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TWN Info Service on WTO and Trade Issues (Oct05/1)

4 October 2005


BENCHMARKING PROPOSALS COME UNDER HEAVY FIRE AT FORMAL WTO SERVICES MEETING

The developed countries' proposals on "benchmarking" or "complementary approaches" in services came under heavy fire from many developing country groupings and individual countries at a formal meeting of the WTO Council for Trade in Services (Special Session) held on 29-30 September.

The proposals were severely criticised by the Least Developed Countries Group, the African Group, many of the ASEAN countries and Caribbean countries as well as individual countries including Brazil, Argentina, Guatemala, Uruguay, Venezuela, Dominican Republic, Thailand, Malaysia, Indonesia, and South Africa.

The proposals had earlier been introduced at informal services meetings and had come from the European Union, Japan, Australia, New Zealand, Switzerland, Korea and Chinese Taipei.

Some developing countries had registered their concerns informal meetings of the past fortnight, and elaborated further for the record at the 29-30
September formal meeting. Many more countries and groupings also voiced their concerns for the first time.

The proposals advocate a multilateral approach to "complement" the present bilateral request-offer negotiations so that countries will be obliged to commit to liberalise in at least a specified number of sub-sectors, and with a certain depth. In some proposals, countries' commitments would be measured or "benchmarked" with scores.

The proposals are widely seen as a move to get the developing countries to accelerate their commitments, since the present positive-list and
request-offer aspects of the GATS enables these countries to make commitments according to their own choice.

Below is a full report of the developing countries' presesntations at the meeting.


It was published in the SUNS Bulletin of 3 October 2005.

With best wishes
Martin Khor
TWN

______________________


BENCHMARKING PROPOSALS COME UNDER HEAVY FIRE AT FORMAL WTO SERVICES MEETING

By Martin Khor (TWN), Geneva, 30 September 2005

The proposals on "benchmarking" or "complementary approaches" in services came under heavy fire from many developing country groupings and individual countries at a formal meeting of the WTO Council for Trade in Services (Special Session) held on 29-30 September.

The proposals, made mainly by developed countries (including the European Union, Japan, Australia and Canada), were criticised by the Least Developed Countries Group, the African Group, many of the ASEAN countries and Caribbean countries as well as individual countries including Brazil, Argentina, Guatemala, Uruguay, Venezuela, Dominican Republic, Thailand, Malaysia, Indonesia, and South Africa.

The proposals had earlier been introduced at informal services meetings and had come from the European Union, Japan, Australia, New Zealand, Switzerland, Korea and Chinese Taipei. Some of them tabled their papers formally at this week's meeting.

Some of the developing countries had registered their concerns at the informal meetings of the past fortnight, and elaborated further for the record at this week's formal meeting. Many more countries and groupings also voiced their concerns for the first time.

The proposals advocate a multilateral approach to "complement" the present bilateral request-offer negotiations so that countries will be obliged to commit to liberalise in at least a specified number of sub-sectors, and with a certain depth. In some proposals, countries' commitments would be measured or "benchmarked" with scores.

The proposals are widely seen as a move to get the developing countries to accelerate their commitments, since the present positive-list and request-offer aspects of the GATS enables these countries to make commitments according to their own choice.

The African Group, represented by Egypt, said the Group's main concern is to what extent proposals that seek to establish quantitative and qualitative targets are compatible with the flexibilities enshrined in the GATS. It cited the flexibilities contained in several articles in the GATS and the LDC modalities.

Therefore, it is the group's view that pre-establishing any quantitative and qualitative targets would go beyond, and in fact reduce the flexibility inherent in the GATS provisions stipulated above. Such targets, by establishing a common benchmark, would harmonize the 'development situation' of individual developing countries. This is an inaccurate measure since even within a similar group, countries have their own development objectives. It is these objectives that should determine individual decisions regarding their GATS commitments.

"Furthermore, although the proposals claim to be complementary to the request-offer approach, which is recognized in paragraph 11 of the Negotiating Guidelines as the main method of negotiations, they in fact seek to replace the request-offer process and leave the latter to play an insignificant role. This is clearly inconsistent with the mandate in the negotiating guidelines.

"Moreover most proposals prioritize infrastructural based sectors, ignoring the continuous submission of developing countries on their weak regulatory frameworks in these sectors. This clearly disregards the flexibilities provided in the GATS."

In addition, said the African Group, the proposals are too ambitious as they aim at decisions being made at Hong Kong. They have come very late and countries are denied ample time for their examination. The proponents have also failed to show how they relate to achieving the main objectives of the GATS. The proposals are contrary to the principles in the Doha Development Agenda which places development at the top.

From the African Group's assessment, what is lacking in the GATS negotiations is not a binding formula but the requisite political will to make commitments. This is most true in the sectors and modes of interest to developing countries and Mode 4 in particular. "In fact we are of the view that the proposals divert attention from this important factor."

The Group reiterated that its main objective is to achieve the development dimension of the Doha Development Round in services. "We should focus on SDT proposals and Mode 4 liberalization. We will not accept any deviation from these."

The LDC Group (represented by Zambia) said that the proposals raise fundamental issues which could overturn the GATS architecture. It seems clear that the intent is to get all Members to make certain levels of commitments in this round. The requirement to meet set targets including by LDCs as some proposals suggest counters the spirit in which GATS was negotiated.

Such requirements erode the flexibilities inherent in GATS and would place LDCs in a worse off situation. It would also be counter to the modailities on the special treatment of LDCs adopted by the membership. It reminded that paragraph 5 of the LDC modalities states that there shall be flexibility for LDCs for opening fewer sectors and that in response to requests, LDCs may make commitments compatible with their needs and which are limited in terms of sectors, modes of supply and scope.

It added that many LDCs face structural weaknesses which could be compounded by any attempt to liberalise the services sector without addressing the current deficiencies. Liberalisation come with its own costs that need to be quantified and mitigation measures put in place. Very few, if any, have undertaken comprehensive assessments that enable them to engage in the negotiations.

Many proposals are in favour of a priority list of sectors, especially infrastructure services, which need the most preparedness in terms of regulatory, legal and institutional framework and experience. The LDCs modalities allow LDCs to liberalise sectors in accordance with their development situation and needs. Thus, requiring LDCs to meet certain quantitative and qualitative targets is to ignore this flexibility.

They would also assume that the targets are in line with their development situation, an assumption that has no basis. Similarly, the proposals go beyond GATS Articles IV, XIX, as well as paragraphs 2, 3, 4, 11 and 12 of the Guidelines and Procedures for services negotiations.

The LDCs are therefore in favour of respecting and maintaining the request/offer approach which allows Members to take into account the flexibilities granted to LDCs and other developing countries. The Group asked for a more developmental approach to the negotiations, and that the Hong Kong Ministerial agree to full implementation of the LDC modalities.

A joint statement by Brunei, Indonesia, Malaysia, the Philippines and Thailand was presented by Philippines Ambassador Manuel Teehankee. They said the request and offer method should be the main method of negotiations according to the services negotiations Guidelines.

"Like many other members, we are still not clear how this will not in effect eventually replace the bilateral request-offer process or reduce it to a mere monitoring process," they said. The proposals also may not adequately cover the developmental dimensions of flexibility for developing countries, nor some concerns such as proper treatment of Mode 4.

Room for policy manoeuvre is very crucial, especially because the GATS framework does not provide post-commitment remedies apart from resorting to Article 21 on the waiver process and countries face some obligation to compensate which can be highly punitive to developing countries. Quite ironically, much has been made of the same manoeuvrability and flexibility provided by GATS to question the need for the ASEAN countries' proposed Emergency Safeguards Mechanism for services.

Each member has scheduled its own limitations in sectors, and is allowed to gradually liberalise at its own pace, which takes place when it corresponds to domestic policies. Services liberalisation should also be accompanied by sound macroeconomic management and appropriate regulation and supervision.

"Our authorities continue to carefully consider the pace and sequencing of further liberalisation in sectors together with a comprehensive review of our existing regulatory regime to enure the soundness of our services sectors, especially sensitive systems such as financial services and telecoms."

The countries said they are concerned that the proposed approaches may undermine such GATS flexibilities. "A member may be caught in situations where it has no choice but to undertake commitments prematurely to fulfil the targets. This may undermine the principle of progressive liberalisation."

The five ASEAN countries added that the "scoring approach" could send a wrong message. It does not help increase the comparability of schedules but generalises Members' commitments into a simplified value.

"The scoring approach will transgress negotiations into viewing services negotiations akin to goods negotiations where one plus one is equal to two," they said. A fair and accurate method to translate commitments into indices is lacking and non-existent. Further, none of the proposals show a reasonable method of assessing horizontal commitments, where most mode 4 commitments are scheduled.

"It is dangerous to request for an agreement on the desirability of complementary approaches before the design is fully fleshed out. It is comparable to asking for a blank cheque, and is disconcerting if viewed in the context of its being possibly extended to encompass future rounds of negotiations." The countries also made suggestions on how to intensify the request-offer approach.

A statement was made by Ambassador Ransford Smith on behalf of Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Vincent and the Grenadines, Barbados and Jamaica. These Caribbean countries expressed their growing concern on the alternative approaches to the negotiations recently circulated. They wanted to put on record their statement at last Thursday's informal session.

They underscored that any approach to achieving a higher level of liberalisation must explicitly recognise that the process respects national policy objectives and the level of development of individual Members both in overall and individual sectors; prioritise the liberalisation of market access in sectors and modes of supply of export interest to developing countries, and provide appropriate flexibility for individual developing country Members to open fewer sectors; liberalize fewer types of transactions; progressively extend market access in line with their development situation,; and when making access to their markets available to foreign service suppliers, attaching to such access conditions aimed at achieving the objectives referred to in Article IV.

The countries said that "flexibility is therefore a key component of the level of liberalisation that we seek to undertake through identifying our own priorities and objectives in successive rounds of negotiations.

"Little of these flexibilities is reflected in the proposals that we have seen to date. Rather what has been outlined appear to undermine the flexibility, "individuality" and "policy space" provided in the other provisions of Article XIX, as well as that of Article IV, by mandating developing country members, particularly small vulnerable economies, to adopt a pace of liberalisation as defined by targets, that would be inimical to their interests.

"The proposals do not account for the diversity of countries and size of economies, nor do they consider the fact that small vulnerable countries are unable to undertake the same pace of liberalisation as other members. Again, the principle of special and differential treatment and the "individuality" of the GATS are ignored.

"We believe that what is required at this stage of negotiations en route to Hong Kong, is the exercise of political will to increase market access opportunities in sectors and modes of export interest to developing countries, particularly in Mode IV.

"Furthermore, we strongly urge that any complementary approaches that are to be devised should strongly reflect the above mentioned features, be in line with the Doha mandate, the Guidelines and Procedures for the Services Negotiations and Annex C of the General Council Decision of August 1, 2004.

"This issue is of significance to our countries, particularly in light of the fact that the service sector is the largest sector of our economy, in some cases accounting for more than 80% of total GDP and employment, and 85% of trade. We cannot lose sight of this especially after a number of us have already lost so much in agriculture.

"We are therefore unable to endorse the proposed complementary approaches as being any basis for modalities that could be pursued in Hong Kong at the Ministerial, or during the post-Hong Kong negotiating time period.

"The framework for Hong Kong and for post Hong Kong is set in the present mandate and this is what we should be concentrating on now, instead of creating additional legs that instead of enhancing the pace of operationalization, further slow us down and distract us from the real issues. In the time available we should focus on the real negotiations and in this context on existing modalities, and especially on enhanced responsiveness to the export interests of developing countries.

"We reiterate our position that during this development round, at a minimum, more attention should be paid to ensuring that developing countries become the major beneficiaries of the services negotiations, and not the developed countries who already account for 80% of global services exports. It is obvious that the proposals referred to earlier seek to re-interpret the GATS in a manner that would roll back the gains negotiated by the developing countries whilst seeking to increase market access for developed countries."

Brazil noted that some of the proposals on "complementary approach" do not respect the architecture and the flexibilities built into the GATS. To depart from the mandate and the parameters of the negotiation would be counterproductive, and could lead to opposite results than those intended, for instead of energizing the services negotiation, it could derail them in the short time available before Hong Kong.

On compatibility considerations, Brazil said that most of the proposals rely on the introduction of quantitative and qualitative parameters for Members to schedule commitments. "We are not convinced that such parameters would be compatible with the flexibilities provided in the GATS and the Guidelines." Citing Article XIX (2) of the GATS, Brazil said it is hard to reconcile quantitative/qualitative parameters that would apply equally to all Members - or at least to sets of Members - with the flexibilities granted to individual Members.

It added that Paragraphs 4, 11 and 12 of the Guidelines provide additional guidance. "We are concerned that the benchmarks, as proposed, would invert the clear priority stated in the Guidelines. Paragraph 12 reiterates the same elements contained in the GATS paragraph XIX (2).

"Furthermore, it remains unclear how such mandatory benchmarks on a minimum number of sectors/sub-sectors, as well as formulas for market access and reductions on limitations scheduled in the four modes of supply, can be made compatible with the built-in flexibilities of GATS. Until such time as this matter can be satisfactorily clarified, the request-offer approach will have to remain the main modality of negotiation, and we must take care not to undermine it."

On feasibility considerations, Brazil said there is need for an assessment as to the extent to which it may be feasible to delineate and agree on parameters that could properly capture the inherent complexity and diversity of individual schedules and individual Members, without departing from the built-in flexibilities of the GATS.

Brazil criticised the proposals for providing a "round for free for developed countries." It is of great concern to Brazil that some of the approaches rely on the notion that the level of commitments taken in the Uruguay Round should be factored into the current negotiations. "Uruguay Round commitments represent the balance of concessions achieved in those negotiations, where services concessions were offset by very important concessions in other areas," it said.

"The concept of "credits" to be granted in the Doha Round, based on the schedules of the Uruguay Round, subverts the spirit and the letter of the GATS.

"The implementation of these approaches could lead to a "round for free" for developed countries in services and turn the developing countries into the main, and perhaps the only, contributors to the present services negotiations. Such an outcome would not be compatible with the provisions of Article IV and XIX of GATS, where flexibility is established in favor of developing countries, not against them. It would also lead to significant reduction in the level of ambition of the services negotiations."

On the proposals on classification, Brazil agreed with the importance of enhanced clarity and comparability from using common classification. "However, efforts aimed at harmonizing Members' classifications must be approached in a manner that is consistent with the flexibilities of the GATS. To do otherwise would run counter to paragraphs 23 and 24 of the Guidelines for the Scheduling of Specific Commitments (S/L/92).

On flexibility for developing countries, Bazil said the complementary approach must differentiate between developed and developing countries in terms of commitments. "We must abide by the basic premise of Article XIX (2) of the GATS, i. e., that all developing countries enjoy additional flexibilities vis-a-vis developed countries. There is no legal basis for treating developed and developing countries alike under GATS, just as there is no legal basis for differentiation between non-LDC developing countries."

Brazil added the proposals were incompatible with the LDCs' interests as few of the proposals adequately take into account the LDCs Services Modalities Services". Brazil believed there is an imbalance in commitments by mode of supply. Mode 4 is under-committed in comparison with Modes 1, 2 and 3. This anomaly should be a core concern in the current GATS negotiations. The categories of contractual services suppliers and independent professionals merit special consideration. It referred to document JOB (05)/131 which assessed Mode 4 commitment. These critical elements can be properly addressed without departing from the architecture of the GATS.

Brazil concluded that the perception that the current bilateral request-offer method is not producing satisfactory results does not imply that "we need to deviate from the architecture of the GATS. The conceptual difficulties cannot be brushed aside."

Brazil, which spoke first among the developing countries, received support from many countries.

Meanwhile, at a press briefing Friday, Hamid Mamdouh, Director of the Services Division of the WTO, said that from the week's meeting of the Council for Trade in Services in Special Session, there was an indication of continuing disappointment over the level of offers made so far, and that the request-offer process was "cumbersome".

There also appeared to be demand for detailed indentification of objectives and that Ministers would need to make a strong statement in Hong Kong, not just on the objectives but also on the level of ambition. He said there was also a need for the Ministerial text to provide for a new date for the second round of revised offers.

On the issue of benchmarking, Mamdouh said the Chair of the negotiations, Ambassador Alejandro Jara said that there were very useful clarificatory discussions on the issue but that there was no agreement on them.

The Chair said that a lot of countries took the view that those approaches were not compatible with the flexibilities in the GATS. But he also cited others who reminded members that flexibility and the GATS have a context and that the context is liberalisation.

The Council also decided that Mexico's Ambassador, Fernando de Mateo, would take over as the Chair of the services negotiations. Ambassador Jara will join the WTO Secretariat as deputy director-general from October 1.

The next meeting of the Special Session is slated for the week of 31 October.

(* With inputs from Goh Chien Yen and Kanaga Raja.)

 


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