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Canada-India Joint Study Group Report: Exploring the Feasibility of a Comprehensive Economic Partnership Agreement

Chapter 3: Trade in Services

Canada and India have taken commitments covering trade in services in CEPAs with other countries that are more liberal than their respective WTO General Agreement on Trade in Services (GATS) commitments. Consequently, many service sectors stand to potentially benefit from enhanced trade under a potential Canada-India CEPA.

This section of the Joint Study aims to highlight the growing importance of trade in services, identify Canada and India's respective comparative advantages in each other's markets and identify approaches that would facilitate the bilateral flow of services trade.

3.1 Liberalisation of Trade in Services

Trade in services is an increasingly important part of the global economy. Advances in information and telecommunication technologies have expanded the scope of services that can be traded across borders. As noted in Table 3.1, world exports of services increased at a 14% compound annual growth rate before the global downturn, from US$1,485 billion in 2001 to US$3,803 billion in 2008. Developing economies like India in particular have witnessed even faster growth rates in services trade. Commercial services exports as a percentage of total exports for Canada and India are approximately 12% and 35% respectively in 2008.⁹

Both the Canadian and Indian economies have seen a gradual structural shift towards the services sector with services comprising a growing share of GDP and employment. Services represent an essential component of competitive, knowledge-based economies, accounting for 72% of GDP in Canada in 2009 and 57% in India in 2009-10.¹⁰

Table 3.1 Exports of Commercial Services

US$ billion (Share of Global Imports %)

Source:

Canada and India are major traders of services. In 2009, Canada was ranked the 18th largest services exporter globally, while India was ranked the 12th largest services exporter. The global services trade value of Canada and India are enumerated in Table 3.2. Prior to the crisis, India's two-way services trade value has increased from US$36.7 billion in 2001 to US$191.0 billion in 2008, with a compound annual growth rate of 26.6%. Canada's two-way services trade also witnessed a substantial rise from US$81.1 billion in 2001 to US$151.4 billion in 2008, with a compound annual growth rate of 9.3%. While India exports more services than it imports, the opposite is true for Canada. Table 3.2 suggests that there is a huge services trade potential between Canada and India. As an additional benefit, trade in services has proven to be more resilient during the global downturn than trade in goods.

Table 3.2 Global Trade in Commercial Services in $US million

Source:

According to Statistics Canada, bilateral trade in services between Canada and India has increased significantly over the past decade, with Canadian exports to India of US$301 million and imports from India of US$392 million in 2007. Travel services represented the largest proportion of Canada's exports to India, totalling US$150 million in 2007,¹¹ followed by transportation and government services (US$100 million) and commercial services¹² (US$52 million). Canada's main commercial services exports to India include management services, architectural, engineering and other technical services, and miscellaneous business services. Transportation and government services represent the largest proportion of Canada's imports from India, at US$178 million, followed by commercial services (US$130 million) and travel services (US$84 million).¹³ Canada's main commercial services imports from India are computer related and information services, followed by miscellaneous services to business, management services and architectural, engineering and other technical services.

The services sector in India has been a major source of economic growth in recent years. Deregulation of services sectors has been one of the highlights of Indian economic reforms. Significant steps have been taken to liberalise the Financial and the Telecom Sectors in India since 1991. Telecommunications has, thus, been substantially opened up to competition. Newer sectors such as Information Technology (IT) and IT-enabled services (Business Process Outsourcing, Knowledge Process Outsourcing, and Business Transformation Services) are largely open and have been prominent among the faster growing services sectors, assisted by technological advances and a low-cost, educated workforce with good English language capabilities.

Canadian imports of IT services from India have been increasing since the beginning of the last decade. Indian IT companies with substantial operations in Canada include Tata Consultancy Services, Satyam, Wipro and Infosys. A possible Canada-India CEPA could assist in further increasing trade in this sector.

Canadian service suppliers also have a strong presence in India, particularly in consulting services, financial services and energy services (oil and gas). Key Canadian companies that are active in the Indian market include Howe India, Sun Life, Scotiabank, Bombardier and SNC Lavalin. Beyond these sectors, further liberalisation of India's services market could provide additional market access opportunities in other sectors.

Tourism trade is already quite significant and is growing strongly in both directions, generating benefits for the Canadian and Indian economies.

In view of the large physical distance separating India and Canada, it is perceived that the cross-border provision of services will be a particularly important mode of service delivery between the two countries, particularly for small- and medium-sized enterprises. Technological advances are allowing for the cross-border delivery of ever increasing range of services. This is a dynamic area of growth experiencing continuous development. It would be desirable to narrow the gap between current levels of commitments in the GATS context and commercially meaningful market access opportunities that have arisen. Both countries should consider taking commitments in a potential CEPA on cross-border trade in services across a broad range of commercially meaningful sectors de-linked from commercial presence or residency and citizenship requirements.

Given India's large pool of skilled workers with good English language abilities there is a large potential for trade in professional services and other business services through the movement of natural persons. In this regard, a clear process to facilitate the recognition of qualifications and experiences of professionals could increase the gains that can be achieved from market access commitments. The trade in services chapter should include a framework to encourage the successful conclusion of mutual recognition agreements (MRAs).

Consideration should be given to elements of domestic regulations, such as those that deal with qualification and licensing requirements and procedures, which may impede effective market access to service suppliers. Disciplines on domestic regulation, such as provisions on the transparency of regulatory regimes, serve to compliment market access and national treatment commitments undertaken in the context of a CEPA.

Canada and India have both taken commitments on trade in services under the GATS. Canada's current bound commitments cover 104 out of 155 total services subsectors, while India has committed 37 subsectors. Canada and India are active participants in the ongoing Doha Development Agenda negotiations on services, with both countries having submitted initial and revised services market access offers.

Canada's Approach

Canada's FTAs typically include an ambitious chapter on cross-border trade in services, providing for comprehensive coverage of services sectors and modes of service supply. For those bilateral agreements that include trade in services, Canada's services market access commitments are more liberal than its GATS commitments.

Key features of Canada's Cross-Border Trade in Services Chapter in bilateral FTAs include obligations with respect to market access, which targets discriminatory and non-discriminatory quantitative limitations; national treatment, which requires that foreign service providers be treated equally to domestic service providers; and most-favoured nation treatment, which requires that the Parties to the agreement afford each other the best treatment they afford any other country. Canada utilizes a negative list approach to identify measures that do not conform to these obligations. Under a negative list approach, all measures affecting trade in services are understood to be in conformity with the obligations contained in the Cross-Border Trade in Services Chapter, except those that are explicitly listed. This approach provides enhanced transparency and clarity.

Canada's approach in FTAs has always been to list the necessary reservations in order to preserve full policy flexibility with regard to health, public education and social services.

Canada's Cross-Border Trade in Services Chapter is also structured such that any autonomous liberalisation undertaken by either Party is automatically bound under the agreement and subject to its obligations. This feature, known as the ratchet mechanism, is significant because, once liberalised, measures are bound at the new level and not permitted to become more restrictive.

The Canadian labour market is made up of both regulated and unregulated occupations. In Canada, constitutional responsibility for recognition of licensing of professionals is typically the responsibility of provincial and territorial governments and self-regulated professional associations. Provincial and territorial governments are responsible for establishing the legislative framework for the regulation of some professions and trades through various occupational statutes and acts. In the established professions and most trades, the authorities who actually grant the right to practice are usually self-regulating professional associations that derive their authority pursuant to legislative, regulatory or administrative delegation by their respective province or territory. Examples of regulated occupations in Canada include lawyers, engineers, architects, veterinarians, and physicians.

Once an individual has been certified and/or licensed, they are legally permitted to practice in the province or territory that has issued the license or certification. Requirements for entry, which may vary from one province to another, usually consist of components such as academic credentials, examinations, a specified period of supervised work experience, language competency.

Under the new Pan-Canadian Framework for the Assessment and Recognition of Foreign Qualifications, foreign-trained workers who submit an application to be licensed or registered to work in certain fields will be advised within one year whether their qualifications will be recognised. The objective of the Pan-Canadian Framework for the Assessment and Recognition of Foreign Qualifications is to articulate a new joint national vision, guiding principles and desired outcomes for improving the assessment and recognition of newcomers' qualifications.

In the context of its FTA negotiations, the role of the Government of Canada is to encourage and support the negotiation of Mutual Recognition Agreements (MRAs) by competent authorities or their mandated representatives. Canada includes non-binding guidelines in its FTAs to assist authorities in their MRA negotiations. The objective of this approach is to make it easier for relevant parties to negotiate comprehensive and effective MRAs and for third parties to negotiate their accession or negotiate comparable agreements. Canadian professional bodies have been successful in negotiating MRAs in internationalised professions such as engineering, architecture and accountancy.

The Canadian services sector features many internationally competitive companies across a broad range of industries. While Canadian companies have competed in many sectors of the Indian market, they have been particularly active in India in the following areas and would stand to benefit from further liberalisation in the context of a CEPA between the parties:

• Energy and mining services - Canadian firms in the oil and gas and mining sectors have extensive experience operating internationally and possess unique knowledge and skills in a variety of areas. Canadian firms also offer expertise in the areas of electricity generation, transmission, and distribution; energy efficiency; and associated services. Small- and medium-sized Canadian firms have been particularly active in India in the renewable energy sector.

• Financial services - Canada's financial sector has been widely acknowledged as being one of the strongest in the world and the best-practices of Canadian financial institutions make them desirable foreign entrants and excellent partners for Indian institutions. Canadian financial institutions are looking to deepen their commitments with their Indian partners, but foreign investment limits impede Canadian financial institutions from expanding through strategic partnerships and deter others from entering the Indian market. Liberalisation of the financial services sector in the context of a CEPA with India would thus be of significant benefit to Canadian stakeholders and would benefit Indian consumers through greater competition and availability of financial services.

• Transportation, infrastructure and construction services - The Government of India has ambitious plans for improving transport infrastructure. This has taken the form of both public sector and private sector construction and engineering projects. Canadian companies possess the technical and execution capabilities in areas such as project planning, engineering and implementation, construction, feasibility assessments and environmental impact studies that can assist India in addressing the challenges facing the development of its infrastructure.

India's Approach

Trade in services has been central to India's bilateral engagements which have been implemented or are under negotiation.

India's services trade chapter in FTAs has always provided a comprehensive sectoral and modal coverage of services trade. Unlike Canada, India follows a positive list approach in all her FTAs, in accordance with the GATS and hopes to achieve a commercially meaningful broad based agreement with Canada which is both GATS consistent as well as GATS plus. India's commitments to services trade negotiations have offered openness, credibility, and strengthened the globalisation process. India, however, has adopted a calibrated approach towards liberalisation. Autonomous liberalisation in India is not automatically bound. Any decision to bind the level of autonomous liberalisation is taken only after consultation with all concerned stakeholders.

Major features of India's services trade chapter in bilateral and regional trade arrangements include trade complementarities and opportunities; trade facilitation to expand the bilateral trade flow; Market Access and National Treatment obligations; and GATS plus outcomes in provisions relating to Domestic Regulations and Recognition.

India's revised offer (RO) tabled at the WTO in September 2005 is a vast improvement over the initial offer, as it includes a number services sectors/sub-sectors which had neither been offered nor committed earlier. India has now offered eleven sectors and one hundred three sub-sectors, thus adding four sectors (Distribution Services, Education Services, Environmental Services and Recreational, Cultural and Sporting Services) and 56 sub-sectors to her initial offer. However, India's revised offer to the WTO is conditional on other WTO Members making substantive and satisfactory offers in sectors and modes of supply where India has indicated its interests. It is also conditional on the outcome of the negotiations underway on the development of disciplines on domestic regulations. In the case of bilateral FTAs, it follows reciprocal obligations undertaken by either Party. India's offer has been found as trade-creating through gradual liberalisation.

India identifies the following sectors where improved bilateral market access on a "GATS-plus" basis could assist in improving the efficiency of the domestic sector in both countries:

• IT/IT enabled services (ITES) sector - The growth in the Indian IT/ITES sector has been nothing less than a revolution. The Indian IT industry, which has now grown to a size of nearly US$60 billion, has been completely liberalised. During the last decade, India has emerged as a major IT software and service provider to the rest of the world. A significant part of the industry continues to be export driven. India's exports of software and ITES increased to US$46.3 billion in 2008-09 from just US$1.8 billion in 1997-98, a compound annual growth rate of 35%, and are estimated to be around US$49.7 billion in 2009-10. The Indian BPO industry itself is worth almost US$15 billion. India is the number one outsourcing destination in the world with almost a 50% share in the global off-shoring business. India now aims to be a global ICT research and development hub. India has continued to be ranked first in the export of computer and information services in the international economy since 2005. While the United States (60%) and the United Kingdom (22%) remained India's largest markets for IT-BPO exports in 2008-09, the industry has also been steadily expanding to other regions - with exports to continental Europe, in particular, growing significantly in recent years. Though India's export of IT/ITES to Canada has been increasing since the beginning of the last decade, it is hoped that a possible Canada-India CEPA will provide a further boost. In this regard, India attaches utmost importance to the easier movement of Indian software professionals to Canada.

• Audiovisual sector - Another fast growing service sector in India is the audiovisual sector. India is one of the largest film producing countries in the world, producing on an average 800 features film and 900 short films annually in 52 different languages. Given the huge Indian diaspora in Canada, export prospects of Indian films and television soaps, news and sports channels to Canada is very high.

• Healthcare - The healthcare sector is a US$35 billion industry in India and is expected to reach over US$75 billion by 2012 and US$150 billion by 2017. India has developed a brand name in the supply of quality healthcare services at relatively lower rates compared to the United States and the United Kingdom and rest of Europe. Given India's large pool of highly qualified doctors, nurses, paramedics and technicians, growing innovations, expansions, low cost of treatment, world-class technology and five-star services medical tourism is growing at a phenomenal rate of 30-35% per year in India. Health services offered include indigenous systems of holistic care such as Ayurveda, Yoga, Unani, Siddha, naturopathy and homoeopathy in addition to western medicine. India, with a large pool of well trained, highly qualified, English proficient health care professionals that are available at highly competitive rates, has a comparative advantage in the export of health services through the movement of professionals. Also, with rapid progress in information and communications technology, India is exporting a large part of health care services through cross-border trade.

• Professional Services - India's exports of professional services over the last decade have grown significantly. According to India's balance of payment data, export of other business services (including, inter alia, accounting and auditing services, business management and consulting services, legal services, architectural, engineering and other technical services and advertising) have increased from just US$0.5 billion in 2001-02 to around US$17 billion in 2007-08, a compound annual growth rate of almost 80%. A possible Canada-India CEPA holds potential for increased trade with Canada in these services.

In the context of a possible Canada-India CEPA, India considers the issue of access for services and service suppliers to the pan-Canadian market in sectors and modes of export interest as extremely critical.

Recommendation on Bilateral Trade in Services

The Canada-India CEPA should include a Trade in Services Chapter that provides for:

• liberalisation of trade in services with substantial sectoral coverage, measured in terms of numbers of sectors, volume of trade and modes of supply; including sectors and modes with trade potential and complementarities;
• a considerably higher level of ambition than the current WTO commitments, with the aim of achieving market access, non-discrimination and compliance with Article V GATS;
• disciplines in domestic regulation that would be a useful complement to market access and non-discrimination and would play a positive role in facilitating trade in services; and
• provisions to facilitate the mutual recognition of professional qualifications.

3.2 Financial Services

Financial services are typically included in most comprehensive trade agreements and include all banking and other financial services (excluding insurance), insurance and insurance-related services, as well as services incidental or auxiliary to a service of a financial nature.

A bilateral trade agreement with commitments in financial services can help facilitate greater market access for financial institutions by ensuring a reliable and transparent regulatory environment. Increased competition can result in greater choice for consumers, leading to innovation, improvements in market structure, and the overall development of the financial sector and wider economy.

The recent global financial crisis has also underscored the importance that sound regulation and best business practices play in the functioning of the financial system. Canada and India share a mutual interest as international leaders in enhancing sound regulation and strengthening transparency for financial institutions.

Canada's Approach

Canada's financial system is mature, sophisticated, and well-managed. Financial stability is underpinned by sound macroeconomic policies and strong prudential regulation and supervision.

The need for financial stability and prudence gained importance in the context of the global financial crisis. Canada's financial sector came through the global financial turmoil much less affected than many of its peers, reflecting both the robustness of its regulatory framework and the strength of its financial institutions. The regulation of financial services is critical in ensuring market stability, so Canada comes from a position of strength in any discussion of financial services.

Canadian financial institutions have identified India as a priority market and are interested in bringing their strength to the Indian market. Canadian insurers would be interested in making an even deeper commitment to their Indian partners, for example, by making investments up to 49% in insurance joint ventures. Although banks may now establish de novo operations in India through a subsidiary or branch, practical realities strongly favour making investments in an existing bank (e.g. up to 20% in any one bank). However, restrictions on foreign direct investment in the banking and insurance sectors, while slowly liberalising, are major obstacles to Canadian institutions entering the Indian market and continue to limit the ability of other Canadian institutions to expand within the Indian market.

Canada would attach considerable importance to a stand-alone Chapter for Financial Services in a CEPA with India, given the critical role the sector plays in the functioning of an economy. Canada is also interested in the further liberalisation of the Indian financial sector in the context of a CEPA with India.

Canada maintains a liberal foreign entry regime in its financial sector. For example, foreign banks wishing to engage in wholesale business can benefit from lightened regulation by establishing as a foreign bank branch. Foreign bank branches have most of the same business powers as a domestic bank, subject to prudential requirements that lending branches may not accept deposits and full service branches may not accept deposits under C$150,000. This is a model adopted by other jurisdictions, that allow bank branching but do not permit the taking of retail deposits. Canada's foreign bank branching regime has proven quite popular as there are currently 29 foreign bank branches operating in Canada.

Foreign banks wishing to engage in wholesale business or retail deposit taking in Canada may also choose to establish as a federal financial institution, and have all the same powers as a domestic financial institution. Further, foreign banks may set up a non-regulated financial entity. There are currently 26 foreign bank subsidiaries in Canada. Similarly, foreign banks wishing to grow through strategic partnerships can benefit from the same treatment as domestic investors as there is no distinction in the treatment of foreign and domestic investment in Canada's financial sector.

Once an initial approval is granted, no further approvals are required for a WTO-foreign bank to expand its branch network in Canada. Further, new competitors are welcome and there are no caps on the number of foreign bank entrants.

The Canadian marketplace has benefited from the activities of foreign firms and the CEPA would enhance Indian firms' trade and investment in Canada's financial sector. Increased foreign investment deepens and strengthens financial markets, which play a key role in the efficient allocation of capital. For these reasons, Canada believes that a Financial Services Chapter in the CEPA would benefit both countries.

India's Approach

Significant steps to liberalise the financial sector have been taken in India since 1991, when the sector operated in a heavily regulated environment, for example state-owned banks controlled 90% of bank deposits, a high proportion of funds were channelled to the government and credit was allocated on the basis of government policy. The administered interest rate structure, meant banks could earn a reasonable return (spread) without much effort. Despite this, bank profitability was low and non-performing loans levels were high, reflecting a lack of efficiency. There were also significant barriers to entry which protected the sector. Foreign banks have since been allowed some access to the Indian market, and the banking sector is increasingly able to lend freely.

The financial sector reforms in India since the early 1990s initially focused on ensuring existing financial institutions operated in an environment of operational flexibility and functional autonomy and also encouraged consolidation of the domestic banking system, both in private and public sectors. As Indian Banks became stronger to face global competition, gradual enhancement of the presence of foreign banks was allowed in a synchronised manner.

Under India's autonomous regime, foreign banks are allowed to operate in India either through a wholly-owned subsidiary (WOS) or branches. At present, individual foreign banks are restricted to holding less than 5% equity in any one private sector bank. For a shareholding of more than 5%, an acknowledgement is required from the RBI which is subject to conditions stipulated in RBI's 'Guidelines on ownership and governance in private sector banks'. Also at present there is a limit of ten per cent on voting rights in respect of banking companies. In aggregate, foreign investment in a private sector bank from all sources is allowed up to a maximum of 74% of the paid up capital of the bank and 20% of equity of any Indian public sector bank. It is worth noting that for non-banking finance companies (NBFC), FDI up to 100% is allowed automatically subject to minimum capitalisation norms. In respect of NBFCs in India, 18 areas have been opened for FDI including portfolio management services, stock broking, credit rating agencies, housing finance and rural credit among others. In the insurance sector in India, foreign equity up to 26% is allowed. Foreign investment permitted in the banking and insurance sector will be in accordance with the FDI policy of the Government of India and notifications issued from time to time, rules and regulations and the terms and conditions of the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority and any other competent authority in India.

In India there are no restrictions as regards to the acceptance of retail deposits by a foreign bank branch. The RBI is in favour of foreign banks opening retail accounts in India to further its aim of financial inclusion. The deposits are eligible for deposit insurance as per rules.

While India has opened up many of its financial services, India has always followed a cautious approach as a result of its capital account not being fully open. While India subscribes to the GATS Annex on Financial Services, it is not a party to the Understanding on Financial Services. Drawing lessons from the crisis, it has been proposed that the Reserve Bank of India will prepare a discussion paper on the mode of presence of foreign banks through branch or WOS by September, 2010.

India has a WTO commitment to allocate 12 new bank branch licences per year to foreign banks, subject to a minimum initial capital requirement. The WOS will be treated on par with the existing branches of foreign banks for branch expansion with flexibility to go beyond the existing WTO commitments of 12 branches in a year and preference for branch expansion in under-banked areas. The grant of a licence to operate an ATM is not counted in the WTO commitment of 12 bank branches of foreign banks. In its Revised Offer at the WTO, India has offered to allocate 20 new bank branch licences per year to foreign banks. The grant of ATM is governed by the Branch authorisation policy of September 2005. There are more than 311 foreign bank branches in India and more than 800 ATM's of foreign banks in India.

Recommendation on Financial Services

The Canada-India CEPA should include a stand alone chapter for financial services. Specific modalities, such as approach and level of commitments, will be discussed in the context of formal negotiations.

3.3 Telecommunications Services

Telecommunications services are not only important economic drivers in their own right; they are also key enablers of trade and development. Technological change is spurring innovation in the telecommunications sector, which is increasing efficiency in the sector itself, and allowing for trade in new service sectors and economic growth.

The technical nature of the telecommunications sector, and its legacy of state-owned monopolies, creates many issues related to competition, competition policy, and commercial arrangements and technical matters. There are many cross-border issues and linkages, be it billing systems, privacy, spectrum allocation, security, and in some instances, licensing. Many of these matters are handled by the telecom regulatory authorities.

India and Canada have opened their telecommunications services markets gradually during the 1990s through a series of regulatory and legislative adjustments. At this stage, a large proportion of their respective national markets are open to competition.

There are currently no bilateral agreements between India and Canada specifically related to the telecommunications services sector. However, India and Canada have treaty obligations related to telecommunications services under a range of agreements negotiated within the International Telecommunication Union (ITU).

Canada's Approach

Canada generally includes a stand-alone Chapter on Telecommunications in its FTAs, with the goal of ensuring reliable and transparent access and use of telecommunications services for all enterprises granted market access under the bilateral agreement. We also look to facilitate a competitive telecommunications marketplace through transparent and effective regulation, including the regulatory principles found in the WTO Telecommunication Reference Paper.

Trade linkages between Canada and India could be intensified by adopting measures that favour competitive telecommunications services markets in a CEPA. These measures could include, inter alia, provisions on access to and use of public telecommunications transport networks and services, the independence of the regulator, interconnection of competitors' networks, the importance of preventing anti-competitive practices, among others.

Canada has always had privately-owned regional companies and now has competitive national providers of telecommunications services with their own infrastructure. There are two major competitive infrastructures platforms in Canada (telephone and cable) and numerous competitive telephone providers, some of whom use satellite infrastructures.

Given the longstanding movement towards liberalisation of the sector, 90% of telecommunications revenues in Canada are generated from deregulated markets. This percentage will continue to increase as further regulatory reviews are completed. The mobile telecommunications sector has been deregulated in Canada, and competition has been introduced in all local telephone markets except in the northern territories. Long-distance telephony is also deregulated. Moreover, Canada has an extensive cable television infrastructure and this cable sector provides competitive telecommunications services in most regions. The Canadian Radio-television and Telecommunications Commission, Canada's telecommunications regulatory authority, has a well established interconnection regime for both cable and telephone infrastructure which facilitates competitive service entry and provision by domestic and international service providers.

Canada maintains limitations on foreign investment in facilities-based telecommunications, as well as limits on competition in the Northern Territories. Canada's Telecommunications Act requires that telecommunications common carriers (or facilities-based service providers) be Canadian controlled and limits foreign direct investment to 20% of the voting shares. The limit on the voting shares for holding companies is 33.3%. The maximum investment by foreign entities in an operating company is 46.7% (i.e., 20% of the operating company and 26.7% of the holding company (33.3% of the remaining 80%)). Canada allows up to 100% foreign ownership of service providers of basic telecommunications supplied on a resale basis.

India's Approach

India has identified telecommunications as one of the key drivers of its economy and the sector continues to contribute significantly to growth. In recognition of the strong multiplier effects, the telecommunications services sector has been autonomously liberalised in India since the 1990s. For example, increased efficiency in telecommunications has resulted in India's rise as a software power in the world.

India has one of the fastest growing telecommunications markets in the world, with tele-density at 49 % in 2009. This rapid growth follows various proactive and positive decisions of the Government and contribution by both the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. Presently, all the telecom services have been opened for private participation. The Indian telecommunications sector is also characterized by the presence of a large number of foreign companies, encouraged by liberal government policies and other incentives given to the sector. However, none of the foreign telecom operators active in India is Canadian owned.

India raised the foreign equity limit for investments in the telecommunications sector from 49% to 74% in 2007. The Government allows up to a maximum of 74% foreign equity in basic, cellular mobile, paging and value-added services and global mobile personal communications by satellite; up to 74% (beyond 49% requiring government's approval) in internet service (with or without gateways), radio paging services and end-to-end bandwidth; and up to 100% in manufacturing of telecommunication equipment and services such as electronic mail and voice mail.

Comparison of India's WTO commitments with the applicable regime reflects the fact that the applicable regime is far more liberal than the commitments made by India. While India has not fully subscribed to the Telecommunication Reference Paper on regulatory principles in the WTO, the regime that operates in practice is nearly fully compliant with those principles, apart from subsidizing incumbent operator for operation and maintenance of rural Direct Exchange Lines installed prior to April 2002 when USO Fund came into existence.

Recommendation on Telecommunications

The Canada-India CEPA should include a chapter on telecommunication services, with the goal of promoting a pro-competitive regulatory environment that is vital to trade in telecommunication services.

3.4 Temporary Entry for Natural Persons

Facilitated temporary entry for natural persons is necessary for enhancing international trade and investment. Access to professionals, specialists and skilled service providers can deliver strong economic benefits for all segments of the economy. Also, as trade flows between countries increase, there is an increased need for the mobility of natural persons between territories to perform business activities related to the business transaction taking place. It is important that this movement does not unduly impair or delay the accompanying trade and investment. In this way, substantive temporary entry provisions can play a key role in the development of increased trade between the two countries.

Typically, the Temporary Entry for Natural Persons Chapter contains provisions to facilitate border entry for natural persons on a temporary basis. In particular, Parties seek to eliminate regulatory barriers to entry such as the requirement for a labour market test, the imposition of a numerical limitation such as a proportionality requirement or a quota, provide for extended duration of stay and allow inter-firm mobility for professionals and provide for simplification and expeditious processing of applications for temporary work authorisations.

The categories of natural persons will be negotiated between the Parties and should include Intra-Corporate Transferees (ICT), Business Visitors, Professionals (both Contractual Service Suppliers and Independent Professionals) as well as others.

Commitments on the movement of natural persons have been taken by both Canada and India under the GATS. As in the case of the GATS, a bilateral CEPA would not include provisions covering persons seeking citizenship, permanent residence or permanent employment in the other country.

Canada's Approach

Canada considers commitments for the temporary entry for natural persons to be an integral part of its trade agreements. Under the Canadian bilateral model, commitments are taken for a broad range of natural persons including: (1) business visitors where Canada covers a broad range of activities; (2) traders and investors including supervisors, executives and those with essential skills; (3) intra-company transferees including executives, managers, specialists and management trainees; (4) professionals (i.e., occupations requiring a four year university degree) where Canada uses a negative list approach, rather than a sectoral approach, thereby listing only the excluded professionals to ensure the broadest possible coverage, while taking into account any sensitivities that the Parties may have; (5) technicians where Canada's approach is to use a selective positive list which lists the specific types of technicians to be covered under the agreement; and (6) spouses which facilitates entry for the spouse of certain natural persons covered by this chapter.

As part of the Canadian approach, coverage of categories is taken on a reciprocal basis, meaning that the same level of coverage applies equally to both Parties.

Canada's approach to temporary entry does not override the immigration policy of a party, such as measures related to health, safety and national security, and for this reason, Canada does not include commitments on entry visas. The chapter also does not address the regulation or qualification of professionals, which Canada covers under the Chapter dealing with Cross-Border Trade in Services.

India's Approach

The movement of natural persons is of great importance for the globalisation of economic activities, technology development and the promotion of services and would contribute to strengthening bilateral economic ties between India and Canada.

India will be seeking commitments in mode 4 for entry of natural persons in commercially meaningful sectors and sub-sectors. India considers as important the issue of regulatory transparency on visa/immigration norms and expeditious processing of visa applications for temporary entry, including for extensions. Furthermore, India may seek special dispensation for work authorisations to ensure the fulfillment of horizontal and sectoral commitments that may eventually be undertaken in a possible Canada-India CEPA, removal of geographical limitation on work permits within Canada, expansion of the ‘special categories programme' identified by the Human Resources and Skills Development Canada (HRSDC) for simplified and accelerated processing of work permit applications, removal of requirements of labour market tests, etc. India notes that the current Canadian regime already allows for multiple-entry visas for professionals.

Given its immense importance, in addition to horizontal commitments, sector specific discussion may be needed when considering possibilities of temporary entry for natural persons, taking into account difficulties and sensitivities in each service sector. It would therefore be necessary for both countries to work closely together to facilitate such movement.

Recommendation on Temporary Entry for Natural Persons

Recognising the mutual interest in facilitating the legitimate temporary movement of natural persons for enhancing bilateral trade and investment, a separate chapter on temporary entry for natural persons should be included in the Canada-India CEPA.

⁹ . According to the WTO, 'commercial services' include 'Transportation,' 'Travel,' and 'Other commercial services.'

¹⁰ Economic Survey 2009-10, Government of India, Chapter 1.

¹¹ The Balance of Payments sub-divides 'Travel-Services' into 'Business Travel' and 'Personal Travel.'

¹² According to Statistics Canada 'commercial services' are 'total services' less 'transport,' 'travel,' and 'government services.'

¹³ Canadian trade data from Statistics Canada