechnical issues and information sharing on domesticregimes and regulatory structures. Members confirmedthat both developed and developing Members, whetherrequesting or requested, had benefited from thesubstantive and frank discussion. The strong presenceof capital-based sectoral experts proved to be veryimportant in enhancing the value of the plurilateralmeetings.

2. Members acknowledged that the momentum achievedin the plurilateral process should be maintained andshould lead to substantive progress through thesubmission of revised offers by the end of July. For thispurpose, they agreed that more effort and strongerengagement was needed, especially in capitals and at ahigher level.

3. Members stressed the importance of follow-up to thisround of plurilateral meetings. While the plurilateralprocess was very helpful, Members emphasized that thebilateral request-offer negotiations remained the mainapproach and were still strategically important forachieving the final results in the Doha Round. Membersbroadly supported the suggestion that another round ofrequest-offer meetings, both plurilateral and bilateral,take place starting on 15 May, so as to keep the momentumand expedite the overall process of services negotiations.

4. With regard to the subsidiary bodies, the Chair of theWorking Party on Domestic Regulation (WPDR) reportedthat Members had worked in both informal and formalmeetings with a view to fulfilling the Hong Kongministerial mandate. At these meetings Members held

substantive discussions on the proposals with regard toregulatory disciplines under Article VI:4 of the GATS.The Chair of the Working Party on Domestic Regulationurged Members to produce new and revised proposalswith specific language or text as soon as possible as afirst crucial step in the drafting process. The WorkingParty on GATS Rules (WPGR) continued its discussionson emergency safeguard measures, subsidies andgovernment procurement. While a number of issues hadbeen raised and discussed, overall, there was not muchchange in the long-held positions on various issues. TheCommittee on Specific Commitments (CSC) continuedits examination on classification and scheduling issues.The Committee also held a preliminary discussion onthe relationship between old and new commitments.

5. It is very encouraging that, since Hong Kong, theservices negotiations have been proceeding in a mostpositive manner and in full compliance with the timelinesagreed in the Hong Kong Ministerial Declaration. I amconfident that the progress in the services negotiationswill have a positive impact on negotiations in other areas.

II. Other Items

6. Under the agenda item “Implementation of the LDCModalities”, the delegation of Zambia on behalf of theLDC group submitted a communication proposing amechanism to provide special priority to LDCs pursuantto Article IV:3 of the GATS. Canada and the United Statespresented their written responses to questions previouslyraised by the LDC group regarding the implementationof the LDC modalities. An informal meeting wasscheduled to take place very soon to discuss further theissue of LDC modalities, especially the latest proposalmade by the LDC group.

III. Future Work

7. As agreed, another round of request-offer meetingswill take place from 15-23 May. A timetable for thesemeetings was produced and distributed to Members on25 April. The next formal meeting of the Special Sessionof the Council for Trade in Services is to take place on 24May 2006.

(TN/S/27, 26 April 2006; www.wto.org)

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