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Rediff.com  » Business » Govt mulls FTA on services with US

Govt mulls FTA on services with US

August 06, 2004 08:15 IST
The Union government is examining a proposal that envisages a free trade agreement on services with the United States.

Inter-ministerial consultations are being held to assess the implications such an agreement may have for the services sector in the country.

Official sources told Business Standard that the government had not yet sounded out the US authorities on the proposal.

The proposal has been mooted in the wake of some significant relaxations made for export of services by developing countries in the new draft text for a World Trading Organisation agreement finalised in Geneva last week.

If the proposal goes through, the existing quantitative curbs on the movement of Indian engineers, software programmers, scientists, accountants and other professionals to the US will be removed.

Similarly, the Indian government has to completely relax the restrictions on the opening of branches of US banks and insurance companies in the country.

It will become easier to travel to the US for education, just as the Indian health-care industry can offer its services to US patients without any restrictions.

Government sources pointed out that the impact of a free trade agreement on services with the US would benefit India in many ways.

According to them, India will benefit from cross-border trade -- banking or architectural services rendered through the telecommunications network or mail -- overseas services -- consumers travelling for tourism, medical treatment or to attend educational establishments -- and from movement of professionals to offer services -- software engineers working in foreign countries.

The only area of concern pertains to the offer of commercial services through the establishment of branch offices or agencies abroad. This might allow US banks, insurance companies and telecom operators to set up branch offices in India.

Domestic players in these sectors might feel threatened. But the government is of the view that the opening up of branches of US banks and insurance companies will increase competition in the domestic market and consumers will benefit from improved service.

Moreover, branches are considered relatively safe because in the event of a financial emergency or collapse, the liability is shared by the foreign banks.

The Indian government is expected to use the offer for a free trade agreement on services to strengthen its negotiating position vis-a-vis the US at the next round of WTO talks.

The Indian delegation, led by Commerce and Industry Minister Kamal Nath, took a tough stand on contentious issues of subsidies and market support for agriculture, forcing both the US and the European Union to make a compromise offer.

The government hopes to use the offer for a free trade agreement on services with the US to maintain its tough stand in the coming negotiations.

India's total services exports in 2003 were estimated at $25 billion, of which the US accounts for a large chunk.

Government officials are confident that India's offer for a free trade agreement with the US on services will put more pressure on the developed countries to agree to offer more concessions to services exports from developing countries under the new WTO regime.

If the proposal goes through ...

  • The existing quantitative curbs on the movement of Indian engineers, software programmers, scientists, accountants and other professionals to the US will be removed
  • India has to remove the restrictions on the opening of branches of US banks and insurance companies in the country
BS Economy Bureau in New Delhi
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