TWN Info Service on WTO and Trade Issues (Oct12/08)
27 October 2012
Third World Network

The Plurilateral Services Game at the WTO
Published in SUNS #7464 dated 23 October 2012

Geneva, 22 Oct (Chakravarthi Raghavan*) - With the World Trade Organisation's (WTO) Doha Round of Negotiations at a complete impasse, those who launched it nearly 12 years ago (this November), appear to be trying to find a way of burying the "corpse", and looking for other ways to achieve their neo-mercantilist agendas.

The air has been thick in recent weeks of "news" of the talks and tentative agreements among the "Really Good Friends of Services" (RGFS) for an International Services Agreement (ISA), with a new architecture of sorts and a heavy dose of liberalisation. Some of the contours of the intended ISA, and the progress in negotiations, have been spelt out in testimony before the US Congress in September, by Ambassador Michael Punke, the deputy US Trade Representative (USTR) and US ambassador to the WTO, as also in more recent statements by the Australian minister and some other participants about "tentative accords".

There is talk of the "ISA architecture", as involving "conditional plurilateral" agreement, to be lodged at the WTO, with other members enabled to accede to it, on the analogy of the existing plurilaterals (in Annex 4 of the Marrakesh Treaty). There is also a projected scenario of the ISA, as a GATS Article V services integration agreement of the participating countries, or of an Information Technology Agreement (ITA)-type agreement, with MFN (Most Favoured Nation) treatment for all WTO members, provided the major emerging economies join such an ISA and liberalise their markets.

The RGFS countries are said to be: Australia, Canada, Chile, Colombia, Costa Rica, the European Union, Hong Kong, Israel, Japan, Mexico, New Zealand, Norway, Pakistan, Peru, Singapore, South Korea, Switzerland, Taiwan and the US. More recently, it has been reported that Singapore has withdrawn from the group. And several of the leaked reports also underline the absence from the RGFS of the BRICS, in particular of Brazil, India and South Africa - the major emerging economies, whose services markets are greedily eyed by the US and EU services industries - and attempts to persuade them to join the RGFS.

All these moves, and the high-level PR approach and publicity given to them, appear to have the air of a further parody of the 1829 poem "The Spider and the Fly" by Mary Howitt (1799-1888), parodied by Lewis Carroll (real name, Charles Dodgson, 1832-1896); or, to change the metaphor, in the coming winter and its snowfalls in the Alps attempt a snowball effect, panic major emerging economies (Brazil, China, India and South Africa) to join the process and open up their services markets to the US and EU service industries, in particular the financial firms receiving trillions of dollars in subsidies.

The Howitt's poem opening with the line, "Will you walk into my parlour?" said the Spider to the Fly, is the story of a cunning Spider who ensnares a naive Fly through the use of seduction and flattery, gets the fly into its web and devours it - a cautionary tale to children by Howitt, warning children to beware of those who use flattery and charm as a front for potential evil.

Howitt's poem was further parodied by Lewis Carroll in the tale of "The Lobster and the Snail" (ch. 10 of "Alice's Adventures in the Wonderland", 1865). In Carroll's tale, the whiting invites the snail to walk faster to join the lobsters and tortoises waiting on the shingles on the shore for the dance, and tempts the snail with the ‘delightful' culmination to the dance, "in everyone being taken up and thrown with the lobsters, out to sea!". When the snail balks that it would be "Too far, too far", the whiting responds, "What matters it how far we go? ... There is another shore... upon the other side... The further off from England the nearer is to France."

From leaked information about the "ISA architecture" and its liberalisation contours, it is clear that the moves, whether for a stand-alone "plurilateral" outside of the GATS/WTO, or as an agreement to be lodged in Annex 4 of the Marrakesh Treaty, or as an Article V GATS integration agreement to be notified to WTO, the ISA would be prima facie WTO/GATS illegal - an open-and-shut case for the Dispute Settlement Understanding (DSU), unless the panel and Appellate Body turn perverse to favour the US.

The ISA, as a plurilateral agreement on trade in services, applicable only to its members, is legally inconceivable under the WTO. There is no way to do this, unless such plurilaterals are excepted as a clear departure in the multilateral agreement itself, like in the cases of free trade agreements (FTAs) in the GATT and the GATS.

In the days of the old GATT, a provisional executive agreement among governments, at a media conference during the Uruguay Round, when confronted with the view that the European Commission's proposals were contrary to the Punta del Este mandate for negotiations, the EC negotiator responded with "anything is possible in GATT among consenting adults."

The WTO is now a Rules-based international organisation, set up under an international treaty, with binding rights and obligations for members, with a Dispute Settlement process, and specific provisions for any amendments to the treaty and agreements annexed to it, and for their entry into force after acceptance of members.

Under the provisions of Article II:1, and Article III:2 of the WTO, any negotiations for any trade accord on any of the agreements in Annex 1 (1A in goods trade, 1B in services trade and 1C on TRIPS) are to be conducted with the WTO "as the forum for such negotiations." Article II, paragraph 1 of GATS, the MFN Treatment provision, relevant to the ISA issue, reads: "With respect to any measure covered by this Agreement, each member shall accord immediately and unconditionally to services and services suppliers of any other Member, treatment no less favourable than it accords to services and services suppliers of any other country."

Paragraphs two and three of this Article II set out some exceptions and limitations, but they are not relevant to the consideration of the ISA issue. They provide for derogation from MFN, if it is listed in a particular way in a Member's GATS schedule, as also for ability of two adjacent countries, conferring advantages to services locally produced and consumed in contiguous frontier zones.

Thus, under WTO Rules, the parties to the ISA cannot make liberalisation of their services markets applicable only to ISA members. Nor can they extend it to other WTO members on any conditional basis. The liberalisation (reduction of barriers) in any sector has to be unconditionally extended to all other WTO members, whether ISA or non-ISA.

For the ISA to co-exist with the GATS and for its lodgement for this purpose in Annex 4 of the WTO, there needs to be an amendment of the Marrakesh Treaty. And since the ISA is intended to cover "service transactions" across sectors and modes of supply and involves non-MFN treatment to those not members, for such an amendment to be adopted and come into effect, it needs the acceptance of all WTO members.

For any agreement to be viewed as an Article V one (as an FTA in services trades of its members, or an integration agreement in services among its members), the agreement must satisfy the terms of Article V of GATS. Among others, Article V:1 (a) requires that the ISA have "substantial sectoral coverage"; and a footnote explains "This condition is understood in terms of number of sectors, volume of trade affected, and modes of supply. In order to meet this requirement, agreements should not provide for the a priori exclusion of any mode of supply."

Article V of GATS provides for negotiations when the services integration accord involves modification of scheduled commitments of its members. Irrespective of any Working Party consideration and recommendation, or decisions by the Council on Trade in Services (CTS), any non-ISA WTO member can raise a dispute and get a ruling via the DSU. Such a grievance could arise for a WTO member, if the ISA does not comply with Article V.1 (a), or the member finds its existing access to the service markets of the ISA members reduced as a result of the infringement of the provisions of Article V.4. The latter provides that any Article V.1 agreement, in respect of a non-member "shall not... raise the overall level of barriers to trade in services within the respective sectors or subsectors compared to the level applicable prior to such an agreement."

Thus, all the current noise about the planned ISA can be understood only as a big bluff game and an attempt to panic the major emerging economies (and/or their particular service sectors or subsectors) that have stood out but fear loss of markets, or loss of competitivity vis-a-vis other trading partners and their suppliers, into joining the ISA negotiating process.

When the Marrakesh treaty was signed in April 1994, developing countries accepted onerous commitments in advance as the price for bringing the agriculture sector under normal GATT trading disciplines, and for the initiation of an irreversible, longer-term reform process that envisaged gradual elimination over time of governmental aid and support to domestic producers. There were also other reform measures that the major industrial countries were required to undertake over a period of time, and for time-bound negotiations after WTO enters into force within specific agreements.

At the Singapore Ministerial meeting of the WTO in 1996, the EC sought to put spokes in the wheel, by injecting extraneous issues (the so-called studies and negotiations on four Singapore issues), so that further agricultural trade reforms could be delayed or subverted. The EU has more than achieved that objective, through the impasse in the Doha Round. And the US and EU now balk at any further cuts in agriculture subsidies and want to bury the Doha Round, and move on to new agendas.

At the turn of the century, to avoid more agriculture reforms and subsidy cuts, the EC mooted the millennium round with the Singapore issues, asking everyone to put any issue they wanted on the table. Along with a number of other issues and negotiations in terms of various WTO agreements, a new round of services negotiations (mandated every five years) also came up, and was actually agreed upon and started in 2000, at the WTO Council on Trade in Services. (This was rolled into the Doha Round in November 2001, at the instance of the EU and US).

Just before the December 1999 Seattle ministerial, the US had indicated its reluctance to engage in further services talks, while the US and EC also clashed over further agricultural reform. And both wanted further opening up of agricultural and non-agricultural products markets of developing countries. The collapse of the Seattle meeting resulted in 2000 of the General Council decision to start a programme of confidence-building. But this did not suit the US or the EU (or the WTO Secretariat), and the process was subverted.

In this stalemate, using the opportunity of the terrorist attacks on the US, the US and EC forced the launch of the Doha negotiations with a large range of issues, as a single undertaking. Soon after its launch, then EC Trade Commissioner, currently the WTO Director-General, Pascal Lamy told the EU Parliament members at an informal meeting that through the Doha Round, he had got the EU countries ten year's time to gradually adapt to and change the modes of subsidies (from "blue" or "amber" boxes to the "green" box).

Any prospects for concluding the Doha Round were lost when in 2006, at the meeting of the G-6 (Brazil, India, EU, US, Australia and Japan) trade ministers near Geneva (as a follow-up to the St. Petersburg G-8 meeting), Pascal Lamy abruptly adjourned the talks, not only of the G-6 but of the Doha negotiations too and announced it to the media present near the meeting. Lamy subsequently came to Geneva and got the World Trade Organisation's Trade Negotiations Committee to endorse it at an informal session.

The G-6 talks had been adjourned by Lamy when the US found itself cornered on some key issues - including the issue of cotton subsidies. Lamy had hoped perhaps that after the 2006 US Congressional elections, the US would be able to make concessions and the talks could be concluded. But the George Bush administration and the Republican Party lost control of the House of Representatives, and could no longer make any concessions. The Congressional Fast Track authority to the administration to conclude trade deals also expired. Since then (and more so after Barack Obama became president in 2009, and the Democrats lost control of the House of Representatives in the 2010 elections), the US system has become non-functional.

To believe that in this situation, the US and EC, and their service industries, could recover ground and through a new ISA capture the service markets of the developing countries and via a new financial services accord dump the toxic securities held by the US Fed or EU central banks on the markets of major emerging economies, is to chase the fool's gold, and in the process wreck the WTO.

[* Chakravarthi Raghavan, the Editor-Emeritus of the SUNS, contributed this article. An edited version is in the Economic and Political Weekly, Vol. 47 No. 43, October 27, 2012, under the title, "The Plurilateral Service Agreement Game at the WTO".]