US undermining multilateral WTO system through TiSA talks?

Recently leaked draft negotiating texts of the Trade in Services Agreement (TiSA) highlight the dangers posed by a pact that would not only enshrine a corporate-driven agenda but also stand at odds with the architecture of the multilateral trade regime.

by Chakravarthi Raghavan

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The updated draft negotiating texts of the Trade in Services Agreement (TiSA) recently published on WikiLeaks, along with its earlier publication of some secret chapters of the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) agreements, bring out into the open the US attempts to drive a coach and four through the postwar multilateral trade, money and financial systems and establish global corporatism and US hegemony over the world.

News and views on the TPP (a proposed free trade agreement involving the US, Canada, Japan, Australia and some Asian and Pacific region nations) and on the TTIP (involving the US and the EU) have figured from time to time in the media, but TiSA has received much less attention.

Talks on all three agreements, being pushed by the administration of US President Barack Obama, are taking place in much greater secrecy than past and current trade negotiations in the multilateral trading system of the old GATT or the World Trade Organization (WTO) now.

All three so-called “high-quality trade agreements” are being promoted and negotiated in secret by the US, with the Obama administration keen to conclude them on its watch (by end 2016) without too much contemporaneous public or parliamentary scrutiny and debate within the participating countries.

With the US Congress having now ceded its authority in such matters to the administration under the so-called Trade Promotion Authority, the Obama administration can conclude the agreements and send them to Congress for “rubber-stamping”, with Congress having the right only to vote “yes” or “no” but not to change any part of the agreements. This last is essentially a US domestic issue, one of democratic governance and legislative scrutiny.

However, without even this amount of scrutiny, the other participating countries will, by signing on to the agreements, be restricting further their development policy options, but be obligated to keep law and order and give free rein to global corporate activities within their countries. Each of these agreements will also have negative effects on non-participants.

“Together, the three treaties (TPP, TTIP and TiSA) form not only a new legal order shaped for transnational corporations, but a new economic ‘grand enclosure,’ which excludes China and all other BRICS countries,” said WikiLeaks publisher Julian Assange in a press statement.

WikiLeaks and Assange deserve a public “thank you” from governments, parliaments and the public around the world for getting hold of and publishing these texts.

Of the three, the TPP and TTIP will be claimed to be free trade agreements (FTAs) permissible under the WTO, subject to WTO multilateral scrutiny as regional trade agreements (RTAs) and other procedural conditions. In both cases, prejudicially affected non-member states may be able to invoke some remedies. The WTO’s RTA scrutiny itself may reach no conclusions, since consensus is needed. However, even when the consideration of the RTA remains bottled up in the relevant WTO committee, if current WTO jurisprudence prevails, an aggrieved member can raise a dispute, have a panel set up and the dispute adjudicated. The panel ruling (as modified by the Appellate Body if there is an appeal) will be automatically adopted by the WTO’s Dispute Settlement Body, and the aggrieved member can have any ruling in its favour implemented by the RTA participants or, if the ruling is unimplemented, invoke automatic authorized trade retaliation.

Neither the TPP nor the TTIP appears to have a separate mechanism for settling disputes between their member states. According to US trade law academic Simon Lester, the states concerned will have to invoke the WTO and its Dispute Settlement Understanding, but only in relation to their WTO rights and obligations vis-a-vis actions of the other member states, but not where WTO-plus or -minus rights and obligations under the TPP or TTIP are to be invoked (Lester 2015).

Public criticism

Thanks to WikiLeaks’ publication of some secret chapters, both the TPP and the TTIP have attracted considerable public disquiet and criticism in the US and in their negotiating partners over their proposed mechanism for dispute settlement between investors and the host state. Even conservative groups and personalities normally supportive of “liberal” or “free trade” principles have voiced their protests.

For example, Ben Goldsmith, a financier and chairman of the Conservative Environment Network in the UK, and supporter of a recently launched group Artists Against TTIP, has said, in an opinion piece in the London Evening Standard on 30 June: “TTIP is not a fringe issue but would mean seismic changes for the UK ... It is profoundly hypocritical of our current government to highlight threats to UK sovereignty while also promoting TTIP within Europe. Rather than trying to hide the deal from the British public, ministers should facilitate a fuller debate – and, if such a debate demands it, include the suspension of TTIP in the package of reforms and opt-outs being demanded from the EU.”

When admitted conservatives and “financiers”, and the English “popular press”, are getting into this debate and voicing concerns and opposition, it is a warning that the British and European governments cannot ignore or sweep under the carpet.

Nor is it easy to comprehend the reported requirements about five-year secrecy whether the talks succeed or fail. While member governments involved in the negotiations may try to keep negotiating texts secret, there is no way that negotiated agreements can be kept under wraps for five years. Any agreement would need to be immediately notified to the WTO, or any non-member can notify a purported text. Such notification is also a prerequisite, whether they are to be considered FTAs, RTAs or whatever else.

In addition, how can market operators, the enablers of trade, exploit the new market access opportunities if the agreements were to remain under wraps for as long a period as five years? It sounds absurd on commercial grounds. Moreover, when several governments are involved, nothing can remain secret for some time or all time, more so in this era of digital technology. The era of Bismarcks and Metternichs and secret treaties secretly concluded and implemented is long past.

Likely negative impacts

Unlike the TPP or TTIP, on which there is at least some information at a general level, not too much is known about TiSA among the general public or even the media. It has not attracted the same degree of public attention or controversy; there is discussion and speculation, though, among trade negotiators and officials, and some specialized blogs.

Nevertheless, TiSA is undoubtedly the most important, and likely to have more negative impacts on the economies of both participating and non-participating countries, including India, Brazil, South Africa and China, however big or small their individual or collective trade or economic weight in the world.

While not very much is known or talked about outside, trade negotiators and establishments, and some civil society activists, have been aware for some time both of the US drive to get an accord on TiSA and of second-hand reports on progress in these talks. However, with the exception to some extent of negotiators and parts of governments in participating countries, the public have not had full access to the details. Mainstream media, having become the handmaiden of the establishment (rather than Burke’s Fourth Estate, keeping a watchful eye on the other three), occasionally sing hallelujahs but have not provided any critical analysis and information for the public.

The publication by WikiLeaks will thus enable various parts of governments and public interest activists to cite the vast trove of negotiating texts and focus on their likely benefits, if any, and the vastly greater negative effects on their countries. However, the very quantum of information now in the public domain may have the unintended effect of information overload, and one has to guard against the possible consequent effect of turning people’s attention off the subject.

The texts now made public by WikiLeaks (https://wikileaks.org/tisa/) are the “core” text of TiSA and its various annexes relating to individual sectors of “trade in services”, as well as provisions relating to domestic regulations. Linked to each, on WikiLeaks, are analyses by activists – both academics and civil society groups campaigning on these issues – attempting to present to the general public the implications of each.

Without going into the relative merits of each of the individual analyses or the technicalities, there are some fundamental issues, common to the core text and the annexes, that need to be underscored and brought into the open for public debate. We will attempt to do this and flag some of these issues in what follows.

Systemic questions

Missing in the various analyses and discussions are some basic systemic questions relating to TiSA vis-a-vis the multilateral trading system of rules, rights and obligations of member states as incorporated in the Marrakesh Agreement establishing the World Trade Organization (WTO) and its annexed agreements: the agreements on trade in goods [the General Agreement on Tariffs and Trade (GATT) 1994 and its associated agreements elaborating on several provisions], the General Agreement on Trade in Services (GATS) and its annexes, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the Dispute Settlement Understanding (DSU) (as well as four “plurilateral” agreements).

All these are integral parts of the WTO treaty concluded as a “single undertaking” in April 1994 at Marrakesh, and interpreted (perhaps somewhat erroneously) under the DSU also as a single undertaking with cumulative obligations in their application – not only obligating members to abide by all of them (subject to well-known canons of interpretation of public international law, codified in the Vienna Convention on the Law of Treaties) but in fact enabling the DSU’s Appellate Body to empower itself to so interpret them as to enable/oblige members to carry out obligations under all of them (Raghavan 2000).

It is worth recalling some recent history of the WTO multilateral trading system for context and better understanding of the implications of TiSA (and the TPP and TTIP).

The US financial services industry, led by American Express, AIG and Citibank (all, incidentally, no longer dominant in the US itself, with some having had to be rescued from the outcome of their follies at the expense of US taxpayers in the aftermath of the 2008 financial crisis), was one of the main drivers behind the US services push, the launching of the Uruguay Round of trade negotiations in 1986 and its conclusion at Marrakesh in 1994. (The US pharmaceutical and motion picture industries were the main drivers behind the TRIPS accord.) However, the US and its financial services industry, which had pushed for higher levels of liberalization in this sector, were dissatisfied with the Marrakesh outcome in this area. They got the negotiations on financial services extended, with each member enabled to substitute the commitments it would accept in the extended negotiations for its original commitments.

After two exercises in negotiations, the Financial Services Agreement, with a set of individual country commitments, was concluded in 1997 and incorporated into the WTO, coming into force from 1999 (Raghavan 2010a and 2010b). In general, most of the developing countries, as also the EU and the US, incorporated in their new schedules of legal commitments, their current, and sometimes lower, levels of applied market access and conditions.

The latest WikiLeaks publication attempts to alert the public to what is being proposed for TiSA in negotiations which would have major consequences for the people and the services they use, and which are being conducted in utter secrecy behind the backs of even their own parliamentarians. However, global corporations, whose interests the draft TiSA accord aims to promote, are fully in the picture and involved.

For the record, there is a similar secretive process at work in relation to the TPP and TTIP. WikiLeaks has managed to get hold of and publish some chapters of secret texts on the TPP and TTIP, including one on investor-state dispute settlement and arbitration panels that can hold secret hearings and deliver awards which can override all domestic regulatory measures (whether on health, environment or any other public policy considerations) as well as domestic courts and their jurisdictions.

If agreed, the outcome of all these US-driven pacts will be to deliver a fatal blow to the WTO multilateral trading system and global rules-based trade order, along with other global systems of world order that had been envisioned by the US itself under the leadership of Franklin Delano Roosevelt (FDR) and that were so carefully constructed during his presidency and that of his successor, Harry Truman (Raghavan 2014a). Since then, some of FDR’s successors have been busy seeking to dismantle this entire framework and install in its place a global corporatist order that would effectively establish the global rule of corporations (Raghavan 2014b).

The incongruity and utter disregard of fundamental principles of natural justice and equity in all these were revealed when the European Court of Justice recently upheld the right of the European Commission (as the EU’s executive and negotiating arm on external trade relations) in refusing to provide information under relevant right-to-information laws to European civil society groups but upheld the Commission’s right to share information with corporate lobbyists and representatives in consultations at Brussels.

Services liberalization under the

multilateral trading system

In what follows, this article will confine itself to exploring the implications of TiSA, its effect on the multilateral trading system, and what the public and those governments not involved in the TiSA talks can do to challenge and counter these attempts of the US and its allies.

At the outset, it is worth recalling the evolution of the multilateral trading system in pursuance of the wartime FDR-Churchill talks and accords (Raghavan 2014a) on the entire range of issues in the postwar order on international peace and security (the UN), money and finance (the Bretton Woods institutions), and trade. In the latter area, the Havana conference to set up an International Trade Organization (ITO) was convened by the UN; its Preparatory Committee processes, the GATT 1947, were envisaged as a temporary arrangement till the establishment of the ITO, but ended up remaining “provisional” for nearly five decades.

The Uruguay Round of GATT trade talks ended in 1994 at Marrakesh, and the WTO treaty and its annexed agreements entered into force in 1995 (Raghavan 1990; Third World Network 2001). At Marrakesh, developing countries undertook in advance commitments and obligations, including in the new areas of TRIPS and GATS, accepting in good faith the promises of the US, the EU and other industrialized countries to reverse course and bring all their agricultural trade and the agriculture sector under normal GATT trade rules and disciplines, but with the reforms in agriculture to be phased in over a longer period to give time for those engaged in this sector to adjust. The industrialized countries also agreed to end, within specified time limits, several discriminatory trade restrictions imposed on the developing world – in the form of “voluntary export restraints” and managed trade – in the sectors of textiles and clothing and labour-intensive manufactures (Raghavan 2014b, pp. 102-179).

This last was achieved, with all such restrictions phased out. However, in the agriculture sector, after the initial set of reforms in the Agreement on Agriculture, the US, the EU etc have been resisting further reduction of their levels of protection on import tariffs, domestic support and export subsidies. In fact, according to published OECD data, they have been increasing their support and protection of domestic agriculture, merely shifting around and disguising their support in various categories, even as they demand market entry into the developing world. They have thus demonstrated that their promises are made to be broken.

The General Agreement on Trade in Services, another one of the annexed WTO agreements, was negotiated from scratch during the Uruguay Round. The US had initially sought to apply the same GATT rules for trade in goods to trade in services (merely changing “goods” to “services” in the various provisions), but quickly realized this was not feasible. Thus, the GATS was constructed ab initio on a new architecture of sorts. This necessitated difficult negotiations on various aspects, including the very definition of “trade in services”, with supply of services through four modes of delivery (but with “services” itself nowhere defined precisely but only understood as “not goods”); and gradual liberalization in a bottom-up voluntary process of market access commitments, based on the request-offer approach by countries, and subject to specified conditions in each service sector or sub-sector, with core Most Favoured Nation (MFN) principles, subject to stipulated conditions, underpinning the GATS.

During the Uruguay Round negotiations, the US kept constantly changing its position on the GATS. In 1993, with Bill Clinton in the White House and Robert Rubin as his Treasury Secretary (and Larry Summers as Deputy Secretary and Timothy Geithner as Assistant Secretary), the US again tried to reverse course so fundamentally that others disagreed and said either the agreement had to be finalized on texts developed hitherto, or the services component would have to be taken out and negotiated later separately, while all the other accords negotiated in the Uruguay Round would be concluded without the services component.

At first, the US sent to Geneva for the Uruguay Round-GATS talks, its tax law specialist from the Treasury Department, who lectured others on the intricacies of tax laws (national and international), but was politely asked to look at an already agreed footnote in the draft text (footnote 6 to what is now Article XIV(d) of the GATS). The US persisted, sending Deputy Treasury Secretary Summers to the next meeting, but he was told to either agree to finalize the services accord on the existing draft or, if the US wanted to reopen issues, abandon the services component of the Uruguay Round agenda and conclude talks on the rest of the accords. Otherwise, Summers was told, the whole Round may be in jeopardy. An isolated US gave way, and the Marrakesh Agreement was concluded and signed in April 1994, the blow being softened by the agreement to extend the negotiations on financial services (as mentioned above).

Moves for further GATS liberalization have, however, got stuck since the launch of the second round of GATS liberalization talks in 2000, which was rolled into and made part of the Doha Round trade negotiations launched in 2001 as a single undertaking, with the agriculture negotiations under the Round becoming the yardstick for progress in other negotiating areas.

As mentioned above, at Marrakesh, developing countries undertook in advance commitments on trade in goods and in the new areas of services and intellectual property, accepting in good faith the industrialized countries’ promises to continue on the path of further reforms in the agriculture sector, and their commitments to accept the rules and disciplines of the WTO system, including changes to their domestic laws and regulations to comply with the obligations under the various WTO agreements as well as binding rulings of the WTO dispute panels and Appellate Body (Raghavan 2014b).

On this last, the US has been the biggest culprit, not changing its domestic laws or regulations to comply with dispute rulings (as in the area of anti-dumping) and having continuing recourse to coercive negotiating tactics to get trading partners to comply with its demands on behalf of corporations on intellectual property issues – despite the undertaking it gave to a dispute panel which looked at the US Sec. 301 family of laws. That panel recorded the undertaking and said WTO members could accept it, but did not give a ruling that the US law as it stood was WTO non-compliant and needed to be changed.

In this connection, B.K. Zutshi, India’s then Ambassador to the GATT who played a key part in the Uruguay Round negotiations, has, in a message to the writer, commented that during talks on the TRIPS Agreement during the Round, developing countries asked for the revocation of the S. 301 family of provisions in the US law. But it was argued by the US (and endorsed by legal experts, including from the then GATT secretariat) that these provisions, not being mandatory but discretionary in nature, would not be inconsistent with the US obligations under the TRIPS Agreement and that a cause of action would arise only if the provisions were to be invoked.

Since then, Zutshi says, these provisions have been invoked several times by the US, without anyone explicitly questioning their legality under the WTO. The US continues to flourish this threat to coerce developing countries to make further concessions. Hence, Zutshi adds, he has been advocating for some time now that developing countries, particularly India, should challenge the US invocation at the time notices are issued for review of members’ procedures and practices on intellectual property rights under the so-called “Special 301” watch lists and the like.

It is time for developing countries, in particular the major ones among them, to concert and consider in a cohesive way this entire complex of US non-compliance, and raise the issue collectively, not at separate sectoral meetings but at the WTO General Council and Ministerial Conference, and take some collective strategic and tactical action to exert pressure on the US on these and other issues.

US finance capitalism and plurilateral games at the WTO

As pointed out at the outset, the updated draft negotiating texts of TiSA, TPP and TTIP recently released by WikiLeaks clearly bring out the attempts of the US to dismantle the entire postwar multilateral systems on trade, money and finance, and secure instead global hegemony of US finance capitalism.

TiSA, as a plurilateral trade agreement, is part of this US effort for a new architecture of world order, and integral to its attempt to go back on all past commitments in order to cater to the neo-mercantilist greed of US finance capital leaching the world’s real economy.

The idea of plurilateral negotiations on the services sector first surfaced in the WTO at the time of its Hong Kong Ministerial Conference in 2005 in relation to the ongoing Doha Round, where further liberalization of trade in services under the GATS is part of the Round’s single undertaking. In Annex C (relating to the services negotiations) of the Hong Kong Ministerial Declaration, the Ministers said that in addition to bilateral negotiations, “we agree that the request-offer negotiations should also be pursued on a plurilateral basis in accordance with the principles of the GATS and the Guidelines and Procedures for the Negotiations on Trade in Services. The results of such negotiations shall be extended on an MFN basis” (emphasis added).

The Ministers at Hong Kong also set out the following procedure for organizing such negotiations: (a) any member or group of members may present requests or collective requests to other members in any specific sector or mode of supply, identifying their objectives for the negotiations in that sector or mode of supply; (b) members to whom such requests have been made shall consider such requests in accordance with paragraphs 2 and 4 of Article XIX of the GATS and paragraph 11 of the Guidelines and Procedures for the Negotiations on Trade in Services; and (c) plurilateral negotiations should be organized with a view to facilitating the participation of all members, taking into account the limited capacity of developing countries and smaller delegations to participate in such negotiations.

The Hong Kong Ministerial Declaration set some deadlines: end February 2006, or as soon as thereafter, for submitting plurilateral requests, for countries to which requests are made to consider them, a July 2006 deadline to submit revised offers, and 31 October 2006 for finalizing and filing services annexes by members.

This plurilateral approach was a highly controversial issue at Hong Kong and was resisted by many developing countries, which reluctantly yielded ground only at the end, but with at least two developing countries (Cuba and Venezuela) entering reservations at the Ministerial Conference. At a meeting of the WTO Council for Trade in Services in February 2006, when this issue came up, Brazil and several others made clear their understanding that participation in this approach would be voluntary.

Collective requests in some 14 services sectors were made, among others, by Australia, Canada, the EU and the US, as also some developing countries (Singapore, Hong Kong, Chinese Taipei and South Korea) in particular sectors. Each collective request, making demands for response on about 20-25 members, listed the names of the demandeurs and the coordinator for that demand (mostly from the developed countries); however, the members to whom it was addressed were not revealed although they were known to be the larger or “more prosperous” developing countries.

From information that became available informally, it would appear that the requests covered such sectors as finance, telecommunications, construction, energy, environment services, computer and related services, maritime transport and architectural and engineering services. For some of the sectors like computer and related services, a few developing countries (including India, Pakistan, Chile and Peru) joined in. The demands related to various modes of supply: Mode 1 on cross-border supply of services; Mode 2 on consumption abroad of services; Mode 3 on commercial presence; and Mode 4 on movement of natural persons (Khor 2006).

All the plurilateral collective requests typically made extreme demands relating to the first three modes of supply, calling for maximum freedom to be provided to foreign firms and operators to engage in trade and investment. Under Mode 3, there were demands for no restrictions on foreign enterprises and investors in their right to establish, share of ownership, form of legal entity and hiring of foreign personnel, with firms to be accorded “national treatment”, i.e., treated at least as well as local firms.

Like the other areas of the Doha Round, however, the entire services negotiations – and with them, the plurilateral approach – have since got stuck on agriculture, due to the unwillingness of the US and EU to cut their support programmes in agriculture and to carry out their commitments made at Marrakesh on further agricultural reforms.

Plurilateral TiSA talks

It is in this context that the US has now attempted, with the help of its willing associates among the industrialized countries, an approach for plurilateral negotiations on services and a conditional plurilateral accord outside the Doha Round talks and the WTO – the current TiSA negotiations.

It needs to be made clear that the proposed TiSA is completely different from the plurilateral services negotiations envisaged at the Hong Kong Ministerial Conference (see Raghavan 2014b, pp. 367-372, on this issue as of 2012).

The aim in the TiSA negotiations was to reach a plurilateral conditional agreement (initially, it was tentatively called the ISA or International Services Agreement) for maximum liberalization of services. Conducted outside the WTO, with plurilateral meetings organized among participants in key developed-country WTO missions in Geneva, the negotiations have gone into several rounds of meetings, with the latest one held in mid-July.

However, according to information from some of the participants, it is highly unlikely for the TiSA negotiations to be concluded by the time of the Nairobi Ministerial Conference of the WTO this December, since the same set of negotiators from missions will be engaged after the summer break in negotiations to try and reach an accord on the post-Bali package of the Doha Round, aiming to conclude these talks in time for the Nairobi meet.

The WikiLeaks disclosures of the latest draft TiSA texts show that the core text, which provides the framework of TiSA, and its financial services annex (both filled with square brackets around provisions where there is lack of agreement) are on the same lines as an earlier version.

The core text is almost a word-for-word reproduction of the multilateral GATS provisions, including those relating to the definition of trade in services, other definitions (with changes in some of the definitions), market access, national treatment, scheduling of commitments etc. A significant omission, however, is the notion of “progressive liberalization” as reflected in Article XIX of the GATS.

This suggests that the participants are taking this course with a view to either facilitating the entry of new members to the agreement or fully multilateralizing it. It may also be that through selectively leaked information, an attempt is being made to entice or panic some of the major developing countries to join in. This seems to be confirmed by placeholders in the draft for provisions for others to come on board at some stage.

As for the financial services annex, it is an attempt to seek greater liberalization of this sector, although the core provisions of the annex are more or less along the lines of the GATS financial services annex.

As outlined in some detail elsewhere by this writer in a technical working paper for the Group of 24 (Raghavan 2010b), whether intended or not, this US-driven approach will enable the US Federal Reserve and central banks in Europe, and private US, Swiss and EU financial services providers, to dump on the markets of the developing world their “toxic” assets from the 2008 financial crisis, when treasuries and central banks adopted unorthodox measures to shift the costs of rescuing financial firms onto taxpayers.

From the large number of square brackets in the leaked negotiating texts, it seems that there is still a lot of disagreement among the participants on some key provisions.

Compliance with multilateral rules

The TiSA talks also raise basic questions on issues fundamental to the future of the WTO-based multilateral trading system. The WTO is a rules-based international organization set up under an international treaty, with rights and obligations for all members, a binding 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 by members.

Under Articles II:1 and III:2 of the Marrakesh Agreement, any negotiations for a trade accord on any of the agreements in Annex 1 (1A on goods trade, 1B on services trade and 1C on TRIPS) are to be conducted with the WTO as “the forum for negotiations” (emphasis added).

Also, Article II:1 of the GATS on MFN treatment, relevant to the TiSA issue, stipulates: “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.”

The wording is unambiguous and, as stipulated by public international law (and codified in the Vienna Convention on the Law of Treaties), the words are to be read and given their “ordinary meaning”. Besides, there is more than 50 years of jurisprudence on the interpretation of the MFN provision in the GATT agreement, of which the GATS provision on MFN is a mirror image.

Paragraphs 2 and 3 of Article II of the GATS have set out some exceptions and limitations: they provide for derogation from MFN treatment if it is listed in a particular way in a member’s GATS schedule, as also for the ability of two adjacent countries to confer advantages to services locally produced and consumed in contiguous frontier zones. These exceptions/limitations are not relevant to the consideration of the TiSA issue.

Thus, under the WTO rules, the parties to the planned TiSA cannot make liberalization of their services markets applicable only to other TiSA parties. Nor can they extend it to other WTO members on any conditional basis. Liberalization has to be unconditionally extended to all other WTO members, whether or not they are TiSA parties.

Since TiSA is intended to cover “service transactions” across sectors and modes of supply and involve non-MFN treatment to those not parties, for such an amendment to be adopted and come into effect, it needs the acceptance of all WTO members.

There have been suggestions floated that TiSA can be added to Annex 4 of the Marrakesh Agreement, i.e., the annex titled “Plurilateral Trade Agreements”.

All the four agreements listed in that annex were negotiated as “codes” during the Tokyo Round. While several Tokyo Round codes were further negotiated during the Uruguay Round and became binding WTO agreements signed on to by all participants, there was no appetite among the general membership in translating the codes in these four areas into WTO agreements. The Annex 4 approach was thus adopted as a compromise. The four agreements listed in this annex at Marrakesh are the Agreement on Trade in Civil Aircraft, Agreement on Government Procurement, International Dairy Trade Agreement and International Bovine Meat Agreement. (The last two were terminated by their members in 1998.)

However, it is a mind-boggling legal conundrum, and a massive legal stretch, for an issue like services, already covered by an existing WTO agreement (namely the GATS), to be considered a separate subject, an issue of interest to a minority of WTO members, and thus included in Annex 4 as a plurilateral agreement. Any attempt to use such an approach to TiSA will strain credulity.

Moreover, for TiSA to co-exist with the GATS and for its lodgement for this purpose in Annex 4, it needs to conform to Article X:9 of the Marrakesh Agreement, which says: “The Ministerial Conference, upon the request of the Members parties to a trade agreement, may decide exclusively by consensus to add that agreement to Annex 4” (emphasis added).

Procedurally, if normal procedures are followed, for this to be on the agenda of a Ministerial Conference, the General Council has to consider and recommend it, a process requiring consensus. If WTO members, particularly developing countries not involved in the TiSA talks, agree to go on this route, it is equivalent to committing hara kiri.

At one stage, there was also a suggestion, from media reflecting US thinking, that TiSA could be fitted into the WTO framework as a GATS Article V integration agreement among its members. However, for any agreement to be viewed as an Article V one (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 the GATS.

Among others, Article V:1(a) requires that TiSA, as an FTA, have “substantial sectoral coverage”; a footnote explains that “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 the 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 (as per WTO procedures) or decisions by the WTO Council for Trade in Services, any non-TiSA WTO member can raise a dispute via the Dispute Settlement Understanding on grounds of impairment of its rights and obligations.

Such a grievance could arise for a WTO member if TiSA does not comply with Article V:1(a) or if the member finds its existing access to the services markets of the TiSA members reduced as a result of 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 TiSA can be understood only as a big bluff and an attempt to panic the major emerging economies (and/or their particular service sectors or sub-sectors) into joining the TiSA negotiations for fear of loss of markets or loss of competitiveness vis-a-vis other trading partners.

It can thus be deduced, and this is a view also shared by some of those who had negotiated the GATS, that the TiSA negotiations are an attempt at pressurizing the developing countries for greater liberalization in sectors of interest to the US and other industrialized countries, without the latter having to pay any price for it. (There is nothing in the draft TiSA framework to indicate any possibility of greater liberalization under Mode 4, which would be of interest to developing countries.)

A WTO secretariat “staff working paper” written in November 2013 by Juan A. Marchetti and Martin Roy, two staff members of the secretariat’s Trade in Services Division, and published in 2014 by the secretariat’s Economic Research and Statistics Division, addresses “The TISA Initiative: An Overview of Market Access Issues.” The paper comes with the following disclaimer: “This is a working paper, and hence it represents research in progress ... represents the personal opinions of individual staff members and is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members.”

The 33-page paper explores options for implementation of TiSA, including as a “plurilateral agreement” in Annex 4, and notes that this can only be done by consensus by the Ministerial Conference. It completely avoids, however, the core issue of how the WTO can have two trade agreements on the same subject: an agreement on “trade in services”, the GATS, with an MFN principle; and a separate conditional one, also on “trade in services”, in Annex 4. This, as already pointed out earlier, is infeasible.

Raising the issue

We now turn to ways in which this issue can be brought into the open and raised as a systemic issue at the WTO.

The large majority of developing countries have raised their voices and made clear they will not agree to abandon the Doha Round as a single undertaking. They are opposed to allowing the US and the industrialized world to resile from their obligations, in particular on agriculture, and do not agree to what is known as a “recalibrated” Doha Round agenda (which has become code for abandoning existing mandates) that would see the negotiations concluded at Nairobi in order to enable the US and its friends, as well as the secretariat, to move on to new agendas.

With the Doha Round – which includes the services negotiations at the Council for Trade in Services – on the agenda, but totally stalemated, the non-participants in the TiSA talks, armed with the leaked TiSA texts, can and ought to raise the issue collectively at the next scheduled Council for Trade in Services meeting. They should demand responses from TiSA proponents and participants on their activities, as well as on the disregard of the requirement for the WTO to be the forum for any such talks on GATS issues.

The Legal Affairs Division of the secretariat should be asked to give an opinion on the legality of the simultaneous existence of a plurilateral and a multilateral agreement on services within the WTO legal framework. Caveats must be entered on this, against any attempt by the secretariat to use such request for a legal opinion to promote its own agenda for concluding the Doha Round on terms acceptable to the US and dominant trading partners. As a side-issue, the WTO Director-General and the secretariat may be asked to disclose whether any kind of informal support is being provided by the staff to the TiSA talks outside the WTO forum and, if so, under what authority.

If no meeting of the Council for Trade in Services is due to be held soon, non-participants in the TiSA exercise should demand a special session of the Council to specifically address this issue. The non-participants should collectively prepare and table an official document or paper bringing into WTO records the WikiLeaks texts. Such a paper should also raise in a prominent way the systemic implications and the irrevocable damage that will ensue for the WTO.

Raising the issue and holding media briefings of their own at the WTO and elsewhere will help create public awareness too.                                                                                         

This article was first published over two parts in the South-North Development Monitor (SUNS) (Nos. 8066, 21 July 2015, and 8067, 22 July 2015). The writer has benefited from comments on an earlier draft from Bal Krishan Zutshi, former Ambassador and Permanent Representative of India to GATT-1947 during the Uruguay Round, who participated in the negotiations which resulted in the Marrakesh Agreement establishing the WTO, including the GATS, and coordinated positions of developing countries on the GATS. Any omissions and deficiencies are entirely the responsibility of the writer.

An earlier version of this article was in the Indian webnewsdaily The Wire on 17 July, http://thewire.in/2015/07/17/how-the-us-is-using-a-secret-agreement-on-services-to-wriggle-out-of-its-wto-obligations-6459.

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Third World Economics, Issue No. 597, 16-31 July 2015, pp10-16