by
Goh Chien Yen
In
February, 2003, the Commission on Trade of the United Nation Commission
on Trade and Development (UNCTAD) held a discussion on the implications
of liberalization in services. This report on the debate was prepared
by Goh Chien Yen, for the South-North Development Monitor.
There
is no legal requirement or compulsion under the WTO and its current
round of services negotiations for developing countries to commit
themselves in the GATS to liberalize their services sectors. Developing
countries should thus exercise their legal right to be cautious
about further liberalization in the WTO, especially if they have
not yet carried out an assessment of the effects or do not yet
have a national services plan or strategy.
This caution and advice was given to developing countries during
an expert panel discussion at the UNCTAD Commission on trade in
goods, services and commodities, by a panellist, Mr. Martin Khor,
director of the Third World Network
The panel on “Trade in services and development implications”,
held on 4 February, comprised Uruguay’s deputy foreign minister
Mr. Guillermo Calle Jaimes, South African academic Mr. James Hersh,
UK trade and industry department economist Mr. P. Dodd, Singapore
Ambassador V.G. Menon, the director of the WTO secretariat division
on services, Mr. Abdel-Hamid Mamdouh and Mr. Martin Khor. After
extensive discussions, UNCTAD trade division director Lakshmi
Puri made concluding remarks.
All the panelists agreed that services comprise an increasingly
important sector in developing countries, constituting a high
proportion of Gross Domestic Product (GDP) (about 50% for developing
countries in 2001 and higher in some of them, 66 percent in Singapore
and Uruguay).
Martin Khor said that in addition to the contribution to GDP and
jobs, the services sector also had to be well managed as it provided
for public needs such as health care and water and had a major
effect on financial stability and the balance of payments. What
is of importance to developing countries is that the services
sector contributes to output, growth, employment and provision
for basic needs.
Trade in services should only be a means and not an end, and should
be properly managed if negative effects are to be avoided. Discussion
and negotiations on services trade should thus be located in the
larger context of development.
Negotiating in the dark
The developing countries are facing some serious problems relating
to the WTO’s General Agreement on Trade in Services (GATS)
and the current negotiations.
Firstly, there is the lack of data on services trade, especially
as they pertain to the WTO services framework. The inadequacy
of data makes it difficult or impossible for developing countries
to assess the effects of past or future liberalization. This creates
a negotiating situation akin to developing countries “chasing
a black cat in a dark room, blindfolded”.
 The
lack of data also made it impossible to fulfill a GATS condition,
that there be a proper evaluation of effects of services liberalization,
before embarking on new negotiations. It also hinders efforts
to develop safeguard mechanisms against the negative effects of
liberalization on developing countries.
GATS is inherently imbalanced as developing countries have far
less capacity for services production than the developed countries.
Even if market access was increased, most developing countries
could only benefit little due to supply constraints as well as
anti-competitive and monopolistic structures that act as barriers
to entry to the developed countries’ services markets.
On the other hand, inappropriate and over-rapid liberalization
could cause a range of problems for developing countries, such
as financial instability (resulting from opening up financial
markets to the vagaries of capital flows and speculation), displacement
of local firms and net job losses by the entry or expansion of
foreign service providers, and significant net foreign exchange
outflows due to profit repatriation of foreign firms (which also
mainly provide for the local markets and thus do not earn much
foreign exchange for the host countries).
Khor continued, stating that the NGO community was increasingly
concerned that the combination of privatization (often under loan
conditionality) and liberalization was leading to higher prices
of essential services, thus hampering the people’s access
to water, electricity, health care, etc. There have been protests
in many developing countries against this trend. Empirical studies
involving more than 30 countries conducted by Social Watch, a
NGO, show how the liberalization and privatization of essential
services have left consumers worse off.
The GATS architecture is often said to be ‘development-friendly’.
However, whilst each WTO Member can choose to commit which sectors
to liberalize, when and to what extent, in reality the developing
countries face tremendous commercial and political pressures to
liberalize, and once they commit in the GATS they would be unable
to “backtrack” unless they can afford to pay compensation.
Typically, developing countries do not have a comprehensive services
development plan or strategy, nor a coordinating Services Ministry,
and thus they are unable to make informed decisions such as on
offers and requests in the WTO negotiations. Khor urged UNCTAD
to assist developing countries in developing such plans and strategies,
as well as in the negotiations.
Developing countries, he stressed, have the legal right to decide
whether or not to commit themselves to further liberalization
in any sector, and to what extent. This right is further strengthened
by provisions such as Articles IV and XIX of GATS and reaffirmed
in the Guidelines and procedures for services negotiations of
28 March 2001.
He said that developing countries should fully exercise this right,
including the right not to liberalize further unless or until
the country has developed a proper plan, is already prepared to
face increased competition, has in place the pre-conditions for
successful liberalization, and is thus comfortable to commit itself
in the GATS process.
A cautious approach is advisable, Khor advised, since it would
be difficult to reverse a commitment in GATS once it is made.
Countries that believe it could benefit from liberalization in
a particular sector could do so autonomously without necessarily
committing itself in GATS, and thus be able to judge the wisdom
of its action and also have an opportunity to reverse it to some
extent or fully, should there be negative effects.
Khor noted that in the current request-offer process, the developed
countries had made very heavy demands on developing countries
to open up fully or to a great extent in a wide range of services.
He urged the developed countries not to put pressure on the developing
countries to accede to their requests, but to leave the decisions
wholly to the developing countries. The latter should feel free
to make their choices fully in line with national policy objectives
and not feel they are obliged to open up, simply because requests
have been made. Each developing country should be able to decide
for itself the extent of liberalization in each sector, and whether
or not to bind this in GATS. This flexibility in GATS should be
fully respected.
The Uruguayan deputy foreign minister Guillermo Calle Jaimes said
that developing countries should not only be defensive in the
services negotiations but take a new pro-active approach in submitting
requests. He noted, however, that developing countries face problems
such as lack of analytical capacity, and scant statistics. The
data produced by agencies including the IMF are not adequate,
he added.
South African academic James Hersh stressed that the WTO negotiations
should open up access in developed countries to professionals
from developing countries as Mode 4 was the most important source
of services trade for the developing countries.
For a developing country an appropriate strategy would be to enter
the services market of neighbouring countries first, and then
the region and finally the developed countries.
Abdel-Hamid Mamdouh from the WTO secretariat said that in the
decade after concluding the GATS negotiations, “we know
more now about services but it is humbling as the more we know
the more there is to know.”
He pointed out the difference between liberalizing services under
GATS and deregulating services, and stressed that Members should
exercise their right to regulate services.
Working people on the move: Mode 4 of
the GATS
Mr. Roman from the Commonwealth Secretariat said liberalization
of movement of natural persons would bring the most benefit to
poor people in developing countries, citing a study showing that
if the OECD countries allowed a 3 percent quota of its labour
force to foreigners, the benefits would be 150 percent more than
all liberalization of goods combined.
The Morocco delegate referred to Khor’s emphasis that developing
countries have the flexibility to choose the extent of liberalization
commitments and said since Doha the African countries face many
problems. So it is no surprise that African countries are unable
to fulfil the negotiating datelines.
The Uganda delegate agreed that it is in the best interests of
developing countries to exercise maximum caution in making commitments
in their GATS
schedules.
Another delegate from Uganda added: “The least developed
countries (LDCs) are caught in a poverty trap. Commodity prices
have collapsed. Due to liberalization, most LDCs ended up with
deindustrialization, many local firms have closed. Due to subsidies
in rich countries, even our farmers are threatened by cheap agricultural
imports. In view of all these problems – the poverty trap,
commodity price collapse, deindustrialization, farmers going out
of business, workers retrenched - what can developing countries
do so that their services sector can be boosted?”
The Bangladesh delegate said LDCs had little chance to benefit
from market access in most services such as banking, and thus
had little prospect from trade in services. He agreed that the
best benefit could come from movement of labour.
The European Commission delegate thanked UNCTAD for its very valuable
document on services. She said that that the points made by Khor
on the importance of having a development policy need to be stressed.
The EC stressed that governments retain the right to supply services,
it is a decision for each government to make, and this is linked
to the issue of universal access to services.
The representative of ICFTU (The International Confederation of
Free Trade Unions) criticized the complete lack of transparency
in the offers and requests being made by the countries. Given
the far reaching impacts of the GATS negotiations, this has to
be addressed immediately.
UNCTAD’s Director of the Division on International Trade
in Goods, Services and Commodities, Mrs. Lakshmi Puri, in concluding
the panel session said that what many panelists and participants
said had reinforced the view that development is the end objective
and trade is only the means, and trade liberalization is one of
the aspects of trade. As mentioned by the LDCs, there should be
an assessment of the negative impact of services liberalization,
including when this is also done under adjustment programs.
The original report was published in TWN Info Service on WTO Issues
(Feb03/2) www.twnside.org.sg/title/twninfo8.htm
1
See Chakravarthi Raghavan in his book Developing countries and
services trade: Chasing a Black Cat in a Dark Room, Blindfolded.
(TWN, Penang, 2002).
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