“Plurilateral Request-Offer” Approach in GATS Draft Text: Entry Point for Dangerous Sectoral Negotia

“Plurilateral Request-Offer” Approach in GATS Draft Text: Entry Point for Dangerous Sectoral Negotiations

by Aileen Kwa

There is ambiguity in the current draft Ministerial text on GATS. Parts of the text have been drafted in a deliberately subtle manner to make it unclear whether or not there will be sectoral negotiations that will commence in GATS negotiations post-Hong Kong, such as those that took place in Telecommunications and Financial Services in 1997.

In Geneva, the main fights between the developed countries and the majority of developing countries in the past weeks at the WTO have been over the issue of numerical targets – a formula approach to opening up services sectors.   This will clearly change the current flexible GATS architecture from a bottom-up, flexible approach. There has been strong opposition here, and that battle staged by developing countries, led by Brazil has been rather successful.

However, because of the textual ambiguities, a dangerous development — in many ways much more problematic than “numerical targets” — has been left languishing. Most developing country delegates have not realized the dangers lying in a seemingly innocuous paragraph or two (paragraph 10  and 15c ). They have read paragraph 10 with the understanding that it is advocating a “plurilateral request-offer” approach (e.g. 5 developed countries coming together to make a request from ASEAN). In fact, they have even been deliberately misled, since they have been told by their developed country partners that the joint LDC request to key developed countries on Mode 4 is an example of this “plurilateral request-offer” approach. However, the intention of the EU and US go beyond this negotiating modality. They want sectoral negotiations in GATS to commence post-Hong Kong, using the Hong Kong text as the basis to do so.

What is the difference between the “plurilateral request-offer” and sectoral negotiations? The plurilateral process, akin to the bilateral request and offer, is informal. It takes place between demandeurs and those they are seeking higher commitments from. There are no formal negotiating sessions. There is no formal Chair. There are no minutes of these informal negotiations. And importantly, there is no critical mass of countries representing 80-90% of world trade in that sector, unless the negotiations draw in such a large number of countries, as to effectively make up this “critical mass” (an unlikely situation if it were completely voluntary).

That negotiations can take place through a plurilateral request-offer approach is already outlined in paragraph 11 of the Negotiating Guidelines agreed to by all Members before the GATS negotiations commenced in 2001.

However, at some point, should the “plurilateral request-offer” gain momentum and become a large enough “critical mass”, the nature of the negotiations can easily take on the trappings of sectoral negotiations as with Telecoms. It is this subtle difference that is being played out in the ambiguous draft text, which the demandeurs will immediately capitalize on post-Hong Kong.

The draft Hong Kong text is pushing the “plurilateral request-offer” into a mode which will ensure this “critical mass”. Paragraph 10a and b allows for groups of countries to make requests of other groups of countries. Since it is highly unlikely that developing countries will voluntarily walk into these aggressive negotiations, 10b makes it mandatory for countries being requested, to do so!  Paragraph 10c, asks the Council for Trade in Services (CTS) to “review progress” and even more dangerously, paragraph 15c says that Members should notify the CTS-Special Session on the sectors in the “plurilateral negotiation” they wish to engage in –these point to formalizing the negotiations in the same way as the sectoral negotiations of Telecoms and Financial Services.

What is the Game Plan of US and EC in Sectoral Negotiations?
There are huge economic gains for the US and EU in services liberalisation. 70 per cent of the global economy is made up of services. But world trade in services makes up only 20 per cent of total world trade.

In Geneva, on the sidelines of the bilateral request-offer process, “Friends Groups” – driven by exporting countries – have mushroomed and in fact have been the driving force of the bilateral request-offer process. They have come together to chart out the main barriers in each of their services sectors, and this work has informed their governments in the negotiations. They have produced modal schedules of commitments they would like the developing world to bind in the WTO, and identified exactly the countries that would make up the needed critical mass, and the main barriers in each of these countries. There are about 15 of so Friends Groups, including  Friends of Financial Services; Telecoms; Audiovisuals; Computer Services; Environmental Services; Distribution; Maritime; Mode 4; Postal services; Construction Services; Tourism; Logistics; Energy; Legal Services.

The game plan of the US and EC (and India due to Mode 4) is to give the work of the Friends Groups a formal platform in the WTO and with time, to draw in this critical mass through force such as in the language in 10b, or through technical assistance, or political pressure as was the case in financial services. The ambition is to replicate what happened in Telecoms and Financial Services – to draw up a baseline of harmonized regulatory commitments across most of the world. Since this agenda is driven by exporting countries, this framework of regulatory obligations and commitments will fall on the side of requiring investment and competition policy provisions which safeguard the interests of foreign firms rather than local suppliers. This is exactly the case in the Telecoms Reference Paper which even disallows cross-subsidisation (a tool often used by governments and regulators to allow for universal provision of services).

As Robert Wolfe, Associate Professor of Queen’s University, Ontario comments, referring to the Telecom Reference Paper, “The GATS does not give states the right to regulate; GATS subtracts from that right to the extent needed for liberalisation”.

The ambition to change the nature of GATS negotiations into more formal sectoral negotiations is captured in a recent speech by Robert Vastine, President of the US Coalition of Service Industries (CSI):

““If the services negotiations produce good results, it might well be because of ideas generated by Friends Groups. To be effective, however, they must energetically recruit a larger circle of Members, in order to reach a “critical mass” which will allow them to go public with their proposals and secure wide acceptance of them.”

Referring to the Telecoms and Financial Services negotiations, Vastine highlights them as modals to be followed in the current negotiations:
“The two negotiations created a new sense of optimism about the potential for successful services negotiations in a broader round. They… led to high expectations that substantial reductions in barriers to services trade could be achieved in a larger negotiation starting in 2000 as required by the built in agenda”.

Note too that in the Uruguay Round, it was decided that the Round could conclude, but these sectoral negotiations will continue beyond it. Four sectors were attempted: maritime, mode 4, telecoms and finance. Negotiations in sectors of prime interest to the major countries worked – telecoms and financial services. The other negotiations collapsed.

Similarly, the intention by US and EU is to push to conclude the Doha Round by 2006/7, but to have sectoral GATS negotiations continue after the Doha Round, and ideally in about 15 sectors mirroring those of the Friends Groups.

The Pitfalls of Sectoral Negotiations for Developing Countries
Services is unlike agriculture and NAMA where the traditional method of market protection is through tariffs. For services, liberalisation entails the removal of regulatory requirements that impose limits on foreign investors e.g. limits on commercial presence or foreign ownership of companies. And according to Richard Self, Chief US negotiator for services in the Uruguay Round, “the single focus of the sector initiative alone has great value in promoting the interests of countries seeking improved commitments in the sector or mode.”

For developing countries, such commitments are highly problematic:

Firstly, the deep level of regulatory obligations tend to put liberalisation and “pro-competitive” objectives and the rights of foreign firms ahead of national objectives such as universal provision.

This regulatory framework is unlikely be one that most developing countries would like, one which allows for strong local service industries to develop. See Annex on WTO dispute between US and Mexico on Telmex. This will have a severe impact on countries’ economic development process.

Secondly, this type of regulation will mirror the regulatory frameworks already in existence in the developed world, but will be a huge burden and danger for developing countries. Even most “advanced” developing countries are still learning the ABCs of regulation. This lack of experience, and in fact, the non-existence of adequate national regulation, will be a huge disadvantage in their negotiations with their developed partners.

Thirdly, in sectoral negotiations, there is in theory the concept of freedom and flexibility. However, de facto, there is an obligation for all Members of the WTO, whether one is in the sectoral negotiations or outside. For those inside, they can in theory take on the commitments in whole or part. Similarly those outside can completely reject being a part of these negotiations. However, in practice, once a baseline of commitment or regulatory framework has been agreed, it becomes a minimum “norm” bound under international law which will be used by foreign investors as a yard stick to evaluate all countries. This norm will be seen as their minimum guarantee to protect their interests. This affects all WTO members, inside or outside the negotiations and this hidden obligation cannot be underestimated.

Fourthly, the services markets will be even more highly concentrated when developing country markets are pried open. Most developing countries do not have export capacity of any significant proportion. Most are importers of services. In an even more concentrated environment, it would be extremely difficult, if not impossible, for the developing world to nurture their local service industries, with detrimental impact on their future economic development.

Draft Ministerial Text
Paragraphs 10 a-d in the Ministerial text, which masquerades as a plurilateral request-offer, but is an opening for sectoral initiatives to commence, must be deleted. This language goes beyond the language in the Negotiating Guidelines and must not be accepted.

Paragraph 15b (Groups of members presenting plurilateral requests should submit this by [Feb 2006…] must also be deleted. And importantly, 15c (Members shall notify the Special Session of the Council for Trade in Services by [date] of the sectors in which they intend to engage in plurilateral negotiations) must also be completely taken out of the text transmitted to Hong Kong. These two paragraphs formalise the informal process, turning the plurilateral request-offer approach into sectoral negotiations.

US-Mexico Dispute on Telmax
In April 2004, the WTO dispute panel ruled against Mexico in a case brought to the WTO by the US on the grounds that Mexico’s laws and regulations were anti-competitive and contravened Section 1 of the Telecoms Reference Paper to which Mexico had signed. The panel ruled that Mexico had failed to ensure that US basic telecom suppliers had equal access to, and use of, public telecom networks and services. The Mexican company Telmex had charged the US supplier higher interconnection rates. Mexico tried to defend its regulation on rates charged on the basis that they were designed to include the costs for rolling out telecommunications infrastructure – a need of developing countries. The panel however, accepted the US argument that the rates charged should be based solely on the specific services foreign companies required. No contribution to development of Mexico’s telecommunications infrastructure could be included in the rate.

Mexico also argued that its commitments had to be interpreted in the light of the special and differential treatment provisions in the GATS – paragraph 5 of the preamble and GATS Article IV which recognizes that Members need to “strengthen their domestic service capacity and efficiency and competitiveness”. However, the panel concluded:

“These provisions describe the types of commitments that Members should make with respect to developing country Members; they do not provide an interpretation of commitments already made by those developing country Members”.

Source: UNCTAD 2005 “Trade in Services and Development Implications”, TB/B/COM.1/71.
Gould, Ellen, “WTO Panel Rules Against Special and Differential Treatment for Development Countries”, www.mediatrademonitor.org/node/view/8