TWN Info Service on WTO and Trade Issues (Nov07/29)

30 November 2007

Trade: Explosive situation developing in WTO services talks on text

Published in SUNS #6370 dated 21 November 2007
Geneva, 18 Nov 2007
By Martin Khor (TWN)

While much of the focus on the WTO's Doha talks have been on agriculture and non-agriculture market access (NAMA), the services issue has also emerged as an area of contention.

This is because of the strong push that the major developed country members have made to get developing countries to open up their services markets through multilaterally agreed principles or measures beyond what have been agreed to at the Hong Kong Ministerial.

The developed countries have succeeded in getting a discussion going on whether to have a text on services to be adopted, and whether this should be at the same time when the agriculture and NAMA modalities are adopted.

Most developing countries were initially against having a services text; they argued a text already exists in Annex C of the Hong Kong declaration. Moreover, the negotiations are taking place mainly at a bilateral basis and partly in the new plurilateral format agreed to at Hong Kong. There is thus little role for the multilateral process in the market access aspects, and its role should be on concluding the negotiations on services rules and domestic regulations.

However, many developing countries implicitly agreed that consultations could proceed on such a text. They did insist that whatever text is evolving must be faithful to Annex C and the several development principles and flexibilities in GATS and in the services guidelines for the Doha negotiations.

A group of ten developing countries (India, China, Brazil, Philippines, Thailand, South Africa, Indonesia, Pakistan, Argentina, and Morocco) in fact issued a Room Document setting out their "possible elements of a services text", which mainly reaffirmed Annex C and the GATS development flexibilities, while asking that improved and significant commitments in sectors and modes of interest to developing countries be reaffirmed.

Most developing countries remain skeptical and reluctant to have a text, while several developing countries such as Venezuela and Bolivia have made clear that they oppose any text at all. But in the past week, even those countries that had agreed to go along have become upset at the way the developed countries have aggressively upgraded their demands on the developing countries.

The turning point came when the United States issued a detailed proposal on "Elements for a text" whose very first point was that "services market access ambition must be comparable to the ambition in agriculture and NAMA." In brackets, the US added that services is one of the three market access pillars (of the Round).

This is an attempt to create a new template. Most developing countries argue that agriculture is the leading factor driving the Round, with NAMA to follow, and services only a third factor, at least in terms of sequencing. The US paper is an outright attempt to put services on the same basis as agriculture and NAMA.

In its key operational demands, the US paper also asks that a services text sets "guidelines instructing Members" to positively respond to bilateral and plurilateral requests with a view to achieve higher liberalization, and reducing or eliminating adverse effects on services trade as a means to provide effective market access by offering commitments to: (a) reflect current levels of market access and national treatment; and (b) provide new market access in sectors where trade impediments remain.

At an informal services meeting on 15 November (the same day the G20 and other Ministers and senior officials met at the WTO), Brazil made a lengthy and detailed statement responding to the US proposal.

Brazil said that when a "Chairman's text" in services was first floated, it was sceptical about the usefulness of such a document. Even by the time we achieve full modalities in agriculture and NAMA, these two negotiating areas will still be "lagging behind" services, where we already accomplished the tabling of revised offers and there have been fruitful rounds of plurilateral discussions, said Brazil.

The services negotiations are a remarkable "success story" in a Round where some Members have been dragging their feet in agriculture for more than four years. Hence, the very idea of a "services text" looked bizarre when "lack of progress" and "need of political guidance" would be more properly referred to other negotiating areas, added Brazil.

Nevertheless, in a gesture of good faith, said Brazil, it agreed to discuss the possible elements for a services text on the understanding that some members needed to give some "political visibility" to the services negotiations in order to justify to their domestic constituencies the difficult decisions they need to make in other areas. In any way, before consultations have started, the vast majority of the membership stated clearly that such a "services text" should fully respect Annex C, as it was negotiated by ministers in Hong Kong.

After two meetings to discuss the elements for such a text, Brazil said it already has the feeling that the process has backtracked. Some members are unashamedly trying to rewrite Annex C, under the argument that its provisions were just a "floor", where changes could be added in order to "improve it". Those delegations seem to forget that Annex C reflects a very delicate balance, a very thin compromise on some contentious issues which almost brought the Hong Kong Ministerial to collapse, said Brazil.

Now, added Brazil, we are confronted with a "proposal", which states that (I) services market access ambition should be comparable to the ambition in agriculture and NAMA; (ii) a factual assessment of the market access negotiation should be made, reflecting the range of Members' views and providing concise, non-attributed summary of the responses to collective request; and, finally, to add insult to injury, (iii) Members shall undertake commitments which reflect current levels of market access and national treatment, as well as provide new market access in sectors where trade impediments remain.

Any serious consideration of those proposals, either individually or collectively, would lead us to the conclusion that the whole negotiating process in services would be dramatically changed, stressed Brazil.

Firstly, the very idea of "comparability" between agriculture/NAMA and services is difficult to grasp. First of all, because bound commitments in services is not just the result of a negotiating process, but also consequence of a previous domestic process of regulation and liberalization. To a large extent, trade in services is already liberalized in the ground, but the binding of such market openness depends upon the multilateral negotiating process.

Brazil said that trade in agriculture, in contrast, is largely distorted by subsidies, tariff peaks, tariff quotas, counter-cyclical payments, crop loans and other creatively-named measures. Hence, ambition in agriculture means slashing tariffs and subsidies. In the end, how do you compare the outcome in those negotiations with the binding of services commitments, asked Brazil. The proponents did not come forward with any methodology to do so. In any case, we would spend a lot of time discussing such method.

Moreover, the proponents rely on the argument that services, agriculture and NAMA form a "three-pillar" of market access negotiations. True, said Brazil, but the Doha Declaration does not separate the market access from rule-making, and on the contrary, in agriculture, market access and disciplines are explicitly linked.

In the context of a "single undertaking", to follow that reasoning, it would be more appropriate to compare services not only to agriculture and NAMA, but also with trade facilitation, the review of S&D provisions, and rules negotiation, said Brazil. Especially at this juncture, where attempts are being made to legalize the practice of "zeroing" in anti-dumping investigations, it would be advisable to bring the outcome of rules to the "comparability exercise" proposed, since an outcome on "zeroing" could adversely affect effective market access.

Secondly, said Brazil, the idea of a factual assessment can be particularly harmful to the whole process. We may well spend the next months negotiating our "common assessment" on how the collective requests have been met or not, especially if such assessment should reflect the whole range of Members' view.

It would be a daunting task, assuming it is feasible, to convey the different views of 150 members on 21 plurilateral requests. We could be in a position that, when modalities in agriculture and NAMA are completed, we will be negotiating views rather than commitments, said Brazil. Perhaps, then, truly, we could say that "services are lagging behind".

Brazil said it failed to understand how a "factual assessment" in a consensus-based text would help us move forward. Each Member has its own evaluation of the whole process and how their demands are being met or not. Time will come, when modalities in agriculture/NAMA are in place, when Members will be able to make, in a request-and-offer process, their assessments be translated in final offers in all market access negotiations.

If a "factual assessment" can help to give progress to the negotiations, perhaps the agriculture negotiations could undertake a factual assessment on the US cotton subsidies, the European Sugar Regime, the tariff peaks in Japan and Switzerland, as well as in Brazil and Argentina, in order to convey all the Members' views, and hope that this assessment would help negotiators to agree on the negotiating modalities, said Brazil.

Finally, said Brazil, the US proposal asks that members ensure that the final commitments should reflect current levels of market access and national treatment, as well as provide new market access in sectors where trade impediments remain.

By itself, this proposal already looks like a "benchmark is disguise", said Brazil But even more, the proposal should be seen in conjunction with the two previous suggestions, on "comparability" and "factual assessment".

In terms of "comparison", added Brazil, it does sound strange to ask for members to bind their actual levels of liberalization in services and even provide new market access, when, on the other hand, some members refuse to bind, let alone lower, their levels of agricultural subsidies, which are high and distortive.

In such comparison, members will be required to cast on stone their market openness in services, while some members will have the "policy space" to increase agricultural subsidies, distort markets and do harm to rural livelihoods, said Brazil.

It added that if we add the "factual assessment" to this equation, perhaps it would be useful to remind that, according to the OECD latest "Agricultural Outlook", the levels of expenditure in domestic support in developed countries has increased in absolute terms.

Brazil remarked that the proponents (of a services text) have put forward some interesting arguments to support their ideas. One is that there is a logical relationship between all negotiating areas. Second, an evaluation of services state-of-play is needed to take negotiating decisions further on. Those arguments are true in themselves, but they do not support in any way the suggested actions.

Brazil added that there is an obvious relationship between all the negotiating areas. This so true that we are unable to present final offers before the completion of the modalities in agriculture./NAMA. Once they are completed, all members will make their own evaluation to guide their next movements.

Those evaluations, not only regarding services revised offers but in other negotiating areas as well, will be properly reflected in the final stage of the request-and-offer process. In this context, there will not be any single and universally applied criteria for comparing and assessing different negotiating areas, but each member will apply its own criteria, according to its own national policy objectives and trade interest.

In this regard, said Brazil, further requests and offers will be given and taken, and the overall result will reflect this balance.

Brazil concluded that many members do not agree with this picture, but that was the understanding we all agreed when drafting the Negotiating Modalities, when launching the Doha Round and when adopting Annex C. Those are the conditions we agreed to negotiate services. Those are the conditions that some are willing to change now.

Brazil said there was still time to avoid a situation like the one experienced in Hong Kong. Perhaps, this time the final outcome could be a complete collapse of the negotiations, it warned. Those who cannot learn with the past are condemned to relive it, Brazil quoted, and added that it feared history will repeat itself not as a farce, but rather as a tragedy.

According to diplomats who were at the meeting, after Brazil made its detailed statement, several other developing countries spoke along the same lines as Brazil These included Argentina, India, Barbados, Morocco, Kenya, Malaysia, Indonesia and Pakistan.

At the end of the meeting, the Chair of the services negotiations, Ambassador Fernando de Mateo of Mexico, indicated that he will continue his consultations on a services text, but also indicated that he does not have any concrete steps in mind for the immediate future. He will consult further on what to do next and when.

Meetings will resume in two weeks to address the rest of the items on the agenda of the Special Session on services. +