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Despite GATS data gaps, negotiate commitments says WTO

by Chakravarthi Raghavan

Geneva, 18 Dec 2000 -- Data on trade in services continue to suffer from a variety of shortcomings, and while improvements in data collection and processing as a long-term process are in sight, it will never be possible to attain a level of reporting in services comparable, in breadth, depth and accuracy to current statistics in merchandise trade, a WTO secretariat report says.

Nevertheless, the WTO secretariat in effect advises trade negotiators (of developing countries who have been raising this issue repeatedly) not to pay too much attention to this problem, but go ahead and negotiate more commitments in a new round of services negotiations, in order to remove distortions in allocation of resources between and within countries and thus promote ‘sustainable development.’

The document does not say whose ‘sustainable development’ it advocates - of the world as a whole, of the individual nations who are members of the WTO or the hidden actors behind the services agenda, the transnational corporations.

But in a recent speech (to the European Services Forum in Brussels on 27 November to which the WTO drew the attention of the media), the Director of the WTO division on services, Mr.David Hartridge presented the GATS and the ongoing services negotiations in terms of “the implications of trade liberalization for equity and welfare,” and the value of the Mode 3 (commercial presence) of the GATS commitments as “an inducement to foreign direct investment.”

However, the secretariat note on ‘Review of Statistics on Trade Flows in Services,’(S/C/W/27/Add 1, circulated as a restricted document for the Committee on Trade in Services), admits the gaps in data (making assessments difficult), but advocates negotiations and commitments on basis of efficiency of resource allocation. It says in the note:

“Trade negotiations are not essentially about analysing and, possibly, balancing trade flows in individual sectors, but achieving a - progressively more liberal and mutually beneficial - balance of rights and obligations under relevant agreements.”

“From an economic perspective,” the secretariat note adds, “it does not really matter whether the results translate into import and/or export expansion in specified areas, but whether they contribute to removing distortions to the allocation of resources between and within countries and, thus, to promoting sustainable development.”

But there are a number of elements in these two sentences, to put it at its mildest, that are problematic.

Firstly, the proposition that trade negotiations are not about analysing and balancing trade flows in individual sectors is a clear contradiction of the practices in negotiating commitments in the 50-year history of the GATT multilateral trading system.

No country or major trading entity in the old GATT or the new WTO has ever negotiated market access concessions and commitments, or rules to accompany them, without a careful analysis of the costs and benefits of the concessions to its exporters and importers.

In fact at the end of each such negotiation, they present to their parliaments and other authorities, facts and data about how much the country would gain (and in an undertone expect to lose) by the outcome.

Very few countries accept the view propounded by the WTO economists in this document as a proposition in their trade policy negotiations, and no one has practised it.

Secondly, implicit in the view that trade negotiations are about “removing distortions to the allocation of resources between and within countries and thus promoting sustainable development” is a point of view which views the world economy as a single, seamless global economy for the purpose of policy-making.

The problem with such an assumption is that there is no decision-making mechanism to deal with the world as a whole, and perform even some rudimentary role of a government.

And the view that in trade measures and trade, the entire policy is only about ‘efficient allocation of resources’, is one that most orthodox economists in terms of a national economy would not accept.  That economic policy needs to promote equity as well as efficiency is so basic that mainstream economists and the economics profession takes it for granted and does not lay stress on.

Economists of various hues and schools may differ in their views on ‘equity’ and income distribution and rewards, but all assume that this is something brought about by governmental policies.

Classical welfare economics in fact is all about balancing equity and efficiency.

If the WTO economists view in the document is to be accepted, it means they believe that the current distribution of income worldwide is reasonably just and nothing special is needed to ensure equity.

They may of course be assuming that trade liberalization will itself address egregious global inequality, but that assumption would not command widespread support even within the profession’s mainstream.

Indeed, this proposition flies so much in the face of facts and empirical evidence that even institutions like the IMF, the World Bank or the OECD, exponents of the interests of the major rich industrialized nations, do not make it.

If the statement is about efficiency at the level of a national economy, it is difficult to understand the meaning of a proposition about efficiency in the absence of any reference to a system of prices for an economy linked to equilibrium in its markets. Such prices would include exchange rates.

The world is a collection of national economies, which are far from integration into a single global economy, but consist of individual disparate economies at different levels of development and integration into world markets, having national currencies and interacting with others on the basis of ‘trade’ (in goods, services, capital and factor movements) and capital flows (that are expressed in value even when transfers are non-monetary goods and services).

The sustainability of the exchange rate of a currency is dependent on its current and prospective balance of payments, and this in turn depends on its ‘trade’ flows - exports and imports.

And trade (export and import) flows and their sustainability cannot be judged by any government of a country without some facts to judge the effect of any concessions it makes or gets in terms of its imports and exports (in this case of trade in services).

This is so elementary that the breath-taking proposition quoted above could perhaps only be put forward by the secretariat in a note to trade diplomats at the WTO and in a restricted document at that.

As a proposition in a term paper on neo-classical economics in a university under-graduate course, it would not have earned the barest pass marks.

In explaining the continued data problems (seven years after the structure of the GATS was settled in negotiations), the secretariat note says that the sectoral and modal structures of commitments under GATS does not coincide with the existing structure of trade statistics.

The activities of foreign-owned companies in their host country markets (covered by commercial presence) are not reflected in conventional statistics. Also, the IMF Balance of Payments Manual classification, on which the only global trade statistics in services are based, is far less detailed than the UN Central Product Classification (CPC) which has provided building stones for the Classification list widely used by Members for scheduling purposes.”

[This problem was among those identified by UN system statisticians as early as 1987].

But work is in progress “to gradually ease these problems,” says the WTO secretariat in this latest note.

The report says that while international efforts are under way to improve the data on trade in services which suffer from a variety of shortcomings, even in the best of circumstances it will never be possible to attain a level of reporting in services comparable in breadth, depth and accuracy to current statistics on merchandise trade and in any event it may not be an appropriate objective to aim at in services, says the WTO secretariat.

In making a presentation, “essentially descriptive in nature”, the secretariat says that the recent trade developments in individual countries, regions or sectors, does not allow for any inferences on the causes. For e.g. changes in a country’s share in world trade in a given sector may be attributable to autonomous demand trends, valuation effects in the wake of currency movements, sudden market upheavals (associated, for example, with the Asian financial crises), development in merchandise trade having an impact on related producer services (transport, insurance etc) or longer term changes in an industry’s international competitiveness. Such changes in turn may be industry-generated (reflecting company decisions) or attributable to government interventions in markets or longer-term structural reforms.

“However,” says the WTO secretariat, “one conceivable factor has not possibly played a leading role to date - liberalization measures associated with the entry into force of GATS in January 1995.”

The secretariat, it adds, is not aware of any significant policy changes induced by the entry into force of the Uruguay Round schedules.  Available evidence suggests that the bindings negotiated in 1993, remained essentially confined to locking in the status quo.

The extended negotiations on basic telecommunications and financial services reportedly left deeper imprints, in terms of actual liberalization measures, on trade regimes of several countries. But given the implementation dates of the relevant protocols for most participants - February 1998 and March 1999 - that it is doubtful whether they could have affected trade flows.

In an overview, the secretariat says that the share of commercial services measured on a balance-of-payments basis, in total world exports of goods and services has remained virtually unchanged since the mid-1990s. At 19.6% in 1999 it is no more than a 0.1 percentage point from the share reported in 1995.

There are however some regional variations.

On the export side, North America and Western Europe continued to record above-average share of services in their total exports, while Latin America and Asia remained below the world average. Africa changed its position - but this is not necessarily indicative of a particular dynamic services sector, but may be attributed as well to weak world markets for major merchandise exports including oil.

North America’s share in total world services exports increased by over 2 percentage points from 1985 to exceed 21% in 1999.  More than half of world trade in commercial services is made up of travel and transportation services, though over the last couple of years, other commercial services (insurance, banking, telecommunications and so forth) have tended to expand faster.

But depending on travel and transportation services may pose a structural problem for producer countries, including not least many developing economies. Supplies in these sectors are closely related to physical movements of persons and goods, and thus to merchandise trade.

And in financial services, given the strong dollar appreciations, the US has significantly expanded its share.-SUNS4808

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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