As a developing country, India has not only itself been treading a cautious
path on WTO issues but has also been influencing other developing countries to
follow suit. As such, at various telecommunications related WTO negotiations and
agreements, India’s commitments have been too little and often vague. But
ironically enough, in practice, India has been doing far more on the WTO front
than it promised to.
Various steps taken by the government during the past couple of years
indicate that India has been too eager to liberalize its telecommunications
market as desired by various telecommunications related WTO agreements. For
example, as in February 1997, India’s commitment at WTO included allowing of
foreign equity up to 25 per cent (it has allowed 49 per cent), VSNL monopoly was
to be only reviewed in the year 2004 (the monopoly began crumbling last year and
ends completely in March 2002) and the DoT monopoly was to be reviewed in 1999
(they too have ended). Similarly, even though it had committed to reduce duties
between 2000 and 2005, the country began phasing out tariffs on telecom
equipment in 1997.
What Does It Mean?
India’s WTO commitments are not just about market access, foreign
investment or crumbling state monopolies and zero duties. The whole issue has to
be seen in the light of our own commitments and desires to increase the
penetration of telecom services in the country and attract investments in the
sector. Our relationship with WTO also needs to be analyzed in terms of our
efforts to increase our share in the world trade in telecommunications services
and goods. Moreover, we need to understand what a zero-duty regime would mean to
India’s telecom equipment manufacturing industry. And finally, how our own
policy and regulatory inadequacies could influence our preparedness (or the lack
of it) vis-a-vis the WTO regime.
WTO and Telecommunications |
The World Trade Organization (WTO) is essentially a There are two main agreements pertaining to telecommunications under |
A lot has already been said about the inadequacies of our local reforms and
half-hearted attitude of the government agencies in implementing reforms in the
telecom sector. However, it will be pertinent to mention the state of local
reforms in context of WTO. For example, one of the key objectives of the
deregulation in the sector was to attract foreign investments in large amount
for funding the expansion of telecom services. One of the key goals of WTO too
is to get countries open their markets for foreign investments–a meeting of
goals one would say. And in this light, many will consider measures such as
allowing 49 per cent equity in basic service a testimony to India’s
commitments to reforms. However, the fact is that India’s telecommunications
liberalization initiatives have often been guided by exigencies of
circumstances.
As such, on the ground level, there are enough regulatory concerns to ward
off foreign investors. It is another matter that relatively speaking we are far
better off today than we were, say two or even a year ago. Take for example
India’s dispute resolution mechanism that is anything but impartial. "The
entire dispute resolution mechanism is still not fair and transparent. Disputes
between BSNL/VSNL/MTNL and the others are to be judged by TRAI in some cases and
by DoT in many others. Most of the disputes will be about licensing and
interconnects. Both these are under the purview of DoT, which cannot be expected
to be impartial in a dispute between its own agencies and private
agencies," Prof S Manikutty of IIM, Ahmedabad observes. "The
government has done a lot but more for the local players. The fact is that we
need investments from all sides and those are not coming," Dr PD Kaushik, a
fellow with Rajiv Gandhi Foundation who also advises the Union Commerce Ministry
on WTO related issues, points out.
All said and done, it will be too naïve to subscribe to the view that there
will be a windfall of dollars in the event of India removing all regulatory
obstacles. The fact is that foreign investors look for market and not social
service. And for them market exists in metros and the richer states.
Falling Services Share
As far our efforts toward increasing share in the global telecommunications
services and goods are concerned, not much can be read into WTO’s declared
objective of promoting barrier-free trade in services. This is because research
shows that the share of developing countries in world services trade has
declined in the past decade while that of developed countries has increased.
General Agreement on Trade and Services (GATS) statistics show that while in
1989 services accounted for 17 per cent of the developing countries’ total
exports, this share had declined to 16.3 in 1998. In the worlds largest
telecommunications market US, figures show a declining trend in import of
service from developing countries during the nineties. In the context of a
country like India and a sector like telecom, there are several reasons to
believe that WTO or no WTO we won’t be gaining much in terms of an improved
share in the services trade. There are two important reasons for this. First, in
a service like telecommunications, which is technology and capital driven,
developed countries are expected to enjoy comparative advantages over their
developing counterparts for a long time to come. Second, developed countries,
especially the US, are most likely to circumvent regulations and obligations to
check developing countries from flooding their markets with cheap labor. This
will essentially mean that a country like India with abundant qualified
professionals will only have a restricted entry to developed telecom markets.
C-DoT May Be Insulated but...
Some observers feel that it is unlikely that telecom equipment manufacturers
like C-DoT will be affected much in the event of the government phasing out
duties completely. This is largely because C- DOT equipment manufacturers serve
a very niche market like the rural areas. A former C-DOT official says that it
will be very difficult to replace or phase out C-DoT equipment as they are very
cost-effective. Moreover, they are highly suitable for Indian conditions. C-DoT
switches can survive tropical heat without air-conditioning but imported
switches cannot. But this segment apart, multinational vendors already dominate
the market. Private service providers buy equipment mostly through vendor
financing unlike the cash-rich BSNL or MTNL. And most of the MNC vendors finance
purchases for private service providers. Given all this, a zero-duty WTO regime
will not have any visible effect on the telecom equipment market, says the
official, who now works with a leading global consultancy firm. However, it is
quite likely that C-DoT too may be in for some trouble as government dismantles
its preferential treatment of C-DoT when placing orders for state-owned service
providers.
India’s WTO Enthusiasm | |||
India is a party to both the Basic Telecom Agreement and Information Technology Agreement. India’s commitment to the WTO round in February 1997 were:
|
|||
It should be noted that India had only committed to review the monopolies in domestic fixed services and internal services. There was no commitment as such to dismantle these. However, in practice, India has done more than it had committed for. Today India has:
|
It is believed that equipment manufacturers (or assemblers) outside the C-DoT
market will be in for a rude shock. Zero-duty in its simplest sense means cheap
imports. As such, trouble awaits customer premises equipment manufacturers who
have not been able to control costs and often operate with thin margin. Many of
these manufacturers are already under pressure from cheap Chinese imports. These
manufacturers are most likely to go through a process of reorganization and
consolidation. Used to comforts of protection for long, most of these
manufacturers are wary of competition. Many of them may be wiped out. Overall,
the equipment market is likely to become crowded and highly competitive.
Doha: Was There Anything on Telecom? |
There was nothing in particular on telecommunications at the recently held WTO negotiations at Doha. However, the Doha conference called for a new round of negotiations, wherein developing countries like India can renegotiate their earlier offers and commitments. As some observers say, India can also benefit from the fact that developing countries have successfully postponed negotiations on issues like uniform international policy on investments, competition and transparency in government procurement till March 2003. Others feel that the launch of a new round of negotiations will not be quite in favour of India |
A paper (on WTO telecommunications issues) prepared by IIM, Lucknow, noted
that problems such as too many manufacturers, too many workers, too small a
scale and low profit commonly exist in the production of switches, mobile
communication products, optical fiber or communication terminal products in
Indian telecom manufacturing industry. Some of these enterprises are on the edge
of bankruptcy or operate with debts. The paper noted that with India committed
to the WTO regime, local telecom manufacturing will have to face consolidation
and re-organization. The paper pointed out that due to sharp reduction in tariff
and removal of non-tariff barriers, MNCs may build facilities by themselves and
avoid transferring technologies to India. This will challenge enterprises that
have long lived on part assembling with no innovative ability.
The removal of duties can give the cellular handset market a boost. Today,
most of the handsets are sold in the gray market. This is because a 25 percent
duty (duty is five per cent, countervailing duty 16 per cent, and other taxes
are four percent) on these handsets makes them too costly to be bought through
legal channels. As such, a tariff reduction on these could lure away buyers from
the gray market, thereby benefiting the government.
Most observers agree that Indian manufacturers had enough time to put their
house in order. As such, they should not be complaining now. "The tariff
regime did not descend all of a sudden. Indian industry had enough time to
adjust,’’ a forthright Prof S Manikutty of IIM, Ahmedabad opines. He says
that the Indian industry must find ways to become competitive. It does not serve
anyone’s interest keeping the cost of equipment high. "In fact a major
reason why cellular rates in India are still so high is the cost of
equipment," he points out. He suggests that the government should address
issues like the high cost of capital, high cost of power, corruption and an
unfavorable exchange rate policy. An optimistic Dr Manikutty is also of the view
that although Indian companies have less time to catch on, they can improve
their performance possibly by getting together with the help of a consortium
approach.
Can India Avoid WTO?
The GATS rules of telecommunications services stipulated that developing
countries can impose such conditions on market access as are needed to
strengthen their infrastructure and their involvement in international trade in
communication services. "GATS rules allow developing countries to have
limitations on market access commitments required to strengthen their
infrastructure. India can take advantage of this by liberalizing in stages,’’
Dr Vijaya Katti of the New Delhi-based Indian Institute of Foreign Trade says.
The same rules can also give India enough scope to reinforce restrictive
measures. However, this can also prove counterproductive. "WTO rules can be
as restrictive as the countries wish. Major restrictive conditions will prevent
FDI and growth of a competitive communications industry," warns Prof.
Manikutty. He is also of the opinion that countries like Mexico which have
permitted free market access in telecom have benefited.
WTO regulations are something inevitable –countries can’t keep postponing
them for ever. Paranjoy Guha Thakurta, eminent journalist with decades of
experience in analyzing the political economy of the country, warns, "We
have not more than two years before us." He says that the best option is to
prepare ourselves for the inevitable and stop complaining. "WTO is a lesser
evil, if you think it is an evil–the bigger problem is our attitude. By our
own standards, we have done nothing. There is no political consensus," he
adds.
Something that is inevitable must be dealt with. And as the WTO stares us in
our face, three things are clear. First, as a country, we are not prepared to
live in barrier-free trade regime. Second, given the declining share of the
developing countries in world trade in services, it is highly unlikely that
India can gain a substantial share in the global trade in the near future. And
finally, whatever be their arguments, foreign investors are most likely to be
guided in their investment decision by the size of the market, perceived or
otherwise, than anything else.