Global Trends by Martin
Monday 21 November 2005
Asean countries fight to defend local firms
Malaysia and other Asean
countries last Friday fought a diplomatic battle in the WTO to defend
their right to regulate foreign firms in the services sector. They opposed
a draft of the WTO’s Hong Kong Ministerial declaration that would erode
the present right of countries to choose in which sector to liberalise,
to what extent and when.
Negotiators of several Asean
countries are fighting a joint battle to beat back a strong bid by the
developed countries to open up their services markets through a range
of new mechanisms in the World Trade Organisation.
Malaysia, Indonesia, the Philippines,
Thailand and Brunei presented two joint statements that rejected the proposals
at a crucial meeting on services at the WTO last Friday.
The proposals, contained in
a draft of the WTO’s Ministerial declaration on services, would oblige
Asean and other developing countries to:
- Mandatorily commit to liberalise
in a minimum number of services sub-sectors through “quantitative targets”;
- Mandatorily take part in
“plurilateral” negotiations, in which a country would have to face groups
of other countries making liberalisation demands on behalf of their
- Mandatorily participate
in “sectoral negotiations”, in which countries that want market openings
in specific sectors such as finance or distribution will pressurise
targeted countries to open up their markets.
- Make best efforts to increase
commitments in each mode or category of investment and trade in services
(known as “qualitative targets”).
At present, the WTO’s services
agreement known as GATS allows a country to choose whether to commit to
open up in particular sectors, or to impose conditions on foreign firms
seeking to invest in or trade with it.
A country can also decide to
liberalise but choose not to enter a commitment in the WTO. This allows
it to “backtrack”. For example, foreign banks may be allowed 70% equity
ownership today but be restricted to 40% in future. Once a WTO commitment
is made, such backtracking is not allowed unless the country is willing
to pay compensation for losses incurred.
The services portion of the
draft declaration for the WTO’s Hong Kong Ministerial meeting next month
is proposing to change the GATS so that choices or flexibilities available
to countries are removed or eroded. This would make it easier for large
foreign firms and countries representing them to pressurise developing
countries to remove restrictions on their entry and ownership.
Malaysia has played an active
role together with the other Asean countries in fighting off the four
new mechanisms contained in the draft Declaration. They are joined by
many other countries from Africa, Latin America and the Caribbean.
The Asean countries asked that
the paragraphs that refer to the quantitative targets and the sectoral
negotiations be deleted altogether. They also proposed to water down
the reference to “plurilateral negotiatons”, so that any country can choose
whether to take part or not. The present draft makes it compulsory for
countries that are requested to take part.
They also proposed to remove
the presently detailed text on “qualitative targets” and replace it with
a shorter draft that does not require countries to increase their liberalisation
in specific ways.
For example, the present draft
requires countries to make commitments on “enhanced levels of foreign
equity participation” and “allowing greater flexibility of types of legal
entity allowed.” This implies that countries have to allow foreign
firms higher percentage shares in equity ownership, and to remove or relax
conditions for legal entity.
Many countries, including Malaysia,
have required that foreign firms in certain sectors be restricted in their
share of equity, and that they either form joint ventures with locals,
or locally incorporate the firm that is operating in the country (instead
of being a subsidiary). Such conditions may be more difficult to maintain,
should the present draft for Hong Kong be retained.
The Asean countries proposed
that such detailed policy prescriptions be replaced by language that only
generally calls on countries to improve their offers.
At last Friday’s WTO meeting,
the Indonesian Ambassador, speaking on behalf of Brunei, Indonesia, Malaysia,
the Philippines and Thailand, said developing countries do not have the
capacity to participate in an “inflexible formula approach” to the negotiations.
“Without a well developed regulatory
regime and working with no single national authority to assess and monitor
developments in all services sectors and sub-sectors, developing countries
are entitled to as much flexibility as they require.”
The Asean countries said they
definitely could not accept “numerical targets” or a dilution of developing
country flexibilities under the GATS. “In the spirit of the Round’s development
dimensions we reject today any and all efforts to undermine the GATS structure
that our predecessors have delicately negotiated in the Uruguay Round.”
The Asean response is well timed. A recent European Commission paper
listing the demands being made by European firms shows that Asean countries
are among the main targets for the European Union’s drive to open up markets.
In financial services, countries
that are targeted that have offered no commitments yet are listed as Malaysia,
Philippines, Thailand and India. In distribution services, Malaysia
together with Indonesia, Philippines, India and Egypt are listed as making
Malaysia is also listed as
having not made commitments in environmental services. It is listed as
offering “only partial commitments” in other sectors, including telecommunications,
construction, engineering, computer services, business services, and legal
services. Those countries with “partial commitments” are targeted to
make fuller commitments.
The fear of the developing
countries is that if the WTO’s Hong Kong Ministerial conference in December
adopts the present draft, then they would come under very intense pressure
to open up in all the important sub-sectors. This would place local firms
and businesses under severe foreign competition that they are unable to
Besides the Asean countries,
many other WTO members are trying to withstand the pressures, but they
all face an uphill battle. The Chairman of the services negotiations has
ignored their views and refused to change his draft.
The battle is expected to be
brought to Hong Kong. It is a crucial fight which countries should be
prepared to wage to the end, as the fate of local firms and businesses
are at stake.
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