Subsidies in the services sector: Case study of India

Abstract

Unlike the area of goods, the General Agreement on Trade in Services (GATS) so far does not contain any substantive discipline on subsidies with respect to trade in services. However, Article XV of the GATS recognises that subsidies may distort trade in services. Consequently, member countries have made a commitment to enter into negotiations in order to develop the necessary multilateral discipline on subsidies to services. Although these negotiations commenced more than a decade ago, they have been inconclusive and have mainly focused on the working definition of subsidies and on information exchange. Little progress has been made in understanding the nature of these subsidies and their likely impact on trade flows. The objective of this study was to examine the subsidies provided to services by selected developed and developing countries, namely US, Canada, UK, China and India. Three services were chosen for each country in an attempt to: (i) identify the forms in which subsidies are granted; (ii) understand whether and how they may distort trade; (iii) give a comparative picture of subsidies provided to services across the selected countries; (iv) assess if India’s trade interests are affected by subsidies provided to services in other countries; (v) assess whether these subsidies are compatible with the countries’ GATS commitments; and (vi) provide some directions for developing discipline in services subsidies.