An Analysis of India-ASEAN Trade Potentials: Role of WTO

Service Trade Analysis

The world economy has fast turned into a ‘service economy’. Services revolution across
the globe has changed the way economies are conducted. Services have long been the
most significant sector of the economy in all highly developed countries. They are
continuing to account for major proportion of the world’s GNP. The developing
countries’ also need to embark on the same road. It is noteworthy that the gains of
liberalizing service trade can be even greater than that of trade in goods. Hence, the
emphasis must be on services because the welfare gains in opening up services can
produce many times more welfare gains than further liberalization of merchandise trade.
Trade pacts have focused more on merchandise trade than services, and the focus on
services has been particularly narrow in negotiations among developing countries,
including among those in developing Asia. This is not to suggest that merchandise trade
liberalization should be ignored. But, the emphasis must be on services liberalization.
Some of the most dynamic fields of international trade are in the service sector. One-fifth
of all world trade is now in services. 1 The competitiveness of national economies is
increasingly determined by their performance on the services side. A look at the scenario
of export and import of goods and services vis-à-vis service import and export indicates
that the developed nations and the developing economies in South East Asia are the
leaders in the contribution of service trade to their economy. The developing countries
need to replicate the same to be able to derive the benefits of service trade.

A point of interest however is that, while the developed nations account for the lion’s
share in services, developing countries particularly in South East Asia have recently
started to carve out an increasingly larger share of the pie in services for themselves. The
data in the table below gives a clear indication of the significance of service trade in the
developed economies.

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TABLE 5.1 Percentage of Service in Total Export and Import.

YEAR WORLD DEVELOPING DEVELOPING DEVELOPED

ECONOMIES SOUTHEAST ECONOMIES
ASIAN
ECONOMIES
Average of Average of % of Average of Average % of Average of Average % of Average of Average % of
imports imports service imports and of service imports and of service imports and of service in
and and in total exports of imports in total exports of goods imports in total exports of imports total
exports of exports of export goods and and export and services and export goods and and export and
goods and services and services exports and exports and services exports import
services import of import of import of
services services services
2008 19561748 3978763 20.34 6876730 1132407 16.47 742703 206115 27.75 11942314 2728945 22.85
2009 15611528 3553668 22.76 5663452 1028741 18.16 505190 185287 36.68 9442887 2427769 25.71
2010 18594098 3877097 20.85 7179815 1218929 16.98 631489 222558 35.24 10782794 2548257 23.63
2011 22068896 4327840 19.61 8743655 1384034 15.83 817082 260356 31.86 12508160 2814495 22.50
2012 22373490 4471098 19.98 9213707 1491421 16.19 863748 283168 32.78 12296035 2833682 23.05
2013 22953400 4719986 20.56 9520803 1566032 16.45 875728 306616 35.01 12556869 2989821 23.81
2014 23302356 4960377 21.29 9642380 1664270 17.26 817455 308517 37.74 12842521 3140262 24.45
2015 21157260 4996900 23.61 8665487 1663385 19.19 971652 378517 38.95 11705907 3130630 26.74
2016 20510844 4968715 24.22 8289243 1645760 19.85 817476 272166 33.29 11703062 3205330 27.38
2017 22556612 5323220 23.59 9090031 1775150 19.52 827387 283168 34.22 12673626 3413665 26.93
2018 24690178 5724345 23.18 10203665 1928175 18.89 834568 252668 30.27 13765710 3648515 26.50

Source: unctadstat.unctad.org/wds/ Table Viewer/tableView.aspx

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

SERVICE TRADE: INDIA – ASEAN

It is evident that the regions have understood the significance of each other and are
undertaking measure to enhance relations. It has been seen in the previous section of the
study that despite challenges the India- ASEAN merchandise trade has been growing.
Services form a very substantial pillar in strengthening the foundation of this relation. A
promising signal for India is that the South East Asian nations comprising of most of the
ASEAN member nations have a high contribution from the service sector which is even
more than the world average (see table 5.1). ASEAN is an important market of trade in
services. Services are a sizable and continuously expanding component in ASEAN
countries, and typical an ASEAN country generates between 40 - 50% of its GDP from
services. However like India, ASEAN is also a net importer of services, with a service
trade deficit.

ASEANs service import is over 2.8 times of India’s total service export, representing a
large potential market for India’s service exporters to capture. 3 Coupled with a relative
short-supply of cost-efficient manpower (demographic shift) to meet the increasing
demand, the region also is increasingly becoming a major demandeur of services, which
is reflected in ASEANs rising trade deficits in international trade in services (compared
to a positive net merchandise trade balance)

A look into the service sector in the ASEAN region brings to light that the intra ASEAN
trade continues to be small and the ASEAN members are dependent on US and EU for
their export market. The service trade openness is also narrow. The key to ASEAN’s
economic competitiveness and future growth lies in the ‘economic integration’. Within
the regional block, the ASEAN Members are working towards realizing this aim by
establishing an ASEAN Economic Community (AEC) by the end of year 2020, when
ASEAN will be a single market and production base, with free flow of goods, services
(people) and investment and freer flow of capital.

ASEAN integration is mostly focused on liberalisation of trade in goods; agriculture and

services continue to remain largely protected by Members through strict domestic
regulation requirements and other conditions, for both intra-ASEAN trade and also trade
with the rest of the world. However, keeping the need for a comprehensive integration in
mind, under the ASEAN Framework Agreement on Services (AFAS), the ASEAN

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

market for services is also being liberalized and integrated, with several sectors at
various stage of negotiation. So far, the ASEAN countries have engaged in three rounds
of services negotiations producing four packages of commitments on services sectors.
The sectors in which members have taken commitments in ASEAN are: tourism and air-
transport services, business services (including professional services), construction
services, financial services, healthcare services and ICT & telecommunication services.
In August 2005, ASEAN started the fourth round of services negotiations, in order to
achieve “higher quality and deeper level of services commitments” with the explicit aim
to accelerate the integration of four important services sectors for the members, namely
travel, tourism, healthcare and e-Asian. “The other services sectors, including
professional services, are targeted for liberalisation by end of 2020”4.

Members have also agreed to take deeper inter-ASEAN commitments in mode 3 and
reconcile the relevant services sectors into the common investment policy being worked
upon to facilitate the regional integration process. Additionally, the relevant service
sectors that are covered in the fast-track ‘priority sectors’ integration mode are broadly:
air-travel, ICT (especially e-commerce) and healthcare. Further, given its importance as
a critical business infrastructure and input, financial services are also being liberalised by
most of the ASEAN members as a priority sector. ASEAN is also in the process of
concluding MRAs for qualifications in major professional services areas like
engineering, accountancy, architecture, surveying and nursing services5, in order to
facilitate free movement of professionals, skilled labour and talent.

In the implementation of e-ASEAN Agreement, concrete steps are being taken in

advancing ICT market integration and trade facilitation, promoting universal access to
ICT infrastructure and services, developing ICT skills and competencies and creating a
more secure cyberspace in ASEAN. All these areas therefore present opportunities for
curving out closer integration in the context of the proposed India-ASEAN CECA.

Looking at the Indian side, although agriculture is the main stay of the Indian economy,
services have become an engine in the economy over the last decade. The sector is
growing rapidly and is contributing increasingly to India’s GDP growth. The service
growth in India has been in double digits in the last decade and has become one of the
main sources of foreign exchange earnings.

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

India certainly recognizes the importance of service trade, which is evident in its foreign
trade policy. Initiatives like ‘Serve from India Brand’, and setting up of exclusive export
promotion council for service sector are helpful in promoting broad based service
exports from the country.

As a result of a liberal policy regime in services, India’s services-led export boom in the
last decade and the surplus of the increased invisible earnings had in fact fully offset the
net merchandise trade deficit till last year.6 Services have made a significant
contribution in making India as one of the fastest growing economies in the world. In
services, India pursued significant reforms, especially in telecommunications, and, to
some extent, in financial services and infrastructure services, such as power and
transport. The areas of policy focus, liberalisation and high growth in India have been:
software, IT (including financial IT services) & BPO, besides emerging areas as
healthcare (in particular diagnostics and surgeries), telecommunication, and more
recently in professional services, distribution and government services. 7 It should be
noted here that unilateral service sector liberalisation in India has been most focused in
mode 3 (or commercial presence), and mode 4 access (movement of natural persons) is
still restricted in many services sectors. India is also working hard to offset its current
disproportionately low participation in bilateral and regional agreements with trade
partners by engaging into discussions on economic and trade cooperation with a
multitude of countries and regions across the world.

India and ASEAN both need to undertake greater cooperation in the area of service trade
and investment. If bilateral integration is to occur, it is clear that the service arm needs to
be a comprehensive and effective instrument in order to strengthen the hopes of the
economy to witness a service driven growth. The aim is to increase trade in goods and
services between India and ASEAN to US$220 billion by 2022. If integration is to
occur, it is clear that the service arm needs to be a comprehensive and effective
instrument in order to reinvigorate the hopes of the economy to witness a service driven
period of growth. On 1 July 2015, the long-awaited India-ASEAN FTA covering
services and investments came into effect. The Services FTA extends to
telecommunications, information technology, transportation and logistics, financial
services, education, real estate, business services, health and community/social services
and the ‘Mode IV’ free movement of natural persons and professionals. Such an
agreement shows great promise in the long run, allowing for the generally accepted

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

advantages that come with deeper integration and the harnessing of new markets, greater
competition and specialisation, efficiency and freedom of movement and growth as a
whole. While the deal has been completed, significant challenges still exist in getting
over the line in terms of ratification by each individual member country and further
negotiations into the mutual recognition agreements.

The agreements and negotiations shall have their impact and role in shaping the direction
of trade in services between India and ASEAN member nations. In the study certain key
areas in trade in services have been identified and revealed comparative advantage have
been calculated in these services to enable analysis and identification of important
services for trade between the two. The services are namely commercial services like
transport services, travel, construction services, financial services, insurance and pension
service, charges for the use of intellectual property, Telecommunications, computer, and
information services, other business services, Personal, cultural, and recreational services
and government goods and services. The RCAs will enable to find out the situation and
prospects in the said service areas.

TRANSPORT

Services like transport and travel are a part of commercial services. Commercial service
are equal to services excluding government services, not included elsewhere.
Transportation services  cover, sea, air and other including land, internal waterway,
space and pipeline transport services that are performed by residents of one economy for
those of another, and that involve the carriage of passengers, the movement of goods,
rentals of carriers with crew, and related supporting and auxiliary services. 8 The RCAs
of ASEAN member nation in transport and that of India have been calculated in the
table below

TABLE 5.2 Revealed Comparative Advantage (Transport)

Singapore
Indonesia

Laos

Myanmar

Vietnam

Country
INDIA

Malaysia
Darussalam Brunei

Cambodia

Philippines

/Year

2008 2.1981 0.7098 0.5363 0.8076 0.5304 0.9774 1.5181 1.7988 0.4267 1.493
9
2009 2.5092 0.7204 0.6143 0.9354 0.5246 0.7914 2.0231 1.8587 0.3661 1.816
5
2010 0.0000 0.6222 0.5420 0.7542 0.5238 0.7284 1.9169 1.8346 0.3620 1.477
4
2011 0.0000 0.5422 0.6263 0.7739 0.4545 0.6864 1.3967 1.7615 0.3697 1.256

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

0
2012 0.0000 0.5189 0.5966 0.8011 0.4641 0.5793 0.7816 1.7371 0.3868 1.067
2
2013 0.0000 0.5257 0.5825 0.8056 0.4588 0.5860 0.5252 1.6697 0.3591 -
2014 0.0000 0.5456 0.6263 0.8461 - 0.6203 - 1.6770 0.3688 1.110
7
2015 3.9531 0.5824 0.5037 0.8549 0.4364 0.6607 0.3658 1.6612 0.517 1.232
4
2016 3.7822 0.657 0.5449 0.8898 0.5636 0.6789 0.3532 1.5571 0.4394 1.156
5
2017 3.6083 0.6988 0.525 0.7854 0.538 0.6961 0.4088 1.5926 0.2502 1.437
1.042
2018 0 0.7257 0.5326 0.741 0 0.7306 0.4117 1.6078 0.5664
7

Data Source http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E

(individual members) http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (Total Trade
Data)Calculated Values in Table

The RCA indicates that Brunei Darussala, Myanmar, Singapore and Vietnam exhibit
strong comparative advantage in transportation. Apart from Singapore which is an active
member of the ASEAN group the other three nations having high comparative
advantage, present opportunity in transport which can be beneficially tapped in the area
of service trade in Transport . Transport service are an important component
contributing towards the ease of movement of natural persons (mode IV) and therefore
can be of great help in many ways.

CONSTRUCTION
Table 5.3 Revealed Comparative Advantage Constructions

Country/ Indonesi Malaysi

Cambodia India Laos Philippine Singapore Thailand
Year a a

2008 0.2188 0.3312 1.8088 0.0000 1.6461 0.2943 0.5044 0.7746

2009 0.1570 0.3539 1.7978 2.7636 1.3056 0.2626 0.5274 0.6360
2010 0.2230 0.2032 1.3927 1.1506 1.4690 0.3078 0.4629 0.6219
2011 0.1363 0.2814 1.1711 1.0150 1.4183 0.1134 0.6053 0.4946
2012 0.2458 0.2924 1.6835 0.9599 1.5972 0.2258 0.5822 0.4091
2013 0.2027 0.3863 1.7410 0.5428 1.3204 0.1797 0.6028 0.6555
2014 0.1162 0.4818 1.4118 0.3543 1.0600 0.0864 0.5934 0.5172
2015 0.1285 0.4824 0.8671 0.3012 1.4886 0.1049 0.2784 0.4387
2016 0.1753 0.6986 0.5269 0.2605 1.5304 0.1192 0.3419 0.3714
2017 0.1933 0.6463 0.7635 0.2371 1.3361 0.0858 0.2329 0.2484
2018 0.1375 0.8292 0.7992 0 1.1655 0.0872 0.2205 0.1827

DataSource:http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E
http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (Total Trade Data)
Calculated Values in Table

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

The revealed comparative advantage indicates that Indonesia and Malaysia have strong
advantage in the area of construction services. With the boom in infrastructural
development in many countries this advantage can be used by other countries.

TELECOMMUNICATIONS, COMPUTER AND INFORMATION SERVICES

These services encompass the transmission of sound, images or other information by

telephone, telex, telegram, radio and television cable and broadcasting, satellite,
electronic mail, facsimile services etc., including business network services,
teleconferencing and support services. Also included are cellular telephone services,
internet backbone services and on-line access services, including provision of access to
the internet. The comparative advantage for the ASEAN member nations and India is
shown below.

Table 5. 4 Revealed Comparative Advantage Telecommunications, Computer and

Information Services

Singapore
Country
Laos
Darussalam Brunei

Thailand
India

Indonesia

Malaysia

Philippines
Cambodia

/
Year

2008 0.2991 0.3315 4.3202 1.0214 0.8600 0.6537 2.4572 0.0602 0.0298
2009 0.2753 0.2717 4.1944 1.0001 0.8363 0.8150 2.1258 0.0613 0.0471
2010 0.0000 0.2627 4.0972 0.8695 0.6256 0.7873 1.4889 0.4161 0.1625
2011 0.0000 0.1916 3.9526 0.8804 0.6551 0.7784 1.7047 0.3812 0.1568
2012 0.0000 0.1610 3.8307 0.6247 0.6137 0.8497 1.6783 0.3784 0.1091
2013 0.0000 0.1368 3.9460 0.5033 0.5256 0.7810 1.5859 0.3950 0.1020
2014 0.0000 0.1283 3.9048 0.5309 - 0.7451 1.5318 0.4128 0.1046
2015 0 0.2333 3.7365 0.4635 0.8064 1.2632 0.6043 0.0852 0.4273
2016 0 0.19 3.4432 0.4307 0.7494 1.8231 0.7714 0.0799 0.3721
2017 0 0.1494 3.0165 0.4046 0.7426 1.6636 0.7584 0.0612 0.2907
2018 0 0.115 2.7389 0.4468 0.6844 1.5289 0.6922 0.0724 0
Data Source http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E
(individual members) http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (Total Trade
Data) Calculated Values in Table
In the area of telecommunication India clearly has a very strong comparative advantage.
Considering the influence of Indian culture in many Asian countries the Indian Film and
Television Industry has a strong impact in many ASIAN nations. India can beneficially
use the advantage it has in telecommunication and television. The computer and
information services also can be an important area of service trade considering the

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

expertise India has in software and software technology development. Among the
ASEAN members Indonesia and Philippines also have a strong comparative advantage.

FINANCIAL SERVICES

Financial services cover financial intermediation and auxiliary services provided by

banks, stock exchanges, factoring enterprises, credit card enterprises, and other
enterprises.

TABLE 5.5 Revealed Comparative Advantage Financial Services

Country/ Cambodia India Indon Malay Philip Singap Thaila Viet

Year esia sia pines ore nd Nam
2008 0.0454 0.4679 0.2283 0.0327 0.1178 1.4328 0.0286 0.3797
2009 0.0000 0.4531 0.1564 0.0370 0.1272 1.5265 0.0390 0.3532
2010 0.0232 0.5865 0.2704 0.0390 0.0768 1.4257 0.0645 0.3029
2011 0.1126 0.5334 0.2437 0.0936 0.0651 1.5166 0.0765 0.2830
2012 0.0735 0.4544 0.1175 0.0470 0.0610 1.6089 0.0926 0.1926
2013 0.0687 0.5135 0.1325 0.0640 0.0436 1.6003 0.0908 0.1788
2014 0.6500 0.4345 0.1139 0.0579 0.0833 1.7585 0.0387 0.1918
2015 0.0963 0.3831 0.125 0.1077 0.1596 0.1349 0.1052 0.1792
2016 0.0256 0.3604 0.1656 0.1588 0.1451 1.5954 0.125 0.1664
2017 0.0178 0.2958 0.2958 0.1699 0.0796 1.6888 0.1165 0.1661
2018 0.0328 0.2833 0.2811 0.1863 0.0872 1.7603 0.1107 0.1501
Data Source http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E
individual members http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (Total Trade
Data) Calculated Values in Table
Singapore offers great opportunities in the area of financial services. The
competitiveness and world class services of many financial firms and banks have made
Singapore an important destination for financial services.

INSURANCE AND PENSION SERVICES

Insurance services (Balance of Payments) cover the provision of various types of
insurance to non-residents by resident insurance enterprises, and vice versa, for example,
freight insurance, direct insurance (e.g. life) and reinsurance. Myanmar has a
comparative advantage in this service.

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Table 5.5 Revealed Comparative Advantage Insurance Services

Singapore
Coun

Thailand
Laos
Darussalam Brunei

Indonesia

Malaysia

Philippines
Myanmar
Cambodia

India
try /
Year

2008 0.598 0.0000 0.5879 0.0519 0.7949 0.4819 1.2200 0.6478 0.0072 0.0076
9
2009 0.502 0.1367 0.5770 0.0561 0.8912 0.4740 1.2175 0.7726 0.0038 0.0089
7
2010 0.000 0.0193 0.5950 0.0509 0.8419 0.4055 1.4673 0.0155 0.1444 0.0080
0
2011 0.000 0.0674 0.6867 0.0387 1.6064 0.4481 1.5323 0.0161 0.1173 0.0155
0
2012 0.000 0.0121 0.6017 0.0393 0.2688 0.5538 1.0865 0.0148 0.1109 0.0316
0
2013 0.000 0.0110 0.5546 0.0419 2.3630 0.5959 0.9307 0.0174 0.1105 0.0159
0
2014 0.000 0.0000 0.5603 0.0423 0.4320 0.6072 0.9226 0.0207 0.1135 0.0060
0
0.122
2015 0 0.5043 0.0965 0.5174 0.4227 0.1625 1.603 0.0373 2015
5
0.219
2016 0 0.5112 0.1329 0.0464 0.3494 0.0956 1.4518 0.0389 2016
3
0.148
2017 0.0177 0.5422 0.1338 0.0924 0.3228 0.0997 1.5147 0.0438 2017
2
2018 0 0.0223 0.5108 0.125 0 0.3217 0.0921 1.545 0.0599 2018
Data Source http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E
individual members http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (Total Trade
Data) Calculated Values in Table

OTHER SERVICES RCAs

Table 5.6 Other Business Services
Philippines
Cambodia

Singapore
Myanmar
Indonesia

Malaysia

Thailand
India

Country/
Year

2008 0.2934 1.6706 0.6907 0.6331 1.1460 2.6891 1.0085 0.8572

2009 0.2440 1.3974 0.8975 0.5813 0.5526 2.8023 1.0243 1.0698
2010 0.1688 1.4027 1.2135 0.7220 0.7604 2.9651 0.9217 0.9119
2011 0.2221 1.3078 1.2430 0.8441 0.2108 2.7666 0.9505 0.7424
2012 0.2452 1.4986 1.5148 0.9456 0.6320 2.5618 1.0179 0.7028
2013 0.3319 1.4363 1.3342 1.0172 1.2057 2.6091 1.0872 0.6285
2014 0.3058 1.3565 1.1484 0.8541 0.9143 2.5747 1.0463 0.7368
2015 0.1127 1.4884 1.0274 0.7424 2.8038 1.1542 0.6706 0.5226
2016 0.0891 1.5176 1.0323 0.7266 2.1778 1.1764 0.7343 0.4771
2017 0.0929 1.4717 0.9462 0.7354 2.0375 1.1892 0.5793 0.9484
2018 0.115 1.4623 0.9918 0.7728 2.053 1.1932 0.606 0.8783

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

Data Source http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E

(individual members) http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (Total Trade
Data) Calculated Values in Table

Table 5.7 Revealed Comparative Advantage Personal, Cultural, and Recreational

Services
Country
India

Indonesia

Malaysia

Thailand
Philippines
Cambodia

/Year

2008 0.1675 0.8527 0.6395 3.6271 0.2351 0.4713

2009 0.1334 3.0689 0.6843 2.7593 0.3003 0.3166
2010 0.1235 1.0430 0.7713 0.4341 0.2887 0.4414
2011 0.0903 0.3070 0.8955 0.5423 0.3788 0.2728
2012 0.1108 0.6214 1.0464 0.5446 0.4845 0.1971
2013 0.0930 0.8956 0.8807 0.5510 0.4955 0.1419
2014 0.1102 0.8966 0.7052 0.7958 0.5702 0.1220
2015 0.0255 0.8154 0.5028 1.1035 0.516 0.0945
2016 0.0248 0.8675 0.3818 1.0314 0.5419 0.0886
2017 0.0452 0.8237 0.5385 1.3202 0.5709 0.0937
2018 0.0387 0.967 1.3847 1.2974 0.4191 0.1103
Data Source: http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E
(individual members) http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (Total
Trade Data) Calculated Values in Table

Table 5.8 Revealed Comparative Advantage Government Goods and Services

Count
Camb Indon Malay Myan Philip Singap Thaila Viet
ry/ India Laos
odia esia sia mar pines ore nd Nam
Year
2008 1.2518 0.2108 1.9369 6.0518 0.0716 4.7053 0.0000 0.1641 0.5721 0.4134
2009 1.8967 0.2305 2.1437 3.0633 0.0785 5.1511 0.0000 0.1518 0.4629 0.9170
2010 3.0442 0.2304 1.8279 2.3945 0.1529 4.8233 0.0375 0.1418 0.3905 0.7828
2011 2.6209 0.2412 1.4723 2.4584 0.1418 2.3041 0.0358 0.1283 0.3957 0.7131
2012 2.5005 0.1967 1.4423 2.4058 0.1267 2.3023 0.0396 0.1304 0.3926 0.6614
2013 2.3378 0.1915 1.6414 1.5810 0.1256 1.8214 0.0370 0.1313 0.4116 0.7206
2014 1.4738 0.2422 1.6880 2.1532 0.1218 0.0000 0.0366 0.1356 0.4150 0.8119
2015 2.9793 0.2474 1.9598 0.0816 0.1874 0.0427 0.1225 0.4061 0.8698 1.0559
2016 3.3107 0.2609 2.098 0.0864 0.1784 0.0393 0.1292 0.3098 0.8661 1.6736
2017 3.588 0.254 1.985 0.514 0.19 0.041 0.13 0.299 0.937 1.774
2018 2.8729 0.2393 1.9901 0 0.1506 0.0393 0.1277 0.2969 0.9597 4.129

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 An Analysis of India-ASEAN Trade Potentials: Role of WTO

Data Source http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E

(individual members) http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (Total Trade
Data) Calculated Values in Table

The other services like business services, personal, cultural, and recreational services and
government services have been reviewed in relation to India and ASEAN and
comparative advantage has been calculated. Based on the calculation of RCAs the
classification of the same has been made as under

RCA 0 to 0.5, LOW comparative Advantage;

RCA 0.5 to 1 WEAK comparative advantage;
RCA 1 to 2 HIGH comparative advantage and
RCA above 2 means STRONG comparative advantage.

 TABLE 5.9 ASEAN – INDIA Trade Complementarity in Services

from Computed RCA

COMMODITY
BRU CAM INDO MAL MYA PHI SIN THAI VIE

TRANSPORT --
S-H W-W W-W W-W H-W H-W H-H --

-- L-L H-W H-H -- L-L W-L L-L L-L

CONSTRUCTION
FINANCIAL SERVICES -- L-L L-L L-L -- L-L H-H L-L L-L
INSURANCE L-W L-W L-W W-W H-W H-W L-W L-W --
TELECOMMUNICATION
S, COMPUTER AND
INFORMATION L-S L-S W-S W-S -- H-S L-S L-S
SERVICES
OTHER BUSINESS
SERVICES -- L-W H-H W-H W-H S-S H-H W-H --

PERSONAL
RECREATION -
L-W W-W -- S-W L-W -- L-W --
CULTURAL

GOVERNMENT
SERVICES -- S-H S-H L-L S-H L-L L-L L-L W-L

Source: Based on Computed RCAs

In Transport services Myanmar, Phillipines, Vietnam have an advantage since they have
High comparative advantage. Singapore has a high comparative advantage in
construction services, and financial services being the only ASEAN member nation with
this advantage it is in a great position to take advantage from the same. In the area of

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insurance services both India and ASEAN member nations need to improve as apart
from Myanmar all the nations have weak or low comparative advantage. In the area of
Telecommunications, Computer and Information Services India has a clear advantage
having a strong comparative advantage. Other business services such as medical tourism,
and movement of natural persons such as IT professionals are also service areas that
India can use to its advantage. This can be used to bring in gains as the ASEAN member
nations do not have an advantage in the same. In the personal, recreational, and cultural
services this group of nations and India need to improve or depend on other nations as all
of them do not have a comparative advantage. Lastly Myanmar, Indonesia and Cambodia
have an advantage in government services.
The emphasis must be on services because the welfare gains in opening up services
(Mode 1 to Mode 4 under the WTO framework) can produce many times more welfare
gains than further liberalization of merchandise trade.
ASEAN and India must look at a new model for liberalising trade in services to produce
substantially higher growth and employment in the region. From the policy side this can
be done only needing a political will to make it effective. India has already signed
comprehensive agreements covering services with countries such as Singapore,
Malaysia. ASEAN member countries can also gain from this. The next section shall
examine the policy initiative and agreements in the service trade.

India-ASEAN SERVICE FTA

On 1 July 2015, the long-awaited India-ASEAN FTA covering services and investments
will similarly come into effect following the necessary ratification by the bloc members.
The Services FTA with ASEAN represents the first trade pact inked by the National
Democratic Alliance government despite being negotiated and readied under the
previous administration.4 Ever since entry into office, Prime Minister Narendra Modi has
ordered a comprehensive review of all bilateral and multilateral trade pacts in order to
develop a comprehensive model for negotiating such agreements in the future.
The Services FTA extends to telecommunications, information technology,
transportation and logistics, financial services, education, real estate, business services,
health and community/social services and the ‘Mode IV’ free movement of natural
9
persons and professionals. The general scope of the service FTA extends to the
following:
 To ‘progressively liberalise trade in services on a preferential basis with
substantial sectoral coverage’

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 Elimination of ‘substantially all discrimination’ between the parties, and/or the

‘prohibition of new or more discriminatory measures with respect to trade in
services’
 Expansion in the ‘depth and scope of liberalisation’ beyond those undertaken by
India and ASEAN under the GATS (General Agreement on Trade in Services, a
WTO instrument); and
 ‘Enhanced cooperation in services, in order to improve efficiency and
competitiveness, as well as to diversify the supply and distribution of services of
the respective service suppliers of the parties’.

Beneficiaries under the Services FTA

(a) Multi-Brand Retail – India’s guarded retail sector has long been coveted by
foreign investors. The FTA provides impetus in the growth and expansion of retail in
India. Other ASEAN nations like Indonesia and Thailand in particular have, in recent
times, developed a significant presence in their own respective markets, and are both
looking to expand.
(b) Business Process Outsourcing (BPO), Software and IT Enabled Services –
India has certainly been the lead taker in the field of IT enabled services. India’s
dominance in Software and ITeS has continued to expand in recent times, while Business
Process Outsourcing (BPO) in general and Call-Centre Services in particular have seen
overwhelming success in the Philippines whereby following its ambition to become the
‘Call-Centre hub of Asia’ and a major provider of IT services. India’s Information and
Communication Technology (ICT) Services account for 65.9 percent of its total services
exports, with the Philippines at 67.3 percent. 11 ICT and BPO promises to be a central
and contentious point in the impending Services FTA.
(c) Restriction on Work Permits and Uniform Qualification Recognition –
Enabling the ease of movement for professionals, referred to as ‘Mode IV’ access, would
provide greater flexibility in obtaining certain visas for a longer duration and for
obtaining work permits. An additional feature complementing Mode IV access may be
the implementation of ‘Mutual Recognition Agreements’ (MRAs), whereby certain
professional qualifications obtained in India or in an ASEAN nation may be recognized
uniformly across the region. Giving the different economic scenarios in each of the
ASEAN countries and the opposition to the idea of free movement of professionals in
10
certain ASEAN member nations.

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India will now be required to negotiate MRAs with each ASEAN member country
individually. At present, Indian and ASEAN states require certain professional
qualifications to be obtained locally for foreigners, or for certain domestically obtained
licenses to be held, for example an Indian doctor wanting to practice in Thailand is
required to obtain a license from the Medical Council of Thailand. There exist a number
of foreseeable issues on this point which also exist in the realisation of the ASEAN
Economic Community; mainly that the licensing examinations in countries like Vietnam
and Thailand are all conducted in the native languages. Thus, a qualified and licensed
doctor in India wanting to work in Thailand will be required to pass the licensing
examinations in the Thai language. A harmonization of qualifications and mutual
recognition is desirable for free integration of professionals. Should such a
harmonisation take place, India may be able to make significant inroads in health care
and financial services. However, India has to act fast, especially in view of the fact that
its competitors, China and Japan, are already in advance stages of their relationship with
ASEAN.

India’s current trade with ASEAN member countries seem to be import heavy under the
Goods FTA. With the introduction of the Services FTA, it is expected that more
balanced trade relations between the two regions with arise. Integration of Financial
Services, IT services, Transport and Logistics, Education, BPO Services, Health
Services, the recognition of professional qualifications and free movement of persons
may provide for sweeping change.

India-ASEAN Service Trade Cooperation – Key Elements for Services Negotiation

 India has strong comparative advantage in export of computer and information

services, other business services such as financial, medical tourism, insurance, and
movement of natural persons such as IT professionals and sea farers. As discussed,
service sectors, and in particular the professional services, in most ASEAN countries
continue to remain highly protected. Very few countries have made significant
commitments under GATS. Singapore with the most aggressive GATS commitments
among the ASEAN countries have opened only 7 out of the 12 sectors in which WTO
Members decided to take commitments during the Uruguay Round. Under GATS also,
for most services where commitments have been taken, cross-border supply (mode 1) is
restricted under technical feasibility clause; market access for movement of natural
persons (mode 4), except for temporary movement of intra-corporate transferees, has

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been left ‘unbound’ by ASEAN country members. Members have also scheduled many
MFN exemptions under the GATS, both for market access and national treatment.
Several service sectors also have exemptions including legal services, broadcasting,
maritime transport, insurance, banking and other financial services. 11 According to the
Schedule of Commitments, these are valid indefinitely but subject to periodic
government reassessment. Also, in individual Member countries, there are significant
barriers to services trade, and for the delivery of a number of services in ASEAN, a
commercial presence (mostly through joint ventures) is required, which is further
subjected to several restrictions. Also economic needs tests and the citizenship/residency
criteria are very assiduously applied for regulating movement of service providers. There
are also sector-specific restrictions in key services industries many of which not only
restrict foreign firms, but also by protecting incumbents dampen competitive pressures.
Governments use their control of major suppliers of products and services under state
monopoly. However, domestic regimes in Member countries have undergone unilateral
changes recently as per AFAS (ASEAN Framework Agreement on Services) timelines
and commitments and are better than the GATS commitments that exist. Hence, until the
AFAS negotiations are completed and the ASEAN regional integration for key service
sectors is complete, extra-ASEAN trade partners will have to negotiate bilaterally with
individual Member countries for sector-wise market access and movement of
professionals. In such a scenario, the India-ASEAN CECA deliberations should aim at
setting out a broad set of AFAS-plus negotiating guidelines on mutual cooperation
agreements and a minimum benchmark numerical target for market access in services
within the geographical area under the CECA, and not be limited by the existing GATS
commitments and tabled revised offers. Focus during negotiations should therefore be in
two areas: Progressive improvements in Market Access and ensuring equal National
Treatment for services suppliers, in a select critical number of service sectors of mutual
interest of the trade partners, in all four modes of service supply. Historically, the larger
ASEAN Members have put more thrust on mode 3 (with the exception of Philippines
and now Vietnam), while India’s demonstrated expertise and competitive advantages lie
in modes 1 and 4. This signifies complementarities in the interests of the trade partners.
While India will have defensive interests in certain sectors with a few Members, there
are prospects of offensive opportunities in some other countries, in particular the CLMV
nations. This needs to be balanced during negotiations.5 Also, while the ASEAN region
as a whole and India would appear to be broadly competitors in a large range of services,
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there exists complementarities within individual service sectors and with individual
Member countries that need to be carefully optimised.

At present, ASEAN has concluded 4 packages of services commitments through 3

rounds of negotiations since 1 January 1996. These packages were signed by the AEM
and provide for details of commitments from each ASEAN country to the others in the
following services sectors:

Air transport, business services, IT services, accounting, auditing, legal, architecture,

engineering, market research, construction services, financial service, maritime transport,
telecommunication and tourism. 12 Because these commitments are GATS-plus, ASEAN
services suppliers can expect an increasingly freer trade regime in other services sectors
on top of the services sectors listed above. While the India-ASEAN CECA should aim to
incorporate liberalisation in the above sectors, other critical service sectors such as
Distribution, Audiovisual, Education and Healthcare services, where India has interests
and possibilities of forging synergies should also be considered for fast track
liberalisation. In short, specific sectors to focus by India-ASEAN are:

*EDUCATION SERVICES *HEALTHCARE

*AUDIO-VISUAL *TOURISM
*TELECOMMUNICATION *DISTRIBUTION AND
. LOGISTICS
*BANKING AND FINANCE *INSURANCE
*TRADING *E-COMMERCE
*TRANSPORTATION AND WAREHOUSING
*PROFESSIONAL SERVICES SUCH AS ACCOUNTING
ENGINEERING, LEGAL CONSULTANCY AND
ADVERTISING
.
 Another key element of significant consideration is that India offers a large and
unsaturated market to global service providers in logistics, and here countries such as
Singapore and Malaysia can be of help. Singapore, also scores high on Mode 3 type
services such as banking and insurance. With the NDA government raising the FDI cap
on insurance to 49 per cent from the earlier 26 per cent. Likewise, India offers a great
place for medical tourism. The cost of medical tourism in India is least in the South East
Asian region. The Indian healthcare delivery market is estimated at $30 billion in 2012,
contributing to 5 per cent of GDP, and employing around four million people. The
hospital services market is expected to worth $100 billion by 2020, with the bulk of the
contribution coming from the private sector. Most of the patients involved in the medical

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tourism market come from Africa, the Commonwealth of Independent States (CIS)
countries, the Gulf and the SAARC region. There is a demand for organ transplants and
orthopedics, cardiac and oncology treatments. Another rapidly growing segment is the
healthcare information technology. The electronic medical record services segment is
seen as having a high growth potential. There is a demand for contract research and
knowledge process outsourcing (KPO), with foreign players entering into clinical trials
segment to take advantage of lower input cost in India. The negotiations on health should
focus on removing existing restrictions on the outsourcing of clinical data and patient
information to India for services such as tele-radiology, tele-consulting, tele-imaging,
and medical coding. If the services sector is liberalised, Indian and ASEAN community
will jointly offer a large market of more than 1.8 billion consumers for their service
providers.
 Measures to help easier movement of professionals (mode 4 movement) – A
number of areas that are currently being negotiated and considered for possible
conclusion of MRAs under AFAS are: Engineering, Architecture, Accountancy,
Surveying, and Tourism. In addition, rules for related aspects such as dispute
settlements, institutional mechanism, minimum capital requirements for and types of
commercial presence, as well as other areas of cooperation in services should be
negotiated under the CECA.13
A related facilitating feature needed for easier cross-border movement of professionals
within the CECA would be Consular cooperation and visa and work permit facilitation.
Reduced restrictions/flexibilities in the number of expatriate workers (including
managers) allowed to be employed and on duration of stay, multiple entry visa for
business travelers and professionals, relaxed economic needs tests and requirements for
getting work permits for professionals (and their spouses in case of longer periods of
stay), and provisions of reciprocal visa-on-arrival provisions would help to integrate the
Indo-ASEAN region into a single market for services and services providers.

Recommendations

1. Operationalize the India-ASEAN services and investment agreement.

2. Make ‘Rules of Origin’ (ROO) criteria in India-ASEAN FTA subject to either
Change in Tariff Classification (CTC) or Regional Value Content (RVC)
requirement, not both.

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3. Introduce direct flights from Delhi (and at least one major Indian city) to Jakarta,
Manila and capitals of CLMV countries (or their commercial centres, like Ho Chi
Minh city in Vietnam).
4. Have extensive consultations with domestic industry for convincing them about
the benefits of the FTAs. Industry consultations on the RCEP are a good
beginning and should be taken forward for all other FTAs with the region.
5. Have annual meetings of the ASEAN-India Business Council. The Council can
have thematic subgroups that can meet more frequently.
6. Include enabling clauses in the India-ASEAN services agreement specifying
qualifications in various technical services that are acceptable to India and
ASEAN countries.
7. Expedite signing of a Trilateral Transport Transit Agreement between India,
Myanmar and Thailand.
8. Work on obtaining dual transport licenses enabling cargo-carrying vehicles to
cross over from India, Myanmar and Thailand into each other’s territories.
9. Sign border trade agreements with Myanmar, Thailand, Cambodia, Laos,
Vietnam for fixing designated entry and exit points for vehicles.

Conclusion
Aanalysis therefore suggests that at least in the medium term (particularly until the
conclusion of the AFAS negotiations ending with the service sector integration within
ASEAN), there is a lot to be gained from a bilateral engagement between India and the
Members of ASEAN in services, especially as the region remains relatively closed to
foreign service providers (even from among its own Member countries) and has
accordingly made limited commitments under GATS; the pillars of negotiation should be
both market access and other consular cooperation, including signing of MRAs. The
areas where significant mutual interests seem to lie are: finance, education, health, IT &
telecommunication, transport (including infrastructure), medical tourism, movement of
professionals and other business services. A large number of economies in the region are
emerging increasingly skill-scarce in a relative cost effective sense, and Indian
professionals could meet this gap, thereby contributing towards sustaining the overall
economic growth in the region. The CECA would also provide opportunities for India to
access third country markets through partnering with an established ASEAN service firm
in the targeted host country.

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However, the downside of the above optimistic projections, particularly those arising out
of the liberalised mode 4 access, is that these gains are conditional on India’s signing
MRAs on qualification and licensing equivalence agreements with the ASEAN
Members, which are naturally more time consuming than reducing tariffs and enhancing
investment limits in services between the two trade partners. India and ASEAN are more
in a substitution and directly competitive mode than complementing each other in a large
number of services of interest and relevance. In contrast, immediate and more palpable
gains from the CECA seem likely in the areas of energy security and cooperation, and in
the broader sense of carving out a larger politico-geographical union with its consequent
benefits.
It should also be remembered that compared to some large regional blocks like the EU,
and to some extent NAFTA, trade in services and movement of service providers among
the ASEAN countries are non-existent; the current level of regional integration in
services is strikingly low, given that the policy focus of both ASEAN and the individual
Member states have been on merchandise trade liberalisation and inducing foreign-
investment-led technology- transfer. This is a limitation that needs to be worked upon
and overcome with conscious efforts by both the trade partners, if the potential gains
from India-ASEAN trade liberalisation in services are to be actualised in any significant
manner. Any projection on potential gains from market access in services would tend to
assume that there would be free movement of service providers within the regional trade
agreement block.

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