India: Approach Document for Negotiating Economic Integration Agreements with Developing and Least-Developed Countries

Executive Summary*

(The full report can be read here)

 

Since the opening up of India’s markets to foreign trade, the growth of India’s trade in services has been exponential and it became a leading exporter in trade in services in the world. Due to increased competition, market saturation and other factors, India has a keen interest in expanding their activities to markets in emerging economies. This can be done through the conclusion of an EIA with emerging economies or having a mutual recognition agreement with them. General Agreement on Trade in Services (GATS) has provisions regarding the conclusion of EIA and MRA, which are respectively GATS Art. V and Art. VII. This memorandum proceeds to clarify those key requirements with a focus on India’s specific situation and give recommendation to India.

 

An EIA needs to have “substantial sectoral coverage” and provides for “elimination of substantially all discrimination” in order to be compatible with GATS Art. V. In addition, there are several flexibilities for the meeting of those key requirements. “Substantial sectoral coverage” can be further understood in terms of number of sectors, volume of trade affected and mode of supply. This memorandum also examined several EIAs concluded by India and China in order to have a general idea of how this requirement is implemented in practice. This is because none of the EIAs have been challenged before WTO, therefore, it can be safely assumed that the sectoral coverage under these EIAs are substantial. As for number of sectors, India has made commitments in around 60-90 subsectors under the EIA concluded previously, such a range can be used as a reference for the future negotiation of the EIA. As for trade volume, India can use contribution of service sectors to GDP as an indicator because there is currently not reliable data on trade volume. No mode of supply can be excluded from the entire EIA, but different levels of liberalization is allowed. The practice of selected EIAs revealed that mode 1 and mode 2 are highly liberalized compared to mode 3 and mode 4. But the assessment is a holistic one and all of the three elements need to be considered together in order to make a final determination of whether the EIA has substantial sectoral coverage. An EIA also has to eliminate substantially all discrimination under the sectors covered under the EIA. There are two ways in meeting this requirement, which are “elimination of existing discriminatory measures and/or prohibition of new or more discriminatory measure.” Despite the confusion language “and/or”, these two means are not independent alternatives, rather, they complement with each other. The applicability of these two approaches is based on the current discrimination level of India, which can be referenced from the existing regulatory framework. GATS Art. V also provides some flexibilities for the requirement of “elimination of substantially all discrimination”. The first flexibility concerns with the implementation of the commitments under the EIA. The EIA does not need to eliminate substantially all discrimination immediately upon the time the EIA is enforced. Rather, it can be implemented based on a reasonable time-frame. There is not an agreed upon opinion on the exact meaning of this term. The China-ASEAN EIA provides an interesting approach, called progressive liberalization, where the parties divide its commitments into several phases and make a sequential phase in. The second flexibility is granted on the basis of the relationship of the EIA to “a wider process of economic integration or trade liberalization”. This terms means that if India is having an EIA on trade in services of a broader FTA, such as RCEP, which includes goods and investment, the condition of “elimination of substantially all discrimination” would be more flexible. The third flexibility is relevant with the competitiveness of India economy and specific service sectors. The competitive service sectors in India, such as ICT, may subject to a higher level of liberalization, but for services which are less competitive, such as health, may subject to less liberalization.

 

The EIA’s under Article V are generally followed by recognition of standards of the parties to agreement under the provisions of Article VII of GATS that exclusively covers the subject. The world we live in is a witness to the ever-growing service industry from social media corporate giants to online shopping empires that cuts across borders to the remotest place on earth. There are no physical customs to scrutiny, yet there is one factor that limits the transfer is the recognition part, i.e. if Country A does not recognize the service or service supplier of Country B, then there can be no supply happening like how Facebook is blocked in China, because it is not recognized. Another scenario of service trade barrier is the non-recognition of education, qualifications and the like, where a doctor X from country A wants to work in Country B, but the medical studies of X from Country A is not recognized in Country B, hence X has no choice but to repeat the whole study in Country B. But if Country A and B decide to recognize each other professional education and training, the problem gets resolved.

 

This can be done in two ways, either horizontally i.e. the education and qualifications of Country A is recognized and approved by Country B and its regulator and vice versa, or through vertical approach by developing standards such as curriculum building, training of the citizens of Country B and thereby synchronizing A and B thus making it easier. The problem with the vertical approach, it is slow and takes longer time. The reason why most countries employ the horizontal approach.

 

Mutual Recognition of standards can be achieved through two methods either through Article VII under the GATS or bilateral agreement using MoU. There is substantial number recognition agreements India has achieved with various countries. They are listed and analysed in detail below.

 

The MRA’s are volatile in nature because it spills over from being an exclusive trade feature to a political conversation and eventually non-compliant. Consequently, there are multiple reasons for delay in implementation EIA, despite having agreement in paper, because of the non-recognition of services or its suppliers. India has raised concerns multiple times in this issue as a trade barrier.

 

There is no requirement of MFN or substantial sector coverage as in the Article V, thus countries can choose to recognize particular professions only and leave the rest out. There is freedom of for third countries to enter the MRA that India might be negotiating, the transparency requirement might pose the problem of posing as a pre-emptive deterrence where third country decides not to join even before getting to the table.

 

The regulatory concerns, institutional and technical challenges, harmonizing initiatives, international standards as reference but develop India specific standards. The ASEAN is used as case study to understand and clarify the legal context.

 

The ASEAN-India case is taken broadly and with India’s recent agreements on nursing, accountancy is case in point.

 

This memo rendered some interesting findings where India can work to have an heads and also arm the potential partner with guidelines that is useful for both parties.

 

*Image Credit: AFP/Getty Images

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