WTO Secretariat’s revised draft guidelines for GATS talks

by Chakravarthi Raghavan

Geneva 20 Mar 2001 - - The secretariat of the World Trade Organization has put forward a revised draft, ‘Guidelines and Procedures for the Services Negotiations’  - Job(01)/38 - which has a few parts of the text placed within square brackets and which, a secretariat note explains, are points needing further guidance from the Services Council, whose special session is running the negotiations.

In the light of detailed proposals for guidelines put forward by a group of developing countries (the G-24, in the WTO services context), as well as those from Africa, the Caribbean and some individual positions, the secretariat had formulated on 23 January, a draft set of guidelines and procedures.

Subsequently, in response to the criticism of this draft by  the US and the EU (the two major demandeurs in this area), which is also supported by Hong Kong China and Chile, the secretariat came up with a revised draft on 14 February, but this was flatly turned down on 20 February by the developing countries - the G24, and Africa and the Caribbean, accounting for a total of 74 - who refused to take the revised secretariat draft even as a basis for further work.

Later, at a further informal consultation last week where they explained their objections to various parts of the 14 February draft, and its structure, the secretariat has now come forward with a new revised draft.

The new draft seemingly tries to meet the viewpoints of the developing countries, but on first sight also appears to have been drafted in a way that could potentially split the informal coalition of 74 developing countries - both on the formulation of the guidelines and certainly in any actual negotiations based on them. In a sense it appears to be following the same tactic as was done during the Uruguay Round - in first splitting up the entire informal developing-country group (before Punta del Este), and the developing countries (as between the least developed and others) during the negotiations leading to the Marrakesh agreement.

The new revised draft comes at the same time as a public relations offensive launched by the secretariat through a background note titled, ‘GATS - Fact and Fiction’, which has been widely distributed to the media and put on its website, to counter the campaign launched by a number of development-oriented NGOs of the North and the South against the GATS negotiations and approaches mooted by the industrialized world.

The changes introduced in the latest text has several elements placed within square brackets and some alternative formulations that could create problems for the developing countries in the negotiations. They are:

ˇ        proposal for ‘standstill’ during the negotiations;

ˇ        the scope of negotiations - no a priori exclusions of any service sector or mode of supply vs. liberalization across a broad range of sectors, or the cluster approach by the backdoor;

ˇ        negotiations on the MFN exemptions issue;

ˇ        completion of negotiations on safeguards (Art. X), disciplines on domestic regulations to set standards and professional qualifications for some service suppliers (Art. VI:4),  government procurement (Art. XIII), and multilateral disciplines on subsidies - mandated vs. best endeavour - to conclude before negotiations on specific commitments;

ˇ        review of air transport services and taking account of the results of the review; and

ˇ        reviewing progress (Art. IV) on increasing participation of developing countries in services trade through negotiated commitments.

The revised guidelines sets out the parameters for the negotiations in terms of the objectives and principles of GATS as set out in Art. IV (increasing developing- country participation in services trade and access to networks) and Art. XIX (progressive liberalization through specific commitments in successive rounds of negotiations to promote economic growth of all trading partners and development of developing countries), and progressive liberalization to provide ‘effective market access’.

The aims of the negotiations are also specifically set as achieving increasing participation of developing countries in the world services trade and the liberalization process with due respect to national policy objectives and the level of development of individual members.

There is some square bracketed text here which may give rise to problems, both within the Group of 24 and the African and Caricom countries, as well as others, both on the negotiating guidelines and, perhaps later, in the negotiations themselves.

This is the formulation that ‘due consideration should be given to the needs of ‘small economies’ and ‘small service suppliers’.

In the Uruguay Round, the special and differential treatment to developing countries, and specially to the least developed, resulted in the major trading nations playing one group against the other (in classic imperial divide-and-rule tactics), and the final outcome was in fact nothing more than a ‘best endeavour’ invocation for both, and with developing countries and LDCs now trying to ‘operationalise’ it.

A major challenge for the developing countries is how to achieve the real objective , without its becoming another instrument for dividing and sub-dividing the developing world.

Another objective specifically set out is that “negotiations shall take place within existing structure and principles of the GATS, including approach to scheduling specific commitments and four modes of supply."

These are clear texts (subject to overall approval of a text).

But there is a proposed text for standstill during negotiations within square brackets - which in practice, would probably work more to the disadvantage of developing countries.

In terms of scope, there is a formulation within square brackets that ‘liberalization shall be sought across a broad range of services sectors’.

This could bring in the cluster approach or a ‘formula’ approach - approaches favoured by the industrial world and its service corporations to dominate service sectors of developing countries.

On some of the negotiations to develop disciplines under the various GATS provisions, which the Marrakesh agreement and the provisions of GATS envisaged the WTO’s Council on Trade in Services (CTS) to take up and was intended to be completed soon, and where in fact, there has been no progress, the guidelines envisage these negotiations to be taken up as part of the new services round.

On safeguards, the CTS envisaged the negotiations to be taken up and completed by 15 March 2002. The ASEAN and a few others have been pushing for this - telling the US and others that before they could be forthcoming and liberalize their services sectors through more market access commitments (in financial services, basic telecom etc), they need to have safeguard measures to be able to deal with situations that might arise and jeopardise their domestic sectors because of liberalization.

This is a tricky issue.

For one thing, if the GATS safeguards negotiations go along the same lines as the GATT safeguards agreement (and its interpretation by the Appellate Body, in the Argentine and South Korean cases - subtly changed in the subsequent case against the US), developing countries would face problems first of proving ‘injury’, or imminent danger of it, to their domestic service sectors.

But how would they do it if there is no clear data on services trade flows. There is none now, and even if the UN statistical system develops it in conjunction with the IMF and its extended balance of payments data collection - and this work is proceeding at a snail’s pace - it will be even more difficult to demonstrate and show in their internal domestic investigations.

The only mode of delivery of service against which safeguards can easily be applied will be under mode four, and not even for transborder delivery or by consumption by travel, of service consumers.

In relation to liberalization and more market access via commercial presence (in financial services or even in some professional services being pushed like advertising, legal, accounting and audit etc) would they be able to show that the foreign service supply they have agreed to via ‘commercial presence’ (an euphemism for foreign investment) is the sole cause of the injury to the domestic suppliers?

And even if they do, for example, in relation to foreign bank branches or other such financial service suppliers, including stock-brokers etc, would they be able to close down the bank or stock-broker firm or other supplier that has been set up and is in business? Would the theory of ‘acquired rights’ - used in GATT -   apply? If so, what would be the effect? This is apart from some national jurisdictions, with a clear system of rule of law and administration of justice, where an established foreign owned enterprise (incorporated as a wholly owned domestic company) would be able to move the domestic courts for equal protection of laws and other safeguards of law under fundamental rights or claim ‘compensation’.

Or would it apply only to future GATS commitments? For example, if a country has agreed to license five foreign bank branches, and 10 automatic teller machines under the GATS now, and if it wants a safeguards agreement before agreeing to liberalize more with another five branches or more ATMs, would these latter alone be subject to the right of being asked to close or suspend business?

Outside trade experts and observers have been wondering whether the attempt to get safeguards rules and show it back home is intended by foreign trade ministries negotiating these agreements at the WTO as providing some reassurance to the governments and domestic sectors that their interests could be safeguarded through this.

It seems more likely to be similar to the special and differential treatment or the BOP provisions that several developing-country trade negotiators made use of, during the Uruguay Round negotiations (post-Brussels 1990, under the Dunkel text) or post-Marrakesh, in signing on and ratifying the agreement  to provide false reassurance to the other wings of their governments, parliaments and domestic sectors.

Like Mao Tse-Tung’s perpetual revolution, developing-country trade diplomats and negotiators may have the luxury of having to raise the perpetual ‘implementation issue’, which they cannot even get on the WTO agenda, leave aside satisfaction and solution.

The government procurement, professional service qualifications and standards (and equivalencies) and the subsidies of services exports are also very tricky issues. And if developing countries are not careful, they may end up facing the same problem that Brazil, for example, has been facing in the dispute with Canada over aircraft export subsidies and export credits.-SUNS4859

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

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