GATS negotiations should first reduce current imbalance

The process of liberalization of the services sector has so far weighed heavily in favour of the developed countries. In order to redress this imbalance in the new round of upcoming talks in the services sector, developing countries should not undertake any further commitments on liberalisation and the developed countries should liberalise the sectors of export interest to the developing countries.

by Bhagirath Lal Das*

Geneva, 14 July 2000 -- A new round of negotiations on trade in services “with a view to achieving a progressively higher level of liberalisation”, as mandated in Art.XIX of the GATS, has begun at the World Trade Organization. Two or three special sessions of the Council on Trade in Services have been held and one or two more seem likely before the end of the year.

The negotiations will be about obligations “as a means of providing effective market access,” and the process is to promote “the interests of all participants on a mutually advantageous basis” and to secure “an overall balance of rights and obligations.” In the area of services, much more than in the area of goods, following the path of mutual advantage and achieving the objective of the balance of rights and obligations is extremely difficult. The vast differential between the supply capacity of the developing and that of the developed countries in this area makes the achievement of reciprocal benefits nearly impossible with the pattern of negotiations adopted in the Uruguay Round (UR).

In the GATT and the area of trade in goods, though most trade economists and development economists easily fault the methodology in a number of ways, from the IMF data on balance-of-payments and directions of trade, a rough and ready measure of ‘reciprocity’ of benefits of the exchanges has been used by a formula based on the amount of tariff cuts and the trade volume exchanged.  In GATS there has been an absence of data. Though this was raised right at the start of the Uruguay Round negotiations - with a promise all around of the issue being tackled and resolved and a methodology for collection of services data and directions of trade - this is still only at the stage of discussion on how to collect the data according to the GATS definition of ‘trade in services’ involving four methods of supply. The currently available IMF, BOP data are inadequate, since even the basis of international transactions for IMF’s BOP are different from the GATS definition.

This issue has been written and analyzed in the pages of the South-North Development Monitor (SUNS) several times in the past, and has been raised by developing country delegations, but without any tangible progress to enable gathering of data for a clear assessment of benefits and losses.

Everyone, including the secretariat officials, admit this lack of data, and yet push for further negotiations, and binding commitments without countries being able to make a proper assessment of costs and benefits, and entering into further commitments (and obligations).

In the Uruguay Round, general obligations were worked out covering all services sectors. Then there were bilateral/plurilateral negotiations for commitments on liberalisation in specific sectors, which were entered in the respective schedules of the countries and were then multilateralised. After the GATS came into force, intense and speedy negotiations ensued in the financial services and telecommunications sectors, and agreements on liberalisation in these sectors was reached.

The sectoral negotiations were held on the basis of what is commonly called “the positive list model”—i.e. a country preparing a ‘positive’ list of services sectors in which it undertakes obligations to liberalise. All other sectors are free from liberalisation obligations in respect of the country. A ‘negative list’ approach on the other hand would have subjected a country to liberalisation obligations in all sectors, except for those sectors or sub-sectors it would put in its ‘negative’ list of exclusion.

In the course of the negotiations for sectoral commitments, various countries undertook obligations to liberalise the import in that particular sector by easing the market entry conditions and provisions of national treatment, i.e. treatment not less favourable than that accorded to the similar domestic service provider.

The implication of this exercise should be viewed in the context of the vast differential in the supply capacity of the developed countries on the one hand and that of developing countries on the other. Most of the developing countries have hardly got any supply capacity in the services sector for export to the developed countries. Hence the opportunities have really opened mainly for the developed countries by the liberalisation of services import in the developing countries.  There is no effective commensurate benefit to the developing countries by liberalisation commitments of the developed countries in the services sectors.

The result has been that the developing countries have given concessions without effectively getting any concessions in return. This outcome has naturally been severely unbalanced. The advantages have not been mutual and thus there is no overall balance in the rights and obligations.

This imbalance and inequity have been aggravated by the special and accelerated negotiations in the financial sector and the telecommunications sector. These were the areas of special interest to the developed countries, and were taken up with priority for special attention. These are particularly the areas where the developing countries have practically no supply capacity for export to the developed countries. Even if a major developed country allows entry to the banks of developing countries, there will hardly be any benefit to the latter, as their banks will not have much business there in competition with local banks. On the other hand, even if much smaller number of bank branches of the developed countries are allowed to be opened in a developing country, the business can be brisk, as there will practically be no competition from the local banks. In such a situation, the concessions, for example, in terms of the permission to open a specified number of bank branches becomes very much one-sided.

The case with the insurance sector in the financial services is similar. Likewise, liberalisation in the telecommunications sector will give much more opportunities to the firms of the developed countries compared to those of the developing countries, because the latter do not have comparative strength in this area.

Bringing the agenda of liberalisation of services into the WTO has itself caused imbalance, and pushing for developing countries undertaking obligations on liberalisation in financial services and telecommunications services has brought in further imbalance and inequity.

There is a further imbalance between the treatment of capital and labour in the GATS. It contains disciplines for unrestricted movement of capital related to the supply of services, but the same treatment has not been given to the movement of labour. Articles XI and XVI of the GATS have included the movement of capital in the obligations.  These Articles say that (i) the restrictions must not be applied on transfers and payments for current transactions relating to specific sectoral commitments, (ii) there must not be any restrictions on the capital transactions inconsistent with the specific sectoral commitments, and (iii) a country is obliged to allow a cross-border movement of capital if it is an essential part of the movement of services covered by specific sectoral commitments. As it would appear, these obligations on the movement of capital are very clear, specific and detailed. There is nothing like it in respect of the movement of labour.

Sometimes it is argued that the developing countries benefit by importing services, as it improves their production of goods and services. If it is so, a developing country can undertake liberalization on its own, without making a binding commitment in the WTO. The developing countries have lost the flexibility of modifying their policy in the light of future experience as a result of GATS commitment, even if it is assumed that they benefit by importing services.

In this background, if the negotiations start either on the basis of request-offer or on the basis of a formula approach, the imbalance is bound to be further aggravated, if all countries, both developed and developing, are to be covered by the obligations. In that case the old scene will be repeated. As mentioned earlier, the basis of the negotiations has to be “mutually advantageous” and the results must have “an overall balance of rights and obligations.” All this will be totally negatived if the past process of both developed and developing countries undertaking obligations for liberalisation is followed again.

[The situation will become even more adverse if the US proposal to this week’s special session in GATS, to start the new negotiations on the basis of the “current level of restrictions” of market access for foreign service providers is adopted. This will be the equivalent of taking the ‘applied tariff’, rather than the ‘bound tariffs’ to which a country is committed, as a basis for negotiations in goods.]

It is rational to expect that the new negotiations must start with reducing the imbalance and inequity significantly. This calls for a new type of approach. Art. XIX of the GATS provides some guidance to achieve this objective. It says that in the course of the negotiations for sectoral liberalisation, the developing countries may take commitments for liberalising fewer sectors and fewer transactions.  Developing countries have already liberalized a number of sectors, but they have not got effective market access in developed countries.

In this background, one effective way of reducing the current imbalance is to have an initial modality/guideline which will not require them to undertake any further commitment on liberalisation, and will require only the developed countries to liberalise their service imports in the sectors of export interest to the developing countries. Developing countries may select the sectors of their interest and the type of restrictions in developed countries which they would propose to be removed or relaxed. This process is fully supported by Article IV of the GATS, which says that increasing participation of the developing countries in the world trade in services must be facilitated through, inter alia, the “liberalisation of market access in sectors and modes of supply of export interest (to the developing countries)”.

One obvious example of the sector/mode of export interest to the developing countries is the movement of labour. There should be relaxation in the developed countries on the entry of service providers from the developing countries. The developing countries may select some other sectors for liberalisation in the developed countries.

Sincere and faithful implementation of these provisions by the developed countries would have resulted in less imbalance of benefits; but it was not done. In fact the major developed countries have some times done the exact opposite. They have insisted on the developing countries giving high level of concessions, particularly in the financial services. These special provisions in the interest of developing countries should be at least followed now with full sincerity in the new negotiations.

Simultaneously, the developed countries should agree to take measures for encouraging the import of services from the developing countries into their own countries. Various types of measures can be thought of.  For example, they may provide incentives to their importers for importing the service from the developing countries. They may also reserve a specified portion of the services import for government use for being imported from the developing countries.

In this light, the appropriate initial modalities/guidelines for the new negotiations in services may comprise:

*        The developing countries should not be expected to undertake any further obligations for liberalisation in services;

*        The developing countries should select the services sectors and transactions which are of export interest to them. Negotiations should aim at liberalisation in those sectors/transactions by the developed countries;

*        The developed countries should take concrete steps to encourage the import of services from the developing countries. Some examples of such steps are: providing incentives to their domestic firms for importing services from the developing countries and reserving a portion of their import of services for the government use for import from the developing countries. Negotiations should aim at identifying more such measures and to work out the modalities of their operation in the developed countries.

Negotiations should be undertaken and completed within a specified time frame for liberalising the movement of labour from the developing to the developed countries.

After these initial modalities/guidelines are fully acted upon, further modalities/guidelines should be prepared.-SUNS4709

( * Mr. Bhagirath Lal Das is a former Ambassador of India to the GATT, and a former Director of UNCTAD’s Trade Programmes Division)