TWN Info Service on WTO and Trade Issues (Mar16/12)
25 March 2016
Third World Network

US opposes discussion of Mode 4 issues under GATS
Published in SUNS #8206 dated 22 March 2016

Geneva, 21 Mar (Kanaga Raja*) -- A cluster of services meetings at the World Trade Organisation (WTO) last week found the United States strenuously opposing and blocking discussion of a proposal by India that amongst others had called for commercially meaningful market access for short-term services providers under Mode 4 of the General Agreement on Trade in Services (GATS).

The six-page Indian proposal, introduced at a meeting of the Council for Trade in Services on Friday, amongst others, cited several escalating barriers to Mode 4 in the US, Canada and the United Kingdom, as well as other measures that act as disincentives for movement of natural persons, or act as barriers for market access (see SUNS #8204 dated 18 March 2016 for details of the Indian proposal).

The US, backed by Canada, also blocked a request by India for updating of the assessment by the WTO Secretariat on the continued barriers in the movement of natural persons under Mode 4 since 2009.

Apart from the Indian communication on Mode 4, the two-day cluster of services meetings (17-18 March) also took up other issues such as the ratification by Brazil of the fifth protocol on financial services annexed to the GATS, the operationalisation of the LDC services waiver post-Nairobi, an update on the plurilateral negotiations on the Trade in Services Agreement (TiSA) by its participants, as well as concerns raised by Canada under other business on new regulations on foreign suppliers of online publishing services in China.

In the Working Party on Domestic Regulation, Australia and Canada announced that their proposal on transparency in domestic regulation that had been put forward before the Nairobi ministerial, is now no longer on the table, as it was developed specifically in the pre-Nairobi context.

India however said that its proposal on increasing transparency in Mode 4 is still on the table (see SUNS #8205 dated 21 March 2016).

According to trade officials, some members suggested restarting text-based negotiations, but there was no consensus on this, as the US voiced its opposition.

According to the US, members are still in a reflective state on the broader negotiations. It said that domestic regulation is an important part of a larger puzzle on services.

The US said that "until there is a firm understanding on where we are going, it does not make sense to restart negotiating on neither the 2009 nor the 2011 Chair's text. The only option is to start with a blank page."

The US further said that it cannot restart negotiations unless there is the assurance that the large emerging economies take on new commitments without resorting to special and differential treatment (S&D) provisions.

The US said that it has sophisticated regulatory systems and unless it has a realistic approach to its capacity, gaining consensus on any issue will not be possible.

Australia proposed an exchange of views to hear where members want to take the services negotiations in the post-Nairobi era. This proposal, trade officials claimed, received strong support.

According to trade officials, at the Committee on Trade in Financial Services, Brazil indicated that it has completed its internal procedures to ratify the fifth protocol annexed to the GATS. It had signed the protocol back in December 1997, but had not ratified it.

The Council for Trade in Services will now reopen the protocol for Brazil to formally notify the WTO of the completion of the process. It has until 25 March 2016 to do so.

The Council for Trade in Services on Friday took up the issue of the operationalisation of the LDC services waiver.

Trade officials said that there have been no new notifications since the Nairobi ministerial conference last December. Between October 2015 and Nairobi, nine notifications were received.

Uganda, on behalf of the LDCs, said that the group is still reviewing the most recent notifications, adding that overall, it is pleased with the fact that the number of preferential treatment measures exceed the number of like measures in goods.

It said it will come back later with further conclusions. It also asked members to provide some summaries of their notifications, as these are complex.

The Council for Trade in Services also took up the communication from India on Mode 4, which trade officials said, illustrates the increasingly complex nature of barriers to Mode 4 entry experienced by its services suppliers.

According to trade officials, India called (in its six-page restricted proposal) for all members to address such barriers to ensure that the Mode 4 access being committed actually results in effective and commercially meaningful market access.

Citing a 2009 WTO Secretariat note (S/C/W/301), India quoted "shallow commitments" by developed and developing members in terms of Mode 4 market access. India asked the Secretariat to update its report to reflect the current practices under Mode 4.

According to trade officials, the US, backed by Canada, expressed strong opposition to updating the Secretariat document.

Trade officials noted that India has raised a dispute with the US and as a first step has sought consultations with the US over non-immigrant temporary working visas. An amendment to the request was sent by India on 18 March, and from this date both parties have 30 days to enter into consultations.

According to trade officials, the dispute relates to increased fees on certain applicants to the US for L-1 (relating to intra-corporate transferees) and H-1B (professionals engaged in speciality occupations) categories of non-immigrant temporary working visas and measures related to numerical commitments for H-1B visas.

Mode 4 deals with the movement of short-term service providers by a WTO member in another member-country on a non-immigration framework for ‘trade in services'.

While initially, in the Uruguay Round, the US had pushed for services as a trade issue, with a view to enable its service providers to access services markets abroad by ability to invest and establish wholly-owned service enterprises to provide services to consumer enterprises in another country, as negotiations continued, progress became possible only on the basis of a definition relating to ‘trade in services' by supply in four modes.

The agreement itself, concluded at Marrakesh, also became possible only after the US and the EU agreed to enable Mode 4 supply by service suppliers from another Member, by scheduling commitments to provide access for a specified number by personnel of service suppliers of other members. This was essentially negotiated by the US and EU with India in the last stages of the Uruguay Round negotiations at official level in 1993, and multilateralised when scheduled.

But such access for Mode 4 supply trade has been undermined by regulatory measures such as "increased application fees for entry by certain categories of foreign professionals, increased salary thresholds for foreign professionals, or implementation of visa categories in a manner that renders effective market access meaningless and non-portability of social security benefits".

It is estimated that the US has collected around $375 million by way of visa application fees in the past five years. Effectively, higher visa fees have increased the cost of doing business for Indian service providers in the US. The US legislation has sharply raised the amount companies have to pay for two categories of visas. The H-1B temporary visas for skilled workers have been doubled to $4,000 per application as of 1 April, while L-1 visa applicants will have to pay $4,500.

India is the biggest user of such visas. Its enterprises such as Infosys Ltd, Wipro Ltd and Tata Consultancy Services Ltd (TCS) apply for up to 65,000 H-1B visas each year. The fee hikes apply only to companies that have more than 50 workers in the US and where 50% of these workers are foreign nationals.

The dispute threatens India's most valuable export. The country has become a tech services powerhouse and sends thousands of technology professionals on temporary assignments to countries around the world. The US accounts for 61% of the country's $108 billion information-technology services revenue.

According to the National Association of Software and Services Companies, the industry's trade group, Indian IT firms are estimated to have to bear an additional $400 million in annual costs under the new policies. Moreover, the Indian non-immigrant service suppliers, who typically stay for a period of three to seven years, are forced to pay approximately $1.6 billion towards the US Social Security System.

The cumulative contributions made by the Indian service suppliers in the past six years in the US ranges between $8-12 billion for social security. However, when such people return to India after performing their services, they do not obtain any benefits in respect of their social security contributions.

"In nutshell, a service supplier on a non-immigrant visa loses all his social security contributions since there is no mechanism for refund, or of portability of such benefits to the home country," India has said.

According to trade officials, the US said that the Council for Trade in Services is not the appropriate forum to discuss the issue as it is now a DSB issue. India has chosen this forum to discuss this issue, said the US, adding that therefore it is not in a position to comment.

In its communication, India had also analysed some measures imposed by Canada and the United Kingdom.

According to trade officials, on the Canadian measures, India specifically mentioned some reforms in immigration policy and the distinction of the entry of natural persons based on Canada's commitments under the WTO and FTAs, which it claims that labour market tests will not apply, and the TFWP (Temporary Foreign Workers Programme) for which labour market tests will apply.

According to India, this categorisation creates some uncertainties for services suppliers, the computer and related services sector in particular, for which India believes that intra-corporate transferees should be allowed access without any labour market testing.

Canada said that it could have been more efficient to have discussed this bilaterally with India earlier.

According to trade officials, Canada also said it wished to correct some of India's ‘inaccurate' statements in its communication, particularly with regard to the distinction between the TFWP and IMP (International Mobility Programme).

According to Canada, the TFWP relates to the resort to foreign service suppliers in case there is no Canadian available to perform the task, whereas under the IMP, this is exempt.

According to trade officials, on the UK measures, the Indian communication analysed some recommendations by the migration advisory committee that was commissioned by the UK government. The committee recommends a variety of aspects including minimum salary thresholds and annual immigration skills charge on all employers.

According to India, there is a clear intent by the migration advisory committee to impose measures that will reduce foreign migrants working in the UK.

According to trade officials, the UK and the EU said that the migration advisory committee is an independent body advising the UK government through a report, so it is not a government measure or even a draft measure.

The UK said that it is fully complying with its WTO commitments and is happy to hold bilateral meetings with any interested member on this issue.

The EU said that it is surprised to hear this from India here, as a bilateral dialogue is taking place.

According to trade officials, India was backed by China, which said that it was alarmed by the increasing trend of regulatory barriers in Mode 4. China invited members to take concrete measures to live up to their commitments on Mode 4.

According to trade officials, South Africa, on behalf of the African Group, said that Mode 4 is of primary interest to the Group. It looked forward to engagement on this matter.

According to trade officials, several developing countries including Turkey, El Salvador and Nigeria also expressed support for India.

The Council for Trade in Services also heard an update from Australia on the TiSA negotiations. Australia said that ministers and ambassadors met at the margins of Davos (in January) and agreed to accelerate negotiations in 2016, with the aim to conclude the talks at the end of this year.

Australia said that good progress was made in the first round in 2016 (30 January-5 February), and that it will chair the next round from 10-15 April. Discussions will include Mode 4, e-commerce, transport services, telecoms, and financial services.

Another round has been scheduled in May at which TiSA participants expect to revise their market access offers, with another round in July. A further round will be held in October, at which there will be an exchange of further revised market access offers.

Australia said the TiSA participants are reflecting on the best way to increase transparency, as a certain number of WTO members have expressed their serious concerns in various meetings of the Council for Trade in Services. These countries pointed to a lack of transparency in the TiSA talks and the fact that this agreement is being negotiated outside of the WTO.

Australia reported that it is meeting bilaterally and with regional groups to provide any details about TiSA.

China said it heard from the TiSA participants that this process is meant to be transparent, open and inclusive and its objective is to reinvigorate the multilateral trading system, as the TiSA is open to be multilateralised later.

But on transparency, China said, we still don't get enough information to analyse whether the TiSA is consistent with the GATS. Expressing concern, it urged the TiSA participants to take practical actions to demonstrate their sincerity that the process is not undermining the multilateral trading system.

Meanwhile, under ‘other business', Canada raised some concerns on new regulations on online publishing services foreign suppliers in China.

According to trade officials, it referred specifically to new administrative rulings released by the Chinese government in February - namely the Ministry of Industry and Information Technology - that prohibit foreign firms from publishing online services through either a joint venture enterprise or a wholly-foreign-owned enterprise.

Canada said the measure came into force on 10 March, and it asked China whether it intends to notify the Council for Trade in Services under GATS Article III on transparency.

According to trade officials, Canada was backed by Japan. The US said that it is concerned about the regulations in services trade. It was disappointed about the inability of members to comment on the draft before it came into force, as it was not notified.

Australia also asked China to notify the measure. According to trade officials, China said that it will relay the message to capital.

(* With inputs from D. Ravi Kanth.) +