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You are here: Home | Trade and development | Backgrounders | WTO negotiations and India's stand: Agriculture, NAMA and services

WTO negotiations and India's stand: Agriculture,

NAMA and services
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By Abhijit Das
From India's perspective it would be most crucial during the Doha negotiations to protect the interests of its
farmers, even at the cost of foregoing benefits that might have otherwise been made in services and NAMA
negotiations
Indias economic scenario
After growing at the so-called Hindu Rate of growth of 3.5%, Indias Gross Domestic Product (GDP) growth
accelerated to 5.6% in the 1980s and averaged an unprecedented 6% in the period 1992-93 to 2003-04. The
growth rate in 2005-06 was 8.4%, and expectations are that India will be able to achieve a 10% rate of growth in
the immediate future.
In terms of the sectoral shift in GDP, the share of agriculture fell from 58% to 25% between 1950 and 2001, while
that of industry increased from 15% to 26%, and the share of services increased from 27% to 49%. The service
sector accounted for almost 54% of the countrys GDP in 2005-06.
Indias export of services has displayed one of the fastest growth rates in the world -- that is, over 17% per
annum in the 1990s (when the world average was 5.6%). Service exports showed significant buoyancy during
2004-05, doubling from US$ 25 billion to US$ 51 billion. They now account for 39% of Indias total exports.
The service sector boom in India in the post-Uruguay Round period shows that India has a competitive
advantage in several services sectors. However, employment in services has not increased in proportion to the
rising share in GDP and trade in India, unlike the situation in the rest of the world. In 1999-2000, services
contributed around 24% of employment in India, in contrast to 30% in middle-income countries, 70% in
Singapore and around 35% in Thailand. This is perhaps the main reason why trade and economic growth in
India has been seen as jobless.
Trade already accounts for more than 30% of Indias GDP, an increase of almost 10 percentage points since
2002. Therefore, the final outcome of the WTO negotiations would be an important determinant of overall
economic growth in India.
A major constraint facing the country is the persistence of infrastructure deficits: lack of reliable power supply
which dampens growth impulses in different sectors of the economy, as well as inefficient and high cost of
infrastructure such as roads, railways, airports, seaports and electricity.
According to various estimates, in view of its needs, India is currently spending a miniscule amount on
infrastructure. In contrast, China spends seven times as much as India in absolute terms.

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Indias negotiating stand at the WTO should be viewed within this context. This article does not question the
rationale for Indias continued engagement at the WTO. Instead, it seeks to explain developments in three areas

Education

of negotiation: agriculture, Non-Agricultural Market Access (NAMA) and services. It also attempts to capture
Indias negotiating position on these issues, highlighting significant shifts on specific issues wherever these

Corporate responsibility

have occurred.

Disasters

Doha negotiations: Agriculture, NAMA and services

In November 2001, following up on the Doha Ministerial Declaration, WTO members launched an ambitious
Work Programme covering negotiations on agriculture, Non-Agriculture Market Access (NAMA), services,
dispute settlement, antidumping duties, subsidies, etc. In addition, intense work was envisaged in new areas of
investment, competition policy, transparency in government procurement and trade facilitation, with the objective
of initiating negotiations in 2003. In the Doha Ministerial Declaration, WTO members expressed their resolve to
find appropriate solutions to the implementation-related concerns raised by developing countries. These
concerns emerged out of the problems encountered by developing countries in the implementation of
agreements finalised during the Uruguay Round.
When launched, the Doha Round of trade negotiations was scheduled to be completed by January 1, 2005.
However, like the preceding Uruguay Round, the Doha Round has encountered many roadblocks, and progress
has been slow. Unable to bridge the gap between differing positions on agriculture and what are known as the
Singapore issues (investment, competition, transparency in government procurement, and trade facilitation),
the Cancun Ministerial Meeting, held in 2003, ended without any results on the issues on the negotiating table.
However, some of the contentious issues were settled in the July Framework Agreement of 2004.

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Expectations from the Hong Kong Ministerial meeting, held in December 2005, were scaled down in advance of
the meeting. Decisions on most of the contentious and substantive issues were postponed until 2006. These
included decisions on the formula, specific numbers and timeframe (commonly referred to as modalities) for
reduction in agricultural subsidies, and agricultural and non-agricultural tariffs. Despite major players in the WTO
negotiations meeting at regular intervals, consensus on the modalities continues to be elusive. Since July 24,
2006, WTO negotiations have gone into suspension mode.
Agriculture
Under GATT, agriculture was subject to soft disciplines compared to industrial products. In 1955, the United
States obtained a permanent waiver from substantial obligations in agriculture. The European Union
implemented an elaborate system of protection for its farmers through huge subsidies. This resulted in severe
distortions in the production and trade of agricultural products. Some degree of discipline in agriculture was
introduced through the Uruguay Round Agreement on Agriculture. When the Doha Round was launched, it was
expected that a significant reduction, if not full elimination of the distortions, would be achieved in the
negotiations. These hopes may be belied.
Opinion on the utility and effectiveness of the WTO as a forum for negotiating rules on agricultural tariffs and
subsidies is split. According to one view, in most developing countries agriculture is not so much a matter of
commerce as one of livelihood. It may, therefore, not be appropriate to treat it on a par with industrial goods.
Accordingly, disciplines on agriculture should not be included in trade agreements at the WTO. However, a
contrary view also exists which perceives WTO negotiations as the only available vehicle for seeking a reduction
in developed-country subsidies, which have significantly distorted global trade and agricultural production.
Of all the issues being negotiated under the ongoing Doha Work Programme, none would have deeper
implications for the vast multitude of poor around the world than the negotiations on agriculture. Agricultural
development represents a convergence of the main objectives of economic policy in developing countries:
growth, stability and poverty alleviation. As trade can interact with these objectives in complex ways, the results
of the agriculture negotiations could crucially determine the extent of policy flexibility available to developing
countries to pursue these goals in a manner consistent with WTO obligations.
Agriculture negotiations: Progress achieved
Negotiations towards an Agreement on Agriculture are being undertaken on what are called three pillars -domestic support, market access, and export competition. With respect to each of these pillars, different
developing countries have differing interests, often conflicting in nature. The July Framework and the Hong Kong
Ministerial Declaration leave open a wide range of options within each pillar of the agriculture negotiations,
which provide both risk and opportunity for developing countries. This has brought a considerable degree of
complexity to the negotiations. Different country groups have been formed, based on commonality of interests on
specific issues, the most important among them being the G20 and the G33. India is a member of both these
groups.
Domestic support
It is generally accepted that the agricultural subsidies provided by developed countries not only restrict the
access of developing-country exports, but have also depressed world food prices. Subsidised exports by
developed countries also pose a threat to food and livelihood security in developing countries by depressing
domestic market prices. Reduction of agricultural subsidies by developed countries is, therefore, a crucial goal
that is being pursued by developing countries.
The July Framework distinguishes between two broad categories of domestic support. Trade-distorting support
and non-trade-distorting support (that is, support with no or minimal impact on trade and production).
Trade-distorting support is made up of various components. The July Framework foresees a substantial
reduction of overall trade-distorting support, as well as each component of such support. The framework further
states that there will be a strong element of harmonisation of trade-distorting support among developed
members because higher levels of permitted trade-distorting support are required to be subject to deeper cuts.
It has been estimated that under the existing WTO regime, the EU and the US have the flexibility to provide $ 100
billion and $ 48.22 billion, respectively, of trade-distorting support. The actual level of trade-distorting subsidy
provided by them is less than the ceiling under the WTO. During negotiations in July 2006, the US offered to
reduce the ceiling on its overall trade-distorting support by 53%, from $ 48.22 billion to $ 22.5 billion. Developing
countries had proposed a limit of $ 10.5 billion.
The US offer must also be seen in light of the fact that its actual level of trade-distorting subsidies in 2005 was
about $ 19.7 billion, and in some previous years substantially less than that. As the existing level of tradedistorting subsidies is below $ 22.5 billion, the 53% reduction in ceiling would have resulted in only paper
reduction, without any actual cut on the ground. In fact, the US would have the space to increase trade-distorting
subsidies from $ 19.7 billion to the ceiling of $ 22.5 billion.
This has been a matter of considerable disappointment for developing countries like India and other G20
members, particularly because the US is seeking effective tariff reduction from developing countries in exchange
for paper reduction in its subsidies.
The on-going agriculture negotiations also provide an opportunity for review and clarification of criteria of green
box subsidies
-- the so-called non-trade-distorting subsidies -- with a view to ensuring that these subsidies have
no, or at most minimal, trade-distorting effects, or effects on production. Under the Uruguay Round commitments,
countries can provide green box subsidies without any ceiling, provided these subsidies have no trade- or
production-distorting effects.

It has been estimated that, under the green box category, almost US$ 90 billion subsidies are provided by the
US, the EU and Japan. There are considerable theoretical arguments and a certain amount of empirical
evidence that establish that green box subsidies significantly enhance production through different economic
effects. In short, green box subsidies provided by developed countries are adversely affecting the interests of
farmers in developing countries. While the Doha Round negotiations do not envisage any reduction commitment
or ceiling on green box subsidies, proposals have been made by G20 countries to limit such payments to
farmers with low levels of income, landholding and production. This might indirectly prevent big farmers and
agri-business from receiving handouts under green box.
A point that bears highlighting is that even if the most ambitious proposal of reducing trade-distorting domestic
support is agreed upon -- which appears to be an unlikely outcome -- it would still provide considerable leeway
to developed countries to grant billions of dollars of farm support. Further, the absence of strict disciplines on
green box could undermine gains that may be achieved through a reduced ceiling on trade-distorting subsidies.
This should be a matter of concern for developing countries.
Market access
Developed countries have consistently demanded that developing countries, including India, reduce their
agricultural tariffs. However, it is widely understood that tariff liberalisation by developing countries could have
severe consequences -- such as large-scale unemployment, poverty and hunger -- unless they are
accompanied by a substantial reduction in, if not removal of, developed-country farm subsidies.
It was agreed in the 2004 July Framework, and further elaborated in the 2005 Hong Kong Declaration, that
developing countries would have the right to self-designate certain products as Special Products (SPs). SPs
would be subject to flexible tariff reduction. Self-designation of SPs is required to be guided by indicators based
on criteria such as food security, livelihood and rural development concerns. While most developing countries
have favoured broad coverage of products under SPs, some developed countries have suggested that SPs be
restricted to not more than five products. The latter proposal would severely undermine the ability of developing
countries to protect the livelihood of their farmers against a surge in cheap and subsidised imports from
developed countries.
It is sometimes argued that, in order to address food shortages in India, the country should not be averse to
reducing agricultural tariffs during the WTO negotiations. This argument is fallacious, as India can apply low
customs duty to facilitate food imports while continuing to keep high bound rates on agricultural products.
Export competition
The export competition pillar includes various forms of direct and indirect export subsidies, export credits, export
insurance, food aid, etc. The most significant development in the export competition pillar has been the decision
at the Hong Kong Ministerial meeting to eliminate export subsidies by 2013. However, the actual impact of the
elimination of export subsidies may be rather limited, given the fact that the amount of these subsidies -- less
than $ 10 billion per year -- is significantly less than the amount of domestic support.
Agriculture negotiations: Indias stand
The agricultural sector is Indias most vulnerable sector. With the livelihood of around 650 million people in the
country being dependent on agriculture, Indias interests in the negotiations on agriculture are mainly defensive.
Indias offensive interests lie in reducing the heavy subsidisation in developed countries.
Indias interests in agriculture have always been dictated by the need to safeguard millions of small farmers who
operate the majority of farm holdings in the countryside. Agriculture determines the very social fabric of India and
is more a way of life and means of livelihood than a question of commerce. Further, India has 25 agro-climatic
zones that, on the one hand, provide diversity to crop cultivation and, on the other, make crop rotation within a
farm extremely difficult. Given these complexities in agriculture, India has essentially defensive interests in
agriculture. Indias bound rates and applied agricultural tariffs are among the highest in the world.
Further, the government has considerable flexibility to increase customs duties on most agriculture products, as
there is a substantial gap between the existing bound rates and applied customs duty. To illustrate, the bound
rate on some edible oils is 300%, but the applied customs duty is 100%. Thus, the government has the flexibility
to raise customs duty on some edible oils. However, in respect of certain products like olive oil, the bound rate
and applied customs duty are the same -- 45% -- leaving almost no flexibility for raising customs duty, even if the
need were to arise in the future.
Keeping its agrarian crisis in view, India had made a strong pitch for according adequate tariff protection to
certain products by designating them special products. The products within agriculture regarding which India is
extra sensitive with respect to trade liberalisation -- due to their potential for huge employment-generation and
livelihood concerns -- include cereals, edible oils and oilseeds and dairy products. Other agricultural products
produced by small farmers and, therefore, sensitive for India are spices, ginger, cane sugar, etc. These need to
be protected against deep tariff reduction.
As part of G33, India has strongly supported the need for developing countries to have a Special Safeguard
Mechanism (SSM) which would allow them to impose additional tariffs when faced with cheap imports or when
there is a surge in imports. However, developed countries and some developing countries have sought to
impose extremely restrictive requirements for invoking SSM, which would render this instrument ineffective.
As far as agriculture is concerned, overall there does not appear to have been any major shift in Indias
negotiating stand. It has firmly resisted making deep tariff cuts on agricultural products. At the same time, it is
aggressively pushing developed countries to reduce their farm support. However, as part of the G20 it has
diluted its stand on green box and blue box (subsidies provided for limiting production) subsidies. At the Cancun
Ministerial meeting in 2003, the G20 had sought a cap on green box subsidies and rejected any expansion of

blue box subsidies. However, by the time the 2004 July Framework was concluded both these demands appear
to have been abandoned. India also does not seem to have made any headway in obtaining the right to apply
quantitative restrictions on agricultural imports, a demand repeatedly made by stakeholders such as farmers
organisations and NGOs.
While Indias negotiating strategy has been defensive, in general, there are several products in which it may
have an export interest. These include cereals, meat, dairy products, some horticultural products and sugar,
which may see a growth in export opportunities with reductions in tariff. Indias negotiating strategy should also
be cognizant of the export opportunity that may be unleashed in the processed food sector, which has seen
significant growth over the past few years. It is here that the decision at Hong Kong to eliminate export subsidies
by 2013 assumes importance.
Non-Agricultural Market Access(NAMA)
In GATT/WTO, the term tariff is used to refer to a customs duty levied at the time a product is imported into the
territory of any country. Tariffs generally have three functions: (i) to provide revenue to the government; (ii) to
protect the domestic product from competition with the imported product, as the latter becomes more costly
because of the tariff; and (iii) to function as an instrument of development policy in discouraging non-priority
imports (such as luxury goods), while encouraging priority imports like capital goods and industrial
intermediates. As the imported product becomes more expensive with the levy of a tariff than it would be without
it, tariffs have a restraining effect on imports.
GATT/WTO requires member countries to bind their tariffs at mutually negotiated rates with a commitment that
the applied customs duty in a members territory will not exceed the negotiated level, which is referred to as the
bound level. When a country undertakes the obligation to bind tariff on a product, it cannot raise the tariff on that
product beyond the bound level. It may, however, apply a lower tariff at its own discretion. If a country has not
bound the tariff on a particular product, it is free to put any level of tariff on it. The bound levels for a country are
included in that countrys tariff schedule, which is kept in the WTO as a record.
The negotiations on industrial tariffs are mainly on two issues: how to reduce tariffs by working out a formula for
tariff reduction, and what percentage of products will be covered by tariff binding (commitment on binding
coverage -- that is, the obligation not to raise tariffs beyond committed bound levels on a range of products that
are not currently covered by binding).
Under GATT/WTO, there are different approaches to commitments on tariff reduction. The least onerous
approach for tariff reduction is to reduce the average tariff, with low reduction on products requiring high tariff
protection and higher reduction on products not requiring special protection. A more onerous approach is to
reduce tariffs on each tariff line on the basis of a linear formula, under which tariffs are proportionately cut by a
fixed percentage. The most onerous method for taking action on tariff reduction commitments is through a nonlinear formula under which higher tariffs are cut more than lower tariffs. To illustrate, a product with an initial tariff
of 70% will face a higher cut than another product with an initial tariff set at 40%. The extent of tariff cuts under a
non-linear formula depends on the value of the coefficient. One commonly used non-linear formula is the socalled Swiss Formula (see below).
Under GATT negotiations, developing countries were not required to reduce tariffs on a product-by-product
basis. Under the Uruguay Round commitments, they were required to undertake tariff cuts in the least onerous
manner - through average tariff reductions.
NAMA negotiations: Doha and beyond
Paragraph 16 of the Doha Declaration, which is on NAMA, has the following four elements:
1. Reduction/elimination of tariffs, including tariff peaks, high tariffs and tariff escalation, as well as non-tariff
barriers, in particular on products of export interest to developing countries.
2. Comprehensive product coverage without any a priori exclusions.
3. Special needs and interests of developing countries and Least Developed Countries (LDCs) to be taken
fully into account.
4. Less than full reciprocity by developing countries and LDCs in reduction of tariffs.
Certain features of the Doha mandate on NAMA bear highlighting. First, the Doha Declaration did not specify
whether tariff reduction should be undertaken on the basis of average tariff cuts or line-by-line formula-based
cuts. Thus, the possibility existed for developing countries to seek tariff reduction through the least onerous
method of average tariff reduction. Second, although the coverage of products for tariff reduction would be
comprehensive without a priori exclusions, the possibility exists for keeping certain tariff lines outside the scope
of tariff reduction. Third, the mandate provides for the special needs and interests of developing countries to be
fully taken into account in the negotiations. Fourth, under the concept of less than full reciprocity, developed
countries could be expected to undertake deep tariff cuts without commensurate concessions from developing
countries.
These four features of the Doha mandate would suggest that the interests of developing countries would be
protected during NAMA negotiations. However, subsequent developments do not indicate that the negotiations
are proceeding in a direction that would address the main concerns of developing countries like India.
In the July Framework it was recognised that the formula approach is key to reducing tariffs. It was specified that
countries would continue to work on a non-linear formula, to be applied on a line-by-line basis. Certain
flexibilities for addressing the concerns of developing countries were also envisaged in the July Framework. As
far as NAMA negotiations are concerned, the crucial point is that the July Framework should be viewed only as
providing initial elements for further work, and should not be treated as having been accepted.
At the Hong Kong Ministerial meeting of the WTO in 2005, it was decided that NAMA tariff reductions would be

undertaken through what is known as the Swiss Formula. Expressed mathematically, the Swiss Formula is as
follows:
t1 = (a X t0) / (a+t0), where t1 = new reduced tariff after application of the Swiss Formula; t0 = original tariff on
which the Swiss Formula is applied; a = coefficient which determines how steep the tariff cuts will be: the lower
the coefficient, the larger the cuts.
NAMA negotiations: Indias stand
From Indias submissions on NAMA to the WTO, it would appear that Indias negotiating position has evolved
considerably and changed significantly from its initial approach to tariff reduction and its earlier stand on how
unbound tariff lines should be treated for purposes of tariff reduction.
Indias initial approach to NAMA negotiations is contained in its submissions TN/MA/W/10 (dated October 22,
2002) and TN/MA/W/10/ Add 1 (dated January 8, 2003). From the outset, India does not appear to have
supported the least onerous approach to tariff reduction through average tariff cuts. Instead, it favoured the
relatively more onerous approach of a simple percentage cut on each product. In April 2005, even this approach
was abandoned in favour of a still more onerous formula -- the non-linear ABI (Argentina-Brazil-India) Formula,
which is a variation of the Swiss Formula. Thus, Indias approach has evolved from seeking a less tedious
approach to tariff cuts to proposing and accepting tariff cuts based on the Swiss Formula, which would result in
significant tariff reductions.
As far as unbound tariff lines are concerned, Indias initial negotiating stand was that developing countries
should have the flexibility not to bind certain tariff lines still considered domestically sensitive or strategically
important. However, in a joint submission by Argentina, Brazil and India, TN/MA/W/54 (dated April 15, 2005),
India has clearly stated that, increasing the binding coverage to 100% is a desirable objective of this Round.
This is another instance of a significant shift in Indias negotiating stand between October 2002 and April 2005.
In general, no country can be expected to adhere to its initial negotiating stand during the course of trade
negotiations. The process of negotiations involves trade-offs, with countries conceding ground on certain issues
in order to secure gains in other areas. It would, therefore, be useful to assess what gains developing countries,
including India, have made in the NAMA negotiations.
The Doha mandate provided for the reduction or elimination of tariff and non-tariff barriers on products of export
interest to developing countries. This would have been an issue of particular interest to India as its exports in
competitive sectors like apparel, leather and footwear, etc, face significant tariff barriers in developed-country
markets. So far no proposal has been made, either by India or any other developing country, seeking reduction
or elimination of tariffs on products of interest to developing countries. While tariff reduction through the Swiss
Formula would cut into developed-country tariffs, particularly tariff peaks on apparel, footwear, etc, in the
absence of product-specific proposals, developing countries would lose an opportunity to seek deeper cuts on
products of export interest to them.
The Doha mandate provided for developing countries to make less than fully reciprocal commitments. This is
likely to be reflected through developing countries retaining the option to keep a certain percentage of products
outside the scope of tariff reduction, or subjecting them to less than formula cuts. While the exact percentage of
these tariff lines remains to be agreed upon, this should provide a certain amount of breathing space to India for
protecting sensitive products from the adverse impacts of tariff reduction.
In one of its initial negotiating submissions (TN/MA/W/10/Add 1 dated January 8, 2003), India proposed that
developing countries must get credit for autonomously binding their tariffs after the Uruguay Round. Credit for
autonomous liberalisation can be obtained in the form of less onerous tariff reduction commitments. As India has
bound a large number of tariff lines autonomously, after the Uruguay Round, it stands to gain significantly if
agreement is reached on the methodology for getting credit. It is, therefore, surprising that India made a proposal
on this issue only in June 2006, more than three years after having suggested the idea. As Indias proposal was
made rather late, it does not appear to have been discussed at the WTO so far.
In its submission TN/MA/W/10 (dated October 22, 2002), India emphasised the significance it attaches to the
removal of Non-Tariff Barriers (NTBs), particularly on products of export interest to developing countries.
However, progress achieved so far in this matter does not hold out any promise for the removal of these barriers
in the near future. In the Hong Kong Ministerial Declaration, the ministers have only taken note of the work done
for the identification, categorisation and examination of notified NTBs and have recognised the need for
specific negotiating proposals, which should be submitted as quickly as possible. There is, thus, no deadline
even for the submission of proposals, let alone for the elimination of NTBs. Clearly, from Indias perspective, one
of its important objectives -- the removal of NTBs -- has not seen the progress it might have desired.
It is clear that the main and substantial gain made by India so far in the NAMA negotiations relates to having the
flexibility to protect certain sensitive products by keeping them outside the scope of the applicable tariff reduction
formula.
Implications for India of NAMA negotiations
Empirical evidence suggests that the integration of a country into the global economy provides both benefits and
challenges for consumers, business and the government. In a scenario where Indias economy no longer faces
a foreign exchange shortage, it would be crucial for the country to leverage NAMA negotiations in order to
generate employment through the expansion of trade. Given the relatively high level of NAMA bound tariffs in
India, compared to developed countries, tariff reduction through the non-linear Swiss Formula would require
India to make deeper tariff cuts than developed countries. In other words, the extent of percentage points by
which India would be required to reduce its bound tariffs would far exceed the corresponding number for
developed countries. Herein lies the imbalance in the possible outcome of NAMA negotiations for India.
Domestically, one possible way of mitigating the adverse effects of tariff reduction could be by designing

appropriate safety nets for sectors likely to be adversely affected by reduced tariffs.
As commitments on bound tariffs are almost irreversible, deep cuts in bound tariffs would make it difficult for India
to use tariff protection as a tool for industrial policy in the future. In other words, India may not be able to protect
some sectors of its domestic industry through appropriate levels of customs duty, even if there is a surge in
imports of low-priced manufactured goods.
Given the employment potential of some of the informal sectors, including fish, natural rubber, etc, it is important
for India to seek import protection in these areas. At the same time, India should not ignore the possibility of
enhanced exports generating additional employment in other sectors.
Based on simulations undertaken, it is clear that the outcome of tariff reduction would not be trade-neutral or
universally beneficial for different sectors. Labour utilisation for both skilled and unskilled labour falls in nine out
of the 28 sectors, particularly in raw materials-based sectors, metals and auto components. However, there
could be significant gains in output and labour use for textiles and apparel. As these gains are likely to accrue
over a broad initial base, tariff liberalisation in this sector under NAMA could provide an overall balance for the
country. For India, any sectoral initiative to reduce tariffs to zero in selected sectors would be meaningful only if
developed countries agree to zero tariffs in the textiles and clothing sector.
Unlike many developing and developed countries, India is not a member of many regional/free trade
agreements. Thus, Indias exports become uncompetitive to the extent of margin of preference enjoyed by its
competitors in the domestic market of preference-granting countries. This disadvantage would be addressed
after NAMA tariffs come down.
Services
While India has defensive interests in agriculture and NAMA, in services it can afford to be on the offensive,
given the edge that it has in most areas in this sector over other countries, both developed and developing.
Indias offensive interests in services

From Indias point of view, services present a different picture from agriculture and industrial tariffs. As an
emerging global power in IT and business services, the country is, in fact, a demander in the WTO talks on
services as it seeks more liberal commitments on the part of its trading partners for cross-border supply of
services, including the movement of natural persons (human beings) to developed countries, or what is termed
as Mode 4 for the supply of services. With respect to Mode 2, which requires consumption of services abroad,
India has an offensive interest.
In sharp contrast, the interest of the EU and the US is more in Mode 3 of supply, which requires the
establishment of a commercial presence in developing countries. Accordingly, requests for more liberal policies
on foreign direct investment in sectors like insurance have been received. These developed countries are
lukewarm to demands for a more liberal regime for the movement of natural persons.
Unlike many developing countries, India has taken offensive positions in this area as it has export interests in
information technology (Mode 1). The country also seeks greater access to the EU and the US in terms of the
movement of natural persons, or what is termed as Mode 4 in cross-border supply of services. Lack of movement
in Mode 4 due to opposition by the US and the EU may affect Indias ability to offer much in other modes of
services.
India would also like to see issues like economic needs test, portability of health insurance and other such
barriers in services removed. As far as delivery of services through commercial presence (Mode 3) is concerned,
there is an increasing trend of Indian companies acquiring assets and opening businesses in foreign markets in
sectors such as pharmaceuticals, IT, non-conventional energy, etc. This is further evidenced by the increase in
Outward Foreign Direct Investment (OFDI) from $ 2.4 billion in 2004-05 to $ 6 billion in 2005-06. India may,
therefore, have some interest in seeking liberalisation in Mode 3, although it may need to strike a balance with
domestic sensitivities in financial services.
India has received many pluri-lateral requests for the opening of a number of services. However, while the
demanders have high ambitions in terms of the market access they want, they are not willing to open up their
own economies to the same degree, particularly in Mode 4. While the EU is fully committed to the pluri-lateral
process, the US continues to indicate the high importance it gives to the bilateral request-offer. In fact, India has
threatened to withdraw its offers if better offers, which may enhance Indias services exports, are not forthcoming
from its trading partners. Mutual recognition of degrees, allowing portability of medical insurance, reducing
barriers to movement of professionals, etc, are some of the areas of interest to India.
An important issue relating to the delivery of services and liberalisation is domestic regulatory reforms.
Appropriate domestic regulations are necessary to prevent market failure as well as to address issues like
quality control, accreditation and equivalence, effective registration and certification systems, revenue sharing,
etc, for protecting and informing consumers. In addition, regulatory frameworks can also advance transparency.
Any market access commitments that India might make during the ongoing negotiations must be preceded by an
effective regulatory framework. The hiatus in the negotiations could be utilised for putting into place appropriate
regulatory regimes in different service sectors.
Some experts are of the view that under the Uruguay Round commitments, developed countries already have a
liberal trade regime in Mode 1 (which covers Business Processing Outsourcing or BPOs) with regard to some of
the service sectors of interest to India. Further research needs to done to assess the extent of autonomous
liberalisation undertaken by developed countries, which can be locked in during the negotiations, and
consequent gains that can accrue to India. Further, even in the absence of additional liberalisation, Indias

service exports would continue to grow in view of its cost advantage and demography. India could also explore
the possibility of finalising mutual recognition agreements with the main importers of services, so that differences
in national regulatory systems do not act as barriers to its exports.
Conclusions
From Indias perspective it would be most crucial during the Doha negotiations to protect the interests of its
farmers, even at the cost of foregoing benefits that might have otherwise been made in services and NAMA
negotiations.
As far as agriculture negotiations are concerned, the playing field may be tilted further against India if it is
required to undertake deep tariff cuts without any concurrent elimination of farm subsidies by developed
countries. Even the most ambitious proposal would permit the US and the EU to together provide trade-distorting
subsidies to the extent of $ 30 billion. Further, without strengthened disciplines on green box, developed
countries may be in a position to increase subsidies under this category beyond the present levels of $ 90
billion. Such high levels of farm subsidies in developed countries, accompanied with deep tariff reductions in
India, could severely threaten the livelihood of Indias farmers as well as the food security of its people. There is
no requirement for India to reduce bound rates to address the current food shortage.
As far as NAMA is concerned, without a steep reduction in tariffs in the textiles and clothing sector in developed
countries, India may not stand to gain significantly. In respect of services, India would need to balance the
incremental gains that might accrue to it from liberalisation in developed-country markets with the adverse
consequences of making commitments to liberalise sensitive sectors. As Indias existing regime in some service
sectors (like telecom) is more liberal than its existing commitments at the WTO, it could seek to leverage this by
binding its existing regime, provided it obtains commensurate reciprocal concessions.
(Abhijit Das is Senior Trade Officer, UNCTAD India Programme)
nfoChange News & Features, December 2006
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2 COMMENTS
ANNAPURNA SINGH

2009-07-29 14:15:56

(+1) Vote

Very exhaustive and wonderful piece that gives an insight into what India's stand should
be in the Doha round.

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YOGINI CHAUHAN

2009-10-30 11:11:42

(+1) Vote

Very good article. It makes the stand of India at the WTO very clear. The author has
rightly stated that India must not dilute its stand to protect its agriculture sector for gaining
benefits in the services sector.

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