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TWN Info Service on WTO and Trade Issues (Apr05/2)

6 April 2005


"GATS talks will move only with a “big leap” in Mode 4"

Developing countries are likely to move forward in the WTO services negotiations only if there is a “big leap” in commitments by the developed countries on the movement of natural persons (Mode 4 in the GATS), a UNCTAD meeting on services was told on 16 March. 

According to recent studies, gains of up to US$200 billion could accrue to developing countries from liberalization of movement of workers, said Mrs. Lakshmi Puri, Director of UNCTAD's International Trade Division.  Only if there is a big leap on the way Mode 4 is treated so as to benefit the developihg countries, would there be a balance in costs and benefits for them to move forward in the other areas of services, she added.

She was speaking at a panel discussion on “trade in services and development” at the Commission on Trade in Goods and Services and Commodities under UNCTAD.

Among issues covered by the panelists were the importance of services for development, the need for developing countries to have a services master plan so that they could have a framework with which to make decisions on services commitments in the WTO, and the impact of services liberalization on health.  Panelists included Ambassador Ransford Smith of Jamaica, Nick Drager of the World Health Organisation, Martin Khor of the Third World Network and Prof. Jaime Nino of Colombia.

Below is an article about the panel, which was published in the South North Development Monitor (SUNS).  Two more articles in this series on services will be sent to you.

Best wishes
Martin Khor
TWN

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"GATS talks will move only with a “big leap” in Mode 4"

By Sangeeta Shashikant (TWN), Geneva, 17 March 2005

Developing countries are likely to move forward in the World Trade Organisation’s services negotiations only if there is a “big leap” in commitments by the developed countries on the movement of natural persons (Mode 4 in the GATS), a UNCTAD meeting on services was told on 16 March. 

According to recent studies, gains of up to US$200 billion could accrue to developing countries from liberalization of movement of workers, said Mrs. Lakshmi Puri, Director of the International Trade and Commodities Division in UNCTAD.

Only if there is a big leap on the way Mode 4 is treated so as to benefit the developihg countries, would there be a balance in costs and benefits for them to move forward in the other areas of services, she added.

Mrs. Puri was speaking at the start of a panel discussion on “trade in services and development” at the Commission on Trade in Goods and Services and Commodities under UNCTAD.

Among issues covered by the panelists were the importance of services for development, the need for developing countries to have a services master plan so that they could have a framework with which to make decisions on services commitments in the WTO, and the impact of services liberalization on health.  Panelists included Ambassador Ransford Smith of Jamaica, Nick Drager of the World Health Organisation, Martin Khor of the Third World Network and Prof. Jaime Nino of Colombia.

Introducing the topic, Mrs Puri emphasized the growing importance of services which accounted for 40-70% of the developing countries’ GDP and 30-50% of their jobs., while the share was higher in developed countries. However, developing countries still remain net importers of services and for some developing countries the share of services contributing to the GDP is declining.

The trend in services trade is transforming, she added. About 60% of foreign direct investment has shifted to services. There is an increasing significance of South – South trade. But within the South there is growing concentration of trade, as ration, as 12 leading developing country exporters account for 71% of services exports of all developing countries, up from 66% in 1998.

Mrs. Puri identified global services outsourcing as being part of a “win-win agenda” for North and South countries, and which is becoming an important vehicle for developing countries’ participation in services trade. She added that GATS specific commitments could help in making the outsourcing trade through Mode 1 and in computer services more predictable.

Mrs. Puri said the WTO services negotiations should incorporate the development dimension.  There are two key objectives and benchmarks:  to what extent the developing countries can increase their participation in trade in services and what are the constraints and opportunities;  and what arethe global conditions, rules and negotiating issues required for these countries to increase their participation and to translate participation into development gains.

She stressed the importance of the movement of natural persons (MNP) or Mode 4, saying that only when there is a big leap in the way Mode 4 is being treated, would the developing countries move forward in other areas of the negotiations as they need to attain balance in costs and benefits. 

She said that two studies had shown that the gains to developing countries from liberalizing movement of workers would be $156-200 billion, or ten times more than their gains fro other areas of WTO negotiations.  And a recent WIDER study also showed benefits of 3-11% in global GDP from the freer movement of skilled personnel.

On infrastructure services, she said the challenge to developing countries is to ensure availability, access, universal service and efficiency.  On business and professional services in infrastructure services. Developing countries need to put in place the right policies, developing countries have a clear export interest. Thus they need to ensure meaningful commitments are made on Mode 4 and address barriers to entry such as visas, work permits and lack of transparency in regulations and facilitate the recognition of qualifications.

On policy reforms in services, Mrs. Puri stressed that the approach should not be “one size fits all”. The challenge for developing countries is to strengthen domestic supply capacity, and reconcile trade, development, social and equity considerations.  Reforms should aim at gradual liberalization, social safety nets, competition and proper sequencing of reform.

 Ambassador Ransford Smith of Jamaica also emphasized the importance of services, which constituted  72% of the GDP and three-quarters of jobs in his country.  Given the significance of services, it was also important to maintain the flexibilities that GATS provides and that developing countries make use of these.

Commenting on trends in the global services trade, Smith said the trade is dominated by developed countries and their exports are growing faster than developing countries’.  Citing the UNCTAD paper on services and development, he said Europe doubled its trade surplus in 2000-2003 and North America’s surplus more than tripled in the 1990s, whereas there were trade deficits in services in the developing countries’ regions.  It is important to bear this in mind during the negotiations.

In Jamaica and the Carribean, he said, we are acutely aware of these trends.  If tourism is removed, the region has a deficit in services that is growing.  The worst of worlds for developing countries to face as a result of multilateral trade negotiations is that they have chronic and structural trade deficits in both goods and services.  This could happen since developing countries’ exports are concentrated in agriculture and commodities on one hand, and on tourism (and not knowledge-based services) on the other hand

It is thus imperative that developing countries are not confined to slow growing low value added services. Developing countries must be allowed to trade in services where they have comparative advantage for example in the movement of natural persons, outsourcing and tourism.

He said social sectors such as health and education are vital areas to achieving national policy objectives, and it is important that commitments in these areas are approached with attention to national policy objectives and to policy space.

Smith also cautioned that services will not contribute to development simply by  promoting liberalization.  The pace and sequencing of liberalization in services are even more important than in trade in goods. He quoted analysts who have have stressed the need of proceeding with caution on negotiations on services as there is no turning back once commitments have been made in the GATS.

Martin Khor, director of the Third World Network, stressed the need for developing countries to formulate a national master services plan on which to anchor the decisions they make in the international arena, particularly as to GATS commitments. 

He agreed that services play a key role in developing countries, either directly (as in health and education) or indirectly by contributing to other sectors (as in distribution and finance). Thus it is critical for developing countries to have a national services plan or strategy.  While many countries have industrial or agricultural master plans, few have a similar plan for services.

Khor suggested that a national services plan could have a general aspect and also deal with specific sectors. The general aspects should consider the objectives of the services sector (including contribution to income and GDP, employment and foreign exchange); the extent to which services are to be produced for domestic use or for export; whether the service should be provided by the public, private or informal sectors; and the issue of the extent of local or foreign participation and ownership.

The national services strategy should also have objective and plans for specific sectors, which have their own special characteristics.  For example, social services are vital for satisfying basic needs and issues such as the public’s access to health care and education would be important.  

The finance sector is also a vital and sensitive sector, as it is the lifeblood of the economy which is also susceptible to crises and the spread of crises if not properly managed and regulated. There is an emerging consensus that financial liberalization can be dangerous if not undertaken properly, and thus developing countries should be cautious about liberalizing different aspects of the finance sector. 

Provision of government services is also a vital part of the economy, and present flexibilities for the public sector in procurement and expenditiure decisions serve important economic and social functions.  Such flexibilities should be maintained.

Khor said that national policies relating to services are being affected by global and regional frameworks which tend to restrict national policy space.  For example, the IMF and World Bank loan conditionalities put pressure on developing countries to privatize and liberalise their services sectors, often with ill effects on access to health care and water.  

Citizen groups have also raised concerns about the pressures developing countries are subjected to in the WTO’s GATS negotiations to open up a wide range of their services. 

Khor said that the GATS framework allows countries to pick and choose which service sectors and to what extent to liberalize, he added. The question is whether developing countries are able to use these flexibilities if they come under pressure from major trading partners.

He added that developing countries may have good reasons to liberalise in certain sectors, and they could do so autonomously without necessarily binding the liberalization as a commitment under the GATS.  In this way they could still backtrack or reverse certain the policy if they have a need to do so (as some countries did in respect of financial services when they faced a financial crisis). 

He said it would be difficult for developing countries to backtrack on commitments made at the WTO if there are any ill effects from the liberalization.

Nick Drager, Senior Advisor to the Department of Ethics of the WHO, as part of his presentation on trade in health services, spoke on the risks and opportunities associated with GATS.  In relation to Mode 1 of GATS, the opportunities include improved care to remote and underserviced areas, whilst risks included a move towards capital intensive techniques and diversion of resources.

In relation to mode 2, opportunities include the generation of foreign exchange earnings for exporting countries, while risks include the crowding out of the local population and diversion of resources.

In relation to mode 3, opportunities include access to new health services and creation of employment, while risks include the development of a two-tier health structure, an internal brain drain and the crowding out of locals.  As for mode 4, the opportunities include gains from remittances while the risks are permanent outflows of medically trained personnel.

Drager said there were key questions for countries to consider in deciding whether to liberalize the health services sector. They should consider to what extent the service is already open to foreign service providers and what have been the regulatory concerns posed by existing foreign competition.

Other considerations are whether the commitments fit the strategies and directions identified by the national health policy; the effect on government-provided health services; regulatory burdens on the government created by the commitments; whether the commitments would eliminate or weaken regulatory approaches necessary for the protection and promotion of health; evidence and principles that can be brought to bear to analyze the possible effects of the commitments and finally whether the commitments can be crafted in a way that protects health policy and allows progressive trade liberalization.

He added that GATS provides countries with choices and if a country is unsure about the effects of making specific commitments, it is fully within its right decline to make legally binding commitments to liberalize or to liberalize unilaterally without making commitments. He suggested that health principles and criteria should drive policy decisions on trade in health-related services in the GATS negotiations.

Drager also warned that in the accession process, some countries that were seeking to join the WTO were experiencing a situation where the accession negotiations were driving the countries’ health policy.

During the discussion, the Ethiopia delegate supported the suggestion that developing countries should develop a national services plan or strategy.  He urged UNCTAD to follow up on the matter.  He added that countries that are acceding to the WTO are being pressured to undertake more liberalization commitments than they are ready for.

Papua New Guinea agreed that a critical mass in GATS negotiations could take place only if there is a leap in Mode 4 commitments.  There must be equal importance placed in all modes of supply in GATS.  China expressed its view that developed countries should pay special attention to the sectors which are of export interest to developing countries and should respect the right of countries to regulate.

The Philippines said outsourcing should be promoted as a win-win agenda that would benefit developing countries. On movement of natural persons, countries like the Philippines had gained greatly from workers’ remittances.  However there was also a social impact as the most educated go abroad and deprive the countries of human resources.

 


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