by Chakravarthi Raghavan

Geneva, 18 April 2000 -- Services negotiators have agreed at a Special Session of the Council on Trade in Services (CTS) to hold four more sessions this year devoted to a new round of negotiations, with back-to-back meetings of the regular CTS and subordinate bodies.

But the discussions at last week's meetings (at the formal and the informal sessions), suggest that unless developing countries are watchful and take a persistent stand, they may find themselves in market accession negotiations in areas of interest to the United States and the EU, without a proper assessment of the trade in services and agreed negotiating guidelines and procedures.

At last week's meetings, in the draft agenda that was circulated, the entire subject of assessment and laying down negotiating guidelines and procedures -- mandated under Art.XIX:3 of the General Agreement on Trade in Services -- had disappeared. But some sharp questions from some developing countries at informal discussions resulted in the GATS Council chairman, Amb. Sergio Marchi of Canada, introducing a new agenda item to deal with these issues - 'Other matters of negotiations under Art. XIX.'

Some developing country diplomats said later that it seemed that the major demandeurs, the European Community and the United States, were anxious to push ahead with market access negotiations, without assessments or guidelines.

But the February meeting of the General Council, in relation to the mandated services talks, had reiterated the prior need to formulate guidelines and procedures for the new round, and need to undertake the assessment of the trade in services.

Art XIX of the GATS provides for successive rounds of negotiations for liberalisation, and in paragraph 3, requires that for each round of negotiations in services, negotiating guidelines and procedures shall be established. And, for establishing such guidelines, the CTS is also required to carry out an assessment of trade in services in overall terms and on a sectoral basis with reference to the objectives of this Agreement, including those set out in Art.IV:1.

This article calls for increasing participation of developing countries in world trade in services to be facilitated through negotiated specific commitments relating to strengthening of their domestic services capacity through access to technology on a commercial basis; access to distribution channels and information networks; and liberalization of market access in sectors and modes of supply of interest to them.

The WTO and the GATS (with initial schedules of commitments) came into effect in January 1995, and subsequently, sectoral negotiations were pushed through in basic telecommunications and financial services (both areas of considerable interest and benefit to the services industries of the US, Europe and to some extent Japan).

But after six years, there has been no clear assessment by the WTO secretariat or in the GATS Council of the actual effects and benefits to developing countries. There were some initial secretariat papers (in 1996), but they never seem to have seen the light of day, and much literature advocating services liberalisation is on basis that 'free trade' and competition promote efficiency, and efficient services sectors benefits developing countries.

And six years after the WTO and GATS came into effect, there still is no agreed basis for collection of statistics on services (according to WTO/GATS definition of 'trade in services') by national governments and their collection and collation at world level through the UN statistical services, though the services industries of the US and Europe appear to be collecting and maintaining some kind of data from their constituents.

Some of the Central Banks of countries also appear to be collecting data on their own - though it is not clear whether they reflect all the four modes of services delivery of GATS or merely on the same format as the IMF calculations for balance-of-payments data of transactions between 'residents' and 'non-residents'.

This has given rise to the view in Third World countries that this essential means for assessment of gains and losses is being avoided or seen as having a low priority -- while the US and Europe are pushing ahead to get services sectors of developing countries liberalised and scheduled and committed in the WTO. The lack of data has come up in subsidiary bodies on rules, in relation to emergency safeguards, where the US and others have brought up the issue of such lack of data and the difficulties of establishing proper yardsticks against which competition from foreign services providers and their effects on domestic enterprises to warrant safeguards. However, such comments seem to be aimed more at suggesting that the concept of "safeguards" under GATS, similar to that under GATT (trade in goods) may not be applicable, and hence not pursued.

[The other issue over safeguards is how it could be applied against a foreign service provider, already 'established' in a country, and particularly when it may be treated and entitled to 'equal protection' of domestic laws and constitutions. Also, whether 'safeguards' actions could be taken say against a foreign bank for e.g. - by restricting new deposits etc and whether it would create a monopolistic situation. But if safeguards are not feasible, one more of the arguments used by developing country negotiators to sell the WTO and GATS to their capitals, and suggest that national economies won't be taken over by TNCs falls to the ground.]

At the Special session, the secretariat was asked to pursue the collection of data, however inadequate, from central banks, other international organizations, and the service industries and their coalitions.

The Special Session and the regular meetings of the CTS had been preceded by the subordinate bodies dealing with GATS rules, specific commitments, domestic regulations and the financial services.

The committee on GATS rules dealt mainly with the issue of emergency safeguards on which the ASEAN has put forward a 'concept' paper suggesting that they might be able to be more forthcoming in market access if rules on safeguards could be agreed.

An important problem in this area lay in how 'safeguards' actions could be taken against a foreign service provider, providing a service through commercial presence - a company established in the national market. Another is how the need for emergency safeguards could be assessed without adequate data, and the effect of increased competition from abroad separated from other causes seriously prejudicing or likely to prejudice domestic service suppliers.

There have been no clear answers to these questions, beyond the apparent one that safeguards actions in services cannot be based on statistical data - at least for the present.

On the issue of 'subsidies' Argentina and Hungary have put forward a concept paper. There were discussions on how to deal with subsidy programmes of countries that have to do with social objectives.

Trade officials confess there has not been much evidence or data on the effect of subsidies in services. The secretariat has now been asked to assess the evidence based on the national trade policy reviews, and the subsidies programmes mentioned in country schedules, and foreign service suppliers excluded from benefits.

The GATS committee on specific commitments (CSC) held discussions on the classification of services, and the need for a revised classification. Linked to this is the idea of 'clusters' of service sectors - where a particular service sub-sector might be affected by 'restrictions' in related sub-sectors -- for e.g. the tourism sector being affected by restrictions on transports and air-transport services.

While some countries prefer thus to look at 'clusters' of sub-sectors and liberalisation in such clusters, others are more chary - for e.g. what exactly would be the effect of a cluster approach towards liberalisation of 'environmental services'.

[The problem becomes even more complicated given the way the dispute panels and Appellate Body have cumulated obligations within the entire range of multilateral agreements annexed to the WTO - covering goods, services and TRIPs - and in effect negating the permissible under some agreements (such as subsidies in goods by developing countries) by cumulating obligations under some others.]

In the committee on domestic regulations, the discussions have turned around the concept of the 'necessity' test - whether any domestic regulation that is trade restrictive is 'necessary'.

The committee on financial services was advised that the fifth GATS protocol on financial services had not yet been ratified by some ten countries, and thus not signed by them and put into effect.

A related issue, that has also come up in respect of the basic telecom schedules, relates to the problem of countries that have not been able to ratify the sectoral agreements (and thus not bound by them), but who have entered MFN exemptions in those sectors. Brazil for example has not ratified the basic telecom accord, and thus not bound by the obligations set out. But in terms of domestic actions, Brazil has gone further than the commitment it would have entered into under the accord and, in due course, is expected to notify the GATS Council of the actions.

The entire range of MFN exemptions (there are over 400, if only exemptions linked to commitments are considered) taken by countries in their services schedules, which can run for ten years, are however to be taken up for review this year, in two special sessions in May and July. The secretariat which has already a document collating all the MFN exemptions, is now to update it (taking account of cases where no commitments have been made or signed on, but exemptions are still sought)

The CTS Special Session had before it proposals by Norway and South Africa on the issue of assessments, and separate proposals one from Australia and Singapore and another from the Mercosur countries setting out the elements of a first phase for services negotiations. The Mercosur paper, while similar to that from Australia and Singapore, however makes clear that there is an obligation to draw and agree on negotiating guidelines and procedures before launching the market access negotiations.

On the assessment issue, Pakistan stressed the importance of keeping the issue on the agenda of future meetings, and exploring ways and means of getting information from UNCTAD, the Trade Policy Reviews of countries etc. Pakistan also stressed the lack of fulfilled commitments by the developed countries in terms of their obligations under Art. IV of the GATS, as also the importance of the mode 4 of supply (through temporary movement of natural persons).

The Dominican Republic and India broadly supported the Pakistan statement. India said that efforts must be made to collect statistics in services and in this connection contacts established with the IMF, UNCTAD, the US coalition of service industries and the European services industries.

The European Union offered to provide data they might have in the European Office of Statistics and also encourage the European Services Forum to supply statistical information they may have with them. The United States supported the idea of asking the services industries to provide data, and also offered to share its own data.

On the question of tourism services, the Dominican Republic, El Salvador and Honduras have a proposal for a tourism annex, including the concept of competitive safeguards and broad coverage.

Discussions showed some differences over the 'cluster' concept, while several others evinced interest but said their authorities were still considering the proposals. Mexico expressed some concerns over the 'cluster' idea in the Dominican proposal.

There are also questions relating to the review of the air transport services that is to begin in 2000. The International Civil Aviation Organization has raised some questions about the WTO's involvement in this area and setting rules that might conflict with air transport safety and other technical issues dealt with by ICAO.

Similar questions are also arising in respect of the International Telecommunications Union, particularly in respect of the allocation of limited and finite resources like radio spectrum etc.

Trade officials are trying to argue that there is no conflict, since the WTO is in no position, nor has the resources, to deal with the technical issues.

However, the concerns of some of the specialized agencies, again arise from the way dispute panels are dealing with such issues (though so far this has been much more intrusive in the trade in goods arena).

And more recently, a coalition of NGOs from the North and the South have objected to the WTO services accords being used to expand the role of corporate health and education service enterprises in these two areas, which by and large have remained in the public sector.

The Special Session also discussed the Australia-Singapore and the Mercosur proposals on elements for the first phase of negotiations on services -- the Mercosur proposals are similar to the Australia-Singapore one, but makes clear that before any negotiations, modalities and guidelines must be set and agreed upon.

In the run-up to Seattle, and at Seattle itself, there was some agreement on the services negotiations, but the way the Seattle Ministerial ended has put all these papers into the limbo. The Philippines, speaking also for Indonesia, Brunei and Thailand, insisted that there was a legal obligation under Art XIX to first formulate negotiating guidelines and procedures. Philippines viewed with some concern the time-frames in the two proposals.

Speaking later, Malaysia associated itself with the Philippines view.

The Australia-Singapore proposal envisages submission of proposals by end December 2000 (with flexibility for more detailed proposals thereafter) and a March 2001 deadline for completion of the work in the CSC and for start of the second phase of negotiations, with a stock-taking exercise in March 2001. The Mercosur proposal also suggests a December 2000 deadline for submitting proposals, but puts the March 2001 deadline for completion of the work in the CSC on a "best endeavour" basis.

Though the Mercosur countries made no specific reference to parallelism with agriculture talks, their paper, with a 'best endeavour' deadline, appears in a sense to presage this. The Dominican Republic supported the Mercosur paper as a way of moving forward, but shared the concerns of the Philippines.

Switzerland, supported by Chile, supported both the proposals, and suggested this was a way of moving forward in the absence of negotiating guidelines.

Hungary, for the CEFTA countries, agreed that it was obligatory to elaborate negotiating guidelines, but that its timing was up to the members. In this view, they supported the Australia-Singapore paper.

Egypt said it was still studying the two papers, but was more inclined to support the Mercosur one.

Pakistan supported the comments made by the Philippines.

The EC did not think there was any need for setting a deadline for the work of the CSC. But it was not clear whether their comments meant that negotiations on market access could start without the CSC completing its work and/or guidelines being set. The US was ready for elaborating guidelines at any time.

India said that negotiation of specific commitments had to be preceded by the elaboration of negotiating guidelines and procedures. Any in any negotiations, the GATS architecture must be preserved. Subject to these two considerations, India was prepared to be flexible.

There was no consensus and the Chairman is to hold consultations before the next meeting of the CTS beginning 22 May 2000. Subsequent meetings are planned for July, October and December. (SUNS4651)

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

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