Services talks advancing to negotiations

by Chakravarthi Raghavan

Geneva, 7 Dec 2000 -- At meetings, both regular and the Special Session, of the Council on Trade in Services (CTS) this week, preceded by meetings of subordinate bodies including those dealing with safeguards, subsidies, classification and scheduling of commitments, the WTO has been preparing the ground for setting negotiating guidelines and procedures for the new round of services trade liberalization, technically kicked off in February this year.

Based on the various proposals and presentations, the WTO secretariat is now to prepare a ‘draft’ text of negotiating guidelines and procedures, to be put forward as a Chairman’s text, in time for the next round of meetings in March 2001, which will set the stage for the actual new round of negotiations under the General Agreement on Trade in Services (GATS).

Before Seattle, there was a paper on negotiating guidelines that had been almost agreed in the CTS, but has dropped off the table since then, though some of it has figured in the ‘road map’ created after Seattle for the negotiations.

Secretariat officials hope to resurrect the pre-Seattle text. But several developing countries have expressed some concern and reservations over the wording of the pre-Seattle text that envisaged the next round of negotiations to include ‘technical review’ of GATS articles. They fear that the US and EC who have been forced to abandon their attempts to revisit the GATS architecture, may use the ‘technical review’ to achieve the same objective.

WTO officials in briefing the media of the progress in the services talks this week, said Thursday that there was a concerted campaign from non-governmental organizations against the GATS talks, on the basis of the effect on national democratic decision-making over a range of public services - education, health, culture etc.

They point in this connection to the on-going NGO movements in Canada and France and argue that there is nothing in the GATS that extends its jurisdiction to health or education or other services provided by a government in a country, the trade officials said.

The NGO campaigns, they claimed, are misconceived or deliberately motivated, and pointed the media to Art. 3 (b) of the GATS which defines ‘services’ and says that this “includes any service in any sector except services supplied in the exercise of governmental authority.”

But the responses and explanations of the trade officials are either naive or misleading, when they are asked about the implications of GATS Art. 3 (c), which qualifies the term ‘a service supplied in the exercise of governmental authority’ by the words “means any service which is supplied neither on a commercial basis nor in competition with one or more service suppliers.”

Even where in a country the public sector is side by side with some private suppliers, the GATS is not attracted (in terms of allowing competition from foreign suppliers, mostly transnational corporations) unless a country has made commitments in that sector, the trade officials argue, but agree that the general provisions about most-favoured-nation treatment may kick in if a country permits foreign suppliers from one country but not others.

They also note the fears of NGOs that the issues might be decided by WTO panels and the appellate body, thus over-ruling national democratic decision-making. These may become a source of disputes and decisions under the dispute settlement process, the trade officials concede, but do not believe that any panel would make such a decision.

They admit that there is scope for confusion and disputes could arise in the future in relation to public sector services of a country— education, health, water-supply, sewerage etc—where there is a charge on the service, and there are also private sector suppliers operating in competition or in a complimentary way, and perhaps it should be clarified that the GATS would not be attracted by public sector services of countries where there is private sector competition.

Though they point the finger at the  NGOs for the growing campaigns against the WTO’s remit in these matters (as part of the WTO effort at discrediting the spreading anti-WTO movement), it is clear that the apprehensions about health, education and other such ‘services’ is shared by health and education ministers of countries.

This issue of the effects of the WTO and its agreements (the many agreements on goods trade, the TRIPS and the GATS), and the way they have been interpreted by the dispute settlement panels and the appellate body as creating cumulative obligations on countries, has been a source of concern among the non-trade departments and ministries of governments.

The WTO’s reach beyond the traditional area of goods crossing frontiers to domestic policies and regulations of countries, and the effect of the panel and AB decisions that the WTO agreements create cumulative obligations and the WTO dispute process could be used to correct “treaty errors” and that the AB could decide what it has not been expressly forbidden to do has certainly created public disquiet that could not be dismissed as the wild allegations of extremist NGOs or “anarchists”

Even trade negotiators have not been unconcerned, though they seem helpless against the panels and the AB which are guided by the WTO secretariat, in the face of ‘consensus’ decision-making dogma of the system.

The Indian ambassador to the WTO, Mr. S.Narayanan at the recent Special Session of the General Council (on the appellate body decision to invite NGOs to present briefs) described the WTO’s Appellate Body as “more powerful” than the Group of 8 (the seven most industrialized nations plus Russia) and said: “What the AB decides has commercial, economic and social implications for the 139 countries in the world.” The effects on health has also been figuring prominently at this week’s meetings of the Peoples Health Assembly in Bangladesh.

And while such concerns reflect not merely the GATS by itself, but the cumulative effects of the WTO agreements including its DSU, the attempts of trade officials, and the western transnational media, to discredit the civil society movements for their worries and campaigns against the GATS, is at best naive and at worst deliberately misleading.

The CTS agreed with the GATS Rules committee and agreed to extend the current (15 Dec 2000) deadline for negotiating disciplines on safeguards, subsidies and government procurement for GATS. The deadline to reach a safeguards agreement is now extended to 15 March 2002.

The safeguards agreement is seen as key to countries undertaking further liberalisation. The discussions on the safeguards issue is on the basis of a paper from the ASEAN, which has modified its original proposal, and has sought to put a threshold limit (below which) safeguards against movement of natural persons cannot be applied.

However, such an agreement can still run into problems on how, given the absence of data, a country wanting to apply safeguards could establish a prima facie case of threat or injury to its domestic industry because of the foreign service industry. Also, there are issues on how it would be applied in cases of scheduled commitments in modes of supply through commercial presence, where a foreign service supplier/investor has already ‘established’ itself and in many jurisdictions may have the protection of domestic courts for ‘equal’ treatment.

But developing country trade negotiators, while acknowledging these difficulties, say that nevertheless an agreement is needed, at least to provide reassurance to governments and policy-makers.

The United States is one of those doubtful about a safeguards agreement.

While there has been some discussions on GATS and subsidies and government procurement issues, there are no ‘demandeurs’ and is a relatively less urgent one for accords.

In the Committee on Financial Services, there has been some suggestions that there could be some disciplines or guidelines on use of prudential regulations. The financial services accord has provided a complete ‘carve-out’ for prudential regulations a country might put in place.

The GATS committee on classification of services and providing guidelines for scheduling of commitments was reported by officials as having made some progress on the scheduling of commitments issue and could agree on guidelines by the March meeting. But work on classification of services could go beyond March.

The ‘cluster’ approach to services, for example the ‘energy’ and the ‘environmental’ services cluster, has been prominent in the classification of services. The issue was originally flagged by the Dominican Republic in relation to the ‘tourism’ services sector, where the ‘benefits’ to countries in liberalising their ‘tourism’ sector is dependent on the travel and other related services.

The United States, to get around the developing country objections to a ‘review’ of the GATS architecture, ‘embraced’ the Dominican Republic suggestion and mooted the ‘cluster approach’ for negotiating commitments (like the zero-to-zero sector approach in industrial tariffs), and the EC presented it as a negotiating tool.

However, developing countries, and outside experts have been quite chary about the approach - seeing the attempts at evolving re-classification and clustering as a background attempt to weaken the GATS architecture of a ‘bottoms-up’ approach to commitments—that is countries are committed in GATS only in terms of the sectors and sub-sectors where they offer concessions and bind them in a schedule.

Trade officials say the cluster approach as a negotiating tool will not weaken the GATS architecture. But trade experts have cautioned developing countries against it—pointing to the possibility of future disputes through a ‘non-violation’ complaint (that the concession in one energy or environmental cluster is frustrated by government measures on other related sector) and the dispute panel view (in the Korean procurement dispute) that treaty errors arising out of ‘bad faith’ negotiations could be corrected by panel rulings.

Among the various papers and proposals that have been put forward at this Special Session of the GATS or just a few days before are:

·        one by certain transition economies of eastern Europe assessing the trade in services on their economies which among others underscores the development implications of liberalisation of services as well as the non-economic considerations related to liberalisation;

·        an Australian paper for strengthening the ‘reference paper’ (on competitive conditions) for basic telecommunications) on competitive safeguards, interconnection, transparency, independence of regulators and allocation of scarce resources.

One of the proposals in the paper is for WTO members playing a role in promoting fair competition in International Internet Charging Arrangements in cases where there are dominant players or de facto monopolies. Australia has proposed that ‘internet delivery’ services should be recognized as a basic telecom service (‘packet-switched data transmission services’) and the basic telecom reference paper should apply.

Though Australia in the discussions did not appear to have raised it in the GATS meeting, media reports have highlighted recently two sets of problems: the US internet service providers pay no fees to foreign service providers, but the latter have to pay to the US providers for accessing domain names which are located in the US; the high-speed and optical fibre cable links connecting Asia and the Pacific Region and the United States are operated in such a way that fees have to be paid to the US end.

·        a 23-country developing country paper on elements for negotiating guidelines and procedures and an Indian paper on movement of natural persons (#SUNS 4779);

·        an EC paper on electronic commerce, identifying the e-commerce issue as one principally involving GATS issues, and wanting ‘the current practice’ of not imposing customs duties on electronic supplies to be maintained, and for treating internet access and network services as basic telecommunication services.

While trade officials distinguish between the no duty on electronic supplies of services (such as software) and the same incorporated in products (as discs or computers and equipment) and thus covered by trade in goods, they concede the problem that may arise because of the GATT definition of ‘like products’ being treated alike.

In informal discussions on e-commerce, the US and EC have been somewhat vague on this issue. Some countries fear that future dispute panels may step in and decide that goods incorporating ‘services’ that are also supplied over internet are ‘like products’ and thus not taxable.

The services talks relating to the air transport sector and the annex (which has come up for review) has focused on traffic rights and others like this that could be strictly air transport, subject to bilateral treaties (and outside of GATS/WTO) and those air transport services which are considered to be ancillary (airport handling services, catering services etc) and thus covered.

Here again there are problems of interpretation as to what the annex means. For, Para 2 of the annex says that the agreement, including the dispute settlement procedures, shall not apply to measures affecting:

(a)  traffic rights, however granted; or (b) services directly related to the exercise of traffic rights.

But the next para says: “The Agreement shall apply to measures affecting: (a) aircraft repair and maintenance services, (b) the selling and marketing of air-transport services, and (c) computer reservation system services.”

And para six, the definition para, then says ‘Aircraft repair and maintenance service’ means “such activities when undertaken on an aircraft or part therefore while it is withdrawn from service and do not include so-called line maintenance.”

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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