by Chakravarthi Raghavan

Geneva, 29 Feb 2000 -- If statistics are seen as providing a map to guide policy makers in their deliberations, much of the Third World is terra incognito as far as statistics about international trade in services are concerned, the United Nations Statistical Office told the Uruguay Round services negotiators in February 1990.

Ten years later, and six years into the World Trade Organization and its starting work on a new round of services negotiations on 25 February at a meeting of the Committee on Trade in Services (CTS), the Third World is still terra incognito.

When the UN statistical commission meets in New York Tuesday, it will receive an oral report on some progress towards finalising a manual for collection of data on services, that will take a broader view of the international trade in services than the IMF conventional balance-of-payments (BOP) perspective set out in the IMF's BOP manual.

The timetable envisaged is for the manual to be put before the Statistical Commission/Working Party for approval in 2001, and thereafter by the UN General Assembly itself. Perhaps it may need similar actions by the other bodies involved. And if all goes well, perhaps the national collection of data on the basis of the new manual, and the provision of this data to the UN might begin in 2003.

And if the US and EC have their way in the meanwhile, on pushing ahead with the new round of services talks, and particularly further liberalisation of financial services, the developing world would have given everything away in these sectors to foreign corporations, without any idea of costs and benefits.

The new manual for services, an Extended Balance of Payments Statistics (EBOPS) delivered through conventional trade between residents and non-residents, and will include treatment of local delivery of services through foreign commercial presence, and will also use categories found in the GATS about the various modes of supply for services, the Statistical Commission is due to be advised.

The GATS envisages four modes of supply of trade in services:

* supply of a service from territory of one member into the territory of any other member,

* in the territory of a member to the service consumer of any other member,

* by a service supplier of one member through commercial presence (code for investments and capital) in the territory of any other member, and

* by a service supplier of one member through presence of natural persons of a member in the territory of any other member.

In terms of national systems, only the US (which taxes on world income basis) collects and is able to have some data based on the foreign sales of the subsidiaries abroad of its corporations, and the new manual envisages collection in this matter on the basis of what it calls evolving global consensus on foreign sales of corporations.

Within the European context (where the EU single market has brought about integration of services trade), a former EU negotiator, in a consultancy report for EuroStat (the EU statistical wing) has said that the nature of the services transactions, and the way enterprises provide services and take payments is such, that no clear data about the services transactions between countries is ever possible.

An enterprise in Belgium might supply a service to a party in Austria, but receive the payments in Switzerland or Luxembourg where the tax situation is best for it. And thus in terms of the BOP and international transactions, the data would be difficult to measure, Paul Leuton wrote.

But if this plea were to be so, developing countries might need to revisit the services agreement and ensure that the payments and receipts and actions to prevent transfer-pricing and tax-avoiding transactions are all tackled together. Otherwise, there would be greater drains on their resources than even in the colonial era. The problems of lack of data on services, the difficulties in negotiating trade in services and countries making commitments without knowing how it would affect them, came up as early as April 1987, after the Uruguay Round was launched and the Group of Negotiations on Services met to organize its work and undertake negotiations.

The group decided to ask the statistical experts of the UN, UNCTAD, the IMF, World Bank, and the OECD among others to come and discuss the issue with them, which they did at a meeting in July 1987.

The statistical experts then said that the data on trade in services of use to negotiators was lacking, and the data base could be improved only through enhanced international cooperation and providing sufficient resources for international organizations.

Setting up internationally comparable data, the statistical experts said, would need an understanding on definition of services, and of trade in services, and would depend on collection of data through national accounting systems, and that Third World countries would need technical assistance and help to undertake this task.

At the international level, the data from national accounting systems are reported to the UN Statistical Office (UNSO), and collected and collated there. Even the International Financial Institutions draw on this data base for their own specialised work.

In 1987, the UNSO reported on the progress of work in this matter since 1985 (when the issue of services and services trade was brought up after the 1982 GATT Ministerial Meeting and the work programme), and that this work involved classification of services, measuring quantity and price changes of services, and improvement of measurement for trade in services.

UNCTAD, which then had an entire statistical division headed by a director, reported that it had found that existing data based on the IMF Balance of Payments Statistics had been inadequate, even for UNCTAD helping developing countries to undertake their own national studies on services. Any decision to promote a system of internationally comparable data on trade in services should give top priority to standard classification, definitions and concepts (including coverage, classification, valuation, constant prices, and partner countries), UNCTAD advised and underscored the need for drawing on the expertise and experience of countries that had tried to overcome the inadequacies of the current system. UNCTAD suggested setting up a forum for exchange of such information with a view to constructing the elements of a common data base.

Later, the UNCTAD's chief statistician took up the matter at meetings, at official levels, of the UN system statisticians and persuaded them of the importance of this work.

At that time, the issue of how to define 'trade in services' was very much up in the air, and for both the United States and the Europeans, the 'services' issue was just a hidden agenda to get investment rights for the service enterprises in other countries, particularly the developing world.

And they did not want UNCTAD or the UN system to get their hand into this, and slowed down work in these institutions, while a so-called Voorburg group, after the place in the Netherlands where it first met, consisting mainly of statistical offices and experts from the industrialized world, began work on this.

The idea was that the group would come up with an understanding or accord and this would be presented to the services negotiators and pushed through.

There were protests and demurrals among Third World negotiators, who in the meanwhile were pushing for a different methodology of definition for trade in services, in which investment and capital would be only one mode of producing and delivering services.

As the services talks went on in the Uruguay Round (and a basic framework began to develop), some nine months before the then scheduled conclusion of the Round (at Brussels), the UN statisticians came to the negotiators with a plea for funds and concerted actions to fill the gaps in data.

The industrialized world in three years of negotiations from 1987 had been trying to brush aside issue and problems of lack of data about services -- production, trade, 'transactions' -- arguing that it was a long-term project and negotiations should not be held up for that.

The then director of the UN Statistical Office, Mr. William Seltzer, came before the GNS at that time and said that unless concerted actions were taken soon "neither the Uruguay Round of negotiations nor even the next round of negotiations will have the data they need to reach sound and equitable conclusions."

The UN official recalled that in 1987, the UN Statistical office, in cooperation with the UN Centre for Transnational Corporations, UNCTAD, GATT and the IMF had developed a proposal for a concerted and integrated approach to the problems. A 4-year programme had been suggested, addressing primarily, but not exclusively, the needs of the Third World countries including preparation of appropriate technical manuals and training activities. And while some individual prospective donors had expressed some preliminary interest, "no tangible support has been received up to date," Seltzer remarked.

"Unfortunately, the description of the state of statistics in that proposal (terra incognito) remains largely unchanged and the needs outlined in the proposal remains unaddressed," he said.

At that time, the Latin American group of countries had favoured only a framework agreement being drawn up and concluded in the Uruguay Round, with market access concessions and commitments to come later.

The US and EC were bent upon using the negotiations to get investment rights in the developing world for their service enterprises, and opposed the Latin American proposals.

Whether this had also anything to do with the slowing down of actions at the UN system levels on collection of data is not at all clear.

Nor is it clear whether the turf battles between the IMF, WTO, the BIS and others were involved.

The IMF collects balance-of-payments data, based on the concept of transactions between residents and non-residents, and not services transactions between a foreign resident enterprise and a local domestic enterprise. The IMF by mid-1990s, was trying to get jurisdiction over financial transactions by changes to its charter on capital account convertibility. But the WTO with jurisdiction over financial services trade was claiming jurisdiction over some aspects.

In any event, for the neo-liberal economists and propagators of the Washington Consensus, free markets were efficient, market imperfections cannot be resolved by government interventions but only by deregulation and privatization, and the static optimisation of efficient resource allocation through the market would overtime maximise growth and thus welfare. Hence, unilateral liberalisation improves efficiency and multilateral negotiations are useful for 'binding' unilateral actions and thus send proper signals to the market and provide certainty to the foreign investor.

Perhaps by then, and certainly after the failed Brussels Ministerial meeting of the Uruguay Round (in 1990), there were changes in developing country missions and negotiators, and the issue does not appear to have been pursued vigorously at meetings.

But after the conclusion of the Uruguay Round and the signing of the Marrakesh Agreement, the UNCTAD secretariat in July 1994, in a note to its standing committee on developing services sectors, brought up this issue again.

The secretariat said that nearly a decade after the services data issue had come on the international agenda, and with a new round of negotiations for trade liberalisation due to begin in five year's time, the basic data relating to services trade and even methodologies for collection and collation were still unsettled.

UNCTAD also pointed out in the report to its committee in 1994, that under the GATS, before every round of negotiations, the WTO's Council on Trade in Services was required to set guidelines and procedures, and to do this the Council would be obliged "to carry out an assessment of trade in services in overall terms and on a sectoral basis", but with reference to the objectives of GATS and to provide for increased participation of developing countries in the world trade in services.

The UNCTAD secretariat brought out that while the problems relating to definition of trade in services had been resolved (by the Marrakesh Agreement and the GATS annexed to it), and there was a clear and more precise formulation involving four modes of delivery, the problems of data, collection and methodology as well as some concepts remained to be addressed. And while some groups, including the Voorberg group, were addressing this, it was a small group and there was need for full transparency and measures to enable developing country participation.

The ongoing work at the UN Statistical Office, and that of the Voorburg group with participation of experts from OECD, GATT,IMF and UNCTAD, the UNCTAD secretariat report noted, were largely oriented towards the economic conditions in the developed market economies, though some increasing attention was also being paid to the developing countries and economies in transition.

The report also brought out the problems of the IMF BOP data, and the large global imbalance in that data. In theory the BOP ought to be zero at the world level, but is not and shows a negative balance of tens, if not hundreds of billions of dollars, and this is known to be due to under-reporting of services transactions.

But with the US and the EU having a vested interest in pursuing the liberalisation of trade in the financial services, and the telecommunications services, as soon as the WTO entered into force, and seeing advantages in developing countries negotiating without data, the problems raised by UNCTAD for its services committee (as a run-up to the Midrand meeting of UNCTAD-IX) does not seem to have been pursued.

And in the months before UNCTAD-IX, Secretary-General Rubens Ricupero undertook a massive restructuring exercise (as part of the effort to save the institution), and the statistical work got downgraded, with the vacant post of director of the division left unfilled.

Since then, an Inter-Agency task force has been at work, with participation of UNCTAD, but with a relatively low-level professional following these activities, able to report back to headquarters, but not having sufficient rank to fight views of other organizations represented by directors.

This task force after two workshops, one organized by the UN at Cura'ao (in May-June last year), and another by an OECD-Eurostat meeting in July, a draft manual for collection of data was prepared and released for comments in November 1999, and circulated among IMF members (central banks) and the UN to its members for comments, suggesting that trade negotiators should be involved.

The approach to collection of data and collation, while aimed at helping GATS negotiators, is also influenced by the costs and benefits approach - the cost of collecting data on a detailed disagregated level and the benefits that such data would provide for policy-makers and negotiators.

Each of these modes, and the various transactions they may give rise to, require different methods of notification by service enterprises to national accounting systems, and by them to the UN statistical office.

At one stage, in the preparation of the draft, due to the problems involving in collecting and separating data on the basis of four modes of supply, there was a tentative approach to classify the various sub-service sectors on the basis of what would be predominant supply mode in that service, and put all transactions under that head.

But this approach appears to have been given up, at least for now.

It is not clear how many developing countries in fact held such consultations. But of the entire membership of the IMF and the UN, comments on the draft were received by the Inter-Agency task force from only 40 - including several from the transition economies, not even members of the WTO.

Among the developing countries who did comment were: Hong Kong China, India, Korea, South Africa and Tanzania.

Progress of the inter-agency task force, convened by the OECD, perhaps has to be judged against all this background, and the budget and other pressures and priorities of work at the UN.

This task force met in Washington in February, and considered the comments on the draft manual it had circulated. It was due to prepare a version for review by a UN Expert Group in mid-2000, for finalisation prior to submission to the UN Statistical Commission in 2001. (SUNS4617)

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

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