GATS Council extends time for safeguards agreement

An already long-overdue agreement to protect domestic producers against the adverse effects of services imports will not be concluded for another two years, as a result of a recent decision reached at the WTO. In the meanwhile, the absence of such safeguards rules, coupled with industrialized countries’ push for further liberalization of services trade by developing countries, could undermine the economies of the South.

GENEVA: The WTO’s Council for Trade in Services agreed on 15 March to extend the time frame for concluding negotiations on emergency safeguards under the General Agreement on Trade in Services (GATS) till 15 March 2004, with the results of such negotiations to enter into force no later than the entry into force of the outcome of the current round of services talks.

The Council acted on the basis of a recommendation to it from the working party on GATS rules. The negotiations on emergency safeguards, originally mandated by GATS to be taken up and completed by 1998, have so far been extended three times, and the last deadline had been due to expire on 15 March. Safeguards are emergency actions intended to provide temporary protection against “fairly traded” imports that cause or threaten to cause serious injury to domestic producers.

In terms of the Council’s decision, until emergency-safeguards rules are agreed and in place, any GATS Member, in terms of Article X.2 of GATS, will be free to notify the Council and modify or withdraw a specific commitment already made, after a period of one year from the entry into force of the commitment.

At the working party on GATS rules, Thailand, on behalf of the Association of South-East Asian Nations (ASEAN), said that the repeated extensions of time for negotiating these rules showed the strong and common desire of Members as a whole to overcome problems and address concerns raised by Members in greater depth. ASEAN was however disappointed that, despite the importance attached to the issue by developing countries and considering the amount of time already spent, there had been no significant progress in the negotiations on emergency-safeguards rules.

ASEAN hoped that the further two-year time period provided now would enable constructive negotiations, with ample room for flexibility to contemplate proposals on the table, to enable detailed regulations to be in place as soon as possible. Political will was needed to generate comments and suggestions to enable the Members to come up with a single negotiating text, with or without square brackets and reservations.

Safeguards snags

In the aftermath of the financial crisis of 1997 in Asia, a number of ASEAN and other countries had opened up their financial and other services sectors. As a result of the crisis, and as the IMF ordained reforms that enabled foreign corporations to buy domestic banks and other financial service enterprises, there has been a backlash in many of these countries, with domestic enterprises coalescing to oppose any further liberalization.

In an effort to quieten the opposition, as also the pressure from the US, the EC and others for further market opening in financial and other services sectors, a number of countries have said they could consider this only on the basis of safeguards rules being negotiated.

These negotiations have, however, run into problems. There are no meaningful data available on trade in services. And the UN-approved manual for collection of national data will not record the data and directions of trade in terms of the GATS definition of trade in services (see TWE #264). But even with adequate data as in the goods sector, the crop of disputes that have arisen in that sector shows the difficulties of invoking safeguards rules to curb imports.

Even more, it is not easy to see how and what kind of safeguards can be applied against “commercial presence” (one of the modes of supply of services covered by GATS) - an euphemism for foreign investment - in a number of service sectors.

The only mode of supply against which it is easy to apply such safeguards is “movement of natural persons” (i.e., supply by a service supplier of a Member country through the presence of natural persons of that Member in the territory of another Member), and there is understandable reluctance and opposition from several developing countries (which have a comparative advantage in this mode) to reach an agreement that would strengthen the hands of ‘importing’ countries.

Liberalization pressures

A number of Third World trade experts and observers have underscored that developed countries did not keep to their part of the bargain in launching the Uruguay Round and writing multilateral rules in new areas (including services), namely, the promise of more market access for developing countries in traditional goods sectors.

As a result, the situation was already bad in terms of GATS and the bilateral pressures exerted on the developing world to undertake more commitments on services liberalization on the specious plea that the liberalization would improve efficiency and consumer welfare.

Now, without any data to enable meaningful assessments of the costs and benefits of past and future commitments, the developing countries are being pressured into making still more commitments.

A WTO secretariat document which lists in a synoptic form the proposals and demands of Members in the services sector shows that there is a determined effort by the major industrialized countries to take over and dominate all the services sectors via commercial presence without any limitations or restrictions on ownership. There are also proposals for reclassification of some of the sub-sectors in particular service sectors, including energy and environment (see below).

Even the restrictions the industrialized countries themselves apply domestically, such as the “needs test” (applied by the states in the US) before licensing banks and other services, are sought to be blocked in the developing world. The commitments of the US in the services sectors, either under rules or market openings under GATS, do not apply to or extend to the constituent states and/or local authorities that may have overlapping jurisdiction.

The effects of such lop-sided ‘liberalization’ based on ideology and textbook theories are already being witnessed in Argentina, and the new drive in the ongoing talks under GATS could well result in a repetition of this in other Latin American countries as well as in other parts of the world.

Hence, argue several Third World experts, unless and until the data situation can be remedied and developing countries’ policy-makers can make a better assessment and ensure benefits to their countries, these countries might be better off not making more commitments under GATS on market opening via commercial presence - particularly so in the financial and other services sub-sectors where the beneficiaries are the enterprises of the industrialized world.

In fact, given the Kafkaesque situation created by the statisticians who prepared the UN-approved services data manual, developing countries should seriously assess the possibility, in terms of Article XXI of GATS, of modifying or withdrawing some of the commitments already made. They received no benefits in the services sector in terms of reciprocal market access, and the ‘withdrawal’ of equivalent concessions by affected Members will not necessarily harm them.

At a dialogue/seminar held at the WTO on 12 March, organized by WWF International, World Development Movement, Public Services International (PSI) and Centre for International Environment Law, the EC confirmed that one of its proposals for classification under environment services would bring in water services into the GATS remit though, the EC insisted, it was aimed not at market access but at ensuring sustainable use.

The EC clarification came in response to the concerns of the PSI that provision of water services was ‘creeping’ into GATS coverage. The UK and Uruguay questioned the PSI view, claiming that there were no proposals for market access so far. However, the EC later clarified that while no market-access proposals had been made, the EC has proposals on the table for classification or reclassification of water services, e.g., treatment.

The EC sought to project its proposal in terms of sustainability of water resources and ensuring proper mechanisms for pricing, etc. by introducing market forces or a market approach in the chain of water services, so as to ensure that there can be sustainability.

In the run-up to the WTO’s last Ministerial Conference in Doha, the WTO secretariat had, in a public relations exercise about GATS (in the form of a document entitled GATS - Fact and Fiction), gone to great pains to suggest that the public interest NGOs warning about the inclusion of public services in the GATS remit were doing so under a misapprehension.

The EC clarification now suggests that the NGOs might not have been as off the mark as the secretariat painted them to be. For, if water services are classified or reclassified and the logic of the market is applied on grounds of sustainability (similar to the argument used by the IMF and the World Bank in promoting privatization and the imposition of user fees in developing countries), water services would fall under the mischief of Art. I of GATS. That Article holds that a service provided on a commercial basis would no longer be considered “a service supplied in the exercise of governmental authority” and would thus attract GATS discipline.                                                  

The above article is abstracted from “GATS emergency safeguards talks to be extended?” (SUNS #5079) and “GATS Council extends time for safeguards agreement” (SUNS #5081).

From TWE No. 276 (1-15 March 2002)