At some recent meetings on services at the WTO, it appears that the 'cluster' approach to the services sector, originally mooted for a services annex on tourism, is now figuring in some proposals to bring in by the back door the 'negative list' approach to the services talks.

By Chakravarthi Raghavan

Geneva, 19 July 2000 -- The ‘clustering’ of service sectors and sub-sectors—as a tool for negotiations, or liberalisation across clusters or as a way of attacking the anti-competitive practices of service providers and networks thwarting access to industrial-country markets for developing countries, or their getting a fair share of revenues in the sector—is emerging as one of the issues facing services negotiators at the WTO.

At the meetings on services - both the regular meetings of the Council for Trade in Services (CTS) and its committees and groups, as well as the Special Session of the CTS on a new round of services liberalisation talks - the cluster approach, originally mooted for a services annex on tourism to set a common pro-competitive regulatory approach, is now figuring also in some proposals to bring in by the back-door the ‘negative list’ approach to the services talks.

The GATS architecture, providing for successive rounds of liberalization talks (Art. XIX), requires before each such round, the setting of negotiating guidelines and procedures.

And, for establishing guidelines, the CTS is also required to carry out an assessment of the trade in services in overall terms and on a sectoral basis with reference to the objectives of the Agreement, including those in Art.IV.1 - for increasing participation of services trade through negotiated commitments relating to strengthening their domestic services capacity through access to technology on a commercial basis, improving their access to distributive channels and information networks and liberalization of market access in sectors and modes of supply of export interest to them.

The assessment part, now figuring on the agenda of the Special Sessions for every meeting (at the insistence of the developing world), however, seems unlikely to have any factual foundation through data on services transactions and directions of trade, according to the GATS classifications and modes. Nearly 12 years after the promises of tackling the issue of classification and collection of data on services transactions, nationally and globally (through the UN statistical office), a common agreed methodology is still to be established.

Those involved in the statistical exercise (UN, UNCTAD, OECD, IMF, World Bank and the WTO) are proceeding at their own pace - and at this pace it is doubtful whether any data would be available even by the next decade. The negotiators, and more so the service industries of the North and their home governments, meanwhile, are pushing countries to commit themselves to more ‘liberalization’, without knowing the full effects or assessing what benefits they would get or are now getting.

Some trade experts have said that even if developing countries are unable to block further negotiations in services, without a time-bound programme and progress on collection and collation of services data, they should not allow themselves to be carried away by the talk of ‘progressive liberalization’, and refrain from making further market opening commitments, or binding their autonomous actions in schedules at the GATS/WTO.

They should first undertake national assessments of the costs and benefits of the liberalization they have already committed themselves to. Between their central banks and their tax departments, with a modicum of effort, they themselves could collect the data (and not merely calculate on the basis of IMF balance-of-payments data).

While in the run-up to the Seattle Ministerial, and at Seattle itself, an informal draft text on negotiating guidelines emerged, and that paper and the compromises were in the context of the other items for Seattle.

Since then, though the secretariat as well as some of the majors have sought to translate it into guidelines in the new context (of services negotiations in terms of the built-in agenda), there has also been resistance to using that text - given the fate of the other Seattle texts, including on Agriculture (which the EC, Japan etc have not been ready to accept for built-in talks on agriculture at the special sessions of that committee).

Argentina, Brazil and several of the Cairns group members have insisted on parallelism in procedures and progress between services talks and that on agriculture. Without formally linking it thus, some of the like-minded group of developing countries have left little doubt that taking on new commitments and obligations in existing and new areas would depend on progress in dealing with their implementation issues and concerns aimed at correcting the imbalances and inequities of the present agreements.

In this background, a ‘road map’—programme and arrangements for the services talks was set by the CTS at its meeting on 26 May.

At the Special Session ending 14 July, the United States put forward a proposal to serve as a framework for setting guidelines and procedures required under Art.XIX, and has proposed a December 2002 deadline to complete the negotiations, with a mid-term review in mid-2001.

The EC and Japan, however, said they envisaged the ‘roll-over’ of the services talks into a comprehensive ‘new round’ as a single undertaking that they want to launch, thus linking its conclusion to the conclusion of services talks.

The US paper on negotiating modalities, dated 13 July, was introduced by the delegation at the Special Session on 14 July, and most delegations who got the text at the meeting, reserved their comments for the next meeting.

But in some preliminary comments, India shot down the US proposal that the liberalization in the next round should start on the basis of “current restrictions” in countries (on foreign service providers), "sector by sector”, rather than on basis of the scheduled commitments.  The “current restrictions” approach of the US would be the equivalent of the “applied tariff” approach in trade in goods.

Another US proposal—in terms of the Art.XIX pre-negotiations requirement for establishing modalities for treatment of autonomous liberalization—for bilateral talks and negotiations, was also turned down by India and several others who noted that the GATS envisaged a multilateral approach, and not a bilateral one where unequal ‘power’ relationships would prevail.

Both in the run-up to Seattle, and since then, developing countries have been insisting that they would not agree to consider changing the GATS architecture and the ‘positive list’ approach - countries opening up their services markets on the basis of commitments they offer and schedule, and not on the basis of opening up all services sectors, except those specifically excluded, ‘the negative list’ approach. The US had favoured it in the Uruguay Round, but found few takers. It made another effort at the 'negative list' approach before the UR was concluded and again failed.

The US paper has sought to come back to this approach, albeit in an indirect way, arguing that limiting negotiations to the ‘request-offer’ approach would be a backward step and this should be supplemented by model schedules, clusters and common horizontal scheduling by mode (of delivery). Together, they would in effect bring back the ‘negative list’ approach - within sectors and modes of delivery.

The US paper argues for a broad sectoral approach—“GATS scheduling should be broader and more transparent,” it says—which in its view could be achieved without changing the fundamental architecture of the GATS. It has also proposed ‘improved classification’, using the ‘request-offer’ approach as well as a ‘cluster’ approach—“to break out of the restrictive categories” used in the UR classification of sectors and sub-sectors for scheduling commitments—and/or a cross-sectoral approach or “horizontal” commitments in one or more modes across sectors. In support of its ‘cluster’ approach, the US has cited the proposal on tourism services put forward by the Dominican Republic and a few others.

The US has been mooting the idea of an across-the-board cluster approach to negotiate and schedule commitments in a range of services where it believes it has a dominant, competitive advantage - energy services, environmental services etc. Some other industrialized countries are also promoting the cluster approach for construction services and the like.

While the US, which has suggested the cluster approach (across whole sectors) and for liberalisation and scheduling of commitments, the EC has put forward its paper for a cluster approach—for improving the degree of coherence of liberalisation efforts—presenting it as a tool in the request-offer approach. The EC paper talks of the members beginning early discussions on the “so called ‘clusters’ of inter-related services sectors”, and a cluster approach enabling “economic linkages” to be more clearly recognized by Members by providing them with a “checklist” outlining the inter-relations between sub-sectors, and thus increasing efficiency and coherence of services negotiations.

The EC paper talks about the ‘particularly damaging’ effects on a country when due to ‘lack of coherence’ there is a divergent pace of liberalization and the ‘proper development’ of certain infrastructural services is affected. It talks about the current situation of restrictions on some ‘input-services’ for service providers affecting supply of other services, as also of ‘end-use’ for the definition of a cluster. The EC has also used the term as providing for a ‘check-list’ and a ‘memory-tool’ for negotiations.

Australia also has put forward an ‘informal’ paper for ‘cluster negotiations’ - said to be building on its informal paper before Seattle to promote liberalisation of service sectors of considerable economic significance not adequately captured in existing sectoral classification. It speaks of deficiencies in classification requiring a “cluster” approach to negotiations on energy and environmental services sectors, and for the GATS Committee on Specific Commitments adding some sub-sectors to the environmental services sector.

It suggests a voluntary approach to cluster negotiations, with each cluster needing to be dealt with individually, preparation of a comprehensive list of sub-sectors which form a cluster and are commercially-interrelated, leaving it to countries to voluntarily, and in a non-binding process, to choose whether to include some or any of the sub-sectors.

The clustering idea was brought in by the Dominican Republic, El Salvador and Honduras, in their proposal for the Seattle preparatory process, for an annex on tourism to GATS (similar to the annexes on financial and basic telecommunication services).

The joint proposal of the Dominican Republic, El Salvador and Honduras, was related to the fact that the liberalisation of tourism, as a service sector, has not brought any real benefits to the developing countries which are tourist destinations—because of the anti-competitive way the related services are organized and run—the travel reservation services, air and other transportation services and the travel-related financial services.

The proposal of the three argued that under the GATS approach it was not possible to deal with the specific and heterogenous nature of tourism as a cluster, monitor its progressive liberalization or the compliance with commitments under ‘tourism and travel-related services’. The request-offer approach also does not tackle the barriers to tourism services trade, particularly in related transportation services and travel distribution systems - including tour whole-salers, tour operators, global distribution systems, computer reservation systems and travel agents.

The three were looking for an effective and transparent degree of trade liberalization in tourism services and wanted a separate annex on tourism. Their proposal listed as a cluster the ‘tourism characteristic services’ - and sought a common regulatory approach to promote competition: preventing anti-competitive practices; safeguards against competitive exclusion through discriminatory use of information networks; abuse of dominance through exclusivity clauses; protection of consumer rights; access to and use of information; non-discriminatory provision of ancillary services to air transport and security.

The World Tourism Organization has also been advocating a tourism annex. In its the view the present GATS approach does not address the issue of promoting tourism services.

In many developing countries—with their cultural and architectural heritages, ‘sun, sand and sea’ beaches or natural habitats of flora and fauna—the tourism sector is being promoted as a sector to boost employment and earn revenues through tourist dollars.

However, while there are plenty of statistics (from IMF balance of payments data etc) about gross foreign exchange brought in, there have been very few studies about the ‘leakages’ and the actual net-value retained in a country. As a recent publication of the World Tourism Organization has brought out, added revenues from tourism undergo leakages.

Revenues may leak out of the local economy in the form of imports or moneys saved without re-investment, the publication says in a chapter on ‘contribution of tourism to economic development’. Import payments, it notes, could take several forms - such as repatriation of profits to foreign corporations, salaries to non-local managers, payments for imported goods, promotion and advertising by companies based outside the destination of the tourist. Clustering and bundling of services (and service provision through corporate investments) could result in tourism-related commodities and services being imported rather than being purchased within the tourist destination.

There are other developing countries who look askance at this ‘cluster approach’ too and feel that the difficulties of the developing world need to be dealt with in focused negotiations and agreements in terms of the GATS Art. IV - about building capacity, access to technology and to marketing, distribution and information networks.

Without a horizontal attack on the transnational corporate practices, backed by home governments, a cluster approach may result in ‘bundling’ of services - from inputs to end-use - by the service corporations of the developed world.

By clustering construction, energy, ‘environmental’, financial and telecommunication services, the corporations of the industrialized world could bundle the ‘cluster service’ with other mixes - and take over the markets of the developing world, in effect deciding on the service and goods production within countries or their exports. The outcome would be a mixture of the English Navigation Acts of the 18th century mercantalist era, and the colonial-era European trading companies—all advancing the cause of ‘globalization’.-SUNS4713

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

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