Global Trends by Martin Khor

Monday 3 October 2005

South fights back on services at WTO

At a meeting on services at the World Trade Organisation on 28-29 September, developing countries fought back against a proposal by the rich nations to open up their services markets through a new method. Among the countries protesting the moves were Malaysia and several other Asean countries.


Developing countries have fought back against plans by the rich countries to open up their services markets at a meeting at the World Trade Organisation last Thursday and Friday in Geneva.

Many groupings of the South, including most Asean countries, the Africa Group, the Caribbean countries and many Latin American countries led by Brazil, spoke up strongly against the developed countries' proposals to change the rules in the WTO to accelerate the liberalisation of services in developing countries.

In the proposals, developing countries would no longer be able to liberalise at their own pace and in their own chosen sectors, but would have to commit to open up a certain number of key sectors out of a list to be agreed on.

The meeting of the WTO's Services Council was a battleground last week between developed countries (led by the European Union and Japan) and most developing countries over the pace of liberalisation and the policy choices that developing countries will have in future.

At stake is the future of local enterprises in areas such as banking, insurance and other financial sub-sectors, telecommunications and other utilities, distribution, and professional services.

Up to now, countries are allowed to choose whether to open up to competition from foreign firms and to what extent in the various sectors, under the General Agreement on Trade in Services (GATS).

This is known as the positive-list approach where liberalisation is committed only in sectors inscribed by a country in its services schedules in the WTO

Other countries can request that a particular WTO members open up in more areas, but it is up to that member to respond in the way it wants through offers made in the WTO.  This is known as the request-offer method of negotiations.

The rich nations' plans to change this through a multilateral benchmarking approach (where developing countries have to open up in for example six out of ten selected sectors) came under heavy fire at last week's meeting.

Some major Asean countries were among the most vocal critics.  A joint statement by Brunei, Indonesia, Malaysia, the Philippines and Thailand was presented by Philippines Ambassador, Manuel Teehankee.  They said the request and offer method should remain the main method of negotiations.

“Like many other members, we are still not clear how this will not in effect eventually replace the bilateral request-offer process or reduce it to a mere monitoring process,” they said.   The proposals also may not adequately cover the developmental dimensions of flexibility for developing countries.

Room for policy manoeuvre is very crucial, said the Asean countries, especially since countries are unable to change their liberalisation commitments once they are made, unless they are willing to pay compensation which can be highly punitive.

Each member has scheduled its own limitations in sectors, and is allowed to gradually liberalise at its own pace, which takes place when it corresponds to domestic policies.  Services liberalisation should also be accompanied by sound macroeconomic management and appropriate regulation and supervision.

“Our authorities continue to carefully consider the pace and sequencing of further liberalisation in sectors together with a comprehensive review of our existing regulatory regime to secure the soundness of our services sectors, especially sensitive systems such as financial services and telecoms.”

The countries said they are concerned that the proposed approaches may undermine such GATS flexibilities.  “A member may be caught in situations where it has no choice but to undertake commitments prematurely to fulfil the targets. This may undermine the principle of progressive liberalisation.”

The five Asean countries added that the “scoring approach” (a proposal to give scores to countries, with high scores to those that have liberalised more) could send a wrong message.  It does not help increase the comparability of schedules but generalises Members’ commitments into a simplified value.  

“The scoring approach will transgress negotiations into viewing services negotiations akin to goods negotiations where one plus one is equal to two,” they said.   A fair and accurate method to translate commitments into indices is lacking.

“It is dangerous to request for an agreement on the desirability of complementary approaches before the design is fully fleshed out.  It is comparable to asking for a blank cheque."

The African Group, represented by Egypt, said that establishing any targets would reduce the flexibility inherent in the GATS.  Though the proposals claim to be complementary to the request-offer approach, they in fact seek to replace it. 

The least developed countries said they face structural weaknesses in their local service sectors which would be compounded by the proposals which they therefore rejected.

Several Caribbean countries, represented by Jamaica, rejected the proposals, saying that these undermine the flexibility, and “policy space” allowed by the GATS.

Brazil also attacked the proposals for not respecting the structure of the services agreement and the flexibilities given to developing countries. The proposals would also burden mainly the developing countries, while the rich countries would get off free because they had liberalised more of their services before and thus did not have to do more.

The severe criticisms by developing countries have put the developed countries on the defensive for the time.  But they are expected to continue to pile on the pressure on this issue between now and December, so as to get a favourable decision at the Hong Kong Ministerial of the WTO in December.