Trade Environment

The Agreement on Trade in Services under the framework agreement on comprehensive economic cooperation between India and the Association of Southeast Asian Nations (hereafter “the Agreement”) is ASEAN’s 6th regional trade agreement (RTA). It is however ASEAN’s 3rd Agreement covering trade in services. The Agreement is India’s 14th RTA but India’s 5th RTA in trade in services.

In commercial services, India ranked 5th globally in terms of both global exports and imports, amounting to US$156 billion and US$147 billion, respectively. This represents 3.15% and 3.07% of world exports and imports, respectively.

Among the ASEAN members, Singapore accounted for the largest share of world trade followed by Thailand and Malaysia. Among the newer ASEAN members (Cambodia, Lao PDR, Myanmar and Viet Nam) Viet Nam had the largest share of exports and imports of commercial services, while Lao PDR has the smallest share.

Commercial services trade for India in 2005-2014 show that India has run a constant trade deficit in these services. While its exports are dominated by other business services and computer and information services, key imports are transport and other business services.

Figures on India’s bilateral commercial services trade with ASEAN have not been made available.

In terms of commercial services trade, ASEAN’s top three traders (both for exports and imports) were Singapore, Thailand, and Malaysia. In general travel and transport services are important exports and imports although other business services are also important notably for Indonesia, the Philippines and Singapore.

Based on available data on total inward and outward foreign direct investment (FDI) stocks with the world for each ASEAN Member State, Singapore remains the largest source and destination for FDI. It is also the largest investor in India and the largest recipient of FDI from India among ASEAN members.

Regarding total foreign direct investment flows by ASEAN member states during 2005-2014, for its investment in India, Singapore has consistently been the largest recipient and provider of direct investment from and to the world, respectively. Malaysia and Indonesia have consistently been the second and third largest providers of FDI during the period surveyed. Thailand and Malaysia have consistently been next as the second and third largest recipients of FDI, respectively, for most of this period. In the second part of the period, Indonesia became the third destination for FDI, following Singapore and Thailand.

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Characteristic Elements of the Agreement

The Agreement was signed by India and the ASEAN member states (hereafter “the Parties”) on 13 November 2014 and entered into force on 1 July 2015. It was notified to the WTO by the Parties on 20 August 2015 under GATS Article V:7(a).

The Agreement was negotiated under the Framework Agreement on Comprehensive Economic Cooperation between the Republic of India and the ASEAN and the Protocol to amend the Framework Agreement, signed in 2009. It should also be seen in connection with the Agreement on Trade in Goods that entered into force on 1 July 2003; the ASEAN-India Agreement on dispute settlement mechanism (hereafter the “DSM agreement”), which was signed in 2009; and the Agreement on investment that was signed on 12 November 2014. The text of the Agreement is available, together with its Annex, on the official website.

Structure of the Agreement

The Agreement is composed of four Parts and 34 Articles. It also contains an Annex on movement of natural persons. Each Party’s Schedules of specific commitments are attached to and form an integral part of the Agreement. Moreover, the GATS Annexes (on the movement of natural persons supplying services, air transport services, financial services, and telecommunications) shall apply to the Agreement, mutatis mutandis (Article 28).

Part I of the Agreement provides the scope of its disciplines and definitions. Part II contains the main obligations and disciplines while Part III addresses the Parties’ specific commitments covering market access and national treatment, as well as additional commitments. It refers to the Parties’ individual Schedules of specific commitments and addresses the application and extension of commitments as well as the procedure applicable to the modification of Schedules. Part IV contains other and final provisions covering areas such as the relationship between the Agreement and other agreements; the incorporation of annexes and possible future legal instruments; comitology (contact points and Joint Committee on Services); the review of the implementation and operation of the Agreement; amendments to the Agreement; dispute settlement; denial of benefits; the entry into force of the Agreement; and withdrawal from it or its termination.

The Parties may adopt legal instruments in the future pursuant to the provisions of the Agreement. Such instruments shall form an integral part of the Agreement (Article 24).

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Provisions on Trade in Services

Scope and Definitions

The Agreement applies to measures of a Party affecting trade in services. Trade in services is defined as the supply of a service through the four modes of supply6 defined by the GATS.

The Agreement does not apply to: i) services supplied in the exercise of governmental authority; ii) laws, regulations or requirements on government procurement of services in the exercise of non-commercial resale and use; and iii) cabotage in maritime transport services (Paragraph 2 of Article 1).

The newer ASEAN Member States, Cambodia (which joined in 1999), Lao PDR (1997), Myanmar (1997) and Viet Nam (1995) enjoy special and differential treatment and flexibility under the Agreement (preamble of the Agreement). The increasing participation of these Parties shall be facilitated through negotiated specific commitments taking into account, inter alia, their need to improve access to technology, to distribution channels and information networks, and the liberalization of market access in sectors and modes of supply of export interest to them. Appropriate flexibility shall also be accorded to these Parties for progressive liberalization in terms of specific commitments undertaken in line with their respective stage of development (Article 16).

Denial of Benefits

Article 31 on the denial of benefits is based on Article XXVII of the GATS and allows a Party to deny the benefits of the Agreement, inter alia, for the supply of a service, if it establishes that the service is supplied from or in the territory of a third-party; or if it establishes that a natural person is not a “natural person of another Party”, or that a juridical person is not a “juridical person of another Party”.

General Provisions on Trade in Services

Market access

The market access provisions mirror the language of Article XVI of the GATS (Article 18). The Parties’ market access commitments are contained in their Schedules of specific commitments.

National and MFN treatment

The national treatment provisions mirror the language of Article XVII of the GATS (Article 17). The Parties’ national treatment commitments are contined in their Schedules of specific commitments. The Agreement does not contain provisions on MFN treatment.

Commercial presence

No specific provision on commercial presence, per se, is stated by the Agreement. The limitations on commercial presence in the services sectors are contained in the Parties’ schedules of commitments.

The Agreement on Investment of the Framework Agreement on Comprehensive Economic Cooperation between the Parties contains a provision affecting the supply of a service by a Party’s service supplier through commercial presence in the territory of another Party. The Agreement on Investment shall not apply to measures adopted or maintained by a Party to the extent that they are covered by the Agreement (Paragraph 4(a) of Article 1 of the Agreement on Investment).

Performance requirements

No specific provision on performance requirements, per se, is stated by the Agreement. The limitations related to performance requirements in the subscribed services sectors are contained in the Parties’ schedules of commitments. Parties’ additional commitments, including those regarding qualifications, standards or licensing mattes are included in their Schedules of specific commitments (Article 19).

Senior Managers and Boards of Directors

No specific provision on senior managers and boards of directors, per se, is stated by the Agreement. The limitations that may be applicable to senior managers and boards of directors in the services sectors are contained in the Parties’ schedules of commitments.

Movement of natural persons

There is no specific provision on the movement of natural persons in the Agreement. However, where commitments are undertaken by a Party on the movement of natural persons, the categories of natural persons for whom commitments are undertaken are defined in the Annex on Movement of Natural Persons, where applicable. This Annex identifies and provides definitions for three categories of natural persons: (i) business visitor; (ii) contractual service supplier; and (iii) intra-corporate transferee.

The GATS Annex on Movement of Natural Persons Supplying Services shall, mutatis mutandis, apply to the Agreement (Paragraph 1 of Article 28).

Liberalization Commitments

Part III of the Agreement contains disciplines related to the specific commitments made by each Party in their individual Schedules. A GATS-like “positive listing” approach is used for their commitments in market access, national treatment, and additional commitments. Modification and withdrawal of commitments are governed by Article 22. Notification of changes followed by negotiations with the affected Party and the necessity to agree on compensatory adjustment are disciplined. If the Parties are unable to reach an agreement on compensatory adjustment, the matter shall be resolved under the DSM Agreement. In such cases, the modifying Party may not modify or withdraw its commitment until it has made compensatory adjustments in conformity with the findings of the arbitration.

The Parties’ Schedules of specific commitments identify the services sectors and sub-sectors for which commitments are made, and specify, by mode of supply, the conditions and limitations that may be applicable to market access and national treatment-related commitments. It lists as well additional commitments that the Parties may wish to register (Article 19).

The sections below compare each Party’s GATS schedule with its respective Schedules of specific commitments attached to the Agreement. Improvements over existing GATS commitments are a reduction in limitations to market access and/or national treatment, a relaxation of the form of establishment under mode 3, and/or additional commitments and increased coverage. However, horizontal limitations in the GATS Schedule of Specific Commitments and reservations covering all sectors are not included. Moreover, mode 4 commitments and limitations are, to a large extent, excluded. The following sections are to be read in conjunction with the Parties’ schedules of commitments under the Agreement.

India

India has a single Schedule that is applied to Brunei Darussalam, Cambodia, Lao PDR, Malaysia, Myanmar, Singapore, Thailand and Viet Nam, and two separate individual Schedules that are applicable to Indonesia and to the Philippines (Article 22).

Horizontal commitments

India’s horizontal commitments in the Agreement, almost identical for all its ASEAN partners, partly match those under the GATS. Additional national treatment limitations are registered for some types of transfer of equity; on the repatriation of sale proceeds of immovable property; on certain aspects of taxation laws; and on the acquisition of land. Subsidies are unbound. Under mode 4, the horizontal commitments in the GATS serve as a basis for those in the Agreement, with some specific commitments made in particular for the provision of computer and related services.

Sector-specific commitments

Under the Agreement, India’s services schedule builds on its commitments under the GATS. It both expands the coverage of its specific commitments and improves market access and/or national treatment by withdrawing some limitations (for the latter in particular in relation to modes 1 and 2).

With respect to sectors for which it has commitments under the GATS, India makes improvements, under the Agreement, in relation to professional services (though not with respect to the Philippines); computer and related services, and some other business services (though no improvement is made with respect to Indonesia and the Philippines). Improvements are also made in some telecommunication services and, marginally, some audiovisual services (motion picture or video tape distribution services); general construction work for civil engineering; some health services – in particular hospital services (though this is not applicable with respect to the Philippines); hotel and restaurant services and travel agencies and tour operators services (improvements for the latter two tourism subsectors not benefitting the Philippines); and some maritime transport services (with a number of limitations and not in favour of the Philippines).

As under the GATS, no commitment is made, under the Agreement, in distribution services; education services; environmental services; and recreational and cultural and sporting services. India’s partial GATS commitments in financial services are repeated, without improvement, in the Agreement.

ASEAN Member States

The specific commitments of the ASEAN Member States are contained in separate individual Schedules. While some ASEAN Member States Schedules are similar to their GATS specific commitments, others have made commitments higher than their GATS commitments in terms of coverage and depth. It is understood that, in the latter case, their GATS commitments continue to apply to the other Parties, even if not specifically included in the Schedules in the Agreement.

Regulatory Provisions

Domestic regulation

Article 5 largely replicates the disciplines contained in Article VI of the GATS. It also binds the Parties to bring the results of the negotiations related to Article VI.4 of GATS into effect under the Agreement, as appropriate.

Recognition

Under Article 6, the Agreement mirrors the provisions in paragraphs 1 through 3 of Article VII of the GATS.

Upon request by a Party, the Parties shall also encourage their respective professional bodies or professional regulatory authorities, to negotiate arrangements for mutual recognition of education or experience obtained, requirements met, or licences or certifications granted in that service sector, with a view to the achievement of “early outcomes”. Progress in this regard will be reviewed by the Parties in the course of the review of the Agreement pursuant to Article 27.

The provisions of the DSM Agreement shall not apply to disputes arising out of, or under, the provisions of agreement or arrangements for mutual recognition that may be concluded by the Parties’ respective professional bodies or professional regulatory authorities.

Subsidies

While excluding subsidies or grants by a Party or any conditions attached to the receipt or continued receipt of such subsidies or grants from the scope of the Agreement, Article 14 allows a Party to request consultations if such subsidies or grants significantly affect trade in services in which commitments were taken under the Agreement. To reach an amicable resolution of the matter, the Parties shall provide information on subsidies related to trade in services in which commitments were made to any requesting Party; and review the subsidies when relevant disciplines are developed by the WTO. The provision of the DSM Agreement shall not apply to any request made or consultation held under Article 14 or to any dispute that may arise between the Parties under Article 14.

Safeguards

Upon the conclusion of the WTO negotiations on GATS Article X (emergency safeguard measures), the Parties shall discuss appropriate amendments to incorporate the results of the WTO negotiations into the Agreement (Article 9). Until such time, no Party shall take safeguard actions against services and service suppliers of the other Party (or Parties). The Agreement however foresees exceptional circumstances under which a safeguard measure may be taken by Party in the event that the implementation of this Agreement causes substantial adverse impact to a service sector of another Party (before the conclusion of the multilateral negotiations under Article X of the GATS). In such a case, the Parties shall however first consult for the purposes of discussing any such safeguard measure. Any measure taken pursuant to the Agreement (in particular paragraph 2 of Article 9), including the duration for which the measure shall apply, shall be mutually agreed by the Parties concerned, applicable based on the principle of nondiscrimination, and limited to the specific service sector concerned. The circumstances of the particular case shall be taken into account, and sympathetic consideration shall be given to the Party seeking to take a measure.

Under Article 11, where a Party is in serious balance of payments and external financial difficulties or threat thereof, it may adopt or maintain restrictions on trade in services in accordance with paragraphs 1, 2, and 3 of Article XII of the GATS.

Other

Monopolies and exclusive service suppliers

Article 7 (on monopolies and exclusive service suppliers) essentially reproduces Articles VIII 1-3, and 5 of the GATS. For example, if a Party has reason to believe that another Party’s monopoly service supplier is acting contrary to Article 7 (paragraphs 1 and 2), the Party may request the other Party that has established, maintained or authorized such supplier to provide specific information concerning the relevant operation.

Under Article 8, the Parties also recognize that certain business practices of services suppliers (other than monopolies and exclusive service suppliers) may restrain competition and therefore restrict trade in services. If requested by a Party, the other Party shall enter into consultations with a view to eliminating such practices. With full and sympathetic consideration the affecting Party shall cooperate in supplying publicly available information on the matter.

Investment

As mentioned above, the Agreement on Investment contains a provision affecting the supply of a service by a Party’s service supplier through commercial presence in the territory of another Party. The Agreement on Investment shall however not apply to measures adopted or maintained by a Party to the extent that they are covered by the Agreement (on services).

General Provisions of the Agreement

Transparency

Article 3 contains general transparency disciplines. In particular, it foresees prompt publication of all relevant measures of general application which pertain to or affect the operation of the Agreement. International agreements pertaining to or affecting trade in services to which a Party is a signatory shall also be published. Each Party shall respond promptly to all requests by any other Party for specific information on any of the notified measures. Moreover, each Party shall establish one or more enquiry points to provide specific information to any other party, upon request, on all related matters.

Article III bis of the GATS (disclosure of confidential information) is, mutatis mutandis, incorporated into and forms part of the Agreement.

Payments, transfers and capital movements

Articles 10 prohibits that Parties apply restrictions on international transfers and payments for current transactions relating to their specific commitments. The Parties’ rights to apply restrictions to safeguard the balance of payments, as disciplined under Article 11, remain reserved. The rights and obligations of any Party who is a member of the IMF are unaffected, provided that a restriction on any capital transaction is not imposed inconsistently with that Party’s specific commitments.

With respect to a Party’s market access commitment in relation to the supply of a service through mode 1, that Party is committed to allow such movement of capital. Moreover, with respect to a Party’s market access commitment in relation to the supply of a service through commercial presence, that Party is committed to allow related transfers of capital into its territory.

Accession and termination

The Agreement does not contain any accession provisions. Termination is, however, governed by Article 34 and foresees that the Agreement shall terminate if India withdraws or if the Agreement is in force for less than four ASEAN Member States.

Institutional framework

A Joint Committee is established, inter alia, to review the implementation and operation of the Agreement, and to supervise and coordinate the work of all Sub-Committees established under the Agreement or that it may establish (Article 26).

Each Party shall designate a contact point to facilitate communications between the Parties on any matter covered by the Agreement (Article 25).

Dispute settlement

The DSM Agreement applies to the Agreement (Article 30). A full description of the DSM Agreement is contained in the factual presentation dedicated to the Trade in Goods Agreement between India and the ASEAN nations (see Factual Presentation on Preferential Trade Agreement between Mauritius and Pakistan (Goods)).

Relationship with other agreements concluded by the Parties

Under Article 23 the Parties reaffirm their commitments under the WTO Agreements and other agreements to which these Parties are a Party. Nothing in the Agreement shall be construed to derogate from any right or obligation of a Party under the WTO Agreement and other agreements to which these Parties are a Party. Consultation with a view to finding a mutually satisfactory solution is foreseen in the event of any inconsistency between the Agreement and these other agreements.

Nothing in the Agreement shall prevent any individual ASEAN Member State from entering into any agreement with India and/or any one or more ASEAN Member State. Moreover, the Agreement shall not apply to any agreement among ASEAN Member States or to any agreement between India and any ASEAN Member State unless otherwise agreed by the parties to that agreement.

Except as otherwise provide din the Agreement, the Agreement or any action taken under it shall not affect or nullify the rights and obligations of a Party under existing agreements to which it is a party (Article 28).