Aileen Kwa

In the past month and the half in Geneva , the demandeurs in services liberalisation have been maneuvering the process to engineer a radical change in the current more “flexible” GATS architecture. The teamwork amongst a group of countries and players – spearheaded by EC, and also with India (and the US ) – together with the Chair of the Council for Trade in Services (CTS), Mexican Ambassador Fernando de Mateo, and supported by the WTO Secretariat, has almost been flawless.

The academy award must be presented to Mateo – but he could only have played out his role if fully endorsed by some powerful Members, and the WTO Secretariat, the latter being the hand that writes the negotiating texts for Chairs.

The practice of Chairs of negotiating committees abusing their authority, and presenting negotiating texts which reflect the positions of the powerful players, but not the majority, has been performed many times in the WTO. Combined with calls, threats and complaints from Washington , and intense lobbying from Brussels , this is one of the most effective ways of sidelining the less powerful players, and silencing them.

The new element that Mateo has so flamboyantly added, is the extent to which he has nonchalantly told Members, as if he were the one writing the rules of the WTO, that he cannot remove what he has decided without consensus to put into the text, unless there is complete consensus to take them out!

The more “development” friendly aspects of the GATS agreement are now being written over in Geneva . If the majority are not able to torpedo this – and they are fighting against major interests – the impact would be serious. Unemployment will be exacerbated since small and medium sized players will be squeezed out of a more concentrated market, the capacity for countries to regulate would be gravely weakened and across the developing world, access to services for the poor will be eroded, as the weight of WTO rules merge with the interests of the biggest services corporations.

I. Setting the Stage

Those with aggressive interests in services liberalisation have been waiting for some time now, to completely undermine the more flexible character of the GATS. Its “positive list” approach (liberalizing what a country chooses) was mandated in the Uruguay Round, only because the developing countries did not want a GATS agreement in the first place, and by allowing such an agreement, had made a huge concession. The GATS has built-in “flexibilities” which takes into account countries' development objectives, requiring Members to open up their markets at their own pace.

At the start of the GATS negotiating round, when the Negotiating Guidelines were being knocked together (early 2001), the developed countries – US, EC and Japan – pushed hard for a formula approach to the negotiations, along the lines of the “benchmarking” now being raised. This was strongly opposed by developing countries and the issue was dropped.

For most of the past year, the EC, US, Japan et al, have bemoaned the low quality of “offers” they have received from their negotiating partners, even terming this a “crisis”. From the majority of developing countries' point of view, there was no crisis. The promise of assessment of the impact of the last round of negotiations had not been delivered. In fact, the results of the last Round have been very disappointing for developing countries. According to UNCTAD's assessments, the developing countries had undertaken a higher share of full bindings under the cross-border and commercial presence modes of supply. But in contrast, they did not receive concessions of any meaningful economic value to them under the movement of natural persons mode of supply (Mode 4). Access under Mode 4 was mostly linked with commercial presence, and only limited to professionals. In addition, services trade remains highly imbalanced. Markets are densely concentrated, with 80% of trade dominated by the major corporations from the developed world.

As of July 2005, due to the persistent pressures on countries to present initial and revised offers, 74 Members had made offers (counting the EC of 25 members as 1). Of these 64 were developing country Members. According to the CTS Chair, 24 developing non-LDC countries in July had not tabled an offer.

In the attempt to speed up market opening, an avalanche of proposals from EC, Japan , Switzerland , Australia , Hong Kong , Korea and Taiwan were tabled formally on September 13 on complementary approaches (i.e. “benchmarking” as they were called earlier). From then into October, more papers were presented by Canada , India , Chile , Hong Kong , China and Pakistan . The EC has also submitted a second more ambitious proposal on 27 October.
The proposals suggest a complete change in the negotiating modality of the GATS. Members at the start of the GATS round of negotiations, pushed by the developed countries, had agreed that liberalization could be advanced through “bilateral, plurilateral or multilateral approaches” (paragraph 11 of the Negotiating Guidelines S/L/93). However, the guidelines also state that “the main method of negotiation shall be the request-offer approach”. The current moves go against what has been agreed since any more aggressive approach adopted, would supplant and replace the request-offer approach.

Furthermore, these more aggressive methods would contravene Article XIX of the GATS on progressive liberalisation, allowing countries to open “fewer sectors” and “liberali(ze) fewer types of transactions” according to their “national policy objectives and level of development”.

II. The Complementary Approaches Tabled 

The more aggressive negotiating methodologies suggested include: 

1) Quantitative Targets (numerical targets and indicators)

This approach has been pushed particularly by the EC. It is essentially putting the GATS negotiations on super fast track “formula” approach. In its latest 27 October proposal, it suggests that developed Members should include new or improved commitments in at least 139 sub-sectors (or 85% of the 163 services sub-sectors). Developing countries to include new or improved commitments in 93 sub-sectors (2/3 of the 139 subsectors for developed countries).  

This approach to negotiations falls under the “multilateral” mode since it is formula based, paralleling the market access negotiations in Agriculture and Non-agriculture Market Access (NAMA), and all Members are supposed to apply the same rules.  

2) Qualitative Parameters

In order to ensure that the liberalisation are of some quality, the proponents have asked that the opening up of sub-sectors be accompanied by “qualitative parameters” – i.e. making “model” commitments across the 4 modes of supply. This is not only an EC initiative, but has also been pushed aggressively by India , Taiwan and Japan .

The following has been suggested:

Mode 1 (cross border supply of services – the service is delivered without the presence of the service supplier in the territory of consumer eg. outsourcing): proponents have asked for Members to take on commitments at existing levels of openness, and to do away with any requirement of commercial presence.

Mode 2 (consumption abroad eg people seeking medical treatment abroad): To have no limitations.

Mode 3 (commercial presence – or granting a foreign service supplier the right to establish an investment within the territory of another country): The EU has asked for authorizing at least 51 per cent foreign ownership i.e. making it impossible to differentiate between treatment to foreign investors and local companies. The Indian proposal asks for “enhancement [substantial] in the levels of foreign equity permitted”. Both India and EU want the removal or substantial reduction of economic needs tests (ENTs) , and flexibility in the types of legal entities permitted. That is, allowing easier access, for instance, for corporate subsidiaries, trusts, joint ventures, partnerships, sole proprietorships, associations, representative offices or branches. This is the area where the developed countries have the greatest offensive interest.  

Mode 4 (movement of natural persons): Here, the proposals are much more limited. The Indian proposal has asked for “new/improved commitments particularly in categories delinked from commercial presence, such as CSS (contractual service suppliers) and IP (independent professionals)” and the substantial removal of ENTs for such categories; more relaxed rules regarding the length of stay; and improved commitments in already existing categories including intra-corporate transferees and business visitors. The EC proposal echoes the Indian one, although it is even less ambitious – asking for Members to commit to only “make(ing) one or more of the following improved commitments” in the items described above.

3) Plurilateral Negotiations

The other approach to negotiations suggested are through plurilateral requests. This idea was mooted by the European Commission. With the plurilateral approach, a group of countries with an export interest in a sector can make a joint group request to a Member. The EC proposal of 13 September suggests that the “critical mass” participating would agree to a core set of commitments for a sector. This idea was discussed in the EC 133 Committee meeting of 6 September as follows:

“The aim of the suggested plurilateral approach in the services negotiations was to negotiate, a higher level of commitments in a number of sectors /subsectors of particular interest to a critical mass of WTO members. For this purpose, the interested members could use model schedules setting out a core set of commitments for sectors concerned (italics inserted)”

The EC then floated the model schedules within the “Friends” groups. The idea of plurilateral negotiations has since been promoted by other Members including Canada , Australia , Chile , Taiwan and also India , in its 10 October submission.

What does the EC want by way of “model” schedules? The EC's model schedule (see e.g. EC Ref132/05(Services), 31 August 2005) is mainly focused on gaining access under Mode 3 (commercial presence). In all services sectors, it calls for no limitations in market access to be scheduled under Mode 3. Where there are limits on foreign ownership, it wants these to be removed by a date to be negotiated. In contrast, it is completely defensive in Mode 4, where the EC wants to make no new commitments except what they currently allow in the categories of ICT (intra-corporate transferees), BV (business visitors), CSS (contractural service suppliers) and IP (independent professionals).

III. Reactions of the Majority

Mid-September into October saw many countries collectively and individually stating forcefully in the Services Council meetings, their opposition to these complementary approaches. This in not an exhaustive list, but the opponents included amongst others, Argentina, Brazil, Malaysia, Thailand, the Philippines, Asean (minus Singapore), a group of Caribbean countries, the entire Africa Group and the LDCs.

In their interventions, most highlighted the flexible structure of the GATS (Article XIX:2) which they wanted preserved in order to retain policy space for national policy objectives and development.

Members' Opposition to “Complementary Approaches” in the CTS

Antigua and Barbuda , Barbados , Jamaica , Dominica , Grenada , St Kitts and Nevis , and St Vincent and the Grenadines :

“The proposed new approaches would make it impossible for our domestic service suppliers to maintain their domestic markets. Such deep levels of liberalisation in more sub-sectors than we would rationally commit to would undermine our own development goals and objectives. As these proposals do not aim to facilitate the process of development for small developing countries, the result would be the “crowding out” of domestic suppliers. This issue is of significance to the countries particularly in light of the fact that 50% of the service firms in the group of countries employ loess than five persons…

“The proposals require that all Members adopt a similar approach. They do not take into account the fact that small vulnerable countries such as those contributing to this statement are unable to undertake the same pace of liberalisation as larger developing countries….

“It is regrettable that in this development round, more attention is not being paid to ensuring that developing countries are actually the primary beneficiaries of the services negotiations, and not developed countries who already account for 80% of global services exports”.


IV. Manufacturing the Text: Abuse of the Chair

Despite very clear statements of opposition, the Chair of the Council for Trade in Services (CTS), Mexican Ambassador Fernando de Mateo went ahead to present “possible elements” of a draft Ministerial text for Hong Kong , listing those very elements that had been opposed by the majority.

Under “Objectives”, the 13 October (JOB(05)/234 –Annex 1 attached) text included the following: