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The problem is not only one of class interests and the
relatively small proportion of Indians who would benefit
from such opening up in other countries. This is certainly
true, of course: while the absolute number of skilled
Indian workers appears to be large, in general the Indian
workforce suffers from very substantial skill deficit
and the vast majority of our workers are very poorly
educated by international standards. Yet the government
could argue with some justification that even this small
minority can play a role in generating both more domestic
economic activity and more foreign exchange, besides
which the expansion of such service activities could
go some way in dealing with the still large problem
of educated unemployment in India.
The real issue, though, is somewhat different. The government's
negotiating position has been based on the assumption
that the cross-border expansion of such service provision
rests on the offers of liberalisation under Modes 1
and 4 made by various other (developed) countries. But
it is important to remember that the huge expansion
of short-term economic migration as well as the boom
in cross-border supply have already occurred without
any such explicit liberalisation. While the expansion
of such service provision has certainly been enabled
by new technology, it has been fundamentally driven
by demand – that is, by the labour market conditions
and workforce requirements of receiving countries.
That is why most labour migration from India, as from
the rest of South Asia, is still to the oil exporting
countries of West Asia. That is why the more recent
wave of H-1B visa holders to the US has reflected the
needs of US companies. That is why Indian teachers,
doctors and nurses are now staffing the public education
and health systems of Canada and the United Kingdom.
If this is the case, then it is likely that such forces
will continue to drive possibilities of short-term economic
migration irrespective of any liberalisation under GATS,
because the receiving economies require it.
Conversely, if the domestic social or political backlash
against such migration – whether directly as Mode 4
or indirectly as Mode 1 – is strong enough, governments
will take steps to control it no matter what the GATS
requirements are. So pushing for further liberalisation
under GATS is both unnecessary and ineffective as far
as the possibilities for Indian workers are concerned.
In any case – there is a deeper question: is such movement
of Indian workers necessarily good for the economy?
It is interesting to see how discussions of ''brain
drain'' have completely disappeared from the Indian
policy landscape, and how the outward movement of skilled
labour is now almost always regarded as unequivocally
good. Yet the problems remains a real one, and it operates
in may ways that affect not only the quality of life
within India, but also the relative payments to particular
workers.
Consider these recent trends. There are reports from
across the country of animals dying because of the massive
shortage of veterinarians, many of whom have migrated
in response to increased demand from the West. The same
is likely to be true for other health professionals.
Even when the labour does not move, service relocation
and off-shoring (which is Mode 1 delivery) have pushed
up wage rates for particular occupations making for
a very skewed and undesirable incentive structure. The
number of science post-graduates has plummeted, and
there are hardly any takers for research positions in
science, because the income stream from management and
financial sector professional occupations is so much
higher that educated youth are no longer attracted to
science as a career.
This is hardly the way that society can be built for
the future, yet our policy makers and trade negotiators
are actively encouraging precisely these tendencies.
So much so that they are willing to give up on absolutely
critical matters such as the livelihood of our farmers
so as to push for more of this!
The other area which most developing countries see as
a major loss out of Hong Kong, and on which our own
government is so complacent, relates to NAMA, or protection
for domestic production of non-agricultural goods. It
was already evident in July 2004 that the Indian government
did not see the NAMA negotiations as much of a threat
and were willing to make substantial concessions in
this area. However, even the July 2004 package did not
go as far in terms of forcing tariff reductions onto
developing countries as the current agreement does.
Already, because of shifts from quantitative restrictions
to tariffs, tariff bindings and progressive tariff reduction
requirements, many developing countries have been experiencing
deindustrialisation. The NAMA agreement will now force
even more tariff reduction by developing countries,
so that it may be difficult soon in some countries to
find any material-producing sector that is internationally
competitive and will survive!
The worst changes in the NAMA draft relate to the nature
of the formula that is to be used for educing tariffs.
earlier developing countries had argued for a linear
and average reduction for developing countries and a
''Swiss'' formula for developed countries. A Swiss formula
essentially aims for progressive harmonisation, by making
the required tariff reduction larger, the higher is
the initial level of tariff. For obvious reasons, developing
countries have higher levels of industrial tariffs than
developed countries, who anyway use many more non-tariff
barriers to protect their own producers.
The Hong Kong Declaration actually states that ''we
agree to a Swiss formula'' for tariff reduction although
the precise nature of the formula is to be worked out.
Further, this is to be adopted on a line-by-line (individual
product) basis, rather than as an average reduction.
This will definitely will result in the loss of policy
space and flexibility for developing country governments
to protect their own industries. In fact, several African
Ministers have already said that this approach will
entail very substantial deindustrialisation.
All that remains is to argue about the size of the coefficients
that are to be used for different groups of countries.
Very high coefficients will be required to protect local
industries, but most developing countries will not have
the capacity to negotiate such high levels. Some simple
calculations suggest that to maintain their policy space,
most developing countries will require a coefficient
of about 290. But this is unlikely to be anywhere near
being achieved – for example, the EU has offered the
developing world a coefficient of 15, compared to a
coefficient of 5-10 for developed countries.
Another matter of concern is that the Declaration also
says that that applied rates will be used as the basis
for treating unbound tariffs, by adopting a "non-linear
mark-up approach to establish base rates for commencing
tariff reductions." This is a very drastic treatment
of unbound tariffs that will ultimately result in low
bound tariffs on previously unbound items.
And what of India? The Commerce Ministry has argued
in the recent past that there is no reason to be worried
about such a NAMA outcome because these reductions all
pertain to bound tariffs. Since our current tariff levels
are well below our bound rates in most product lines,
this will not affect actual tariff levels at all. However,
this is a very sort-sighted view, since it completely
disregards the possibility of international prices of
manufactured goods falling from their present levels
in the near of medium term future. If that were to happen
(and it is not at all an unlikely possibility for several
goods, given the rapid capacity creation in manufacturing
internationally) then the current bound tariffs would
already be too low, and further reductions in them would
decimate domestic producers of those goods.
It is precisely this same mistake that was made by Indian
negotiators during the Uruguay Round, when they did
not anticipate price falls in agricultural trade and
so actually specified zero bound tariff levels for many
important crops. By the end of the 1990s the Indian
government was then forced to go begging to Geneva to
renegotiate the bound tariff levels of agricultural
goods. It is extraordinary to see that so little can
be learnt from one's own experience. Clearly, as far
as NAMA goes, trade negotiators in most other developing
countries are actually more clear-sighted than those
in India.
But is the self-delusion of the Indian trade negotiators
simply a case of misplaced optimism and the triumph
of hope over experience, or does it reflect more worrying
underlying tendencies? The more depressing possibility
is that, despite all the verbiage to the contrary, those
who agreed to the Hong Kong deal were not really concerned
with the interests of the vast majority of Indians,
and concentrated on the possibilities for material betterment
of a small elite. Let us hope, for the sake of Indian
democracy, that the latter is not true. |
