US ‘leads’ in making more mercantilist demands on South

The US and EC have submitted to other WTO member countries requests for market-opening in a host of services sectors. These latest demands were issued amid assurances by the WTO secretariat that the ongoing services negotiations would benefit the developing world and not undermine the provision of essential public utilities - assurances which, as the following article reveals, are not rooted in practical reality.

by Chakravarthi Raghavan

GENEVA: The United States announced in Washington DC on 1 July that it had formulated and sent to other WTO members “specific requests” (which are really mercantilist demands for greater market access) for access by US service suppliers to their markets, such as in financial services (including banking and insurance), telecommunications, express delivery, energy services, computer services, distribution services and environmental services.

The European Communities, the other major demandeur, has already formulated and sent out to the developing countries its demands on them for market access openings in the services sectors. In the ongoing WTO negotiations on services trade, countries had to submit their initial “requests” for commitments by other members by 30 June and, in response to the requests received, must submit their “offers” by 31 March 2003.

Debunking liberalization propaganda

The US administration of President George W. Bush, which has increased the barriers for developing countries seeking to export to the US market (in agriculture and industry, among others), has, in formulating its demands on developing countries, described it (in a press release) as “US leadership spurs momentum to fulfill Doha Agenda.”

“Liberalizing services has a force-multiplier effect, reverberating across an entire economy - every product, idea or consumer benefits from a more effective and efficient services sector,” the US Trade Representative Robert Zoellick declared in a statement in Washington. He placed the services proposals in the context of what he called offers by the US in recent weeks of “proposals to liberalize global trade in agriculture... and a framework for easing WTO rules to allow poor countries to gain greater access to drugs needed to combat HIV/AIDS, malaria, and other public health crises.”

Not to be outdone, the WTO secretariat put out in the week of 24 June more propaganda along the same lines, in the form of a fact sheet and press release about how “services negotiations offer real opportunities for all WTO members and more so for developing countries.” That fact sheet makes several claims about the benefits to the developing world of services liberalization, and cites a World Bank claim that liberalization of services in developing countries could provide “as much as $6 trillion” in additional income in the developing world by 2015, four times the gains that would come from trade in goods liberalization.

A number of academic studies and papers have been coming out in recent weeks and months looking at the data and other claims from the World Bank, WTO etc and re-examining them. They conclude that there is a great deal of hype and computable general equilibrium model projections, based on stated and unstated assumptions (including about efficiency gains in perfectly competitive markets), that bear little resemblance to the reality of life in the real economy.

Though WTO trade officials and mercantilist economists in trade establishments of Europe and America often try to suggest that liberalization of trade in services, including financial services, is different from liberalization of capital markets and capital accounts of countries, a careful look at various studies from mainstream and non-orthodox economists alike shows there is no real distinction in practical life but merely different means of achieving the same ends.

At the tenth session of the United Nations Conference on Trade and Development (UNCTAD X) in Bangkok in 2000, during a seminar on new financial architecture, Yilmaz Akyüz, Director of UNCTAD’s Globalization and Development Strategies Division, and Jose Antonio Ocampo, Executive Secretary of the UN Economic Commission for Latin America and the Caribbean, were both agreed that developing countries would do well to push for and retain autonomy over their financial systems and capital inflows and outflows rather than move towards any kind of capital or financial market liberalization.

In a study on capital account liberalization, commissioned for the World Bank Economic Review, Barry Eichengreen of the Berkeley campus of the University of California notes that models of perfect markets suggest that international capital movements benefit both borrowers and lenders and poses the question: “If domestic financial markets can be, and increasingly are, counted on to deliver an efficient allocation of resources, why cannot the same be assumed of international financial markets?” The answer, he points out, is that this efficient-markets paradigm is fundamentally misleading, and that capital and financial liberalization and removing distortions in markets need not be welfare-enhancing when other distortions are present.

“There are any number of constellations of distortions, especially in developing countries, for which this is plausibly the case,” he says, citing the view of Joseph Stiglitz to the effect “If information asymmetries are endemic to financial markets and transactions, then there is no reason to assume that financial liberalization, either domestic or international, will be welfare-improving.”

Referring to the various arguments for and against liberalization, Eichengreen also notes that while there is theoretical support for both positions, “the unfortunate fact is that the evidence on them does not speak clearly.... attempts to move beyond anecdote and assertion to systematic empirical analysis have not yielded conclusive results ...”

Claims of welfare-enhancing efficiency gains by liberalizing services are mostly based on anecdotes, and have not so far produced empirical evidence that stands up to scrutiny and yields conclusive results that could be used by policymakers.

Perhaps it was a case of having been unnerved by announcements of civil society movements like ATTAC and various Swiss and European NGOs about their intended demonstration against the WTO on 29 June. But whatever the reason, on 28 June came the WTO fact sheet on the services talks, with a paragraph about the concerns over the effects of services liberalization on education and health services.

“These negotiations have been inaccurately portrayed in certain quarters as facilitating the liberalization or privatization of government services, including health, water distribution and education. This is untrue. The facts are that such sectors have rarely been discussed in the negotiations and that the principal focus of the talks lies in other service sectors.”

Perhaps the emphasis in the last sentence of the paragraph is on the words “rarely” and “principal.”

Article I:3(b) of the WTO’s General Agreement on Trade in Services (GATS), which is a definition clause, defines “services” to include any service in any sector except services supplied in the exercise of governmental authority. However, the next subparagraph, Art. I:3(c), is a kind of proviso to this and says that “a service supplied in the exercise of governmental authority” means any service which is supplied neither on a commercial basis nor in competition with one or more service suppliers.

Any ordinary reading of GATS would show that in terms of the agreement’s definitions of “measures” and of “services”, any measure covered by the agreement would automatically attract Article II of GATS (the most-favoured-nation (MFN) requirement), unless it had been listed in a country’s Annex on Article II Exemptions.

In the run-up to Seattle and thereafter, WTO secretariat officials in the services division (then headed by David Hartridge, who has now retired and joined a law firm in Geneva) cited the GATS definition of services to rebut the concerns and apprehensions of NGOs about the effects of the services talks on the privatization of public services, an issue which then figured very prominently on domestic agendas in Europe and North America.

The officials were then asked to explain what would be the effect of the subparagraph Art. I:3© in developing countries where the IMF and the World Bank were forcing governments to collect user fees for providing basic water and sanitation to the public, in places like Latin America and Asia where there is a drive for privatization, or in countries like the UK where the private sector is being considered for competition with the public sector.

They were also asked about the situations in countries where the education systems allow schools and colleges to be run by private authorities and even ‘compete’ to provide these “education services” to foreign students. Other such “service suppliers” want to go into developing countries to provide similar services.

The trade officials initially advanced the view, in relation to developing countries, that some amount of “competition” from foreign service suppliers would be good for their consumers. However, after some hedging, they ultimately agreed that there was some ambiguity in the definition clause, but that the situation could be clarified by an authoritative interpretation adopted in an appropriate way.

These are not theoretical issues. In New Delhi, India, a controversy has already erupted over a decision to give a licence for a foreign firm to invest in a water treatment and purification plant, drawing on a public water resource (from a controversial hydroelectric project) to supply water and services to a residential colony inhabited by the upper middle class and the rich.

And in Latin America, where privatization and opening up of service sectors to competition from foreign investment was presented as a way to improve services and provide cheaper services to consumers, such services as water, electricity etc. have in fact proved costlier, particularly since the foreign service provider costs them in the foreign currency.

On 28 June, the same day as the secretariat fact sheet was released, came another press release where Mike Moore, Director-General of the WTO, and Ambassador Alejandro Jara of Chile, Chairman of the Special Session of the WTO Council for Trade in Services which runs the services negotiations, underscored that “WTO negotiations to liberalize trade in services were no threat to government services and that such sectors of the services economy were in fact excluded from the negotiations.”

No one outside the WTO these days nor inside the secretariat and among trade ambassadors would pay serious attention to Moore and his views. Amb. Jara and the government he represents may be entitled to his views about the “ordinary” dictionary meaning (perhaps it reads the same in Spanish too) of the definition of services in GATS; but his views as chair are another matter. For, the chairpersons of the negotiating bodies have been told by the WTO Trade Negotiations Committee (TNC, February 2002): “Chairpersons should be impartial and objective, and discharge their duties in accordance with the mandate conferred on the TNC by Ministers.”

Until and unless GATS is amended to make clear that health, water, sanitation, education and other such public utility services, whether actually provided by a government directly or by private parties under authorization or licence of the government, will be excluded from the scope of the WTO, no one can remain content or confident on the basis of views of the secretariat or public statements about the scope of GATS. This is because even if no one makes a demand now for the liberalization of such services, it could come up two negotiating rounds down the road; or the meaning of the GATS clause concerned could be provided in a binding way by the WTO’s Appellate Body at some future time. (SUNS5152)               

From Third World Economics No. 284 (1-15 July 2002)