GATS talks without mandatory assessment?

WTO negotiations on further liberalization of services trade appear set to proceed despite the continued failure to undertake an overall evaluation of trade in this area as required by WTO rules, and even as available analysis reveals developing countries to be reaping little gain from an area dominated by the industrialized world.

GENEVA: The negotiations for liberalization of services  under the WTO’s Doha work programme seem likely to proceed in clear violation of the mandatory requirements under Article XIX:3 of the General Agreement on Trade in Services (GATS), the recently concluded week of regular sessions of the Council for Trade in Services (CTS) and subordinate bodies and the CTS special session running the talks, suggest.

Before each round of services negotiations, an assessment of trade in services is required under Art. XIX:3, which also calls for the setting out of guidelines and procedures for the negotiations in the light of the assessment, including in relation to the objectives of GATS in Art. IV:1 (to facilitate the increased participation of developing countries in the world trade in services through specific negotiated commitments).

At the meeting of the special session of the CTS in the week of 3 June, a paper presented by Pakistan on behalf of a number of developing countries said that in the period from the adoption of GATS (1995) to end 1999, the share of developing countries in world services exports had only increased by a small percentage, 6%, while the share of the developed countries accounted for three-quarters of world services exports, with a high degree of concentration. The paper also said that the service providers from developing countries (mostly small and medium enterprises) face competition from the large transnational service corporations.

As such, the paper said, the trade liberalization in services under GATS has only in part led to exports of services from developing countries, and the growth in services exports for some developing countries has been more than offset by growth in imports; thus the objectives of GATS, in terms of benefits of liberalization and increasing share of developing countries in services trade, have not been achieved.

Nature of assessment

In briefing the media on the week-long talks and answering pointed questions, Hamid Mamdouh, Director of the Services Division of the WTO secretariat, suggested that the assessment of the benefits of past commitments and liberalization would not merely depend on these, but on the steps and measures taken by each country through regulatory processes, and on the contribution of services imports to the overall efficiency of the country’s economy, including its exports (in goods).

In this regard, Mamdouh (an Egyptian national himself and an Egyptian negotiator in services before he joined the secretariat) cited the case of Egypt and said that while its imports of services had increased, this had benefited the economy and its oil exports.

It is for each country, he suggested, to carry out a “national” assessment.

However, there is little ambiguity in the language used in Art. XIX:3 and Art. IV:1 of GATS on what the CTS is required to do collectively. This, however, is a process which doubtless requires a “consensus” of the member governments, one which the main beneficiaries of this “services liberalization”, the United States and Europe, have been resisting by pointing to the difficulties involved, even as they try to persuade and pressure the developing countries to make more concessions and further liberalize their services sectors on somewhat questionable grounds of economic efficiency and “welfare” economics of free trade.

Art. XIX of GATS calls for negotiation of specific commitments and progressive liberalization of services in successive negotiating rounds. Paragraph three of that article says, in this regard: “For each round, negotiating guidelines and procedures shall be established. For the purposes of establishing such guidelines, the Council for Trade in Services shall carry out an assessment of trade in services in overall terms and on a sectoral basis with reference to the objectives of this Agreement, including those set out in paragraph 1 of Article IV ...”

The Uruguay Round negotiators who negotiated GATS have clearly set out, in the preamble of the agreement, the objectives as:

·        progressive liberalization, as a means of promoting economic growth of all trading partners and the development of developing countries;

·        successive rounds of negotiations promoting the interests of all participants and securing an overall balance of rights and obligations;

·        in regulatory issues and introducing new regulations, (recognizing) particular needs of developing countries to exercise this right;

·        facilitating increased participation of developing countries in trade in services and expansion of their services exports including, inter alia, through the strengthening of their domestic services capacity and its efficiency and competitiveness.

Not satisfied with such general exhortatory statements, the GATS negotiators also set out, in Art. IV (“Increasing Participation of Developing Countries”), a specific requirement in para. 1: “The increasing participation of developing country Members in world trade shall be facilitated through negotiated specific commitments, by different Members pursuant to Parts III and IV of this Agreement [on specific commitments and progressive liberalization respectively], relating to: (a) the strengthening of their domestic services capacity and its efficiency and competitiveness, inter alia through access to technology on a commercial basis; (b) the improvement of their access to distribution channels and information networks; and (c) the liberalization of market access in sectors and modes of supply of export interest to them.”

While no data on trade in services according to the GATS definitions are available and will never be clearly and fully available (given the view taken by the statisticians, in the Statistical Commission of the UN General Assembly in New York, who have drawn up a manual on services data which in effect ignores the definitions in GATS), it is difficult to contend that even ‘qualitative’ assessment is not related to the commitments already negotiated in the services sector as a whole and in specific sectors, and that it is not feasible to make an overall assessment so as to adjust the guidelines of the services negotiations to achieve the  three  clear  objectives  set  in  Art. IV:1.

Even in terms of overall efficiency and benefits to the economy as a whole, the experience of Argentina, which had liberalized almost all sectors (including, in a massive way, the financial services sector) and is now finding itself in a disastrous condition, is a case in point. For one to look at the benefits of services liberalization for the overall efficiency of an economy, it is immaterial how much is scheduled and committed in GATS and how much is not. In fact, as a World Bank staff study has brought out, in terms of liberalization bringing in more investments, those liberalization commitments that were not “scheduled” (bound) in GATS benefited, while those scheduled did not produce any such gains.

Developing countries have been raising these issues of assessment, both in the run-up to the 1999 WTO Ministerial Conference in Seattle and since then.

GATS goals unrealized

The statement made by Pakistan on behalf of a group of developing countries said that while they recognized the potential benefits of trade in services for their economies, the gains from services liberalization have often been nullified by such factors as limited access to modes and sectors of export interest to them and/or supply-side constraints.

Though they recognize the contributions of services to GDP and employment in their economies and the potential of services exports for economic development, developing countries consider that the assessment of trade in services, as mandated in GATS, shall be conducted in overall terms and on a sectoral basis with reference to the objectives of the agreement set out in Art. IV:1 in order for the developing countries to participate in a commercially meaningful manner in the services negotiations.

While the developing-country paper concedes the lack of adequate and complete data, and lack of internationally comparable statistics on services, a qualitative assessment is possible and necessary, particularly since several of the goals of Art. IV are of a qualitative nature.

Using available research and analysis, the paper says:

·        The fundamental objective of the GATS preamble has not been attained. Developing countries have made substantial commitments under GATS in many services sectors, but have not received concessions of any meaningful economic value, including under the mode of supply of “movement of natural persons”. In addition, some developing countries had also undertaken autonomous liberalization under structural adjustment programmes and in the negotiations on financial and telecom services, without receiving reciprocal benefits.

·        The share of developing countries in world services exports has increased only by a small percentage, 6%, and that too mostly due to export competitiveness of Asian developing countries. On the other hand, the developed countries have benefited and account for three-fourths of world services exports and represent most of the top 20 exporters in different services sectors.

·        For some developing countries, growth in imports has been larger than growth in exports, and many face a deficit in trade in services in most sectors. Thus, the growth in services exports has been more than offset by growth in services imports.

·        The specific objectives of GATS Art. IV:1 have not been achieved, and developing countries face a number of critical barriers to their services exports: prohibition of access (nationality, residency or visa requirements); price-based measures (entry and exit taxes, visa fees and tariffs on goods in which services are embodied); subsidies granted in developed countries (including in high-tech sectors); technical standards and licensing requirements; and lack of transparency in government measures. Access to information and distribution channels is also subject to discriminatory processes which have restricted competition.

·        Benefits from privatization and liberalization are not automatic without appropriate preconditions and policies to encourage and enhance technological capacity and diffusion, as well as complementary policies to help improve access to essential services for the poor.

·        Liberalization of services also entails adjustment costs; thus, without adequate flanking policies  (including a combination of competition and regulation, including regulations with social goals such as ensuring universal services), services trade liberalization might not achieve overall goals. (SUNS5136)

From Third World Economics No. 282 (1-15 June 2002)