North and South countries differ on assessment of services talks, and on the need or otherwise for new negotiating approach

By Martin Khor (TWN),
1 July 2005

Some major developed and developing countries have been giving significantly different assessments of the state of the services negotiations during the Special Session of the Council for Trade in Services held at the WorldTrade Organisation on 27 June to 1 July.

Major developed countries have been projecting a sense of crisis over what theyconsider to be unsatisfactory market access offers by developing countries. In lightof this, the European Union is asking that new negotiating approaches ('alternativecomplementary methods') be adopted by the General Council meeting in July.

This was taken by other members as a code for what was widely called'benchmarking', which again is a code term for asking countries to committhemselves to liberalization in a list of sectors of major economic value.

On the other hand, many developing countries put forward the view that there is nocrisis in the services negotiations and that the talks in services are not lagging behindtalks in agriculture or NAMA (non agricultural market access).

In the market access offers, say these countries, the problem is not the lack of offersby developing countries but rather the great disappointment at the lack of offers by thedeveloped counties in Mode 4, or the opening of their labour markets to workers fromdeveloping countries.

Many developing countries also rejected the EU proposal to adopt new negotiatingmodalities, as the existing methods are adequate, while the new proposed approachmay compromise the flexibilities that the developing countries now have in the GATSover the sectors and pace for liberalization.

The differences became evident in the discussion on the item 'review of progress andorganization of future work.', held on Thursday and Friday.

The EC said it was seriously disappointed with the current situation in services. Therevised offers do not redress the situation created by poor offers in the initial round. The substantial commitments requested by the EC were not put on the table and theEC's level of ambition was not reciprocated.

The EC said an ambitious outcome in services implies genuine new marketopportunities, which it could not find in the offers tabled. The overall picture wouldnot change with the few new revised offers in the months ahead. The time has come,said the EC, to consider ways of addressing the shortcomings in the servicesnegotiations to give impetus and ensure ambition.

The EC blamed the poor results on the negotiating method being used, i.e. the bilateralrequest-offer process has limitations and are not the most conducive for results. It thussuggested complementing the request-offer process with 'multilateral and plurilateralapproaches'.

The EC claimed this would be 'fully compatible' with the GATS architecture andnegotiating modalities. It proposed that the July 'first approximation' should mentionthe opportunity to explore such complementary methods and the General Councilshould mandate the Special Session to proceed with such exploration, and aMinisterial discussion could steer the exploratory phase.

This was taken by several diplomats that the EC wanted the WTO mini-Ministerialmeeting in China in the second week of July to agree to exploring the use of the'benchmarking' approach in services, and that this 'exploration' would be adoptedat the General Council meeting at the end of July.

Canada also saw insufficient progress in the services talks, with two gaps: first, thedivergence on number of commitments made by members (with developed countrieshaving made more commitments than developing countries); second, the gap betweenmany members' GATS commitments and their current state of market openness.

Like the EU, it suggested complementing the request-offer process in order to 'moveforward.' While stating that new negotiating approaches are needed, it also stressedthat it was not suggesting new modalities, as this could lead to unproductiverenegotiation of the process.

It noted the development of plurilateral requests (benchmarks for some) in the formof various statements and proposals from sectoral and modal proponents. The processneeds to find a way to make these proposals more precise and facilitate realengagement between demandeurs and others. It proposed informal meetings focusingon particular sectors or modes.

Several developing countries had views that differed from the EU on the state ofnegotiations and the proposal for a new negotiating modality.

Brazil, represented by Ambassador Luiz Felipe de Seixas Correa, said the servicesnegotiations face difficulties, but the same assessment can be made about all othersegments of the Round. On services, the difficulties are not insurmountable and shouldnot give cause for alarm.

Unlike in agriculture, in services it is a question of technical work, particularly toovercoming the present imbalance, which clearly favours the developed countries.

Brazil said that on difficulties in market access, the correct approach is not to puttogether aggregate figures and to draw an anonymous panorama, but to look at whichproblems - country specific or group specific problems - lie behind those figures.

Given that only one month has elapsed since the target date for revised offers, and thatmany members have announced that they are about to table theirs, it is premature totalk about the lack of revised offers, said Brazil.

The question is why have LDCs in general and other countries still not chosen topresent offers? Brazil said in its view LDCs are still unconvinced that they havesomething to gain from the services negotiations.

The July Package mandate for 'special attention' to LDCs has not been fulfilled. Thesame reasoning applies to the other developing countries that have not presented initialoffers so far. If the services negotiations have nothing for them, why make offers?

'We have thus identified a first problem - lack of many initial offers - and its cause -misapprehension on the part of developing countries, mainly LDCs. If this cause is notaddressed, and if a system is not devised to provide for their interests, all those lackinginitial offers will probably not come up.'

A second set of problems stem from the quality of revised offers. The quality overallis by no means the same. Some, like Brazil's, reflect an effort to bring about newcommitments, to incorporate new sectors and to consolidate new opportunities, andthese are mostly offers by developing countries.

Others, mostly by developed countries, are just a reselling of old Uruguay Roundcommitments, pointing to no improvements, containing even backtrackings in areasof interest for developing countries, and keeping dozens of Economic Needs Testswithout giving transparency to their criteria.

Brazil said some offers are more transparent, others either still hide important barriersbehind dubious inscription techniques or cancel out sectoral commitments throughhorizontal restrictions. One offer, for example, allegedly proposes numerical ceilingsin Mode 4, but since the numbers are not given, strictly speaking they cannot beconsidered numerical, only discretionary barriers.

Some traditional 'demandeurs' in sectors like transportation or financial services failto provide a reasonable level of market access in the same sectors that they soinsistently demand from others.

Given all these specific problems, said Brazil, it would not be appropriate to considerthose offers as a whole, but rather 'we should analyse specific shortcomings ofspecific offers'. This analysis must be done not in a vacuum, 'but in light of our mainnegotiating reference, (Annex C of the July 2004 package), which in paragraph (d),calls for quality offers and for special attention to sectors and modes of supply ofexport interest to developing countries.'

Brazil said the revised offers by developed countries are in general very disappointing,and it is their deficiencies that should primarily be looked at, since developingcountries are making a much bigger effort.

'The developed countries with the biggest economies in the world have so far offerednothing in Mode 4 and close to nothing in specific sectors,' said Brazil. 'If we do notcorrect this imbalance, Annex C will be subverted and we risk having a 'round for free'for developed countries.'

'We have thus come to the identification of a second problem - poor quality of somerevised offers - and we attempt an answer to address it - to go on with anoffer-by-offer analysis.'

Brazil added that this can be done bilaterally, plurilaterally or multilaterally, abidingby Annex C and the GATS structure, with a focus on specific problems of specificoffers.

'Any sort of benchmarking would dissolve those specific problems in a formlessamalgam, and transform individual responsibilities in alleged collective failures. Thisis unacceptable,' said Brazil.

It added that each country or group can have its own standards to evaluate offers. 'Avery different thing is to press all Members to accept one's own standards. This woulddestroy confidence among us and make a deal impossible.'

On services rule-making, Brazil said there were specific questions - how to enter intoa negotiating mode in domestic regulation, how to define subsidies, how to discussgovernment procurement without detracting from GATS, and how to devise amultilateral safeguard clause.

Brazil said this will involve technical work in the appropriate bodies, under theappropriate mandate, and stressed that the full development of the GATS rules wouldin itself be a great step forward.

Brazil stressed that the abstract concept of 'levels of ambition' becomes pointless 'ifwe try to use it as a parameter for negotiations.' 'The search for 'levels of ambition'cannot justify benchmarks, baselines or any sort of parameters that would accentuatethe present imbalance between developed and developing countries' interests inservices.

'No generic approach can capture the specific problems we face, let alone bring asolution to them. The causes of those problems cannot be masked. They stem fromspecific offers and positions. Only by dealing with them, not by avoiding them, canwe generate enough momentum and adequate balance to bring the process forward.'

According to trade diplomats, points along the same lines as the Brazil presentationwere also made by several countries, including Argentina, Jamaica and Peru. Severalcountries expressed the need to preserve policy space for developing countries, andthus concern about proposals for 'benchmarking', or alternatives to the presentnegotiating modality.

Jamaica said services liberalization can play an important role, but it should beundertaken progressively with due regard to implications for building domesticcapacity, preserving policy space and strengthening and diversifying services exports.

It placed a lot of store by the fact that GATS does provide scope for this kind ofapproach through flexibilities in the GATS agreement. Jamaica said it was deeplyconcerned by initiatives which would erode or eliminate this flexibility and bynegotiating stances which do not take account of the needs and circumstances ofdeveloping countries.

In a joint statement on the review of progress, the African and LDC Groups said theyrecognize the need for more progress in services, but said this should be matched withprogress in other areas.

'The African Group and the LDCs would not like to see a situation whereby Memberstry to create an artificial crisis in services negotiations to justify certain approachesthat are inconsistent with the GATS framework and its objectives, when in fact littleattention is being given to our issues.

'In fact, the crisis, if at all, is in the areas that we have interest in. We would like allgroups of countries to benefit from the negotiations, and not just a few.'

The two groups said they would like real progress in special and differential treatmentand the implementation of the LDC Modalities, as this is a development round. Inmarket access, members should understand that most African countries and LDCshave a narrow range of sectors and modes of interest.

Unfortunately these are the areas that continue to lag behind, for instance in Mode IVthere is limited progress. In some revised offers some members incorporated newcategories of service suppliers, but sector specific commitments have been leftunbound and therefore compromise the quality of offers, while various restrictions arealso maintained.

India stressed parallelism in the three market access areas of agriculture, NAMA andservices for a balanced outcome, which requires balance in the levels of ambition andequivalent level of specificity in the mandates at Hong Kong while recognizing thedifferent structure of the services negotiations.

India said it had conducted an initial analysis of revised offers, and found the results'not at all encouraging', especially in Mode 4 and cross-border supply. Two roundsof offers have failed to deliver results in these areas.

In Mode 4, some important trading partners continue to maintain the status-quo ascompared with their Uruguay Round commitments. While some had includedcategories of personnel not linked to commercial presence (like contractual servicesuppliers and independent professionals), however there are still many gaps incoverage of such categories, inadequate sectoral coverage and lack of mention ofduration of stay or very short periods of stay, presence of unspecified andnon-transparent economic needs tests, labour market conditions like absolute wageparity and other restrictive conditions.

There is also hardly any improvement with respect to binding commitments forenhancing transparency in Mode 4 commitments for each of the specified categories.

On cross border supply, India said there are still large gaps in commitments in sectorsof commercial importance where cross border trade is increasing dynamically. Newtechnological developments have made possible such trade in hitherto unknown areas. There is little progress in improved commitments in the revised offers in such areas.

India made six points on 'deliverables' for Hong Kong. In Mode 4, there should bespecific inclusion of categories of personnel not linked to commercial presence inmembers' schedules, with adequate sectoral coverage and clear specification of marketaccess conditions relevant to each of them. The duration of stay should be specifiedand not too short, with renewal possibilities and less onerous provisions. Economicneeds tests and the use of labour conditions as a pre-condition should be removed orrelaxed, while numerical quotas should be abolished.

There should be more transparency (including through binding commitments) of Mode4 commitments relating to each of the scheduled categories, including specificationof application procedures and documentation.

In cross border supply, India proposed that members should lock in the current liberalregimes in sectors of importance (including professional services, computer relatedservices, R&D, management consulting, telephone answering, environmental services,financial data processing) to prevent future protectionist backlash.

India also wanted progress in disciplines on domestic regulations with cleardeliverables in Hong Kong. In other rule making areas there should be a reality checkbased on merits and achievable progress.

India said development has to be centre stage, and this ambition can be fulfilled onlyby substantial progress in market access in sectors and modes of interest to developingcountries (like Mode 4, tourism, business process outsourcing etc). Further, theflexibility in GATS provided to developing countries has to be persevered.

At press time (Friday afternoon), several other countries were still to make theirstatements.