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Back to square one on GATS emergency safeguards

Geneva, 10 Dec (Chakravarthi Raghavan) - Eight years after the conclusion of the Uruguay Round Agreements (and the further work mandated there), and after seven years of ‘multilateral negotiations’ at the WTO on emergency safeguards measures in terms of Article X of the General Agreement on Trade in Services (GATS), the negotiations are now back to square one, namely the desirability of having a safeguards agreement.

In providing at a media briefing this assessment of the various GATS bodies dealing with some of these questions (the others are about negotiations relating to subsidies in services trade and government procurement), the Director of the GATS division, Mr. Hamid Mamdouh, said three issues faced by the trade negotiators are: who is to be protected, and from what, and what would be the objective of such a safeguards agreement in services.

Mr. Mamdouh said in so many words that the mandate for multilateral negotiations in Article X was to go into the ‘question’ of emergency safeguards - namely, whether one was needed and or whether there should be GATS provisions on these.

At the time the GATS was negotiated, said the WTO official (who before joining the GATT/WTO secretariat was an Egyptian services negotiator), when the issue had cropped up, the developing countries were not quite sure whether one was needed and what would be its effect, given the different nature of the services trade and its modes of supply, and the fact that trade in services was not like the trade in goods where the goods crossed frontiers and emergency safeguards had been put into GATT. At the same time, developing countries at that time did not want to foreclose their option of having such a provision.

In terms of mode three (commercial presence), it was not clear who the safeguards provisions could protect against whom and how. And such a provision for mode 4 (movement of natural persons) would enable any country to withdraw easily concessions made, and thus hit the developing countries who seek concessions in this area.

Apart from the difficulty of reading into Art. X:1, by mere reference to ‘question’, that what was provided was the issue of whether there should be emergency safeguards provisions, and not its scope and conditions, the fact remains that at the time the GATS was adopted and became part of the Marrakesh Agreement, and subsequently when further negotiations were held (under basic telecom, financial services and others), the developing country negotiators had sold the agreement to their domestic constituencies and parliaments on the basis that some of these questions were to be negotiated.

In the context of the new round of GATS negotiations, set in motion in 2000, several of the developing country governments have also held out to their domestic lobbies and parliaments, who have become wary of the ‘foreign presence’ in their services markets and resulting in closure of their own enterprises, that they could make commitments on the basis of negotiating emergency safeguards provisions and being able to invoke them if necessary.

This came out into the public in the aftermath of the 1997 Asian financial crisis, and then its spread subsequently to Latin America. In Asia, and particularly in Thailand, Korea and other countries where the previous unilateral liberalisation of various service sectors had been found to have been major contributors, if not the only, to their crises, the governments held out assurances to their domestic constituencies that their interests would be taken care of in the future through negotiating a GATS emergency safeguards provision.

However, the attempts to write ‘emergency safeguards’ provisions for trade in services, on the lines of the paradigm for such safeguards in the GATT (trade in goods across frontiers), also ran into difficulties, more so in the complete absence of any data about ‘trade in services’ that would be needed if the GATT paradigm were to be followed.

There is of course nothing in GATS requiring the GATT paradigm be followed.

However, the trade liberalisation theories formulated in the goods area (some of which including the benefits of liberalisation to liberalisers, and the trickle-down theories of benefits by trade producing growth) have been so blindly advocated and followed for GATS (as now promoted for investments) even in the absence of any empirical evidence of the benefits or applicability, that the negotiators (and the WTO trade establishment) perhaps are unable to get rid of.

And the scheduling of commitments in services in mode 3 (commercial presence, an euphemistic term for foreign investments) had been presented as a way by which countries would be able to provide assurances of stable climate and government policies to attract their much desired FDI.

If that were so, it was argued, any emergency safeguards would thus involve either preventing new entrants and thus ensuring monopoly of existing foreign service providers, or taking actions against existing ones (and thus sending a contrary signal to foreign investors).

However, some recent studies show that the theory that liberalisation, and making commitments and scheduling them under GATS, results in more FDI have been disproved.

A World Bank staff policy research paper by J. Michael Finger and Julio Nogues (2001), ‘The Unbalanced Uruguay Round Outcome’, has brought out that in Argentina, the pattern of investment showed that “locking in openness through WTO commitments under the GATS was not the key to attracting foreign direct investment... the growth of foreign investment was higher in services sectors where commercial presence was not bound at the Uruguay Round than in those in which it was bound...”

Having found such an empirical evidence and the conclusions flowing from it, Finger and Nogues, nevertheless found themselves bowing to the World Bank ideology and putting some propositions, including the benefits of locking in commitments through WTO scheduling, and thus ensuring there are no second thoughts or change of policies in future due to political pressures.

However, it conceded that doing so resulted in ‘unrequited, weakened negotiating positions of the country in future negotiations’ and that as a result ‘Argentina today is less attractive as a country to exchange concessions with visavis other developing countries that at the UR services negotiations were less forthcoming.  This is a permanent loss.”

The crisis that has come out into the public since Dec 2001, and the subsequent information and data that have become available via other studies, suggest that the concessions scheduled at the WTO, and the foreign investments that came in via privatization (financial services, water, telecommunications, utilities etc) fled the country as fast, or even faster than others, and that no particular ‘security’ is provided to host countries.

Mamdouh said that without answers to essential questions relating to whether there should be a safeguards mechanism in GATS, it is difficult to negotiate safeguards provisions.

Formally, the mandate of the working party in GATS looking at this issue has been extended until next April.

Meanwhile the formulation of a draft modalities paper, the chairman’s text, is now being revised.

Two questions needing to be resolved relate to how credits could be given to the concessions made by newly acceding countries as part of their accession protocol, and how it could be done for developing countries who have undertaken autonomous liberalisation.

The usual idea (of the secretariat, as well as the majors) based on the traditional GATT paradigm is for such concessions to be scheduled and committed and thus credit claimed.

However, in the light of new evidence (or rather lack of empirical evidence) and the problems of safeguards etc, raise questions as to how far developing country trade negotiators should pursue this, and get credit and lock in their countries, undemocratically, against future change of course of policy, and thus endanger their own development. – SUNS5252a

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