Despite the political posturing, the Joint Leaders' Statement on RCEP issued on November 4, leaves the question open on whether or not India will become a party to the RCEP agreement. That the 15 RCEP participating countries (RPCs) did not conclude the deal without India, signals the strategic importance of India being part of the agreement, and leaves open the opportunity for India to leverage that position.
There were several reasons why India has been disillusioned with the terms of the RCEP agreement, one of which is that the RCEP participating countries (RPCs) are not committing adequately to trade in services, especially in areas of India's interests involving the movement of professionals.
Services exports are a growing component of India's GDP. The WTO ranked India as amongst the top ten countries for services trade in 2017. Focusing on this area, therefore, is a good strategy in trade negotiations. Yet, India's trade in services agenda has been unduly focused on "Mode 4", which involves the presence of Indian professionals in another country (such as an Indian IT professional in the US, or an Indian doctor in Australia), engaged in the supply of services. This is the mode of supply which has been riddled with the maximum resistance in many countries, linked as it is with the concern that a foreign service supplier threatens the job of a national.
That Mode 4 is not about "immigration" into another country, but only refers to "temporary" presence restricted to the supply of a service, has had little value in allaying such concerns. The innumerable sensitivities associated with access of foreign professionals to shrinking employment markets, and the failure of the WTO or any FTA to distinguish between "immigration" and the temporary nature Mode 4 market access, is perhaps why Mode 4 has not realised its potential. A 2009 background paper by the WTO Secretariat, notes that not only is Mode 4 characterised by 'shallow commitments' from WTO members, but also by the widest range of regulatory barriers, such as complex visa and work-permit related requirements and procedures, numerical quotas and economic needs testing (ENTs), high rejection rates for visas coupled with opaque and arbitrary procedures for visas and work permits. The paper cites a study which estimates that the worldwide costs of processing visa/work permit applications represent around 0.3% of the world GDP!
An example of a Mode 4 barrier is what is popularly referred to as the "50:50" rule under the US Immigration and Nationality Act, which imposes visa processing fees that is almost eight times higher in the event the organisation in the US seeking a foreign professional on a H1B or L1 visa, has 50 or more employees, and 50% of such employees are foreign nationals on a similar visa! This is coupled with very high rejection rates for such visas; the National Foundation for American Policy (NFAP) has noted that between FY15 and FY18, the denial rate for new H-1B petitions quadrupled from 6% to 24%.
In the UK, higher salary thresholds are prescribed for foreign professionals. Brexit itself is rooted in the scepticism and resistance towards the 'foreign' worker, and closing of borders to the free movement of EU professionals. Singapore insists that the "core" of any Singapore business should comprise of "Singaporean" nationals, before 'Employment Passes" can be issued to foreigners. In Australia, entry is limited to a list of "gazetted occupations", which is subject to a six-monthly review; means that Australia is unlikely to be able to make a firm Mode 4 commitment in an FTA for any specific profession.
Most new-age FTAs, including the CP-TPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), have remained futile in addressing Mode 4 issues, and relegate it as a "pariah"—in a separate chapter that does not address market access related commitments.
The recent Report of a High-Level Advisory Group (HLAG Report) on India's trade agenda, acknowledges that "we need to recognise the futility of an overbearing focus on the issue of Movement of Natural Persons and shift focus to other modes as well." Added to this is the fact that Mode 4 access is not simply a one-way traffic into developed country markets. With rising unemployment, India itself can ill-afford to open its markets to Mode 4 access to other countries.
Whether or not India decides to join the RCEP, India needs a careful strategy to calibrate its expectation on trade in services, and what it is prepared to offer to other countries. While India should seek strategic market access for skilled professionals such as IT, accountancy, architects, medical and nursing professions in countries of interest, it is crucial to move beyond this limited agenda.
A key area for consideration in this regard is how can we leverage "Mode 1"- or "cross-border services" which occurs without movement of a service supplier or consumer, by delivery of services through means of information technology. IT-enabled services has been an area of comparative advantage for India. Clarity in law and policy to leverage India's Mode 1 strength is an immediate imperative. Central to Mode 1 trade, is the need for cross-border movement of data, which is an area where law and policy is evolving, with the accordion stretching between the need to assert 'data sovereignty' and localise all data generated in India within India, to a more nuanced and differentiated set of rules for "personal" data and "non-personal" data. Getting clarity on this, and investing in R&D to leverage India's traditional strength in "Mode 1" is of crucial importance.
Services using 3D technology represents a higher evolution of 'Mode 1' services. The WTO's World Trade Report for 2018 estimates that 3D printing may wipe out as much as 40% of world trade by 2040! This may, therefore, require a fundamental rethinking of the traditional rules of trade governing not only trade in services, but trade in goods as well. Getting India 3D ready, therefore, is an immediate imperative.
The HLAG Report identifies "Mode 2" services as another area of significant potential. Mode 2 or "consumption abroad" represents trade where a foreign service consumer travels to another country to avail of services, such as tourism or medical services. The key driver for this mode is not any specific market access commitment from a trading partner, but India's own sound and sensible policies to attract and retain the "Mode 2 consumer", be it a foreign tourist, or a foreign patient seeking medical services.
As India prepares the ground for negotiating FTAs with the US, the EU, and explores its options for RCEP, a sound trade in service agenda that addresses both internal domestic regulatory reform and refines its market access expectation in other countries, is essential to achieve realistic outcomes.
This article was originally published in the Financial Express, November 19, 2019.
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