US Blocks Indian Proposal on Remittances in WTO, Advises shift to Plurilateral Forum

[ABS News Service/30.03.2024]

Geneva – The United States has blocked a proposal from India to launch a dedicated work program on reducing the cost of remittances at the World Trade Organization’s Committee on Trade in Financial Services.

Washington suggested that if New Delhi wants to take its proposal further, it could launch a plurilateral initiative, said people familiar with the development.

India is a vocal opponent of plurilateral agreements, arguing that they are illegal under WTO rules and undermine the multilateral process.

At a meeting of the WTO’s Committee on Trade in Financial Services this week, the United States appears to have said that India can pursue the issue with countries that are interested in addressing the issue of reducing the costs of remittances, said people familiar with the development.

For some time now, the United States has been advocating plurilateral initiatives, including responsible consensus, at the WTO. Although the United States has not joined the proposed Investment Facilitation for Development plurilateral, it seems to favor IFD proponents’ demand to integrate the IFD into the WTO’s Annex Four schedule as a plurilateral agreement.

Washington’s stand against launching a dedicated work program on remittances came after India blocked the agenda of the CTFS meeting, said a person familiar with the meeting.

India flagged the remittances issues in the run-up to the WTO’s 13th ministerial conference and raised it in a big way at Abu Dhabi.

In a restricted paper on the cost of remittances (Job/SERV/CTFS/9), seen by WTD, it is argued that “the significant positive contribution of remittances, towards the socio-economic development of households and communities, especially in developing countries, including LDCs [least-developed countries], is well recognized.”

Citing World Bank estimates, the CTFS said that “out of total remittances of USD 794 billion in 2022, USD 626 billion (about 79%) went to Low and Middle Countries.”

It is well known that “the remittances service is a critical financial service used by the sender and receivers, thus providing a point of contact with the financial sector that can be leveraged to increase access to other financial services and inclusion in the financial services trade.”

Reducing Cost of Remittances

The CTFS acknowledged that due to “the close relationship between such international money transfers and sustainable development, policymakers have promoted initiatives to support such transfers. In particular, the need to reduce the cost of sending remittances has become one of the key issues on the international development agenda.”

Consequently, “If the cost of sending remittances could be reduced by 5 percentage points relative to the value sent, remittance recipients in developing countries would receive over USD 31.30 billion more each year than they do now.”

The United Nations included a target for remittance cost reduction in its Sustainable Development Goals, particularly in Goal 10, which seeks “to reduce the global average cost of sending USD 200 to less than 3% by 2030 and to ensure that by then, each corridor's cost of sending USD 200 is not more than 5%. In 2020, the G20 prioritized the enhancement of cross-border payments, including remittances.”

According to the CTFS note, “the remittance industry can be supported with appropriate regulation and improved cooperation”, given the rise in the “digitalization of remittance flows is growing and has the potential to increase financial inclusion and reduce the cost of remittance services.”

It says “the COVID-19 pandemic has accelerated the trend towards the digitalization of retail financial services. However, cash-based remittances remain the most prevalent payment instrument in most receive markets.”

India’s Proposal

In a proposal titled “reducing (the) cost of remittances” (WT/GC/W/926) circulated ahead of the CTFS meeting on 26 March, India said, “cross border payments and money transmission service is a critical financial service used by the sender and receivers for cross-border remittances, thus providing a point of contact with the financial sector that can be leveraged to increase access to other financial services, achieve financial inclusion and enhance participation in financial services trade.”

It pointed out that though the global average cost for sending remittances declined over time, it still “remains high at 6.18 percent – more than twice the SDG target, and the experience varies across countries and regions.”

Against the backdrop of the expansion in international remittances, India maintained that “one of the means to achieve cheaper, faster, and more transparent and accessible cross-border payments including remittances is promoting interoperability and interlinkages of digital payment infrastructures including fast payment systems.”

“The global average cost for digital remittances at 4.84 percent is significantly lower than the cost for non-digital remittances,” India argued.