Mar 3, 1987

SERVICES NEGOTIATIONS STAR.

GENEVA FEB. 25 (IFDA/CHAKRAVARTHI RAGHAVAN)) -- The difficult conceptual and other problems in the negotiations for an international framework governing trade in services were highlighted here this week, when the group of negotiations on services (GNS), chaired by Amb. Felipe Jaramillo of Colombia, held its first substantive meeting.

The next meeting is scheduled for April 8-10.

Meanwhile, the chairman is to consult with international organisations on the availability of statistical data and information, and the technical support they could give.

Participants said that the discussions in the three-day meeting showed that the main protagonists, from the industrial and third world countries - and particularly Brazil, India, EEC and the U.S. - appear to have put behind their differences on whether at all there should be an international framework.

But there were still considerable differences between them on the meaning and implications of the Punta del Este compromise on services, and what they had agreed to negotiate.

Brazil and India made lengthy statements, later made available to the media, putting on record their view of the actual compromise forged at Punta del Este, both in terms of the two distinct and separate exercises on MTNS in goods and in services, and what would or would not be negotiates in services.

"Those of U.S. 'present at the creation' have a special responsibility" to clearly state at this stage "the commonly understood parameters of our work and the underlying assumptions", declared the Indian delegate S.P. Shukla, one of the two third world negotiators involved in the compromise struck at Punta del Este with the U.S. and EEC.

The other third world negotiator involved, Amb. Paulo Nogueira Batista of Brazil, spoke of the initial reluctance of third world countries to engage in services negotiations, their agreement at Punta del Este to explore the possibility of arriving at multilateral framework, and said "it would seem appropriate to recall the context in which such acceptance was given".

Batista and Shukla drew a distinction between the adoption by Ministers of the Uruguay Declaration as "a single political undertaking launching the Uruguay Round", and the GATT decision launching the MTNS in goods as "a single undertaking".

The "globality" of the Uruguay Round MTNS (in goods and services) was recognized only "in a political or qualitative sense, not in a legal, quantitative or organic sense", Shukla declared.

Batista explained the separate legal basis for the two decisions-making at Punta del Este - one by Ministers in an Ad Hoc Inter-Governmental meeting parallel to the Special Session of GATT CPS, an the other on goods at the GATT Session - and said from the start it thus ruled out "the premise of trade-offs" between goods and services.

Substantively too, he said, such a trade off would be economically unjustifiable, technically unfeasible, degenerate into unbalanced and unfair trade-offs between the more power industrial and weaker third world nations, and could also freeze "an inequitable international division of labour and an unacceptable limitation to our legitimate aspirations of also becoming producers and suppliers of high technology goods and services".

All third world participants, and Sweden for the Nordics, also specifically rejected any linkage between trade in goods and trade in services.

Participants said there was no explicit challenge to the Indian and Brazilian explanations from the U.S. delegate, Richard Self, while the EEC's Amb. Tran Van-Thinh appeared to confirm some of the understandings.

Also, they noted, Tran had made the same distinction, between the political "globality" of the Uruguay round and the "technical and organic globality" of the negotiations in goods, when Tran spoke at the TNC on January 28, and later circulated a copy to delegations as a note verbale.

The insistence on legal separation of the two negotiations did not mean Brazil was resiling from its political commitments, and would implement it so long as others did the same, including "the foremost one of standstill and rollback in the area of goods", Batista declared.

There are no legal, procedural or other linkages between the goods and services negotiations, nor any point-to-point correspondence in progress of the two, and any cross-linkage between the two was "totally unwarranted", and any such insistence would be counterproductive, not only to negotiations in services but to goods, Shukla warned.

But while the U.S. did not challenge or deny the Brazilian and Indian understanding of the compromise, some of its supporters have put forward, as concepts for the future framework, ideas that the U.S. had been advocating before Punta del Este.

A Japanese paper and explanations, one participant said, in effect envisages a "super-GATT" framework for services - conditional MFN treatment for participants, national treatment for foreign services enterprises, multilateral scrutiny of national regulations to judge their appropriateness, transparency in governmental decision-making, dispute settlement, regulations on public monopolies.

Such transparency, the U.S. said and Japan endorsed, should include the concept of "due process" - with foreign enterprises and governments being advised about proposed regulations and having the right to make representations which governments should consider before promulgating regulations.

Japan's concepts also implied in effect a supra-national authority in the area of services, with countries having to justify multilaterally their exclusion of foreign enterprises from national treatment on grounds of security, privacy, etc., and the appropriateness of their national regulations, presumably against the yardstick of goals of development being achieved through market and foreign investment vs. state regulated domestic measures.

Some of the third world countries rejected such a concept, and noted that even in GATT "contract", there was no such supra-national authority, but only the right of one contracting party to withdraw concessions from the other.

The aims of development have to be understood as seen by the third world country concerned, "and not in terms of some mysterious handiwork of an invisible hand operating through idealised market processes", Shukla declared.

Brazil, India, and several others underscored that the negotiating mandate called for "progressive liberalization", and that too "under conditions of transparency", as one of the condition for expansion of trade "whose objective and aim is the promotion of economic growth and development of the third world countries".

Expansion on trade in services is the aim of the negotiations, but "it is not any kind of expansion, but one related to growth and development", the EEC agreed.

The very same countries that sought to apply some GATT concepts were silent on the fundamental concept of most-favoured-nation treatment, or of international trade as arising only when goods crossed the border or of national treatment applying only to products and not producers, Brazil and India pointed out.

Several third world participants underlined the need for special and differential treatment for the third world countries.

But some among them, like India and Brazil, said that unlike in GATT -which was negotiated among industrial states and where development and the position of their world countries came in as "an afterthought", with special provisions for derogation- any future framework on services must be initio make the development objective the kernel of the exercise".

Several third world countries like India and South Korea said that services to be covered should include labour and labour-intensive services, and not merely capital or high-technology, intensive services where some of the industrial countries now had an overwhelming advantage.

India said that any framework should encompass "free access of skilled and unskilled workers from developing into the developed countries" markets for services, and all labour and labour-intensive services which could be traded across borders".

Brazil, said the notion that capital, in form of foreign direct investment, should have "right of access" would raise naturally the complex and difficult question of right of labour to migrate freely.

Industrial countries all spoke of the virtues of the market and competition, but Malaysia rejected this saying that "there can be no greater inequality than free competition among unequal, and hence the 'GATT logic' is not applicable to services".

India, Brazil and others insisted that the negotiation was only concerned with "international trade" in serves, and not trade as such or production of services.

Brazil said that the negotiation on services was amongst "sovereign states", and the TNCS and providers of services or investors could not be equated to "host governments", as had been done in the World Bank proposes investment guarantee agency.

The Brazilian statement and that of several others implied that governments seeking "rights" for their enterprises on territories of others would also have to assume "obligations" for their enterprises, in the home-state and world markets.

The U.S. sought to push the pace of negotiations so as to complete and overall framework in services by mid-1988, but several third world countries rejected the idea of a faster pace in services negotiations than in goods, and warned against unrealistic effects at shortening the tempo of negotiations.

Cautioning against artificial time-constraints or faster pace in complex services negotiations, Batista said Brazil had committed itself at Punta del Este to negotiate on services, "but we are not bound at any price to come to an agreement".

Final agreement was not an end in itself, but would be possible only through a balanced result with mutual advantages for industrial and third world nations.

Underscoring the Punta del Este compromise, EEC reiterated its view that the agreement should be by consensus and should carry everyone on board, and there was "need to hasten slowly".

Switzerland felt agreement to define was difficult and should be given up, and the GNS focus on work for the framework, while Sweden suggested simultaneous work on various elements for the initial work programme.

But Brazil and India insisted on the negotiating process pursuing a logical and sequential approach to the elements agreed upon, particularly since no serious negotiations would be possible without creating a proper statistical base, and agreeing both on definition of "services", "international trade in services", and the areas of activities to be covered.

Without this basic groundwork, that would enable participants to see the balance of rights and advantages in such an international trade, it would not be possible to negotiate or conclude an agreement, they said.

Without an agreement on definition of services and trade in services, it would not be possible to agree on sectors to be covered by a possible framework, Batista pointed out.

The definitions, and coverage of sectors, India warned could not be whimsical or based one-sided advantage to industrial states, but must benefit all, India declares.

A legally binding understandings would need to identify the sectors to be covered and the activities covered, the U.S. conceded.

The EEC agreed on the need to define "trade in services", but said the definition would be different from that of trade in goods, and must include right of commercial presence.

But Brazil, India and several others said commercial presence, like FDI, were regulated by policies and laws of countries, based on sovereign rights of states in these matters, and could not be abridged by a framework on services.

Sweden, speaking for the Nordic countries, said some of the existing trade principles, with some adjustments to meet the special characteristiques of services, along with new ideas and concepts, could be used in drawing up a framework.

Sweden also called for an inventory of practices and measures perceived as barriers to trade, with a view to analyzing the motives and policy objectives behind the regulations as well as their impact on trade and economic development.

But India, Brazil and others underscored the primacy of respecting goals and objectives of national regulations, and said this ruled out any multilateral scrutiny of the national laws and regulations, or negotiating for their reduction or elimination.

The U.S. strongly believed in application of principles of trade in goods to services, since the virtues of international competition alone would enable countries to obtain the highest quality services for the best price so as to ensure the competitivity of their economies.

The mandate for negotiations in services provided no a priori endorsement of the rules and principles of GATT, nor was there any justification for the idea that "all regulation is bad and deregulation is always good", Shukla declared.

There was no mandate for liberalisation per se, but "progressive" liberalisation as one of the conditions for expansion of trade to achieve the main aim of economic growth for all trading partners and development of the their world, and progressive liberalisation could not be equated with dismantlement of national regulations.

And since TNCS were main providers of internationally traded services, and their RBPS were serious barriers to expansion of trade under conditions of "transparency", and "progressive liberalisation, control of their RBPS was an essential elements of any framework", India said.

Brazil in this connection cited the U.S. view at The Havana charter negotiations that it was futile to remove discrimination and reduce or eliminate trade barriers on products imposed by governments if business enterprises were free to create them.

TNC behaviour, and absence of regulations to ensure transparency in intra-company trade affecting growth of trade in services and promotion of national interest of host countries and of home countries became very pertinent, Batista said.

The EEC appeared partially to agree with the view that enterprise practices would have to be addressed, and said that what the negotiations should look at were not only governmental measures but also market structures that hamper on increase trade in services.