UN services data collection won’t help GATS negotiators

by Chakravarthi Raghavan

Geneva, 1 Sep 2001 - - The manual on Statistics of International Trade in Services, approved and recommended to UN member-states, by the UN Statistical Commission, despite its claim of special emphasis on meeting statistical needs of the GATS, will provide no help to the GATS negotiators at the WTO or policy- and decision-makers in capitals, either in the current ‘round’ of on-going negotiations in trade in services, or even future rounds, some experts following financial data, markets and services negotiations suggest.

And, unless, developing country governments and parliaments make a new assessment of implications of negotiating further liberalisation in trade in services and opening up their economies to foreign service providers, particularly via commercial presence (a code word for investment openings), and committing themselves at the WTO/GATS, the developing world may find itself in the same situation as the American colonies under the British Navigation Acts.

The Navigation Acts, justified by free-market exponent Adam Smith in his Wealth of Nations, helped a mercantilist Britain to colonise North America, and after the American Revolution (focussing on these acts), used similar instruments to establish imperial rule over Asia and Africa.

The developing world decolonised itself in the second half of the 20th century; but in the 21st century, with the WTO/GATS used as one of main instruments of ‘transnational corporate economic globalization’, the developing world may find itself in a new colonial situation with a new version of the old Navigation Acts.

There are a number of reasons why for at least two decades or more - or, in WTO/GATS parlance, two or three successive rounds of services trade liberalization - the proposed UN manual and recommendations to member states and the collection of data by their national statistical units in the form suggested by the manual, and the reporting by governments to the UN statistical office and the international collation of data, would not serve the needs of services negotiators or the governments to assess the implications of the concessions they would be making and scheduling in the GATS.

However, a major reason is that the recommendation for collection of services trade data, using the FATS (Foreign Affiliates Trade in Services) approach will be inadequate in terms of the GATS definition of ‘commercial presence’ to give GATS negotiators useful ideas of the potential value and costs of any commitments they would factor into the GATS.

Measurement of trade in services, the manual says in its overview, is inherently more difficult than measuring trade in goods. Services are more difficult to define, some defined through abstract concepts rather than physical attributes or function and, unlike trade in goods, for services trade there is no package crossing customs frontier with an internationally recognized commodity code, and goes on to provide similar further explanations about the difficulties of collection of data in services trade. Perhaps this may have impressed the UN delegates in New York, who have such an agenda of political, security and even economic issues on their plate.

However, all these difficulties have been known and advanced by many developing countries prior to and during the Uruguay Round and they were advised these would be tackled before the next round of GATS negotiations.

If, after stopping work by competent statistical trade experts in UNCTAD as far back as 1987 (who identified the issues and suggested ways of dealing with them, but which did not suit the mercantile interests of the two demandeurs, the US and the EC), and now virtually winding up the trade expertise there, this kind of explanation can be advanced by the task force experts as a difficulty in 2001, there is surely something lacking in the international system and its governance as well as its accountability to the public at large.

The cynical might think that this is all part of a process to lock the developing world into a neo-liberal order, resurrecting the failed Washington Consensus as ‘economic globalization theories’ and presenting them as a fact of life or promoting a new round through hastily convened reports of eminent persons such as the Zedillo report (whose members did not even have time to meet, discuss and agree, but got a draft, with a ‘not all us agree to all parts etc’ disclaimer), and decrying protests as by ‘anarchists’.

However, it is difficult to wish away the dissatisfaction and concerns across a range of countries of the South over the outcome of the Uruguay Round and the marginalisation of their public, its impact on their future development, and dismiss countries voicing them as ‘recalcitrants’.

For, not only developing country governments and parliaments, but also some eminent free trade advocates and trade economists, and the World Bank itself, who had been cajoling, persuading and pushing the developing world into the Uruguay Round negotiations and commitments, now concede that the outcome has been asymmetric and imbalanced, that developing countries have either not benefited or not got the benefits they were promised, and that there has been a ‘welfare’ loss.

There is even support from some of these, either forthright or in oblique ways, that some of the agreements should not have found a place in the WTO at all, with the Agreement on Trade-Related Intellectual Property Rights (TRIPS) specifically identified by a range of orthodox free market and free trade economists, prominent among them being, Prof. Jagdish Bhagwathi.

Unfortunately, rather than taking the next step to correct the errors, and spearhead a campaign for revisiting and reforming the WTO to remove these agreements, and locate them elsewhere, several of these free trade exponents are in effect promoting more of the same.

Several are promoting and pushing the developing world to agree to a new trade round (to be launched at Doha), focussing on market access, and liberalising their trade in goods and services, and based on the theories of ‘free trade’ that unilateral liberalisation results in welfare gains for the economy as a whole.

As any number of non-orthodox economists and their published studies have brought out (but totally ignored or not responded to by the orthodox groups in international institutions or academia), these ‘welfare’ effects of ‘free trade’ are at best abstract or conceptual propositions in theory, with one set of ‘free trade economists’ quoting or citing ‘others’, but ignoring contrary evidence; there is little empirical evidence over a range of countries and over a time-period to prove the theory.

The current round of GATS negotiations, whether pursued by itself, or rolled into a “new round” with all the ongoing mandated negotiations (agriculture, TRIPS etc) or including investment, competition policy and other new issues (that the EC, Japan and now the US and Mr. Mike Moore are promoting), to be launched at Doha, have to be seen in this light.

When the GATS talks began in 1987-88, and the inadequacy of the IMF’s BOP data for the services talks, were identified, developing countries were told that there was not enough time, and the work of collecting and collating data would be addressed, and in the meanwhile the GATS should be negotiated as a framework agreement.

The UN Conference on Trade and Development which had raised these issues, on its own, and through the UN statistical committee (at official levels), and started looking into these issues, was virtually asked to shut up, and the entire work taken over first by the socalled Voorberg group. Nothing further was really done during the Uruguay Round, but after its conclusion, a task force has been set up. That task force was convened by the OECD, and consisted of the representatives from the OECD, the IMF, the United Nations, UNCTAD and the WTO.

After the Uruguay Round was concluded, UNCTAD’s role in this exercise was reduced (at the instance of the EU and US) into merely looking mainly at the statistical and data issues relating to movement of natural persons.

The task force which has been working at its own pace, since 1994, concluded its work in preparing the draft in November last year, and submitted this to the UN Statistical Commission, a 24-member subordinate body of the ECOSOC, and adopted by the Statistical Commission at its meeting in March this year and passed on to the ECOSOC along with the Commission’s recommendation on a further work programme among others for the task to continue its work of drawing up a “users manual’. For some years now, the ECOSOC does not even discuss these. The action of the subordinate commission become virtually the ECOSOC action.

The report of the task force to the Statistical Commission (E/CN.3/2001/10), annexed to the report of the UN Secretary-General makes the claim in para two that convened by the OECD, it consisted of “members” of the WTO, the UN statistical division, the IMF, the EC Commission and UNCTAD. Perhaps the intention was to say the secretariats, but if the task force was really to be of the “Members”, it is a dubious claim.

The report claims that the draft manual is “designed to serve a broad spectrum of statistical needs but places a special emphasis on those of the General Agreement on Trade in Services.” However, as far as possible it builds on, rather than suggesting modifications to the existing standards for compilation, in particular the 5th edition of the IMF BOP Manual (BPM5) and the System of National Accounts 1993 (1993 SNA)

“Nevertheless,” says the task force, “the draft manual takes a broader view of international trade in services than the convention balance of payments perspective set out in BPM5”, and “provides a more detailed classification of services delivered through conventional trade between residents and non-residents than is contained in BPM5, and “includes a treatment of local delivery of services through a foreign commercial presence and takes a first step towards linking these two systems.”

In another para in the overview (1.10), the manual says that it “provides descriptions of the major services involved in international trade as well as the GATS nomenclature and provisions. However, for a range of services that have attracted particular attention in trade negotiations, there is insufficient agreement on a detailed taxonomy and corresponding statistical treatment. These included telecommunications, financial services, professional services, environmental services, and internet related services. For these services, some further development work, beyond their treatment in the manual is recommended.”

When the Uruguay Round services negotiations began in 1987, and developing countries raised these issues of lack of data, a view supported at that time by UN system statistical officials, developing countries were told the problem will be addressed with urgency and ways found to gather meaningful data, to match the directions of trade data in goods.

On the basis of these assurances, GATS negotiations went ahead and trade diplomats negotiated a framework; and developing country negotiators in effect negotiated the agreement and made concessions, with the developing world “mostly terra incongnita” (as the then UN Chief Statistical office told the Uruguay Round GATS negotiators) as far as data on international transactions were concerned.

In their attempts to look in the services talks at classical goods trade models to establish a balance of rights and obligations (in terms of the framework of rules) and the market access concessions, developing countries found themselves in effect chasing “a black cat, in a dark room, with blind-folded” eyes.

Nevertheless they went ahead to negotiate the GATS, and made concessions including in financial and basic telecommunications and other service sectors (partly on the welfare view of unilateral trade liberalisation) and took a leap in the dark based on faith.

While developing country negotiators in GATS were able to do a better job than in goods, in the kind of flexibility to open their markets, to suggest that the entire agreement was ‘development friendly’ as many still do, was perhaps due to their not having enough grasp of development economics.

However, to proceed further in GATS negotiations on the assurance that the statistics manual is now being readied and data would soon be available, and make more market access openings could prove to be a major folly, and it would be compounded if they agree to investment negotiations, where again the GATS data problems are further compounded by lack of clear understanding on how to measure short-, medium- and long-term benefits and costs of foreign investment, and the neo-liberal economists advocate the adoption of welfare theories of trade liberalisation to investment.

A major reason for the services data difficulty is the failure to address a problem identified more than 13 years ago, namely, the inadequacy of using the International Monetary Fund’s Balance of Payments (BOP) Statistics and the IMF view of ‘transactions’ between residents and non-residents. These have not really been addressed in the new manual, but there have been merely add-ons - the use of the Extended Balance of Payments (EBOP) Statistics and the Foreign Affiliates Trade in Services (FATS).

At the outset of the Services negotiations in the Uruguay Round, there was pressure on developing countries to accept the services negotiations as one for investment - since services could only be delivered by being produced on the spot, and this could only by done by ‘establishment’.

However, developing countries refused, and the definition involved four modes of delivery, with developing countries enabled to provide for ‘commercial presence’ - all the way from a mere trade representation office to investments and varieties of joint ventures - from minority to wholly owned.

Instead of taking account of all these, and consulting others than their own charmed circle in the task force, a manual with the kind of recommendations as now has emerged, with the suggestion that statistics of trade via the commercial presence could be resolved through the FATS approach.

The United States has probably one of the best, and most transparently collected, collated and published FATS data, but they cover only the ‘affiliates’ of US corporations - which most often insist on 100% owned subsidiaries. Few other countries collect and publish such data.

International trade in Services is very unevenly distributed among countries, and non-existent in several of them.

While there is a similar problem in international trade in goods, it is a reasonable hunch (based on anecdotal experiences of countries and delegations at the WTO) that the problem is more serious in trade in services, given the considerable scope for ‘transfer pricing’ by affiliates, and more so in financial trade statistics.

The report of the task force and the manual itself does not say, for example, as to how many countries have in place FATS statistics, how satisfactory they are.

Data has to be gathered, collated and published, nationally and internationally, and across a range of countries, both host and home countries (in respect of commercial presence or movement of natural persons), and exporters and importers in the two other modes of delivery before one could compare them.

It will be extremely difficult to gather such data in a short period of time, to persuade all countries to expend the money from their budgets to collect such data. A decade or two, rather than a few years, would be needed, to accumulate data in a sufficiently meaningful way to enable governments to assess the outcomes and weigh the balance of advantages and disadvantages.

The manual itself says (1.14) that “national agencies need to weigh the demand of users for more detail about services trade against the cost of collection, the burden of extra information provision on business, and the need for certain minimum quality thresholds. These constraints and considerations limit in a very real sense the amount of detail on international trade in services that it is practical to provide. The level of detail set out in the manual actually represents a compromise between the need that trade negotiations, analysts and policy makers have for information and the difficulties of the data collection that national agencies may encounter.”

The task force is silent on how the countries should then proceed? Perhaps some World Bank loans or UNDP money would be promised or thrown at them for ‘capacity building’.

But given the ideological hang-ups of the OECD, IMF, World Bank and the WTO secretariats, perhaps the idea is that countries should go on liberalising on faith and the welfare theories of free trade.

In most countries such liberalisation have been perceived to be providing only welfare to the big transnational corporations of the US and EU. And such perceptions are one source of growing movements against globalization and the WTO being seen as illegitimate.

Making commitments in the GATS, on the basis of ignorance, commitments that cannot be later changed or withdrawn without compensating others cannot be a public policy option in any country.

Developing countries must look for other data (such as estimations based on approximations on the options theory used in financial markets) to first assess what has been achieved in the GATS concessions, before they proceed to further negotiations, even if national assessments may take a couple of years. If harmonization of rules of origin can be put off beyond the agreed deadline, there is no reason for them to rush into the second round of exchange of concessions in services. Progress in data collection, even if based on the four modes of delivery for all the services and sectors, and not on the basis of approximations as hinted at in the manual, will take a decade or two. It is therefore difficult to see how these could be helpful to negotiators in the WTO or to those engaged in the services trade. And without meaningful data across a range of countries, including in terms of bilateral trade or directions of trade, and both among ‘exporters’ and ‘importers’ and not merely in one or being used to estimate that of the other.

(For some earlier SUNS reports on GATS data problems, see SUNS #4617, 4631, 4677, 4709 and 4713). – SUNS4959

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

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