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Can Services Succeed Where Goods Have Tottered?

Integrating Services in South Asia - Trade, Investment and Mobility by Rupa Chanda (Oxford University Press), 2011; pp 348, Rs 895.


Can Services Succeed Where Goods Have Tottered?

Rohini Sahni

t was at the Uruguay Round of the G eneral Agreement on Tariffs and Trade (GATT) (1986-93) that services were first put on the table for multilateral negotiations. They were not only late e ntrants (compared with industrial goods and agriculture) but also controversial ones at that. To recall India’s role in the proceedings then, it was among those opposed to the inclusion of services. Negotiating ser vices at the same forum as goods had its own complications. It amounted to giving ground in services in exchange for that gained in goods. Under these circumstances, delinking the two was deemed in India’s better interests; for ser vices could have ended up diluting the p otential benefits derived from all the hard-bargaining for market access in goods.

Over two decades later, with a growing stake in services trade, India perhaps finds itself in a position similar to the United States (US) at the Uruguay Round. Services are the more conspicuously growing component of India’s economy and trade, with surpluses in services trade compensating for its sizeable deficits in goods. The country’s position of eminence as an exporter of services is all the more magnified in south Asia. Growth in merchandise trade within the region has not been very promising, making it imperative to look at alternative drivers like services. The issue of single versus dual track negotiations persists at a regional level as well. But the kaleidoscope has shifted and there are newer roles to be donned. India as the dominant regional player would have to be instrumental in forging alliances within the region. It would have to move from being on the defensive to being proactive in engaging its interests (and that of the region). This need to circumstantially revisit national positions is just one of the dilemmas of trade negotiations that springs forth while reading Rupa Chanda’s Integrating Services in South Asia: Trade, Investment and Mobility.

Integrating Services in South Asia – Trade, Investment and Mobility by Rupa Chanda (Oxford University Press), 2011; pp 348, Rs 895.

The inadequate progress in commodity trade within the South Asian Free Trade Area (SAFTA) notwithstanding, the work under review argues for services to be considered the potential driver of integration. To reason why it should be so, Chanda explains:

A close examination of recent trends in and various performance indicators for the service sector in individual SAARC member countries and the region as a whole seems to suggest that the grounds for services integration may be much stronger than those for goods and that the potential for complementarities and congruence of interest and policy approaches is likely to be much greater in services than in the case of goods (p 15).

This principal argument gets explained in the course of nine chapters in the book, with detailed studies of select services – including two infrastructure or producer services (telecommunication and energy), one commercial service (tourism), and two social services (education and healthcare). Incidentally, this is the second m ajor work in recent memory highlighting the potential of services for deepening regional integration in south Asia (see part II of ADB and UNCTAD (2008), which has relied on a similar choice of service sectors to underscore its arguments).

In Chapter 1, the author presents an outline of integration efforts in south Asia from SAARC to SAFTA, while examining their impact on intra-regional trade. As pointed out, the efforts have not led to very positive outcomes on the ground. There is an elaboration on the underlying factors responsible – overlapping trade baskets in goods resulting in competition rather than complementarities, disparities in market sizes, poor logistical connectivity despite geographic proximity, and

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high protectionism, not to mention the lack of the political consensus. With this background, Chapter 2 argues for the need to push services as the driver of integration. This chapter provides a comparative analysis of the rise of services across south Asian economies, in gross domestic

product (GDP) as well as trade terms, while also addressing factor flows related to investments and labour movements. The scope for services integration in south Asia and its potential is argued on the following rationale (p 56): (a) there is a structural shift towards services in the region’s economies, (b) from within these services, there exist differentiated comparative advantages across sectors and sub-sectors that give rise to complementarities (like India shifting towards professional and business services while other countries continuing to be dependent on traditional, commercial services such as tourism and transport (p 43)), and (c) these complementarities have the potential to generate not just trade but also capital and labour movements across the region.

Telecom and Energy Services

Having put forth the basic arguments in these initial two chapters, the author illustrates them using a sectoral approach (Chapters 3-7). The construction of all chapters in this segment follows a definite, well-sequenced pattern. They start with an overview of the particular service and the trajectories of growth charted across countries in the region, followed by the status quo and status quo ante in terms of regulatory reforms (or the lack of it), by intra-regional initiatives of cooperation at both inter-governmental and private levels alongside multilateral commitments binding the nations, and concluding with what the future portends for the sector, both in terms of challenges as well as opportunities for deepening r egional engagement.

In case of telecommunications (Chapter 3), while the sector has been growing rapidly across the region, regulatory responses have been quite mixed. India and Pakistan are highly competitive markets allowing private participation while some of the smaller countries still have monopoly state operators (p 82). On the

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multilateral front, while Pakistan and N epal have unilaterally liberalised, Bangladesh, Sri Lanka and India (to a lesser extent) have been defensive in making commitments (p 106). In light of this, the need for a more consistent, pro-competition stance is emphasised. Comparatively, the ground for trade in energy services (Chapter 4) is more established, considering the “win-win possibilities” (p 115) in energy exchanges (hydropower, electricity, natural gas). This is quite understandable considering the growing energy demand in the region coupled with deficits in production. Some tangible progress has already been achieved through bilateralism, notably between India and Nepal, and between India and Bhutan in hydropower. It can be surmised that these instances of regional c ooperation have been driven more by n ecessity than merely opportunity. But importantly, regional c ooperation in energy would have to be viewed from a more far-sighted perspective. It would be crucial for more significant energy transfers across broader geographic contiguities as in the case of India-Pakistan-Iran or the India Bangladesh-Myanmar routes for natural gas.

Tourism and Social Services

In the discussion on tourism (Chapter 5), a sector that is by and large liberalised and largely uncontroversial, a host of points are put forth to enhance capacities and promote regional tourism. They comprise a two-pronged approach (a) improving regional transport connectivity and streamlining of visa procedures for greater tourist arrivals while (b) improving the investment environment for private sector participation. In health services (Chapter 6), the scope for regionalism emerges in three segments, viz, commercial opportunities in medical travel (in insurance and cross-border payments), investments (in hospitals and telemedicine facilities) and c apacity building (through exchange of health professionals, dissemination of information on best practices, etc). In the case of education (Chapter 7), the areas of promise span across Mode 2 – through “the pursuit of higher education by SAARC students within the region” (p 245); Mode 3 – cross-border investments in setting up educational institutions; and Mode 1 – distance education/ICT-enabled training. Chapter 8 provides a snapshot of south Asian countries’ services commitments at the World Trade Organisation and other bilateral/extra-regional forums followed by a brief concluding chapter on the drivers of regional integration going forward.

Gains for India

Integrating Services in South Asia should have veritably mentioned “via India” in the fine-print; for the importance of India looms large in the context that Chanda writes. India’s services sector is enormously larger than that of the second largest n ation (Pakistan) in the region and is showing an impressive growth rate even on a larger base (p 20). Its services trade is 40 times higher than that of the second largest services exporter. From within south Asia’s services exports, India’s share has risen “from 64% in 1990 to close to 90% in 2007” (p 36). Even across the specific sectors covered in the volume (telecom, energy, education, health), India would stand to benefit substantially. In the case of telecom, some of the large operators from India have a strategic interest in investing in the emerging markets of south Asia with their expanding subscriber base (p 108). With its rising demand for energy, it benefits from importing hydropower produced in Bhutan and Nepal (pp 136, 138). It would be in its interests to extend similar possibilities with other countries in the region. In the social sectors, its potential to attract students from the region to its universities is much higher (pp 232-35, 244); just as in healthcare, it can gain from being a destination for patients in the region (pp 204-05) and generating private investments in delivery systems of other SAARC nations (pp 202-06). To sum up, across the different facets of services transactions that Chanda argues, viz, trade, i nvestment and mobility, India would stand to gain as both provider and recipient resulting from growth in services within the region. Would it be regional integration or simply, more fruitful bilateralism is an issue that could be probed further.

Over the years, the author has established herself as a prolific researcher in the area of services trade. The present volume builds on this corpus. Those familiar with her work would feel a sense of déjà vu of having read some of the arguments before (for example, India’s delay in pursuing offensive interests by pushing for greater integration in services (see Chanda and Gopalan 2009: 75); comparative analysis of service sectors in South Asia (see Chanda 2005 and Chapter 2 in this volume); south Asia’s interests spanning all four modes of the General Agreement on Trade in Services (GATS) (see Chanda 2005: 139 and p 276 in this volume); see Chanda (2001) for her work on health services trade with some overlapping examples in Chapter 6). So while the book may appear a trifle underweight in terms of fresh arguments, the author more than compensates for it by compiling a very rich set of data from diverse sources (the usually problematic aspect for anyone working on services). Even while putting up a spirited defence of the potential benefits from regional integration in services, Chanda is deeply aware of the caveats on which they hinge and the limitations of what she is arguing. Across chapters, she cites cases from the past when services transactions have got stifled for quite varied reasons and readers would do well to be abreast of them.

Challenges and Asymmetries

It is rather reflective of the state of affairs that having explained the economic rationale for integration all along, Chanda writes an epilogue on the challenges of political economy, both internal and external, that would have to be overcome before any substantial liberalisation were to be effected. What this book presents are viable possibilities for deeper engagement, but there is no assurance that services trade may not meet the same fate as commodities. In theoretical terms, while gravity or geographic proximity does have a positive impact on services trade, C eglowski (2006: 325) shows that at least among the countries of the Organisation for Economic Cooperation and Development (OECD), “services trade is getting concentrated among those countries that engage in more goods trade”. South Asia would be quite a different model of

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r egionalisation to circumvent goods and resort directly to services.

Under more practical considerations, with fundamental asymmetries that prevail within the region, will the mere existence of complementarities suffice? The actual quantum of benefits to be derived from them would be rather skewed, making it difficult to arrive at mutually agreeable solutions. If liberalisation were to be effected within south Asia, the onus would be on India. As the regional, economic h egemon, “it would have to commit more without necessarily seeking reciprocal access” (p 270). Such a stance would not be without precedence. Citing from Stein (1984: 359), liberal trade regimes

Ali, Mubarak (2011): Pakistan in Search of Identity (Delhi: Aakar Books); pp 152, Rs 350.

Allen, Joan, Alan Campbell and John Mcllroy, ed. (2011):

Histories of Labour: National and International Perspectives (Delhi: Aakar Books); pp 399, Rs 995.

Bate, Bernard (2011): Tamil Oratory and the Dravidian Aesthetic (New Delhi: Oxford University Press); pp xxiv + 263, Rs 695.

Chanda, Rupa (2011): Integrating Services in South Asia: Trade, Investment, and Mobility (New Delhi: Oxford University Press); pp xxxii + 348, Rs 895.

Chatterjee, Partha (2011): Lineages of Political Society: Studies in Postcolonial Democracy (Ranikhet: Permanent Black); pp xix + 278, Rs 750.

Chung, Tan, Amiya Dev, Wang Bangwei and Wei Liming (2011): Tagore and China (New Delhi: Sage Publications); pp xxx + 370, Rs 895.

Debroy, Bibek, Laveesh Bhandari and Swaminathan Aiyar (2011): Economic Freedom of the States of India 2011 (New Delhi: Academic Foundation); pp 78, Rs 995.

Deshpande, R S, K V Raju, S M Jharwal and D Rajasekhar, ed, (2011): Development Windows: Essays in Honour of Professor V M Rao (New Delhi: Academic Foundation); pp 589, Rs 1,295.

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Govinda, R, ed. (2011): Who Goes to School? Exploring Exclusion in Indian Education (New Delhi: Oxford University Press); pp xxvi + 419, Rs 795.

Gowda, Nagappa K (2011): The Bhagavadgita in the Nationalist Discourse (New Delhi: Oxford University Press); pp x + 286, Rs 695.

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Employment Guarantee Programme and Pro-poor Growth: The Study of a Village in Gujarat (New Delhi: Academic Foundation); pp 225, Rs 795.

have a tendency to be “founded on asymmetric bargains that permitted discrimination, especially against the hegemon”. Even when working within the ambit of reciprocity, what kind of incentives can be put in place? It would have been interesting to know the author’s take on whether there could be more meaningful exchanges b etween “goods-for-services” rather than “services-for-services” alone. Empirically well-researched, the book would be an indispensable addition for those w orking on south Asian trade, services in particular.

Rohini Sahni ( is with the Department of Economics, University of Pune.

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