Sense of service

Caution should be exercised while liberalising the services sector

Published: Saturday 15 October 2005

India has submitted a new offer to liberalise its services sector to the World Trade Organization (wto), but the August 12 offer has not been made public. wto negotiations on the General Agreement on Trade in Services (gats) have made little progress as countries want some clarity in the important agricultural sector first. With the wto Hong Kong ministerial scheduled for December 13-18, time is short. Countries are trying to make up for the time lost due to the failure of the Cancun ministerial in 2003.

It is feared that the little attention paid to the services negotiations might make India give up more than it should. Vidya Ranjan of Equations, a non-governmental organisation (ngo) in Bangalore that works in the tourism sector, says the government is concentrating on relaxing visa requirements in developed countries such as the us, and ignoring the potential negative effects of modifying services trading rules.

For instance, liberalisation could affect a government's ability to enact environmental legislation. Though a country can attach conditions such as environmental legislations, what happens if a country wishes to pass further legislation that was not thought of when the offer to liberalise occurred? Ranjan says in any case India isn't using the option to put conditions in its offers. India has already made offers to liberalise its tourism sector, allowing full market access in hotels. Ranjan considers the example of an international hotel chain wanting to set up a resort at a popular tourist spot. "What if you want to put in regulations regarding local community employment? What if you want to limit the number of hotels there to lower the environmental impact? Are local government bodies, such as panchayats, aware of the restrictions gats is placing on their ability to legislate?"

How domestic legislation will interact with gats is still subject to negotiation. Focus on the Global South, Mumbai, an ngo working on development policy, suggests countries should finalise these rules before making commitments under gats.

Necessity test Liberalisation under gats binds domestic legislation to what is called a 'necessity test'. Explains Jamues Nedumpara of the United Nations Conference of Trade and Development (unctad), India, "The necessity test is usually interpreted to mean that legislation is only valid if no other less trade restrictive remedy is available." Such a test ensures that countries do not restrict trade by unfair regulations.

India's trading partners want full market access in several areas such as food retailing, higher education, health and banking services. There are legislation issues in many sectors. For instance, in the health sector, public health regulations should take priority over trade concerns, says Mira Shiva of the Voluntary Health Association of India, a Delhi-based federation of 4,000 health care providers. "More capital going towards private hospitals could cause an internal brain drain, where medical staff would leave public health services in lure of higher salaries, leaving the public health system further depleted. There is already a 59 per cent shortage of physicians, and a 67 per cent shortage of paediatricians in community health centres in India".

Meanwhile, the Union commerce ministry says it can gain us$50 billion per year in export of services from a 3 per cent increase in quota of temporary workers allowed by developed countries of the Organization for Economic Cooperation and Development (oecd). It is aggressively pushing for an easing of entry barriers and the removal of 'economic needs test' that oecd countries impose on foreign workers. The liberalisation of the health sector and tourism, with the effect this could have on public health and ecological sensitive areas, are mere bargaining chips in the quest. Nagesh Kumar, director-general of Research Information Systems for Developing Countries, a research institution that advises the government on wto matters, believes that India's gats offer is "very ambitious".

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