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TWN Info Service on WTO Issues (Mar03/3)

Geneva 6 March 2003

GUIDE TO COUNTRIES ON HANDLING THE WTO SERVICES NEGOTIATIONS

Dear friends and colleagues

The services negotiations in the WTO are reaching a critical phase as the deadline of 31 March approaches for countries to make their initial offers in response to the requests made to them by other countries.

In many developing countries, the process by which requests and offers is made, is still being clarified.   It is not very clear what approach or policy to adopt, and what the are the rights of countries in making a response to the requests.

Below is a paper by the international trade expert Bhagirath Lal Das that provides a very useful guide for policy makers and negotiators in developing countriues as regards the options and choices they have in making decisions on requsest and offers in the WTO services negotiations.  The paper also makes very useful suggestions on seven strategies to adopt in the negotiations.

Mr B.L. Das was formerly the Director of the Trade Division in UNCTAD and also formerly India’s Permananet Representative to the GATT, and author of several books and papers on WTO issues.

We believe that this paper is timely and hope it will be of use and benefit to you.

with best regards

Martin Khor
Director
Third World Network
twnet@po.jaring.my

NOTE:  We would like to receive feedback from you on this paper and on the info service.  You can find previous issues of this Info Servcice as well as many other useful documents on trade/WTO issues on the TWN website: www.twnside.org.sg.

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SERVICES NEGOTIATIONS IN THE WTO: REQUESTS AND OFFERS

By Bhagirath Lal Das

25 Feb 2003

I:  CURRENT STAGE OF NEGOTIATION

Currently the negotiation in the area of services in the WTO is focused on liberalization in various services sectors. Countries are presenting their “request lists” to one another, making requests for specific liberalization in specific sectors by the country to whom the list is addressed. It is being done with the expectation of getting benefits from liberalization. The requests are considered by the receiving countries and responses are given by them in the form of “offers” for liberalization.

Many developed countries have given their request lists to a large number of the developing countries. Some developing countries have also given their request lists to some other developing countries. In this process the developing countries are presently engaged in the following tasks.

(i)   A large number of the developing countries have not prepared their own request lists. They are in the process of preparing their request lists.

(ii)  The developing countries are also examining the request lists that they have received and are working out their possible responses.

II:  PREPARATION OF REQUEST LISTS

The following three points should be kept in view by a developing country while preparing its request lists.

(i)   It should identify the specific services sectors where it has good supply and export capacity. If it does not have such capacity at present but expects to have it in some sectors in near future, it may include these sectors in the list.

It should collect information on the size of its production in these sectors and also the size of the market in the target country to whom the request list will be given for liberalization in these sectors. This will give the country an approximate estimate of possible gains from liberalisation in the target country.

(ii)  The request is usually for the removal of restraints. Hence the country should collect information on the restraints in these services sectors in the target countries to whom the request will be given. The request should be for clear commitments to remove the restraints.

If there is no restraint at present in the target country but it is anticipated that restraints may be introduced in future, the request should still be made. It will be a safeguard against possible future restraints.

If there are no restraints in  these sectors in the target country and also if there is no likelihood of restraints in future, the country need not place a request in these sectors to the target country.

(iii) A request need not always be for liberalization in a particular sector. It can also be for solutions to particular problems, e.g., movement of persons for providing service or recognition of qualification of service providers. This type of request will be naturally applicable to all services sectors or specified services sectors, as the country may decide.

III:   PREPARATION OF OFFER LIST

A developing country that has received requests from the developed countries and some other developing countries will naturally be examining them in order to prepare its responses. The response may be either in the form of offers for liberalization or expression of inability to liberalise in the particular sector included in the request list.

The requests of other countries should be examined by a country on the basis of three main criteria given below:

(i)   whether there are certain sectors in which  the country must not make any commitment for liberalization;

(ii)  whether a particular service sector is critical for development in the country and thus it is desirable to protect that services sector;

(iii) whether the use of foreign service in a particular sector will help production of manufactures or other important services in the country or will be otherwise useful, e.g., for large public consumption;

On the basis of these criteria, a country should prepare three lists as described below. These lists will be there for the use of the country itself and not for giving them to other countries. These lists will help in the process of preparing the responses to the request lists of other countries Negative sectors list

Taking the point (i) above, a “negative sectors list” should be prepared containing the sectors or sub-sectors in which the country must not make any commitment for liberalization.  In this connection it is significant to note the news in the Financial Times, London of 5 February 2003 that European Commission (EC) has decided to exclude four areas from WTO negotiations, viz., health, education, energy and water. The implication is that they will not agree to make any commitment of liberalization in these areas. The developing countries should similarly prepare their respective “negative sectors lists”.

This will help the negotiation process; as the country having prepared such a list can then proceed to have a constructive talk with others in other services sectors for give and take.

It is important to emphasise that such a “negative sectors list” will not mean that the country will not liberalise import of services in these areas.  It will only mean that the country will not make commitment of liberalisation in these areas in the WTO negotiation. Such a commitment will bind the country permanently. Adhering to the “negative list” will enable the country to retain its flexibility and options on liberalisation in these areas according to its own perceived need and priorities from time to time.

Critical sectors list

Next taking the point (ii) above, a country should prepare a “critical sectors list” including the service sectors that are critical to its economic development and where it is necessary to encourage domestic production of services. The necessity may be both substantive and strategic.  In these areas, even though the country may not stop the entry of foreign services altogether, it should still protect the domestic services against competition from the foreign services and service providers. Some examples of this type of services may be banking, telecommunication, etc..

In these critical sectors, the objective of the country in the negotiations should be to have stringent conditions of market entry and full flexibility for providing support to domestic services without extending it to foreign services, i.e., full flexibility regarding the discipline on national treatment.

Useful sectors list

Coming to point (iii) above, a country should prepare a “useful sectors list” including in it the foreign services that are necessary and useful for its domestic production of goods and services.

Naturally, the country should be more liberal in the negotiations in offering liberalisation in these sectors, provided it gets commensurate offers from others in the sectors of its own export interest.

A developing country should prepare its responses to the requests lists of other countries being fully guided by these three lists. As mentioned earlier, the response could be either in the form of offer lists or in the form of expression of inability to liberalise. For example, if  a request has been received for liberalization in a sector which this country has included in its “negative sectors list”, it should say in its response that it does not intend to offer any liberalization in that sector.

IV:  STRATEGIES IN NEGOTIATION

Some suggestions on strategies in negotiation are given below.

(i)   No request, no offer

We have to note that just because negotiations on liberalisation have started and various countries have sent their request lists to a country, that country is not required to offer any liberalisation. If it does not have a request list, it should not give an offer list. It should make offer lists in response to the request lists of others only if it perceives that it has also to make some requests to the other countries regarding their liberalization.

The situations that will give the perception that no requests are needed have been described above.

(ii)  No single sector negotiation

The past negotiations in the area of services have broadly followed the practice of negotiation among countries in specific sectors, taking one sector at a time. In particular, the areas of financial services and telecommunication services had been selected for such treatment. As the developing countries do not have adequate supply capacity and export capacity in most of the sectors, sector-wise negotiation for liberalisation will not be of much benefit to them . A better method will be to have cross-sector negotiation. This will provide them with the opportunity of pursuing their interests in the sectors of export interest to them while considering at the same time the proposals of the others in the sectors of interest to the latter. Hence the developing countries should not favour sector by sector negotiation; rather they should favour negotiations keeping the various sectors together. Another approach could be to take a large group of services sectors together. But in this case, they should ensure that the groups contain adequate number of sectors of their export interest.

(iii) Linking liberalization in sectors with solution of  general problems

The developing countries may also link their possible liberalisation in some sectors with their getting benefits in the form of solutions to the general problems they face in other countries, particularly in the major developed countries. For example, the developing countries having some supply and export capacity face two main constraints in the major developed countries, viz., the visa policy which has the potential of constraining their supply of service through the movement of persons (mode 4 of supply) and qualification recognition. A developing country may link its offer of liberalisation to their making concrete commitments on these two points, viz., movement of persons for supply of service and qualification recognition.

The developed countries may argue that visa issue is an immigration issue which centres round security interests and also that the qualification issue is to be settled bilaterally with different countries through mutual qualification recognition agreements. The counter argument of the developing countries should be that without their easing on these two fronts, the developing countries do not get any significant benefit from the liberalisation commitments of the major developed countries. Hence, it is necessary for them to make commitment on these two points up front, before the developing countries undertake commitments on liberalization in various sectors in their request lists.

The developing countries should strongly resist the approach of the major developed countries to de-link mode 4 supply and recognition of qualification from the negotiations on liberalisation.

(iv) At least commensurate benefit in return

The developing countries have to ensure that they get at least commensurate actual benefits in various sectors, either through liberalisation by the others in those sectors or through their concrete commitments on movement of persons and qualification recognition or a combination of both. Of course they should also insist on utilising the S&D provision in Article XIX of the GATS that the developing countries need liberalising “fewer sectors” and “fewer types of transactions”, which implies that the developing countries have the right to expect more than mere commensurate benefits.

(v)      Commitments to be enforceable

In the past, the major developed countries have obtained from the developing countries concrete “enforceable” commitments while they themselves have generally made only “best endeavour” commitments on the special and differential treatment of the developing countries. The past experience shows that the best endeavour type commitments or general expression of guidance and approach (for example, the stipulation that the Members “shall do their best to.”, or that the Members will, “to the extent possible”, or the general statements on guidelines that are there in Articles IV or XIX of the GATS,.etc) are totally useless in the WTO. The developing countries should give any concession only in return for “fully enforceable” commitment of the other side.

(vi) Domestic subsidy in service sectors

It should be noted that providing domestic subsidy in the goods sector is not considered to violate the principle of national treatment as there is an exception in Article III.8 of the GATT 1994; but there is no such general exception in the GATS. Hence it should be ensured that the developing countries put this exception under Article XVII of the GATS in all sectors that they include in their schedules of sectoral commitments.

(vii)      Assessment of past liberalization

The developing countries have with them nearly seven years’ experience of the working of the WTO. They  have made commitments earlier in several sectors, like financial services, telecommunication services, etc. A developing country should assess how far it has benefited from the commitments of the others and how far the others, particularly the major developed countries, have benefited from the commitments that it has made so far. This assessment will provide the developing countries with objective lessons for the ongoing negotiations.

 


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