Clear North-South divide on services negotiations

by Chakravarthi Raghavan

GENEVA: The initial presentations of views and papers by delegations at an informal WTO General Council process, in the final week of November, addressing the mandated and built-in areas of negotiations, show a discernible North-South division on the next round of services trade liberalization negotiations.

Though not too specific, the US and the EC, apart from looking at each other's service markets and how to gain better access, are focusing on service markets of developing countries in terms of increased market access and national treatment commitments in service sectors where they dominate, including the financial and telecoms sectors.

Developing countries, by and large, have laid stress on the obligations built into the General Agreement on Trade in Services (GATS), for measures to increase participation of Third World countries in the services trade, and for removal of the glaring asymmetries and lack of benefits so far in the GATS and the sectoral negotiations undertaken within them since Marrakesh.

A number of developing countries like Egypt, India and Pakistan have also focused on the asymmetry in the treatment of factors of production - with capital having better treatment in terms of movement, and little or none for labour, and movement of natural persons as a mode of supply.

All developing countries, and some others like Australia, have also complained of lack of adequate progress in the built-in negotiations in the GATS on the issues of safeguards, subsidies and government procurement.

Also raised by these were the problems of data and statistics, and classification and common understandings - issues, they said, that need to be addressed and resolved before the next round of services negotiations, supposed to be launched in 2000, could be undertaken.

The EC's comments and proposals have been more general, with the Community underlining that it was in the process of consulting with its service industries, and would come up with more detailed proposals later.

US position

The US, the principal demander in this area, has said that the initial commitments on market access and national treatment were only partly successful. While the next round too will be based on "progressive liberalization", it must achieve improved sectoral coverage by all participants, with a more precise and expanded nomenclature of service sectors. Also, existing restrictions on market access and national treatment in current schedules should be removed, and there should be improved access for all modes of supply, involving removal of "more traditional restrictions" on foreign commercial presence and temporary entry of persons, and also a fresh examination of "binding" services provided across borders (through electronic commerce). There should also be non-discriminatory application of country regulations. The negotiating guidelines to be set under Art. IV:3 of the GATS should result in broader and deeper commitments. The review of the various most-favoured-nation (MFN) exemptions filed in the initial GATS schedule should also be taken up in 1999 as required. The US also asked for the review of the Annex on Air Transport services. While the US has also reminded delegations on the need to accept by January next year the financial services accord concluded in December 1997, interestingly it has been silent on the issue of maritime services, which many delegations like the EC, Singapore and so on have specifically alluded to. The agreement in the maritime services sector failed because of the US position against liberalization.

India noted that after Marrakesh, while negotiations have been concluded in the basic telecoms and financial services sectors, and they were close to completion of work on professional services, the results have been unsatisfactory with regard to movement of natural persons as a mode of supply, an area of tremendous importance to developing countries. This must figure prominently in the future services negotiations. Also, the negotiations on safeguards, government procurement and subsidies under the GATS must be "folded into the next round".

In the three years of the WTO/GATS, the participation of developing countries in the services trade has not increased as foreseen in Art.IV which envisaged increased participation and strengthening of domestic service capacities of countries through improved access to distribution channels and information networks and through liberalization of market access in sectors and modes of supply of export interest to developing countries.

For proper evaluation of specific market access commitments, considerable work on classification and statistics needs to be undertaken, and the information should be available mode-wise.

Balance of rights and obligations

The new round of services negotiations and the progressive liberalization called for, to be successful, must be mutually advantageous to all WTO Members and preserve the balance of rights and obligations. India would not therefore favour any change in the present GATS architecture involving the four modes of supply. Also important is that, as set out in Art. XIX, the liberalization process is to be with due respect to national policy objectives and level of development of individual Members, with appropriate flexibility for developing countries to open fewer sectors for liberalization. The choice of sectors for negotiations in the new mandated negotiations was hence important, and for India, as for many other developing countries, the movement of natural persons in mode 4 was of "primordial importance." A major problem faced by India in this regard is the so-called "economic needs test" (ENT) applied by developed countries and which proved to be a huge trade barrier. The administration of visa regimes was another barrier this year. The next round should streamline the visa regimes when related to trade-related movement of natural persons, and the possibility of GATS visas based on automatic entry or multiple entry of long duration has to be explored. Also of interest to India were sectors like Computer and Related Services, Professional Services, Health Related and Social Services, Tourism and Related Services, Transport Services, Other Business Services, Audio-Visual Services, Construction and Related Engineering Services.

Australia emphasized the three built-in agenda issues of the mandated services negotiations - safeguards, government procurement and subsidies - and said these should probably have to be folded into the next round. The work on classification, statistics and scheduling guidelines, though of a technical nature, was important for making market access offers, and hence significant progress needs to be made on all three in the Committee on Specific Commitments before the next round. Sectorwise, Australia was interested in services sector areas where coverage was lacking, such as air transport and maritime; areas with few commitments in existing offers such as transport and distribution; sectors like education, environmental and distribution services. Australia was also looking to revisit areas like financial services, telecommunication and professional services.

Developing countries, Australia added, should focus on promoting their interests through negotiations in the context of the Special and Differential Treatment (S&D) provisions of the GATS.

Also, in the context of the work programme on electronic commerce, the latter was a cross-cutting issue but just one more form of trade, and "existing trade rules, including GATS, should be relied upon as far as possible, and for as long as possible", avoiding duplication of work.

Egypt underscored the need to observe the concept of progressive liberalization, for respect for national policy objectives, and for developing countries opening up fewer sectors. Participation of developing countries, in the process of exchange of information to facilitate negotiations, agreed in Singapore, has been constrained due to lack of adequate institutional and human capacity.

Before the negotiations, the GATS Council is to carry out an assessment of trade in services in overall terms. Such an assessment, Egypt said, should include an analysis whether commitments on commercial presence had led to an increase in FDI. Negotiating guidelines should establish modalities for treatment of liberalization undertaken autonomously by Members since previous negotiations, as well as for S&D of developing countries. As had been pointed out by Egypt at the October meeting of the informal process, sectors where agreements had been concluded (financial services and basic telecoms) were capital- , technology- and knowledge-intensive. Developing countries were constrained in increasing their participation in the international trade in these sectors. The cross-border movement of natural persons for supply of services was constrained. Useful cooperation in this area could take place between the WTO and the International Organization for Migration (IOM).

Negotiations on emergency safeguards had also not been completed, and this was essential if developing countries were to make more significant liberalization commitments.

Different expectations

Brazil underscored the autonomous actions taken by it in the telecommunications sector through privatization, that of state- owned banks in the financial sector, the opening up of the insurance sector, and the problems faced due to the current instability in the financial services sector. In this context, Brazil was concentrating on implementing the results of the many WTO negotiations, and in every sector the crucial implementation phase has to be surmounted before Brazil could consider "in a reasonable and realistic manner higher levels of liberalization". While Brazil was open to suggestions on scope of negotiations, and would not a priori exclude any, "the levels of expectations cannot be the same for all sectors."

The financial services sector, which has been the subject of two negotiations in less than four years, offers less room for a significant increase in levels of commitments.

As mainly service importers, developing countries have enjoyed only in a very limited way - in terms of market access - the benefits accruing from the agreements. If agreements have led to modernization and access to high-quality and better- priced services, "it would be difficult to argue that they have created new or enhanced export opportunities for developing countries."

"This fundamental difference between developed and developing countries makes it impossible to require that the logic of negotiations be the same for all Members of the WTO." The coming negotiations therefore must take into account not only the demands for additional liberalization and further commitments, but also the need to facilitate the fullest participation of developing countries in the world services trade.

Additionally, tangible progress must be made in some negotiations mandated in the GATS on which, up to the present time, there has not been adequate attention, such as the negotiations on disciplines on emergency safeguards in services.

Japan said that to prepare for the next round of services negotiations, the past experience must be fully reviewed, and the information exchange programme must be completed before the end of the year.

Imbalanced negotiating dynamics

Indonesia, for the ASEAN, agreed that the services negotiations should begin on schedule, and proceed with a clear negotiating framework and indication of modalities and time frames. But the post-Uruguay Round sectoral meetings have clearly pointed to the imbalances in the negotiating dynamics governing the operation of the GATS. The negotiations have tended to focus on sectors of primary interest to the developed countries - such as basic telecoms and financial services, whose success was due to the support garnered from a few developed countries. A similar emphasis was lacking in other mandated sectoral negotiations. The work on GATS rules has also been considerably slow and there was need for more progress including on emergency safeguards, as well as clarification on key provisions of the GATS such as market access and national treatment.

Canada supported the need to complete work from previous mandates - on issues of safeguards, subsidies and government procurement. In the area of market access, further sectoral liberalization was needed in the financial services and basic telecoms sectors. In the transport sector, where many depend to a large extent on foreign carriers to transport goods overseas, everyone had a common consumer interest in ensuring increased competition. There was also the need to focus further on various modes of supply. A "horizontal" service issue for Canada was the ability "to move all factors of production across borders".

Apart from market access, Canada also favoured transparency and an effective framework of rules, and clear and easy-to- understand schedules of commitments. There was uncertainty now in the definition of sectors and sub-sectors, and the GATS distinctions in modes of supply, when many services transactions could now be conducted electronically. Other issues to be addressed included domestic regulations and the interlinkages between the GATS and other WTO agreements - such as between goods, services and intellectual property.

For Pakistan, the forthcoming new round of services negotiations should be conducted in such a manner as to promote the interests of all participants on a mutually advantageous basis, taking fully into account the national policy objectives and level of development of Members. Since the completion of the Uruguay Round, developing countries had undertaken major commitments autonomously and as a result of the extended negotiations on financial services and basic telecoms. But they have received no reciprocal benefits. There was hence a need to restore the overall balance of rights and obligations in terms of sectors and modes of supply.

Movement of natural persons

An obvious imbalance in the GATS was in its treatment of labour and capital - with specific provisions for allowing mobility of the latter, if it is an essential part of the market access commitment or if a commercial presence was involved. But there was no such explicit provision on movement of natural persons on similar lines. In the next round, further liberalization of movement of natural persons would be essential for full implementation of Art. IV:1(c) - increased participation of developing countries in the services trade and liberalization of sectors and modes of supply of export interest to them. This would restore symmetry between the four modes of supply.

There was a strong economic rationale for enhanced labour mobility. A globalized economy generates demands for freer movement of factors of production, including that of natural persons. There has been "insignificant liberalization" in the Uruguay Round in this area - even though the GATS is based on the concept of symmetry in obligations in the movement of capital and labour. The sector-specific commitments have covered measures regarding commercial presence more than measures on movement of natural persons as service suppliers. And the horizontal commitments merely state the elements of immigration and labour laws and regulations; they do not refer to movements of natural persons in all categories and occupations, and are limited in the main schedules to intra- corporate transferees, business visitors and independent professionals.

A number of major impediments to freer movement of natural persons remained through widespread use of economic needs tests in a discretionary way, thus creating a major barrier to trade. There are also major problems with visa requirements, work permits, qualification standards and licensing regulations.

It was misleading to object to liberalization of movement of natural persons on the basis of migration and its impact on domestic social and political conditions. This was a non-issue, asserted Pakistan, given that the GATS is strictly limited to providing access to natural persons as service providers in the receiving country. The specific service is to be provided for a given length of time and according to conditions in a country's schedule. The GATS does not impinge on a country's sovereign right to control migration and access to its labour market or its ability to guard against illegal entry.

A possible way to advance negotiations in this area was to adopt an occupational approach - drawing up a list of occupations for which countries would agree to abolish the ENT. In other categories, the criteria for application of ENT should be clearly laid down. There should also be measures for more transparent and objective implementation of visa and work permit regimes, and measures to overcome barriers created by qualification and licensing regulations. (Third World Economics No. 199, 16-31 December 1998)

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