TWN Info Service on WTO and Trade Issues (Apr05/3)

6 April 2005

GATS negotiators debate if there is a "crisis" in WTO services talks

Some key players in the services negotiations in the WTO believe the talks are in a state of crisis because of the lack of offers or serious offers by many members so far.

But other members do not believe there is a crisis, or that services are lagging behind other areas such as agriculture and NAMA.

This question emerged in an interesting debate at a panel discussion at the Commission on Trade in Goods and Services and Commodities at UNCTAD.

Panelists included the director, Services Division, WTO; and the services negotiators of Brazil, the EC, the US, India and the Philippines.

Below is a report of the panel; discussion on services. It was published in the SUNS Bulletin on 21 March 2005.

Best wishes
Martin Khor


GATS negotiators debate "crisis" in WTO services talks

By Martin Khor and Sangeeta Shashikant, Geneva, 18 March 2005

Are the services negotiations in the WTO lagging behind talks in other areas of the Doha programme such as agriculture and NAMA and are they in a crisis situation?

This question emerged as the basis of an interesting debate among some of the leading players in the WTO's services negotiations, at a panel discussion at the Commission on Trade in Goods and Services and Commodities at UNCTAD.

Panelists at the interactive debate on "Key issues in services negotiations: the way forward" included Abdel-Hamid Mamdouh

(director, Services Division, WTO), Audo Faleiro of Brazil, Ann-Mary Redmond of the EC, Alicia Greenidge of the US, Sumantha Chaudhuri of India and Johannes Bernabe of the Philippines. It was chaired by Carmen Dominguez of Chile.

Mamdouh of the WTO set the tone for the view that the services talks are in crisis by painting a gloomy picture of the low quantity and quality of the services offers received so far. However, Faleiro of Brazil, in an exposition of the different "ages" through which the WTO negotiations had gone, countered with the view that services (unlike agriculture) is a new area in the trading system and the progress in services talks was not lagging behind. Other panelists also took one or the other view.

Mamdouh said while there had been "soft success" on process issues, on substance there is a lot to be desired. At the last GATS special session, the chair had given a sobering analysis of the situation, with only 50 offers submitted so far, and if LDCs are excluded, there are 40 developing countries yet to make initial offers.

Mamdouh said the chair also concluded that on the content of initial offers, what is on the table leaves much to be desired. Many members stated the quality of initial offers was quite poor. So there is cause for "huge concern", he said.

He added that the July 2003 decision had put the services negotiations back on track in terms of deadlines and process. But unfortunately there has been "not much change" since July. The negotiations in 2005 are scheduled in three clusters: the first took place two weeks ago, the second starts on 20 June and the third in September. The bulk of the Round's negotiations would have to take place in 2005.

It is a huge workload, including the request-offer process, the consultations required, the mechanisms needed at capitals and the schedule of bilaterals. Mamdouh said it was uncertain the 2 remaining clusters or rounds will be sufficient to get through all this. "So the situation on the commitments side is cause for grave concern."

On the rule making side, said Mamdouh, there is not much difference. The performance can be judged by the extent the mandates have been exhausted faithfully. In the ten years of rule-making negotiations, most time had been spent on emergency safeguard and domestic regulation and less on subsidies and government procurement. It is not clear where we are going to end up, whether there will be agreement on emergency safeguard or domestic regulation.

Mamdouh said it is a cause for concern that the services negotiations, if compared with other areas such as agriculture and NAMA, are falling behind. While agriculture and NAMA involve a multilateral process, the services offer-request talks require bilaterals which take more time. "My concern, as a technical expert, as a coach seeing the game played, is that I see there is a serious problem."

He concluded there are two elements needed now: strong political will and guidance with higher priority to services; and better definition of the negotiating objectives and ambitions, in what sectors and what kind of barriers or modes that need to be addressed. There is a need to specify objectives clearly so that Ministers when they meet exchange views with specifics as in agriculture and NAMA.

Audo Araujo Faleiro of Brazil, speaking on the state of play of the services negotiations, said he did not agree that we are in s state of crisis. He said the services negotiations are not lagging behind agriculture. He reminded that agriculture had been an anomaly (from having been excluded in the trade system) and had been lagging behind for 50 years. Thus it was not appropriate to count progress in agriculture only from the year 2000 onwards, it has to be judged from its having been excluded in the past.

Even if we use the benchmark set by the Doha Ministerial, there should have been agriculture modalities by March 2003, yet we do not know if there will be modalities at the Hongkong Ministerial.

In the services negotiations, there have already been a bulk of services offers worldwide. If there is a crisis, it is one of leadership. Referring to the developed countries, Faleiro said those who should be driving the negotiations are not doing that. If members see the leaders as self serving and only making use of rhetoric, then it threatens the legitimacy of negotiations. Therefore we have unstable conditions today. The GATs negotiations need stabilizers and the role of these leaders is to cement the parts together.

He added that the perception is that countries like the EC and Canada have used "cultural diversity" process in UNESCO to extract exceptions. The EC handling of Artcile XXI has also been criticized. Few members have offered something new on Mode 4. There is a strong perception that the major drivers (such as the US, EC, Canada and Japan) are going backwards on their commitments.

Faleiro concluded that a change of attitude is needed by those driving the process. They should not take an a la carte attitude of just choosing what items they want and excluding those they do not want. While he agreed that political will is needed, we need to identify those that have the responsibility to guide the negotiations, and all members must take part in defining the objectives.

He also expressed concern on the setting of benchmarks (on the basis of commitments on liberalization) which he feared could erode the GATS' positive list approach. He said that members should have the choice of what and when to liberalise, and the proposed benchmark would not help in the process.

Faleiro also said that the services negotiations had gone through many phases or "ages". First there had been the "age of innocence"

(Feb 2000 - Nov 2001), when there were two achievements, i. e. adoption of the Guidelines and procedures for the negotiations on trade in services, and Guidlelines for the scheduling of specific commitments.

Then there was from Nov 2001 to Sept 2003 "the age of frustrated expectations." The Doha mandate for a development agenda had many deadlines, but these deadlines (such as for implementation issues, SDT provisions and agriculture modalities) had been missed, causing frustration and culminating in Caqncun.

He categorized Sept 2003 to July 2004 as the "age of extremes." New actors came on the scene such as the G20 and G33. Negotiations then focused on agriculture, cotton, Singapore issues and NAMA

The role of traditional demandeurs (i. e. the major developed countries) is vital as they set setting examples of behavior for the rest. In the previous age they use to say that services should be looked at on their on its own merits. But now when they saw agriculture shifting to the centre of the negotiations, they are saying that the services negotiations are lagging behind. They are making the link between services and the other issues.

From July 2004 to now is the "age of alleged crisis," added Faleiro. There is now a rhetoric of the services negotiations being in crisis, with talk such as that services negotiations are lagging behind, the establishment of benchmarks, talk of new business opportunities, a perception that there should be some deliverables in rule-making and and the emergence of Mode 4. The two dispute cases on services had also raised some red lights which raises questions on the conventional wisdom about flexibilities in GATS.

Faleiro then said, with regards to the way forward, that he did not agree the services talks are in crisis nor that they were lagging behind agriculture, and that progress in services depends on the major demandeurs (the developed countries) making offers in areas that are of interest to developing countries.

Ann Mary Redmond from the European Commission said there was a need to move into substantive issues. While services are scattered over a whole variety of sectors, the .underlying issues are the same -- how to ensure the best deal for consumers, how to ensure competition.

A lot of work has to be done in capitals. One myth of the services negotiations is that it is all about privatization and deregulation, but the real issue is to how to provide the best service to the people who need it. For the negotiations to move, it was important to consider what are the issues to be prioritized, and the sectors to be prioritized.

In looking to what to put into an offer, members have to look at what they can consolidate without much problem such as looking at existing liberalization (that can be committed) and there are many related issues such as regulation.

She added that ultimately liberalisation is taking place, so the question is why should it be bound in the WTO. The answer is that doing so consolidates what the regulators have done, it prevents erosion of the liberalisation when there is a change in government and this certainty can help attract investment.

Alicia Greenidge of the United States said it is clear that services was somewhat linked to agriculture as both have a built-in agenda created in Uruguay Round. She said we must come home with the package of three key areas in market access. Referring to Faleiro's characterization of the "ages" in the negotiations, she quipped that next year could be the "age of depression", depending on what is done this year.

Greenidge added that a positive linkage could be made between services with agriculture and other sectors. The focus should be on is how to increase the substance of the services negotiations as well as parallels on domestic regulation. She added that if there is no progress on market access, then there is little impetus to move on domestic regulation.

She said there were many earlier comments on infrastructure services and the need to regulate. What the US is advocating is not to eliminate all regulation. Similarly, we are not asking for wiping out public services. She also agreed that liberlisation is not a panacea.

Johannes Bernabe of the Phillipines agreed with Mamdouh that political will and better definition of commitments are needed to move the talks forward. However this needed further elaboration.

On the issue of political will, Bernabe asked who are we expecting to drive the negotiations? If the traditional demandeurs want the negotiations to move, they must send a political signal. They could start with mode 4 as it is a concrete signal to send. Indeed they could show leadership by showing they are prepared to move in mode 4.

He agreed that we need more precise identification of our ambition, and to be able to We the specific reforms and sectors we want liberlisation to take place in. However this can be done properly only if there is an assessment of the results so far. He noted however that such an assessment, although mandated, has not yet been properly undertaken.

This has serious implications, because if a country has not conducted an assessment then it is unable to include sectors in its request, and it cannot clearly understand what modes of supply or sectors it can make in its commitments.

It is also critical to understand the classification and scheduling issues. Countries may be more comfortable if they knew that what they are actually offering is exactly what they meant to offer.

Bernabe added that to have a successful outcome in commitments, then rule making should also move toward a successful conclusion. In particular, without the safety net of an emergency safeguard, how can you convince a developing country to undertake obligations? On the need for rules on domestic regulations, he said there would be a greater deal of comfort if one knew that the commitments one is able to extract is not nullified by domestic regulations. On the other hand, some developing countries had also tabled a submission in seeking to reaffirm the right to regulate.

On negotiations for rules on government procurement, Bernabe remarked that trying to push for market access obligations in this area, as the EC is doing, is not the way to build confidence among members.

Sumantha Chudhuri of India said there was little point in debating whether or not there is a crisis in services. In his assessment, many more rounds of request and offer would be required and he counted that bottom lines would be exposed by the May deadline. Many countries come to the WTO asking what they could get in return, and this probably accounts for the link between services and agriculture and NAMA.

He said the developing countries often hear the criticism that they cannot identify what they want and who their trading partners are in services. But they also hear the reverse, that once these interests are identified, we still have not identified other matters that are also relevant.

Sumantha said the issue of domestic regulation was important and relevant to both developed and developing countries.

On mode 4, he said that some of the developed countries have articulated an interest on the issue, yet so far there had been little achieved on this.

Morocco said the issue whether there was a crisis or no crisis was exaggerated. The slowness is negotiations is due to many factors. For the process to go on it has to be inclusive, involving the participation of all countries.

Malaysia said it was important to make progress on the negotiations on rules for emergency safeguards. It reminded that once a commitment is made in the GATS, it is very difficult to reverse or backtrack, and thus commitments are serious matters. Having safeguards would make it more comfortable for commitments to be made.

Malaysia also urged that a mechanism be established to assist developing countries identify the costs and benefits of liberalization and commitments. It reminded that the negotiating guidelines call for a review of progress in the context of Article 4.

On domestic regulation, Malaysia said it was important to ensure that domestic regulations are strong enough to allow countries to face up to market opening. Finally, special and differential treatment should be given more attention.

In earlier remarks, Vanuatu said that the demands made of developing countries like his from the services negotiations in the WTO and the Cotonou agreement are onerous. In order to remain vigilant, small countries look forward to UNCTAD on technical assistance.

The Democratic Republic of Congo stressed that the GATS agreement allows developing countries to liberalize on a gradual basis. This is important as negotiations undertaken can have substantial consequences on development.

It said the he developing country governments are under pressure but they do not have the power to resist. Other pressures are brought to bear on the countries especially the indebted countries. The IMF and the World Bank have asked developing countries to privatize their public enterprises as conditions to loans. He said the question is whether the developing countries are able to apply the flexibilities under these circumstances. Most of the developijng countries also lacking data and the necessary information.