Services threat at the W.T.O.
by Martin Khor
THE local services firms and suppliers of developing countries could
face new challenges to their survival and market share if a new
offensive by the developed countries succeeds at the WTO. Their new
'benchmarking' proposal would force developing countries to open up in
more sectors and at a faster pace, putting the local firms on the
defensive.
The developed countries have launched a joint offensive to introduce
new methods of getting developing countries to liberalise their services
sectors in the World Trade Organisation and to have these endorsed at
the WTO's Ministerial conference in Hong Kong in December.
This has alarmed and upset many developing countries, whose
delegations see it as an attempt to subvert the present system in which
each country can decide on its own pace of liberalisation, and in
sectors of their own choosing.
The offensive came at a meeting on 13 September at the WTO when
members (including the European Union, Japan, Switzerland, Australia and
Korea) presented six papers calling for additional ways to accelerate
the pace of services liberalisation before the Hong Kong Ministerial.
The US and Canada also supported the proposals. The proposals were
coolly received by the developing countries.
At another meeting, on 23 September, many of them stated their
objections, criticising the proposals for attempting to change the
nature of the WTO's services agreement and negotiating methods, and for
removing the policy flexibilities now available to the countries to
choose their pace and degree of liberalisation in the various sectors.
Among the countries speaking up were Brazil, Indonesia, the
Philippines, South Africa, the Caribbean countries, and the least
developed countries.
At stake in this debate is the fate of the domestic enterprises and
service providers in the developing countries. If the countries open up
their markets too rapidly, these small and medium-sized local
enterprises risk being overwhelmed by the much bigger foreign companies
of the rich countries.
The services sector includes banks, insurance companies and other
financial institutions, wholesale and retail trade, utilities (such as
electricity, energy, water and telecommunications), transportation,
postal services, education and professional services (including lawyers,
doctors, and architects).
In many developing countries, services comprise the most important
sector in terms of contribution to the Gross Domestic Product, income
and jobs. It is also the sector where local institutions and
professionals are most entrenched, with a high degree of local ownership
and participation.
It was with the aim of breaking into the markets of developing
countries that the huge services enterprises of the United States,
Europe and Japan persuaded their governments to inject a services
agreement into the trade system during the Uruguay Round of trade talks.
Many developing countries were against this, arguing that services is
not essentially a trade issue and trade rules cannot be appropriately
applied to the sector.
They were concerned that the opening up of their services would lead
to local banks, wholesale and retail shops and telecom services being
taken over by foreign firms.
They finally agreed only when safeguards and freedom of policy choice
were built into the services agreement.
These include the 'positive list approach' (only those sectors that
are listed down are deemed to have been committed for liberalisation),
the ability to also list restrictions to full liberalisation in the
sectors chosen, and the bilateral 'request-offer' system of negotiations
(in which other countries can request a country to liberalise in various
sectors, but the country is free to offer to commit in whichever sector
of its choice and to whatever extent it deems appropriate).
Developing countries were assured during the negotiations that they
could choose whether or not to liberalise, and if so, at which pace and
in which sectors. This flexibility was also built into provisions (such
as Articles 4 and 19) of the General Agreement on Trade in Services
(GATS), which came into force in 1995.
However, this 'compact' now risks being broken, with the developed
countries demanding that a new approach (called 'benchmarking' as well
as 'multilateral method') be introduced, in which developing countries
are required to commit to liberalise in a certain specified number of
sectors, and to a certain minimum degree.
Particularly targeted is liberalisation of 'commercial presence', or
Mode 3 of the GATS. The developing countries are asked to open up a
minimum percentage of sub-sectors for participation of foreign services
enterprises and providers. Some proposals call for developing countries
to bind existing levels of actual liberalisation, and then go further by
committing to liberalise even more deeply.
The proposals go counter to the policy flexibilities in the GATS. For
example, in one version of the proposals, 10 sectors (the most
economically important) may be chosen in the new 'benchmarking' or
'multilateral method'.
From among the 10 sectors, developing countries may be required to
open up in five or six, while developed countries open in eight.
A particular developing country may not have intended to open up in
six of the 10 sectors. It may have considered opening in only one or
two, for instance. It is now required however to open up in six.
Moreover, in the six chosen sectors, the country may be required to
liberalise to a specified extent. For example, restrictions on the
degree of foreign ownership may not be allowed, or limits may be placed
on the number and degree of restrictions.
Another flexibility that will be eroded is the policy space that many
countries keep between their actual liberalisation measures and the
commitment they make at the WTO.
Countries may have chosen to liberalise in several sub-sectors, but
do not want to make commitments on some of the measures in the WTO, as
such commitments are legally binding.
In this way, a country that has liberalised in a sector can still
'backtrack' or increase the restrictions if circumstances were to change
(for example, during a financial crisis).
In some of the 'benchmarking' proposals, countries will be required
to 'bind' their present level of liberalisation, or to make commitments
in the GATS in the sectors in which they have already opened up.
This would remove the present flexibilities for a country to
'backtrack' when the situation necessitates this. The developed
countries have argued that the developing countries have made few offers
to commit, and thus the new method is needed to get them to accelerate
their liberalisation.
Developing countries counter-argue that it is the rich countries that
are lagging behind, as they have not offered to liberalise the movement
of labour, which is the key service in which the poorer countries have
an interest.
They also believe that it is their right under the GATS to liberalise
at their own chosen pace, and that developed countries are not
respecting this principle because their companies are impatient to get
market access and take over the business in the developing countries.
This battle has serious implications for development. If the rich
countries have their way, the developing countries may be forced to open
up their services faster than the rate at which their local enterprises
can face the foreign competition.
The share of locals in their economy could then erode and many vital
sectors could fall under the control of foreign firms.
It is thus crucial that the policy-makers, politicians and public
alike (as well as the companies that will be affected, of course) wake
up to the challenge facing them, and participate in the discussions now
taking place at the WTO.
- Third World Network Features
(The writer is Director of the Third World Network). |