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Commentary
Abstract
This article is an attempt to analyze the need for negotiations (if any) for India,
in the sector of ‘Enhanced Healthcare’ which is one of the 14 sectors in the
Sectoral Negotiations (a component of Non Agricultural Market Access) of the
ongoing Doha round. This is done by looking at various components of the Doha
Round Sectoral Proposals specifically from India’s context. We have compared
India’s competitiveness with the four countries, i.e., US; Singapore; Switzerland and
the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, which have
proposed 25 product categories (i.e., 25 chapters in HS nomenclature) in this sector
for free trade and hence are called as ‘the proponents’ of this sector. We have used
two trade indicators, growth rate of exports and revealed comparative advantage,
for analyzing the India’s relative competitiveness. Both the trade indicators show
that India does have a comparative cost advantage to be one of key players in this
sector. However, this opportunity has to be reaped judiciously by Indian govern-
ment so as to make best use. Also, at same time the need of the hour is that the gov-
ernment should invest in this sector so as to meet the basic international standards
and thereby helping not only the Indian populace but also the industry as a whole.
Keywords
WTO, NAMA, sectoral proposals, healthcare sectoral, revealed comparative
advantage
* This is a commentary based on a longer paper. For the full version of the paper, contact
Murali Kallummal.
Rajat Verma, Assistant Professor (Ad hoc), Shaheed Bhagat Singh (Evening) College,
University of Delhi and Guest Lecturer, Gargi College, University of Delhi, Delhi, India.
E-mail: rajat.verma1988@gmail.com
Murali Kallummal, Associate Professor, Centre for WTO Studies (CWS), Indian Institute
of Foreign Trade, New Delhi, India. E-mail: muralik@iift.ac.in; muralikallummal@gmail.com
Poornima Varma, Assistant Professor, Department of Policy Studies, TERI University,
New Delhi, India. E-mail: poornimavarma@gmail.com
400 Rajat Verma, Murali Kallummal and Poornima Varma
Introduction
The World Trade Organization (WTO) was formed on 1 January 1995 as a con-
sequence of the Uruguay Round of negotiations (1986–1994). After its forma-
tion several rounds of negotiations have taken place, of which the most prominent
and ongoing round is the Doha Round, which was launched in November 2001
in Doha, Qatar. The Doha Round not only consists of negotiations on various
subjects but it also consists of issues regarding implementation of current nego-
tiations. Further, it includes developmental issues primarily pertaining to devel-
oping countries, with special attention to least developed countries (LDCs). For
this reason it is termed the Doha Development Agenda (DDA) by the WTO
(2010).
Of the various negotiations in DDA, the negotiation on non-agricultural prod-
ucts called the non-agricultural market access (NAMA) was adopted by the WTO
General Council on 1 August 20041 (Hilary, 2005). Sectoral initiatives for elimi-
nation or harmonization of tariffs constitute one of the major components of
NAMA. There are various sectors under this category, which are proposed by the
members of the WTO. Of the various sectors, the enhanced health-care sector
assumes a special significance for India. As there are many studies that point out
considerable comparative advantages in the health-care sector for a country like
India, the major objective of this article is to analyze the importance of enhanced
negotiations of the health-care sector, for India, under the current DDA.
Sectoral Initiatives
In this, the negotiations are particularly restricted to the different sectors identified
under NAMA and the goal is to eliminate or harmonize tariffs on various products
in these sectors. There are 14 sectors identified under the fourth revision of draft
modalities dated 6 December 2008. These sectors are proposed by various members
of the WTO. For example, enhanced health care is proposed by four countries: the
United States; Singapore; Switzerland; and the Separate Customs Territory of
Taiwan, Penghu, Kinmen and Matsu (called ‘Taiwan’ hereafter) (WTO, 2008).
Review of literature in the health-care sector shows that India enjoys relative com-
parative cost advantage when compared with other developed and developing coun-
tries (IBEF, 2010; Pietrasik, 2009; Chanda and Mukherjee, 2008).
Methodology
Statement of Problem
Analysis of the literature on the health-care sector clearly reveals that India does
have a cost advantage when compared to developed and other developing coun-
tries. This advantage is further strengthened by the fact that it also has advanced
technologies for the performance of various surgeries because of which India is
seeing an upsurge in medical tourism. But the problem in this sector is exposed
when we study the health-care sector in India. Various studies and analyses of the
2010–2011 budget show the severe deficit of funding in this sector. Hence, due
to the lack of government support India is not able to exploit its competitiveness
in this sector. It is this primary issue which leads us to study the opportunities
through which this competitiveness can best be taken advantage of. Thus, in this
article, we examine the usefulness of the Doha Round sectoral proposals (DRSPs)
for India.
Data Sources
The trade data for the present analysis is selected from World Integrated Trade
Solution (WITS), a database of the World Bank. The database provides informa-
tion on the health-care sector. The details are as follows.
The data used for this purpose is from the year 2003 to the year 2011, subject
to its availability for the five countries, namely, the United States, Taiwan,
Singapore, Switzerland and India. It comprises information about the imports/
exports from/to rest of the world to/from the respective countries, for the 165
products classified under the health-care sector which are proposed for negotia-
tions by the proponents of this sector. The harmonized system 2002 (HS 2002) at
the six-digit level nomenclature was used for this analysis and that is how 165
products in total were obtained. For calculating the revenue loss to the Indian
government (computed in the subsection that follows, under the heading of
‘Impact of DRSPs on India’s Trade’), required data on tariff rates is taken from
Trade Analysis and Information System (TRAINS) in WITS. The revealed com-
parative advantage (RCA) data is directly taken from WITS for the above-
mentioned countries, except Taiwan, for which data is not available.
6,000,000
in US$ (Thousands)
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
India
50,000,000
40,000,000
in US$ (Thousands)
30,000,000
20,000,000
10,000,000
0
–1,000,000 2003 2004 2005 2006 2007 2008 2009 2010 2011
–2,000,000
–3,000,000
–4,000,000
–5,000,000
United States India Switzerland Singapore Taiwan
This comparison shows that India ranks third with the potential to surpass
Singapore and attain the second spot but even then it lags miles behind Switzerland.
Given the fact that India has enormous potential in this sector, the Indian govern-
ment should come forward to give it a boost so that it can excel in terms of exports
in this sector. This is only possible if it reduces its tariff rates.
Trade Indicators
In this section, we analyze the efficacy of the deal with the help of two trade
indicators—growth rate of exports and RCA.
50.00
40.00
30.00
20.00
10.00
0.00
–10.00 2004 2005 2006 2007 2008 2009 2010 2011
–20.00
United States India Switzerland Singapore Taiwan
India started off together from the year 2004 but, India grew at a much faster pace
when compared to the United States. The United States averages around 8.6 per
cent. Taiwan attained the last position amongst the five countries and managed a
growth of only 2.71 per cent with the growth in the last two years being
negative.3
Hence, after analyzing the annual growth rates we can safely say that India’s
performance was sound enough to rate it as one of the key players in the group of
proponents as it only lagged behind Singapore in terms of growth. This growth
pattern again shows that India has vast potential in this sector, which is yet to be
exploited.
RCA
We consider the RCA values taken from WITS and analyze its value for the four
countries, that is, the United States, Singapore, India and Switzerland over a span
of nine years (2003–2011) for the proposed 165 products (this is average RCA for
165 products). We have left Taiwan out of our study because of non-availability
of the data. Our results are summarized in Table 1 and are also expressed with
help of line graphs (see Figure 4).
From Table 1 it is clear that for Singapore there is no comparative advantage
as its RCA remained below 1 for all the years of observation. Hence, for the 165
products taken as a group Singapore has no competitive edge in the world mar-
ket. This result could be biased because of non-availability of the data for many
products amongst the list of 165 for Singapore. Also, from Figure 4 it is evident
that Switzerland is the most competitive in exporting the 165 proposed products.
India stands second in the group and the United States ranks third. For the United
States, over the years the competitiveness is almost the same, that is, around 1.6
but for India the comparative advantage declined steeply in 2009. Post 2009,
5.00
4.00
3.00
2.00
1.00
0.00
2003 2004 2005 2006 2007 2008 2009 2010 2011
India witnessed a monotonic decline, but even then, it remained competitive for
all the years.
The value of RCA for individual products (at disaggregated level), that is, for
all 165 products using the six-digit level of HS 2002 classification, was also cal-
culated. The results are summarized in Table 2.
Aggregated analysis of RCA done before does not show the true picture of the
competitiveness of the countries. This is because of the fact that during the analy-
sis we used average RCA, that is, RCA of all the 165 products and hence what we
got was the average RCA, but as we know, the average is affected by extreme
values, therefore, it did not depict the true picture. For example, in the case of
India we can easily see from Figure 4 and Table 1 that there is a strict or monot-
onic decline in its competitiveness since the year 2008. But when we see the same
picture through Figure 5 and Table 2 we find that the decline is not monotonic;
rather, there was an increase in the competitiveness in the year 2010 when com-
pared to 2009. The total number of products enjoying a comparative advantage
120
100
80
60
40
20
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
increased from 47 to 51. Though the increase is not substantial, when compared
to the other countries during this period, the increase is the largest in relative
terms. The gradual declining trend in the comparative advantage for India is also
evident here (see Figure 5), which corresponds to Figure 4.
From Figure 5 we can also see that in 2003–2006 there was a monotonic
increase in India’s competitiveness and post 2006, it witnessed a zigzag trend.
Whereas, for Switzerland, there was a continuous decline until 2008 after which
it remained fairly constant. This is in contrast to Figure 4 which depicted a con-
stant pattern until 2006 and thereafter a declining trend. Singapore witnessed a
decline until 2005, after which it depicted a constant pattern. But as mentioned
before, Singapore’s results may be biased because of the limitations in its data.
To further correct for the extremity which might be shown by the average RCA,
we computed a median of the RCA values for those products that enjoy a comparative
advantage for all the four countries so as to further examine the relative comparative
advantage. The results are shown in Table 3 and Figure 6.
The results clearly show that the median of the RCA, for those products which
have the comparative advantage, is declining for India over the years. This indi-
cates that even though India still enjoys a substantial comparative advantage, its
competitiveness in the sector has declined over the period of the study.
Therefore, the analysis of RCA in totality does prove that India enjoys a com-
parative advantage in this sector, which is apparent from all the three different angles
of the RCA analysis, that is, aggregated, disaggregated and median values of RCA.
The declining trend in the RCA, which is witnessed for India since 2009, could be
attributed to the ‘predatory pricing’ approach which is practised primarily by China
in the pharmaceutical sector (Kallummal and Bugalya, 2012; Kazmin, 2009). These
pharmaceutical products are within the ambit of DRSPs as they are listed in chapters
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2003 2004 2005 2006 2007 2008 2009 2010 2011
in relation to their proponents, that is, the United States, Switzerland, Singapore
and Taiwan. We also reviewed the literature in health-care sector for India and
found that it has a comparative cost advantage in performing many surgeries, as
compared to developed and developing countries such as United States, United
Kingdom and Thailand.
India’s competitiveness in this sector was analyzed using two trade indicators,
growth rate of exports and RCA, and it was compared with the four proponents.
Analysis of the growth rate led us believe that India can be amongst the major
players in the health-care sector as it recorded a growth of 18.69 per cent and is
only behind Singapore. The RCA analysis clearly showed that India has a com-
parative advantage in many products amongst the proposed list of 165 goods.
However, it also revealed that this advantage is declining gradually over recent
years. The reason, as discussed previously, for this trend could be the ‘predatory
pricing’ strategy practised by China in the pharmaceutical sector which led to the
decline of India’s competitiveness in this sector in recent years (2009 onwards).
India’s potential in terms of trade in the health-care sector can be enhanced if
the following measures are taken:
1. The Indian government must enhance its investment manifold in this sec-
tor, so as to meet the basic international standards and thereby helping not
only Indians, but also the industry as a whole.
2. The Indian government can also boost infrastructure by attracting private
players by changing foreign direct investment (FDI) norms, providing tax
breaks, etc.
3. The growth in exports can only be maintained if India participates in sec-
toral negotiations and expands its exports by reducing its tariffs. Also, the
negotiations will not only enhance exports but also help in boosting imports
which will reduce input costs and further give India a competitive edge
over the others.
Therefore, we believe that the DRSPs constitute a golden opportunity for India,
which it should judiciously use to exploit its potential and thereby benefit from it.
Also, India can explore the possibility of including its traditional methods of treat-
ment in the DRSPs so that it can prosper in the wake of globalization.
Notes
1. There is a negotiating group for each negotiating subject (under DDA), which is formed
by the trade negotiations committee (TNC). Hence, there is a negotiating group for
NAMA, which is called the negotiating group on market access (NGMA). Luzius
Wasescha is the current chairman of the NGMA.
2. ‘The critical mass in any sectoral is the percentage trade covered (of all WTO members)
in that sector by participating Members’ (CWS).
3. Taiwan’s data is available only from 2004 to 2009. Therefore, its growth rate is for five
years, between 2005 and 2009.
References
Chanda, R., & Mukherjee, A. (2008) India-EU relations in health services: Issues and
concerns in an India-EU Trade and Investment Agreement, ICRIER, New Delhi.
CWS. (2009). Frequently asked questions: Non agricultural market access. New Delhi:
CWS.
Hilary, J. (2005). The Doha deindustrialisation agenda: Non-agricultural market access
negotiations at the WTO. London: War on Want.
IBEF (2010) Cost Comparison of Medical Services Procedure Cost (US$), Viewed On 14 June
2010, http://www.ibef.org/artdispview.aspx?in=29&art_id=25821&cat_id=119&page=1
Kallummal, M., & Bugalya, K. (2012). Trends in India’s trade in pharmaceutical sector:
Some insights. New Delhi: CWS.
Kazmin, A. (2009). China accused of ‘predatory pricing’ tactics. Financial Times, New
Delhi. Retrieved on 7 June 2013 from http://www.ft.com/cms/s/0/42bd9a40-5900-
11de-80b3-00144feabdc0.html#axzz2VYbjY4TE
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