Services benchmarking controversy set to re-ignite

The controversy over proposals to introduce new "benchmarking" or complementary approaches aimed at getting developing countries to accelerate their liberalisation commitments in services at the WTO is expected to re-ignite in the week starting on 17 October.

Possible elements for a draft text on services for the WTO's Hong Kong Ministerial conference will be tabled at an informal meeting of the WTO's Council for Trade in Services (Special Session) on Monday.

The draft text will include the controversial "multilateral approaches" together with "numerical targets and indicators", which have been the subject of heated discussions at recent services meetings at the WTO.

The multilateral or benchmarking approach is included as an element in the draft Hong Kong text despite strong opposition voiced against it by a majority of developing countries, individually or through their groupings, to it.

At the formal and informal meetings of the Services Council at the end of September, a broad range of developing countries and their groupings strongly criticised the complementary approaches for violating the architecture of the General Agreement on Trade in Services (GATS), the flexibilities enabled by specific provisions of the GATS, and the development-oriented principles in the 2001 guidelines and procedures for the current services negotiations.

Among the developing countries that opposed the benchmarking and complementary multilateral approach were the African Group, the ACP Group, the LDC Group, several ASEAN countries, several Caribbean countries as well as Brazil, Venezuela and some other Latin American countries. India, which traditionally in previous years had been insistent on maintaining the flexibilities and architecture of the GATS, was notably not among the critical countries.

A document on "Possible elements for a Draft Ministerial text on services" by the Chair of the Council for Trade in Services (Special Session), Ambassador Fernando de Mateo of Mexico, was distributed to WTO members on 13 October.

A key section on "approaches" contains the following points: intensification of bilateral request-offer approach; plurilateral approaches (sectoral- and/or mode-specific); multilateral approaches (e. g. measure specific); numerical targets and indicators; methods for the implementation of the LDC Modalities; and targeted technical assistance.

The document explains that it draws on various proposals submitted by Members as well as their oral comments. The elements listed below are neither exhaustive nor presumed to enjoy consensus by Members, and the aim is to provide a starting point and structure the discussions on a draft Ministerial text.

Under a section on objectives, the following are included: reiteration of the aim of reaching a progressively higher level of liberalization; reiteration of flexibility for developing countries and LDCs and right to specify sectors in which commitments are undertaken; reaffirmation of the LDC Modalities; modal or other specific multilateral objectives (e. g. relating to the clarity of schedules, economic needs test, etc); sectoral and modal objectives as individually expressed by Members; and rule making.

Another section on time-lines includes: outstanding initial offers, refined revised requests, date for circulation of second round of improved revised offers, and date for circulation of final offers.

Members are also expected to be briefed about the Ministerial meeting of the recently formed "core group" on services held in Geneva on 12 October.

The meeting discussed a paper by India which compiled views on how to manage the services negotiations in the preparation towards the Hong Kong Ministerial. However, there was no agreement on the contents of the paper, especially on the issue of meeting liberalisation target.

The 12 October core-group meeting was co-chaired by Indian Commerce and Industry Minister Kamal Nath and US Trade Representative Robert Portman.
Also attending the meeting were Ministers or senior officials of 13 other countries - Argentina, Australia, Brazil, Canada, Chile, China, EC, Egypt, Japan, Korea, Malaysia, Mexico, and Singapore.

The aim of the 'core group' meeting was to consider "concrete ways of imparting specificity and momentum to the services negotiations", according to a press release dated 14 October from the Indian Commerce Ministry.

The meeting mainly discussed a two-page paper by India, which contains three main parts - principles on which future work could be based, political objectives for the negotiations, and proposals on future work, including complementary multilateral and plurilateral approaches.

According to some trade diplomats present at the meeting, there was broad agreement with the first part of the paper on principles. However, several developing countries, including Brazil, Argentina, Malaysia and Egypt, pointed out that some key parts on future work contradicted the first part of the paper on principles.

In particular, while the paper's principles stated that any complementary approach must supplement and not replace the request-offer approach and must preserve the basic architecture and flexibility of the GATS, the later parts of the paper mentioning targets for more liberalization in a certain number of sectors was in contradiction to these principles, said some of the countries. They thus could not agree with certain parts of the paper.

There was no consensus on adopting the contents of the paper, said the diplomats.

The Indian press release said that the core Ministerial group on services had been recently constituted as a result of an initiative taken by Kamal Nath, in view of India's special interest in services and its strengths in this sector.

It said the India paper aims to provide "a structure and focus on the various issues on which decisions would be required at the Hong Kong Ministerial Conference in order to achieve a balanced and meaningful package on Services at the end of the Round."

The press release added that it was decided that the India paper would be shared with the whole membership of the WTO for transparency, and that the Ministers directed the Core Group to work on the basis of this paper with a view to attaining common ground on the issues identified.

The paper said that equivalent level of specificity is required in the mandate for services in Hong Kong and this is the last opportunity for this, so it is essential to work out the parameters for defining such specificity.

There is a recognition that two rounds of offers have not delivered desired results, thus the need for clear objectives and complementary approaches to supplement the request-offer process, while maintaining the GATS architecture.

The paper suggested the following guiding principles:

• Any complementary approach must supplement and not replace the existing request-offer approach which in fact needs to be intensified simultaneously.
• Such approach must preserve the basic GATS architecture and the flexibility it provides particularly for developing country members, including the levels of development of individual members.
• While all members should participate, any targets would not apply to LDCs.
• The focus of the approach should be improvements from the existing commitments. The special situation of newly acceded countries who have taken extensive commitments at the time of their accession to the WTO would be taken into account.

The paper also mentioned broad political objectives for the negotiations, addressing quality and coverage. Improvements in quality could be addressed through modal qualitative parameters, reduction in MFN exemptions and scheduling clarity.

On possible parameters, there needs to be direction on commitments in cross-border supply to cover increasing business opportunities across a broad range of services.

Similarly, direction is needed for Mode 3 improvements on enhanced foreign equity levels, removal of economic needs tests etc. Improvements in Mode 4 in categories de-linked from commercial presence through enhanced coverage, removal of economic needs tests, prescribing length of stay needs to be highlighted. The enhanced coverage can be met through inclusion in political objectives or numerical targets.

On modal parameters, all four modes will need specific indicators to provide the right balance of interests across all members while mindful of the importance of Mode 4 to a large number of members.

The paper said quantitative targets can be determined through either individual targets for members (with lower targets for developing countries compared to developed countries) or through collective targets for the membership.

Such quantitative targets could relate to improvements in a certain number of sectors/sub-sectors from existing commitments either through new commitments or improvements in existing sectors/sub-sectors.

The issue of maintaining the appropriate flexibility provided under GATS and the Negotiating Guidelines and Procedures (NGP) would have to be considered while developing such targets.

Alternatively there could be some collective targets for the membership to achieve progressively higher levels of liberalization. The question of how to provide incentive for individual members to contribute and how to measure and remedy any shortfall from the collective target would have to be met.
Combinations of the two could be considered.

The paper added that plurilateral approaches may also be considered to allow higher levels of ambition in specific sectors and modes of interest to members, which could be articulated through model schedules, checklists, etc. The issue of participation and how to operationalise the approach through plurilateral requests and meetings would have to be determined.

The paper also calls for Hong Kong to give direction for disciplines on domestic regulations, especially for Mode 4. This can be achieved through developing a list of elements.

A reading of the paper shows that it has many elements that are similar to the proposals that had been put forward by the European Union, Japan and other countries in September to promote the concept of complementary approaches.

Similar to those earlier papers, the paper mentions quantitative targets to be met by members by "improvements" in a certain number of sectors or sub-sectors.

Such a method, as pointed out at previous services meetings by a range of developing countries, would seriously erode the flexibilities provided to developing countries under the present GATS system to be able to commit to liberalise to the extent and in the sectors they choose to do so.

A mandatory system of multilaterally requiring countries to make commitments in a minimum number of sectors and to a specified extent would also replace the existing bilateral request-offer system to a significant extent, and not just "complement" it.