Technology Uncertainty and Incompleteness in Trade Agreements: Reflections from the Design of India’s Bilateral Agreements Covering Services

Abstract

International trade agreements are incomplete contracts. The international environment is non-stationary, and technological progress affects both the nature of services and modes of service delivery. This creates uncertainty about future developments in technology-based services. In the presence of transactions costs and due to limited foresight, it is difficult to specify all contingencies within trade agreements ex ante, resulting in contractual incompleteness. This article investigates the design of India’s services agreements to assess the approach followed while listing the ex ante commitment and its implication on technology-based services. It also discusses the ex post mechanism under these agreements to address the gaps in the commitments with respect to new services, and the enforcement mechanism to facilitate the inclusion of these services. It is found that India’s bilateral agreements leave the inclusion of services that may not be technically feasible, ex ante, at the discretion of the trading partners, ex post. Some of India’s agreements also institute a governance mechanism for facilitating this inclusion. The article argues that there is a need for addressing the issue of technology uncertainty both at an international-trade-policy level and under bilateral agreements. Internationally, efforts are underway for a technology-neutral classification of services. Bilateral agreements must include a robust mechanism within the scope of the Agreement for filling gaps that may arise with technological advancements. For furthering the objective of trade agreements, these mechanisms must be backed by sound governance structure.

JEL Codes: L80, L84, L86, F13, K33, F53, F55