Developing countries turn down guidelines for GATS talks

by Chakravarthi Raghavan

Geneva, 21 Feb 2001 -- Developing countries firmly turned down Tuesday, at an informal session of the Council for Trade in Services (CTS), a revised secretariat draft of guidelines and procedures for negotiations that had considerably diluted or removed several of the development-related focus and concerns that developing countries had formulated in their papers, which was reflected in an earlier draft.

Spokesmen for the Group of 24 developing countries, the African group and the CARICOM --  in all, accounting for 70 WTO members—are reported to have made clear that they were not willing to work on the basis of the secretariat’s revised draft, but that they were ready to work on the earlier draft, with the developed nations putting in as many square brackets as they wanted.

The efforts of the Chair of the CTS, Amb. Sergio Marchi of Canada, to persuade the developing countries to take the second draft as a basis and make comments, failed, and further consultations are to be held, trade officials said Tuesday. Mr. Marchi’s term ends at the end of the formal meeting of the CTS, and he is to hand over charge to Brazil’s Amb.Celso Amorim.

At the end of the informal session, Malaysia proposed that there should be further consultations. The Quad countries (Canada, EC, Japan and the US) were due to meet Wednesday to assess the situation and its implications in terms of a new round.

Developing countries who have been taking an active part in the services talks - formally kicked off in 2000 - have been making a number of presentations, and had formulated guidelines to reflect their views and concerns that the intentions and objectives set out in the GATS, including the commitments in Article IV of the GATS for increasing the participation of developing countries in the services trade, had not materialized, and the overall balance has been one of benefits to the developed countries and their corporations.

The developing countries had also firmly rejected the efforts to reopen what is called the “bottoms-up” approach of the GATS architecture, and the attempts to have  negotiations on the basis of  ‘clusters’.

They had also wanted clear and firm commitments, in mandatory language, on the guidelines on flexibility for developing countries in liberalization and in scheduling commitments; for continuous assessment by the CTS of the trade in services in overall terms and on a sectoral basis; and the ‘adjustment’ of the negotiations in the light of the results of this assessment.

The developing countries in the African group, the CARICOM, and the group of 24 developing countries, cutting across regions, had tabled detailed proposals on guidelines and procedures.

Reflecting these, as also the views advanced in the meetings, the secretariat had formulated and circulated on 23 January, a draft of the guidelines and procedures.

The United States, the EU and other industrialized nations, as also two of the odd-men out in the developing countries -  Hong Kong China and Chile -  had been critical of that draft, and the secretariat came out with a revised draft on 14 February.

This draft has now been turned down by the developing countries at Tuesday’s informal meeting of the Special Session of the CTS that is running the negotiations.

A developing-country negotiator said that the new draft, while including some of the concerns and views of the developing countries, had diluted it, particularly in regard to the development-related focus of the earlier draft on the aim and objectives of the negotiations, the flexibilities for the developing countries and the mechanisms for the implementation of Article IV of GATS, as well as the continuous assessment of the trade in services and the mandatory adjustment of the negotiations to reflect these assessments, and the special treatment for the Least Developed Countries.

The mandatory language of the earlier draft, by the use of ‘shall’, had been diluted either by using terms like ‘should’ or ‘take account of’ or paying ‘special attention’ etc.

The Punta del Este Declaration for the Uruguay Round, and the texts of the Uruguay Round agreements are strewn with such language and, as the views and proposals of developing countries in the implementation exercise show, such phrases have remained dead letters, not even worth the weight of the paper on which they have been written.

Developing countries want to ensure that this time around, their concerns and views are reflected better at every stage of the negotiations and the outcome.

The 23 January text of the secretariat had set as objectives and principles that:

·        negotiations shall be conducted on the basis of progressive liberalisation, as stated in Art. XIX of the GATS, and shall take place within the existing architecture of GATS, both in terms of approach to scheduling specific commitments and of four modes of supply.

·        there shall be appropriate flexibility for individual developing-country members; that there shall be due respect for national policy objectives and level of development of individual members, with special treatment for the LDCs.

·        the negotiations shall aim at achieving progressively higher levels of liberalisation, according to Art.XIX of the GATS, as a means of promoting the economic growth of all participants and development of developing countries; securing an overall balance of rights and obligations through effective market access to promote the interests of all participants on a mutually advantageous basis; and increasing the participation of developing countries in trade in services, giving special priority to LDCs.

The new formulation, in the revised text, removed all the positive provisions favouring developing countries in the earlier draft and  has no mention of the notion that the negotiations and liberalization are not an end in themselves, but has the objective of the ‘development of developing countries’ and increasing their participation in the trade in services.

The original text requiring that “the negotiations shall be adjusted in the light of the results of the assessment,” by the CTS, of the trade in services, in overall terms and on a sectoral basis, has been diluted. 

The new language merely has a formulation that “account shall be taken” of such an assessment, and adds that “it is understood that Members may adjust their negotiating positions accordingly.” This is much less than the mandatory adjustment of the negotiations to be undertaken by all negotiating parties, intended  in the earlier guideline, and is merely an enabling provision for individual developing countries to change or modify their position -  opening them up to bilateral pressures against doing it.

The African proposals for rebalancing the outcome of negotiations in favour of developing countries finds no mention anywhere.

The new formulation provides, in respect of a standstill clause (against governments taking actions to improve their negotiating positions), an explicit reference to the right of governments to undertake regulations as provided in the preamble to GATS, but qualifies this in terms of the “effect on market access”, rather than the intent of governments in taking regulatory actions. By introducing the "effect on market access" terminology, the powerful trading partners (like the US or EC) would be able to apply pressures on developing countries against enacting new regulations.

This had been a major issue in the Uruguay Round negotiations for GATS, since industrialized countries had all the regulations, and developing countries would have been prevented from putting in place regulations on the basis that it would affect existing market access. The preamble and other provisions removed this asymmetry.

In terms of the scope of negotiations, the revised formulation calls for “liberalisation across a broad range of service sectors,” something not provided for in Art. XIX of the GATS (which provides the framework for further rounds of services talks). The formulation requiring liberalisation across a broad range of service sectors would in fact run counter to the concept of “progressive liberalisation”.

The revised text, while calling for completion of work on classification prior to the beginning of the market access negotiations, has eliminated a similar requirement in terms of the work on negotiating guidelines. Without it, market access negotiations could take place, and subsequent “clarification of scheduling guidelines” could easily affect the scope and substance of the negotiations.

On another contentious issue, that of ‘credit for autonomous liberalisation’, the revised draft appears to have subtly altered the balance.

Developing countries have been calling for credit being given to them for any autonomous liberalisation they might have done -  often under the ‘conditionalities’ of the IMF and the World Bank structural adjustment programmes.

The concept of giving credit in the area of trade in goods, namely, by including the liberalisation undertaken in country schedules, has been opposed by developing- country experts, who have underscored the difference in the goods and services trade -  with the latter involving, not a crossing of the border, but in fact, establishment inside the country of the foreign service providers, and their ability to claim ‘national treatment’ with local service providers. In this situation, a country’s entire future economic policy and its sovereign rights would be ‘mortgaged’ at the WTO, in effect, establishing a colonial relationship.

Developing countries, in their proposals, and reflected in the earlier draft, had called for development of criteria in the GATS negotiations on how to treat autonomous liberalization. The new text eliminates this explicit reference to development of criteria, and substitutes it with ‘modalities’.This could enable the major trading nations making credit for autonomous liberalization, undertaken since 1 Jan 2005, conditional upon “multilaterally agreed modalities”.

A sore point of developing countries in terms of the outcome of benefits to them under GATS has been that the Article IV of GATS has remained a dead letter.

This article provides that the increasing participation of developing countries in the world services trade “shall be facilitated” through specific negotiated commitments relating to:

·        strengthening of their domestic services capacity and its efficiency and competitiveness;

·        improvement of their access to distribution channels and information networks; and

·        liberalization of market access in sectors and modes of supply of export interest to them.

The proposals of the developing countries, and the original secretariat draft, had provided that “the negotiations shall establish specific mechanisms for effective implementation of Article IV.”

The revised text now mandates the CTS, when reviewing progress in the negotiations, to consider the extent to which Art.IV was being implemented, and to suggest ways and means of promoting the goals of Art.IV.

It is not clear whether this language would enable the developing countries to insist on negotiations to establish a mechanism for effective implementation of Art.IV.

There is also a formulation in the new text about a “needs assessment” for developing countries to assist them to participate fully in the negotiations.

In its proposals, the US had talked of a ‘needs assessment’ to help developing countries to develop a regulatory capacity for greater market openness.

In effect, this would enable the industrialized nations (or donor agencies)  providing such assistance to pressure developing countries to open up their domestic markets.

This would appear to be a retrograde step in relation to the kind of commitments envisaged in Art. IV, where the complaint has been that the developed countries have taken no steps to ‘persuade’ and ‘influence’ their corporations, as service providers, to improve and expand the domestic capacities of developing countries, nor ‘persuade’ their distribution, information and other networks to provide access to service suppliers from developing countries. The new language in fact would enable the industrialized nations to pressure the developing world to open up their markets even more - on the spurious theory that liberalization would result in more investments and creation of (foreign) service provider capacity.

There is some evidence that not only has the ‘liberalization’ undertaken by developing countries not improved or expanded their service capacities, but in effect, has curtailed them. There has been some evidence, for example, that developed-country firms in financial sectors, make their employees sign ‘contracts’ that would prohibit them, after leaving service, from joining any domestic firms where they could use their new skills and help build domestic capacity. While there is probably nothing to prevent the host country from enacting laws declaring such contracts as a restrictive practice and prohibiting them, it is very difficult for the weaker trading partners to do so, without a charge that they were failing to provide an ‘enabling environment’.

The earlier draft had sought to put a hold on creating ‘subsidiary bodies’ and referring various aspects of negotiations to them.  Developing countries, with few bodies and experts, would always be at a disadvantage;  with subsidiary bodies in their absence taking decisions by ‘consensus’ that would be difficult to reverse.

The new text, while talking of the proliferation of such bodies, “should be avoided to the maximum extent possible”, enables the Special Session of the CTS in effect to create as many subsidiary bodies as it deems necessary - thus creating an onus on developing countries to block them on a case-by-case basis.

The new context contains references to ‘cluster’ negotiations in services, by providing that it could be undertaken “as necessary”, but without making it clear that this would require an explicit agreement of members. Nor is there any clear guideline on how additional regulating modalities would be agreed upon.

The draft also provides for ‘technical review’. It says that the existing provisions of the GATS “may be subject to technical review, as agreed by Members, in order to improve the clarity and legal consistency of the text”, but that in the process, “the existing structure and principles of the GATS shall be preserved.”

This, on the one hand, gets around the refusal of developing countries to negotiate the architecture of GATS (sought initially by the US and the major industrial nations), but by now calling it a ‘technical review’ to improve ‘clarity and legal consistency’. Though this is stipulated to be conditional on ‘as agreed by Members’, it could well turn out to be like the myths around the Uruguay Round and the 6-year old WTO -  the greatest participation of developing countries in multilateral negotiations and their agreements by consensus.

In December 1991, when negotiations were deadlocked, the then GATT Director-General and chair of the TNC, Mr. Arthur Dunkel, had put forward his own draft final act text,  based no doubt, for 80-90 percent of its content on agreed formulations, but supplying language of his own for the remainder, in crucial areas, that completely tilted the balance in favour of the major developed nations.

Without any such decision of the TNC, Dunkel had then stipulated that this text could be reopened only by consensus!

But in fact, his texts were reopened, in bilateral talks, between the US and EC in the crucial areas  of agriculture, subsidies, anti-dumping etc and their agreement was in effect forced down on others, and their consensus was achieved - by daring those disagreeing to say 'no' to the package as a whole.

There was no explicit consensus to reopen any text prior  to the US-EC talks in 1992 and 1993. But after the two reached accords, in a distortion of the original ‘single undertaking’ concept of the Punta del Este Declaration (that negotiations in all areas of goods trade being started and ended at the same time), everyone was forced to accept all the texts, and the Appellate Body subsequently perverting it to mean ‘cumulative obligations’.

Trade diplomats said Wednesday that it was not very clear how things would now proceed. By revising the original text as it has done, the secretariat has lost the confidence of the developing countries, some 70 of whom have presented some clear positions.

If the developing countries maintain their positions, and are not split by other inducements, and their concerns and positions are ignored and an attempt make to steam-roller things, it is bound to further sour the atmosphere for the next ministerial meeting and the attempts to launch a new round of negotiations.-SUNS4841

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

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