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TWN Info Service on WTO and Trade Issues (Sept05/10)

27 September 2005


DEVELOPING COUNTRIES VOICE OBJECTIONS TO 'BENCHMARKING' PROPOSALS IN SERVICES

Many developing countries have voiced their objections to the joint attempt by developed countries to introduce a "benchmarking approach" or "complementary multilateral methods"  in the WTO's services negotiations.

They made clear their objections at an informal meeting of the Council for Trade in Services in Special Session on 22 September evening.

Among the developing countries that voiced opposition to, and concerns about, the developed countries' proposals were Brazil, Rwanda (speaking on behalf of the least developed countries), South Africa, Indonesia, the Philippines, Bangladesh, Mexico, Cuba, Venezuela, Trinidad and Tobago, and Antigua and Barbuda (speaking also for Barbados, Jamaica, Dominica, Grenada, St. Kitts and Nevis, and St. Vincent and the Grenadines).

According to trade diplomats, the developed countries maintained or even hardened their position.

The divisions among members on this issue are expected to re-surface at the formal meeting of the Council this week, starting Monday.

The issue has generated a new element of uncertainty and controversy in the preparations for the Hong Kong Ministerial.

At the 22 September meeting, many more developing countries voiced their concerns and objections. A main common theme among most of these countries was that the proposals contradicted the structure and principles of the GATS and the 2001 Guidelines and Procedures for the Services Negotiations, in that they removed the present flexibilities that allow developing countries to liberalise at a pace, and in sectors, of their own choosing.

Below is a report on the 22 September meeting.  It was published in the South North Development Monitor (SUNS).


With best wishes
Martin Khor
TWN

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Developing countries object to "benchmarking" services proposals

By Martin Khor (TWN), 25 September 2005

Many developing countries have objected to the joint attempt by developed countries to introduce a "benchmarking approach" or "complementary multilateral methods" to the services negotiations in the World Trade Organisation.

They made clear their objections at an informal meeting of the Council for Trade in Services in Special Session on 22 September evening.

Among the developing countries that voiced opposition to, and concerns about, the developed countries' proposals were Brazil, Rwanda (speaking on behalf of the least developed countries), South Africa, Indonesia, the Philippines, Bangladesh, Mexico, Cuba, Venezuela, Trinidad and Tobago, and Antigua and Barbuda (speaking also for Barbados, Jamaica, Dominica, Grenada, St. Kitts and Nevis, and St. Vincent and the Grenadines).

According to trade diplomats, the developed countries maintained or even hardened their position, with the European Union even implying that the flexibilities enjoyed by developing countries in the GATS (General Agreement on Trade in Services) had expired, and that the proposals were in fact offering them new flexibilities.

The divisions among members on this issue are expected to re-surface at the formal meeting of the Council this week, starting Monday.

The issue has generated a new element of uncertainty and controversy in the preparations for the Hong Kong Ministerial.

Some developed countries made clear during last Thursday's meeting that they linked acceptance of their benchmarking proposals to a successful outcome at the WTO's Hong Kong Ministerial in December. But an increasing number of developing countries are insistent that the proposals are unacceptable and would make a mockery of the Doha pledge that the current work programme would put development at the centre of the negotiations.

The proposals had been put forward in six papers (by the EC, Japan, Australia, Switzerland, Korea, and Chinese Taipei) at an informal meeting on services on 13 September. At the 22 September meeting, New Zealand presented a new paper.

The proposals' common theme is that the bilateral request-offer negotiating method has not achieved results in terms of liberalization commitments of developing countries, and that a new multilateral "complementary method" should be introduced that could benchmark the extent of members' commitments.

Members would be required to adhere to a certain "benchmark" or attain a certain score. Some proposals advocate that members be required to commit in at least a specified number from a list of sectors to be agreed upon, and also that the present levels of actual liberalization be "bound" by having them committed in the GATS.

Other proposals include a methodology for giving quantitative scores to countries for the number of sectors committed and the extent of restrictions placed or not placed on the liberalization in the various modes.

When the proposals were introduced at the 13 September meeting, some developing countries had raised preliminary concerns, whilst others reserved comment until they could study the proposals.

At the 22 September meeting, many more developing countries voiced their concerns and objections. A main common theme among most of these countries was that the proposals contradicted the structure and principles of the GATS and the 2001 Guidelines and Procedures for the Services Negotiations, in that they removed the present flexibilities that allow developing countries to liberalise at a pace, and in sectors, of their own choosing.

Brazil, which made the main intervention among developing countries, commented that the proposals were not compatible with the flexibilities provided in various articles and provisions in the GATS and the Guidelines, which it cited.

Setting mandatory benchmarks on a minimum number of sectors or sub-sectors and adopting formulas for market access and reductions on limitations would impinge on the GATS flexibilities that developing countries make use of, said Brazil. The proposals which are supposed to "complement" the present request-offer approach would instead marginalise this present negotiating method.

Brazil was concerned that some of the proposals factor in the Uruguay Round commitments and give credits to these in the present Round. This would be tantamount to giving a "round for free" to developed countries in services, while the developing countries would have to be the main or only contributors to the present services negotiations.

Brazil also criticised the proposal to require members to harmonise their classifications of services, as such a forced harmonization would be counter to the flexibilities in the Guidelines for the Scheduling of Specific Commitments.

It added that some of the proposals also ignore the basic premise of GATS, that developing countries enjoy additional flexibilities vis-a-vis developed countries.

Brazil also noted that the approaches ignore and would not take account of the diversity of members' commitments, as these proposals would lead to the erosion of the workable system that "we created in the request and offer system". Instead, countries would be forced to compete among one another for high scores set by a single standard which would not capture the diversity of the countries.

Brazil also pointed out that the position now taken by the proponents of the new approach contradicted their earlier positions on the advantages of the GATS, or their own assessment of the state of the services negotiations.

It referred to the reports of previous meetings of the Working Group on Trade and Investment, and cited how the EU and Japan had then praised the prevailing GATS framework and the GATS flexibilities as being development friendly, when they had advocated the establishment of a multilateral framework on investment, based on a GATS-type structure. Why were these members now criticizing the present GATS framework and methods and asking for complementary approaches, implied Brazil.

Brazil also referred to a chart prepared by the US for its internal use, which assessed the services commitments made by members. Brazil pointed out that the part of the chart concerning the present round of negotiations had shown that the developing countries have made more commitments than developed countries. This contradicts the claim that developing countries had made inadequate commitments under the present request-offer negotiating method, implied Brazil.

Brazil concluded that it was not a new formula approach or a new "benchmarking" approach that is required for progress to be made in the services negotiations. Instead, what is required is leadership from the developed countries. They should lead by example by coming up with offers in areas of interest to developing countries, such as in Mode 4 on movement of labour, which up to now they had not made.

Several developing countries, including the Philippines, Mexico, Indonesia, Cuba, Rwanda, Bangladesh, South Africa, Venezuela, Trinidad and Tobago and seven other Caribbean countries, represented by Antigua and Barbuda, voiced support for the Brazilian statement.

Rwanda, speaking on behalf of the LDC Group, expressed concern that the proposals were not in accordance with the services modalities for LDCs.

Antigua and Barbuda, speaking on behalf of itself, Barbados, Jamaica, Dominica, Grenada, St. Kitts and Nevis, and St. Vincent and the Grenadines, referred to Article XIX para 2 of the GATS which states that liberalisation shall take place with due respect for national policy objectives and the level of development of individual members, and that "there shall be appropriate flexibility for developing countries to open fewer sectors, and fewer transactions and for extending market access in line with their level of development".

This makes clear that it is left to countries to determine the number and range of offers that they submit to other Members of the WTO, said the countries.

They remarked that the proposals on "complementary" approaches undermine the spirit of Article XIX of GATS and the flexibility, "individuality" and "policy space" provided in this Article by forcing developing-country members to adopt a pace of liberalisation as defined by targets, which would be inimical to their interests.

"The proposed new approaches would make it impossible for our domestic services suppliers to maintain their domestic markets," said the countries. "Such deep levels of liberalization in more sub-sectors than we would rationally commit to would undermine our own development goals and objectives."

As these proposals do not aim to facilitate the process of development for small developing countries, the result would be the "crowding out" of domestic suppliers, said the Caribbean countries, noting that half the services firms in their countries employ less than five persons.

They commented that the Chinese Taipei proposal suggested that countries make full commitments in infrastructural services, while the EC proposal speaks of "commitments by a Critical Mass of Members" and the Japanese proposal refers to "Concrete Targets".

These proposals, said the Caribbean countries, suggest that developing countries should make commitments in sectors in which the developed countries have a competitive advantage and in which they want greater market access. This goes against Article IV of the GATS.

The countries also remarked that the proposals require that all Members adopt a similar approach. They do not take into account the fact that small vulnerable countries are unable to undertake the same pace of liberalisation as larger developing countries. Again, the principle of special and differential treatment and the "individuality" of the GATS have not been adhered to.

They stated that the application of a formula approach utilised by New Zealand, Japan, Chinese Taipei et al and Switzerland in assessing liberalisation should not be applied to services trade since it undermines the flexibility provided for in Article XIX.

The value ascribed to commitments made by one country may not be as meaningful to other countries because of different levels of development, the countries added. The use of the term "commercially meaningful" used in paragraphs 8 and 11 of the Korean proposal speaks only to the value of the developing countries' commitment to developed countries.

However, they said, the ultimate test must be Member States' individual assessment of the offers made by others in light of their national development objectives as envisaged in Article XIX.

They also commented that paragraph 7 of the EC proposal goes against the flexibility enshrined in Article XIX of the GATS since it seeks to determine countries' economic policy and direction by prescribing the sectors in which countries should make offers.

The Caribbean countries concluded that the proposals seek to re-interpret the GATS and will have the effect of restricting the flexibilities available to countries (a hallmark of the GATS) whilst seeking to increase market access for developed countries. They are therefore unable to endorse the proposals.

They added that it is regrettable that in this, a development round, more attention is not being paid to ensuring that developing countries are actually the primary beneficiaries of the services negotiations, and not developed countries who already account for 80% of global services exports.

In contrast to the position of the developing countries, the developed countries were adamant in advancing their joint offensive. New Zealand presented a new proposal (adding to the six already tabled) that suggests a methodology for scoring countries' level of liberalization.

It gives higher scores for sectors that are totally open and deducts points based on the limitations and the type of limitation. Higher deductions are given for restrictions such as for sectors or modes being "unbound", while lower deductions are given, for example, for requirements that foreign firms form joint ventures with local firms.

The US indicated that it wanted a targeted approach to scoring, which should include members' present commitments. It said that it had high ambitions in these negotiations in services and NAMA and that these were linked to other areas. It felt that there was sufficient flexibility in the proposals, which were in line with GATS Articles XIX and IV.

The EC, arguing in defence of the proposals, said that they were facilitating the concept of "progressively higher levels of liberalization." It suggested that the flexibilities in the agreement for developing countries had expired, and that in fact it was providing new flexibilities for the countries in these proposals.

Australia noted that the proposals had similar elements, and said some of the proponents would merge the similar elements to consolidate their proposals. It reiterated the rationale for the proposals, that the negotiations so far had not made progress. It linked an ambitious outcome in services to success in Hong Kong.

Hong Kong China noted that there is a need for complementary approaches that must be balanced for the benefit of all members. Japan, Korea and Canada also supported the proposals.

The Chairman of the services negotiations, Ambassador Alejandro Jara of Chile, is expected to present a report of the discussions at the Special Session of the Council for Trade in Services, which will meet for most of this week.

 


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