D Ravi Kanth: Nothing equal about this trade

TRADING THOUGHTS

Issuing threatening calls with dire consequences is not something new in international trade diplomacy. Countries often resort to this stratagem to achieve their trade objectives. Of course, it goes without saying that not all of them have the same degree of success. If the EU or the US demand something from their trading partners, it has to be addressed. Such is the pressure that was palpably felt at the WTO last week when the bilateral negotiations on Doha services were conducted.

Ahead of the talks, the US Trade Representative Ambassador, Susan Schwab, and the EU Trade Commissioner, Peter Mandelson, had dispatched separate letters to their counterparts in key developing countries insisting that they would like to see liberal market-opening offers in services sectors of their choice. The tone and tenor of the letter written by the USTR was a bit intimidating as it warned countries like India that if they didn't show an appropriate response to Washington's demands, the US will be compelled not to show flexibility in Doha trade negotiations.

This is understandable given the importance attached to the services trade in various countries. It is also well-known that the two trade majors dominate the global trade in infrastructure services such as banking, insurance, telecom, energy, distribution and even environment, which account for over 57 per cent of the global commercial services trade.

The definition of services trade under the General Agreement on Trade in Services (GATS) is four-pronged, referred to as modes, depending on the territorial presence of the supplier and the consumer at the time of the transaction. The two trans-Atlantic partners along with other industrialised countries "" Japan, Canada, Norway, and South Korea "" want to see that the foreign equity caps in many infrastructure and capital-intensive services sectors, which comer under mode 3 of GATS, are sufficiently hiked so that their companies can continue to dominate those markets for years to come.

Besides, they want to ensure that whatever autonomous liberalisation occurred in developing countries during the last 13 years is bound as part of the Doha commitments for free. The US, for example, asked India to increase the foreign equity limit in banks from 49 to 74 per cent, and from 26 to 49 per cent in the insurance sector. The EU too made an identical demand in the banking and insurance sectors. The two trade majors pressed for increasing the foreign equity cap in the Indian telecom sector from 49 to 74 per cent and sought "multi-brand" entry into the retail sector.

But those who make demands in global trade negotiations must give something in return to justify them. That is, after all, the raison d'être for the mercantile trading system. It is here that the problem invariably crops up. Many developing countries, including India, are no longer in the isolationist mode as regards services trade. While India had fiercely opposed the entry of services trade into the General Agreement on Tariffs and Trade (GATT) framework in 1986, it has since undergone a rapid transformation in services trade. India is a powerhouse for supplying a variety of skilled services at competitive prices. If the global trading conditions in goods and services were on the same footing, India would have stood shoulder-to-shoulder with China, which is now the world's factory.

Therefore, it is not surprising that India reckons services as an offensive area in the Doha trade negotiations. It has to get some concrete outcomes in two important areas: market access for its professional and contractual services providers as well as what are called domestic regulation provisions that act as non-tariff barriers. Without promising results, it would not be able to justify the Doha package back home.

Sadly, in two important areas of its core interests "" mode 4 relating to short-term movement of services providers from one country to another, and mode 1 concerning cross-border services "" India secured outstandingly disappointing responses. The share of mode 4 in global commercial services is about 2 per cent and this is the most promising area.

The US, India's number one target market for the supply of contractual and independent professional services suppliers, which gave no response to India's mode-1 and mode-4 demands. However, it had the cheek to tell Indian negotiators if Washington was given something big in banking, insurance, retail or telecommunications, then it could consider something on mode 1 and mode 4 later.

Would anybody fall for such a trap?