Nov 3, 1988

SOME DEVELOPMENT CONCEPTS FOR SERVICES FRAMEWORK.

GENEVA, NOVEMBER 1 (IFDA/CHAKRAVARTHI RAGHAVAN)In separate communications tabled before the Uruguay round Group of Negotiations on Services (GNS), Brazil and Peru have put forward some fundamental development concepts and ideas that they suggest should underlie any multilateral framework for trade in services.

The Brazilian and Peruvian communications, coming on the eve of the Montreal mid-term review meeting, have sought to provide a balance to the work of the group, dominated so far by proposals from the industrial countries.

These latter proposals have mostly called for "liberalisation" and securing for transnational corporations involved in service activities an automatic right to "establish themselves" to produce and provide services in any country.

In their communications, both Brazil and Peru have underscored the importance of fulfilling the Punta del Este mandate in relation to its objective of promoting the development of third world countries and respecting the policy objectives of national laws and regulations.

Peru has said that participation of third world countries in a framework agreement on trade in services would be essential to make the instrument universal, and such participation would be directly linked to attainment of the objectives of the Punta del Este declaration.

Brazil has noted that while the objectives are to be reached through expansion of international trade in services under conditions of transparency and progressive liberalisation, transparency and liberalisation are not sufficient to attain the objectives.

Any agreement based exclusively on liberalisation could lead to even greater concentration of the international trade in services, thus frustrating the mandate and resulting in "scarce participation" in any eventual framework.

Proposals of industrial countries before the GNS had emphasised aspects of liberalisation and even deregulation. But a more balanced approach was needed for progress in negotiations.

While the issue of definition is a difficult one, and some participants had felt tempted to overcome the obstacle "by pretending that it does not exist".

However, participants could not be expected to accept obligations without a precise notion of their implications.

Any multilateral framework on services would have more substance and wider participation only. On the basis of a consensus on "a simple and realistic definition of services to include only transactions between residents and non-residents".

Services produced in a country could be internationally traded only when they cross national borders and are acquired and consumed by residents of another country.

The negotiations could establish whether such a definition would include "temporary presence" of a producer or consumer of service within national borders, but without excluding the right of states to regulate the conditions of such a presence.

"But it excludes, from the outset the permanent presence of services enterprises inside national borders as well as related obligations, like the right of establishment. When a service is produced by subsidiaries of foreign companies and sold in the domestic market of a country, that operation is considered a domestic transaction".

On the issue of transparency, Brazil has said that while a framework could include obligations to publish all laws or decrees relating to international trade in services, it would be "premature" to conceive of a notification requirement, both due to specific nature of different kinds of services and because most national norms refer to objectives not directly linked to trade.

Any obligation for transparency, in Brazil's view, should not merely apply to governments but also to enterprises operating in international trade in services.

Absence of rules to ensure transparency of intra-enterprise trade could be an obstacle to expansion of trade in services, while "too close a relationship" between an affiliate and the TNC in its home country could distort international trade.

The services sector is presently characterised by high concentration, with more than two-thirds of services exports accounted for by just a few industrialised countries.

Liberalisation should preserve competition and not lead to increased concentration.

In national markets, governments solve such problems through anti-trust laws or price controls. But this would not be feasible at a multilateral level. Hence the freedom to act nationally would have to be maintained.

But in any event there was need to agree on rules and principles for the control of Restrictive Business Practices (RBPS) affecting international trade in services, and establish obligations and disciplines for operators of that trade as well as their home governments, the Brazilian paper suggests.

The Brazilian communication also underscores the importance of any such framework being compatible with development.

Similar to the process of industrialisation of agriculture, there is now a process of providing sophisticated services to agriculture and industry.

In this light, countries could not face the risk of losing control of their basic infrastructure in the development process. Hence maintenance of a national productive capacity particularly in so-called producer services is a legitimate national objective.

Underscoring the asymmetry in the regulations of services, as between industrial and third world countries, the Brazil paper points out that the services sector in industrial countries have undergone a period of extensive regulation that permitted their growth and served the economic and social objectives of these countries.

Due to non-existence of mare advanced services, many third world countries are yet to develop regulations, while in many others regulation is necessary far preservation and expansion of national capacities.

"This unequal situation" between industrial and third world countries would have to be taken into account "during discussions an standstill", the Brazilian paper has added.

Some of the proposals before the GNS from industrialised countries wish to establish a framework on the basis of standstill on new regulations.

Underscoring the asymmetry in the services sector, with third world countries being "compulsive importers" of such services, the Peruvian paper argues that this asymmetry has to be taken into account in any framework in three ways.

Firstly, since third world countries have major imbalances on their payments due to imports of services, there should be specific provisions covering the balance-of-payments situation of third world countries.

Secondly, there should be the concept of "relative reciprocity" to establish a balance between concessions made by third world countries and the benefits they obtain.

Third world countries would hence be expected to make concessions and contributions proportionate to their levels of development.

Thirdly, there should be provisions for "fair and equitable access" to new technologies in the sector of international trade in services, and provisions for growth of production and productivity of the services sector in the third world.

The framework should contain exceptions for third world countries, both permanent and temporary, according to Peru.

The permanent exceptions would allow a country to exclude from agreements certain policies or rules vital for its development and national security. The temporary exceptions would be "waiver clauses" focussed on preventing bop disturbances and affording initial protection for nascent services.

Like Brazil, Peru also wants restrictive trade practices of enterprises to be covered by a multilateral framework on trade in services.

In particular there should be concrete provisions to prevent discriminatory practices on prices, monopolistic actions to achieve dominant market position, setting of conditions for granting services, cartel agreements, etc.

There should also be provisions to enable diversification and expansion of trade in services in third world countries through transfer of technology.

Both the Brazilian and Peruvian papers also underscore the importance of including provisions in the framework agreement requiring that they should be applied in a manner consistent with an existing international instrument.

The Peruvian communication lists in this regard a code of conduct on TNCS, code of conduct on transfer of technology, the multilaterally agreed rules on restrictive business practices, and the code of conduct for liner conferences.