People's Democracy

THE WTO Ministerial Conference at Hong Kong held on December 13-18, 2005, eventually succeeded in adopting a Declaration. The developed countries failed to push their agenda at Cancun due to the united resistance put up by the developing countries. At Hongkong, however, the developed countries not only succeeded in keeping the negotiations on track, but also managed to divide the developing countries and extract substantial concessions from them against a post-dated cheque of eliminating agricultural export subsidies by 2013.

The most significant aspect of the deal struck in Hong Kong, which favours the developed countries is the agreement on Services, which for the first time had become the most contentious issue in the overall negotiations. Several developing countries had opposed the Draft on Services in the Ministerial Text (Annex C) and the G90 had also submitted an alternative draft. Unfortunately, the Indian delegation headed by the union commerce minister, Kamal Nath, took cudgels on behalf of the developed countries, and forced the developing countries to abandon the G90 proposal and accept Annex C. Countries like Cuba and Venezuela fought till the end against the inclusion of Annex C in the ministerial declaration. But with India siding with the developed countries, the resistance from the developing countries eventually collapsed. The Agreement on Services in the Hong Kong ministerial declaration seeks to fundamentally alter the basic structure of the General Agreement on Trade in Services (GATS) and would force developing countries into liberalising and deregulating their Services sector to the advantage of the MNCs based in the developed countries.

India’s eagerness towards further liberalisation of Services was revealed well before the ministerial conference when Kamal Nath agreed to co-chair the 14-member group on Services at the WTO, along with the US Trade Representative Rob Portman. In a meeting of the Five Interested Parties (FIPs) namely India, US, EU, Brazil and Australia, held in September 2005 in Paris it was decided that a special group of 14 countries will be formed which will set the road map for opening up of Services. US Trade Representative Rob Portman came to India in November 2005 and held a series of intense discussions with Kamal Nath. Addressing the Federation of Indian Chamber of Commerce and Industries (FICCI) in New Delhi, Rob Portman had said, "Minister Nath and I co-chair the core group on Services, where we are trying to be sure that the barriers to service trade – where India has a comparative advantage now, and will have more of an advantage over the next decade – will have a fair shake." The agenda for the Hong Kong ministerial seemed to have been set from this collaboration itself. Although Kamal Nath assured the Indian parliament that there would be no compromise on India’s defensive interests in Agriculture and NAMA in return for some concessions in Services and even though in his address to the Plenary session of the Ministerial Conference he waxed eloquent about the interests of the four-fifth of humanity (i.e. the people living in the G110 countries), his only substantial contribution at Hong Kong was to persuade developing countries to accept further liberalisation in Services.

India’s role during the Hong Kong Ministerial has been captured by an insightful report by Keith Bradsher on the final stages of the backroom negotiations, which appeared in the New York Times on Monday, December 19, 2005. Bradsher writes,

"The nadir of the World Trade Organisation conference here came Saturday evening, when many ministers were despairing of progress inside the meeting while the streets outside were filled with the rattle of protesters' steel pipes striking police officers' shields and the popping of tear gas grenades. But just 30 hours later, Pascal Lamy, the WTO's director general, jubilantly handed John Tsang, the conference chairman, a ceremonial gavel. Tsang tapped the gavel once, closing the conference and approving the Hong Kong Declaration...What changed in those 30 hours was the result of a series of deals by ministers from around the world who stayed up all night in nonstop talks...

"India, the champion of the developing world since the days of Gandhi but now a computer programming power as well, played a crucial intermediary role in persuading poor countries to accept portions of the agreement calling for freer trade in services like telecommunications and banking...

"The most contentious issue was an effort by a group of developing countries to restrict negotiations on opening up international competition in Services. Starting Thursday evening, a coalition led by South Africa, Kenya, Jamaica, Venezuela and Cuba had been demanding changes in a draft text to make it easier for countries essentially to opt out of the Services talks and shield domestic industries like hospital management, insurance and education. By Friday, these countries had persuaded the broadest caucus of poor countries here, the Group of 90, to endorse their cause. Their threat was to block a consensus on the entire agreement. WTO rules require unanimity for any agreement like Sunday's declaration; it was the first time in the six ministerial conferences since the formation of the WTO in 1995 that Services had become an issue that could have potentially ended broader negotiations...

"The Services talks were also beginning to shift, thanks in part to energetic efforts by India, which has enormous influence in the developing world. Until the 1990s, India had some of the world's stiffest protectionist policies, and it still has high tariffs on many imports, from food to shoes. But the rise of call centers, computer programming, accounting and financial analysis in cities like Bangalore, Hyderabad and Mumbai has created a large lobby in India for offering these services to other countries. As weary ministers negotiated all night, Kamal Nath, India's minister of commerce and industry, spoke out strongly in favor of the Services agreement at 5 a m Sunday. In the final hours of negotiations, only the Venezuelan delegation was still threatening to block approval of the Hong Kong Declaration because of the Services dispute. A group of ministers from other developing countries surrounded the Venezuelans and talked them out of it, Portman said early Monday morning."

The General Agreement on Trade in Services (GATS) was envisioned to be a framework agreement aimed at the liberalisation of Services like health, education, water supply, banking, finance, telecommunications etc. However, there were some built-in safeguards in GATS in the sense that it was largely left to the countries to decide whether or not they will make commitments and what those commitments will comprise. The pace of liberalisation under GATS was to be in line with the stage of development of the developing countries. It was recognised that the developing countries would undertake opening up of fewer sectors and the developed countries would give priority to opening up of those sectors where the developing countries have export interest. This process of reciprocal requests and offers are still at an early stage of development. So far many developing countries have rightly adopted a wait and watch approach towards GATS to assess the implications of the process cautiously. The developed countries, of late, have been trying to unravel this basic flexible structure of the GATS by compelling the developing countries to open up a critical mass of their markets to the service providers of developed countries. Since the developed countries already have a more liberalised Services sector, such an approach essentially implied that the burden of opening up the Services market have to be borne by the developing countries.

The Draft Text that went to Hong Kong had the entire Annex C, which basically argued for accelerated liberalisation of Services, as bracketed, signifying lack of any agreement on the entire text. In the final Declaration the bracket has been removed and the whole of Annex C has been accepted. Para 7 of the Annex C states, "In addition to bilateral negotiations, we agree that the request-offer negotiations should also be pursued on a plurilateral basis in accordance with the principles of the GATS and the Guidelines and Procedures for the Negotiations on Trade in Services." This "plurilateral" approach would undermine the flexibility that the nations enjoyed earlier. Developing countries, which were unwilling to engage in Sectoral and plurilateral negotiations in Services, would now be forced into negotiations and make offers if some developed countries make requests. The Ministerial has also agreed to finalise the schedule of commitments by October 2006. It is quite evident that the developing countries like India, which have experienced considerable growth in the Services sector in the recent past, will now be forced into sectoral and government procurement negotiations through requests made by developed countries for across-the-board opening up of Services.

The Hong Kong Ministerial declaration has agreed to further liberalisation in Mode 3 i.e. "commercial presence" category of service providers, which is a euphemism for FDI in a huge range of Services from banking and insurance to health and education. On Mode 3, the agreed "objectives" are "Commitments on enhanced levels of foreign equity participation; removal or substantial reduction of economic needs test; commitments allowing greater flexibility on the types of legal entity permitted". The objectives of the multilateral investment regime and government procurement, which developed countries had pushed earlier on from the Singapore Conference in 1997 and given up in the aftermath of Cancun after strong resistance from the developing countries, have made a reentry through the backdoor in the Services text in Hongkong, this time with the active support and collaboration of India.

Prior to the Hongkong Ministerial, India had submitted a very extensive "offer list" covering a large number of sectors and sub-sectors, including architectural, integrated engineering and urban planning and landscaping services, veterinary services, environmental services, distribution services, construction and related engineering services, tourism services, educational services, telecommunication services, computer related services, life insurance services, banking and financial services, medical and dental services, research and development services, professional services, rental and leasing services, real estate services etc. Such enthusiasm to open up so many sectors of the economy was shown in order to get some concessions from the developed countries in terms of greater liberalisation in Mode 4 (movement of natural persons) which would mean a few thousand more H1B visas from the US and other developed countries for skilled professionals from India and Mode 1 (cross border supply) which might translate into more BPO into India. This itself shows a clear misreading of India’s interests by our policymakers, who are willing to trade-off opening up of social sectors like health and education and sensitive financial sectors like insurance and banking, which would adversely affect millions of common people, against the benefits accruing to only a few thousand skilled professionals and the BPO sector.

It is a matter of grave concern that Trade Policy in India today is being dictated by what the US preaches to us as our "comparative advantage". Kamal Nath went overboard in supporting the Services text at Hong Kong, with a very skewed perspective of what comprises India’s national interests. In the process he degraded India’s role from being a champion of the interests of developing countries to a collaborator of the developed countries. Nothing can be more unfortunate than this.