U.S. FOR MANAGED TRADE IN SERVICES.

Jun 7, 1986

U.S. FOR MANAGED TRADE IN SERVICES.

GENEVA, JUNE 5 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The United States would now appear to favour an international framework for "managed trade in services" rather than free trade.

This U.S. view would appear to have been put forth this week in the GATT exercise on services, chaired by Felipe Jaramillo of Colombia, which has been mandated to carry out exchange of information on issues in the area of services, and make recommendations to the next session of the GATT Contracting Parties, on the desirability and appropriateness of multilateral action on services.

The EEC which has recently described itself as a "super power in services", is reported to have opposed the U.S. idea of "managed trade" and wanted an international framework that would enable "expansion of trade in services while preserving the attainment of national regulatory goals and objectives".

Both the U.S. and the EEC, supported by the other OECD countries, insisted on multilateral action within the GATT framework, and for action on this to be initiated in the proposed new round of Multilateral Trade Negotiations (MTNS).

Excepting for Chile, third world countries who participated in the discussions rejected this view, and insisted on further in-depth examination of various issues and questions thrown up in discussions so far, before any consideration of desirability or appropriateness of multilateral action on services.

At this week's meeting, the Jaramillo group discussed with representatives of the International Telecommunications Union (ITU) and the U.N. Centre for Transnational Corporations (UNCTC) some aspects of their work in services, before its inconclusive discussion on issues relating to possible multilateral action on services. This discussion is to be continued on June 27.

In favouring action in GATT, the U.S. would appear to have said that other international organisations - UNCTAD, ITU, and the UNCTC - were "biased" as shown by their focus on development, and only GATT was "balanced".

Third world countries countered that their confidence in GATT had been eroded even in trade in goods, and GATT was hardly the forum to deal with the wide issues involved in services.

The U.S., and other OECD countries that support action in GATT, underlined that an international framework should be created now before further proliferation of national regulations.

Third world delegations note that many of their countries are only now becoming aware of the implications of services for their entire economy and development, and embarking on regulatory processes.

The entire objective and thrust of the U.S. effort, they said, was aimed at preserving its own existing regulatory framework, while preventing third world countries from putting in place any new regulations or strengthening existing ones that would obstruct the efforts of U.S. TNCS to expand into service sectors in the world economy.

The EEC recognised that there were problems of definition in services, and also on substance of issues, but felt GATT should have a role in expansion of trade in services.

And while the EEC did not preclude action elsewhere on other aspects of services or in specific sectors, any trade element in services should be addressed in GATT, and developed on basis of "healthy competition".

Potential growth of trade in services was now hampered by lack of multilateral action. The lack of multilateral framework and rules created uncertainty, leading to inhibition of trade, non-transparency of regulations prevented expansion and development of trade, and prevented international transactions in services.

While some regulations were legitimate, others were motivated by trade goals, protection to domestic service sectors, and only a multilateral framework could tackle them.

Canada favoured action in GATT, among other things in view of GATT's "mechanisms" for dispute settlement. Canada also wanted sectoral specific actions elsewhere to take account of principles of "trade liberalisation".

The U.S. wanted multilateral actions and disciplines that would benefit its traders and enable the U.S. to maintain its open trade regime.

This was seen an implied threat that if the U.S. could not have its way over services, third world countries would see their access to U.S. markets to goods choked off.

The U.S. did not view the inability to define the common characteristiques of various services as any way critical to the issue of multilateral action.

Any GATT framework on services could not "judge" domestic regulations, but could provide guidance for future regulations. A general framework of principles and rules on services in GATT should be further annotated by sector-specific understandings.

Sweden, for Nordics, stressed the difficulties of eliminating or liberalising trade regimes for services once regulations were in place, and called for "pre-emotive actions" now through multilateral actions.

Nigeria argued that while services were becoming an important component of international trade, the subject was also very complex and needed extreme care before any multilateral framework could be prescribed.

There was not even a definition of services, and those who advocated multilateral action had failed to produce any blueprint of action sought or the organisational framework needed.

There was hence need for more national studies, and more in-depth examination of various issues through the exchange of information.

In Nigerian view, GATT should address the many problems of trade in goods with which it was concerned, instead of venturing into new avenues.

The slow growth in world trade, and of third world economies, was due to problems of increasing indebtedness, volatility of exchange rates, virtual collapse of commodity earnings, and lack of political will to implement urgently needed actions in trade in goods.

GATT should focus on these problems, and not on trade in services, where there were a number of international institutions in existence to deal with specific services sectors.

Australia saw however prospects of consensus over services emerging in GATT, just as it had emerged over trade in agriculture vis-à-vis the new round.

Japan saw multilateral action on trade in services indispensable, and while it did not rule out action on other aspects - development, multilateral action should not be "over-ambitious".

Brazil outlined some of the conclusions of a SELA meeting at Brasilia last week on the services issue. The SELA meeting had called for more national, regional and international studies by third world countries, and examination of all available options, before any consideration of multilateral actions or negotiations.

In the Yugoslav view only "experts coming from outside Geneva" were developing confidence in GATT. Those in Geneva having to deal daily with GATT, knew GATT's problems, and had no confidence in its ability to deal with services which involved questions of development, finance, technology, etc. - areas where GATT had no experience at all.

In GATT there was talk about state monopoly, but reluctance to discuss private monopoly.

Third world trust and confidence in GATT had been eroded, and third world countries could nor be expected to believe that GATT would deal fairly with trade in services.

Switzerland appeared to support the U.S. view that without multilateral action on services, the preservation of the open trade regime and most-favoured-nation treatment would be difficult.

However, in the Swiss view it was premature to talk of "liberalisation of trade in services". Rather the effort should be to create, as was done for goods through GATT at the outset, a set of rules and principles, and then proceed to possible trade liberalisation through successive rounds of negotiations.

Egypt thought the stage for consideration of action on services had not been reached, and further exchanges of information was needed. The national studies so far accounted for only 25 percent of the total GATT CPS, and even several of the national studies had no clarity on many of the issues.

Also, there was a deliberate decision involved in the two-track approach in GATT - one for preparations for a new round, and the other for exchange of information on services. These two tracks had to be kept in mind, and at all times kept separate.

Argentina noted that a number of questions on the table, in the exchange so far, had not been addressed, and there was need to go into them at greater depth in future exchanges of information.

There were difficulties of definition, inability to distinguish between "trade" and "transactions" in services, issues of FDI in services, etc.

One group of countries seemed intent on proceeding only with trade aspects of services and ignoring others including development aspects, whereas third world countries were concerned with the dependency aspects.

The interests of the industrial and third world countries, and their levels of development, were different, and it was illusory to believe that "free competition" would help third world countries build their service industries and sectors.

There was not only a quasi-monopoly in services in the industrial world, but within them in a handful of countries and TNCS.

In India's view the group had just completed the first round of exchange of information, and the process is to continue in the future, and hence it was premature to consider possibilities of multilateral action.

A number of issues raised had not been addressed.

The Jaramillo track was not the place to consider measures to strengthen the GATT system or stimulating world trade, but only to exchange information.

Services were as old as man, but the new edge was in the effect of new technologies, especially of computers and their applications, with serious implications for the world economy, the infrastructures of manufacture, management, and of the development process as a whole.

Other issues like transfer of technology, RBPS, code of conduct for TNCS were also involved.

Trade was just one aspect, a relatively minor aspect, of the issues in services, and other aspects could not be ignored and trade aspects alone furthered, nor all aspects dealt with through a GATT-framework.

The whole momentum for international action appeared to be spurred by the desire to obtain access in new markets, and it had been preceded by years of discussions in the OECD. Now, before others had been able to fully understand the implications, the OECD views on services were sought to be thrust via GATT.

Agriculture was much simpler than services, and yet after 40 years of GATT, they had only been able to get a "bland acceptance" by the EEC of negotiations in agriculture, with EEC spokesman repeatedly reminding them that "we have accepted the process of negotiations. We will negotiate, but not anyhow, anywhere or with anybody".

Yet the industrial countries were expecting the third world to agree to negotiate on services without regard to "how, where and with whom?".

No one with experience of GATT's record on settlement of trade disputes, specially those involving major trading partners, could suggest that GATT could be useful for settling trade disputes in services. Also, no information had been provided on the current or potential disputes, that could be solved through multilateral action in GATT.

The problems of "extra-territoriality" (as asserted by the U.S. in the dresser case over French supply of pipelines to Soviet Union) had not been answered, and could not be answered in any GATT framework on services.

The U.S. view for "managed trade" in services, through GATT, was also interesting.

With GATT now simply "limping along" in trade in goods, with the erosion of confidence in GATT due to disregard by major partners of its rules and principles, and with GATT's proven inability to find satisfactory solutions in the area of agriculture and textiles, how exactly would GATT administer "managed trade" in services?.

How would it ensure that the major trading partners would not have recourse to bilateral deals, voluntary export restraints, and other "grey area" measures in disregard of any rules and obligations?

A number of aspects about services remained to be examined - definition of services, how to distinguish between trade issues and transaction issues, and from FDI or establishment issues, technology, labour mobility, capital mobility, and development issues.

To the TNCS, "trade" and "development" were synonymous, and "access" to markets and "establishment" in a market were elements of a single global strategy.

But for governments, trade and investment were different issues.

Any consideration of multilateral actions, must weigh all possible options, and third world countries could not be asked to provide an "yes or no answer" to a single approach, favoured by the U.S., as if the U.S. views were "some kind of a holy writ", the Indian delegate is reported to have declared.

Surprisingly, Japan would appear to have supported the Indian view that other options too should be examined.