Sep 29, 1989

SERVICES TALKS ON CONCEPTS ROLLED OVER TO NEXT PHASE?

GENEVA, SEPTEMBER 27 (BY CHAKRAVARTHI RAGHAVAN)— The Uruguay round group of negotiations on services (GNS), in the next phase of its work in week of October 23, is expected to address concepts and issues, inadequately discussed so far (like definitions and scope of agreement and development) as well as begin work on assembling various elements for a draft agreement, according to third world participants.

Since April, the GNS has gone through the exercise of testing various proposed concepts, principles and rules for a multilateral framework on trade in services, in their application to individual sectors.

Sectors tested include telecommunications, construction and civil engineering, tourism, transport (civil aviation, maritime and multimodal), financial and banking, and professional services.

Intended to enable countries to understand implications of various concepts and ideas on the table, and problems and difficulties they would face in different sectors in applying them, the U.S. and some of the other industrial countries (ICS) have viewed this "testing" as a formalistic exercise. They want to move quickly to drafting and negotiating an agreement.

In fact even before testing in all sectors had been completed, Switzerland and New Zealand have put forward already separate draft outlines for a "general agreement on trade in services" (GATS).

At last week's GNS meeting, the U.S. indicated that in October it would put forward a draft legal document for a general framework agreement.

The EEC reportedly said that it would put forward papers on some of the concepts. It appeared to agree with some third world countries on the need for further in-depth consideration of some concepts and issues.

These in the EEC view, included definition and scope, relations between increasing liberalisation and national treatment and to what extent the two could go together, yardstick for "national treatment", "commercial presence", means for achieving commitment of signatories to future rounds of negotiations and their modalities, and initial level of commitment and whether it would involve freeze on further restrictions.

Brazil underscored in addition other concepts like development of the third world and relationship between existing arrangements and proposed criteria.

After informal discussions on how to proceed further, it was agreed that the GNS would discuss any submissions put forward by participants on the structure and content of a future framework on services, as well as broad concepts, principles and rules, specific issues mentioned in the mid-term accord which participants felt needed further clarification or examination.

The GNS would also expedite work towards assembling the elements of a draft, which would permit negotiations to take place for completion of all parts of the multilateral framework.

In effect this meant discussions on concepts, principles and rules would be rolled into the next phase of preparation of drafts for negotiations.

Earlier, last week the GNS examined various types of financial and banking services, and professional services.

In these, as in other sectors considered earlier, the comments of third world countries brought out the difficulties of testing any of the proposed concepts or principles - liberalisation, transparency, national treatment, MFN or conditional MFN on basis of reciprocity without a clear definition of what would be "services" and would be the "trade".

From the beginning the U.S. and other ICS have been avoiding this, since under the guise of "trade" (which implies crossing the border) in services, they are really trying to decide the future of production, distribution and global capital accumulation: who will produce what and where, who will handle its distribution and trade, and who will control and benefit from the more profitable segments of these activities.

In this context, in the discussions on financial and banking services, the secretariat would appear to have been criticised for blurring the distinctions between trade and investment, in its background notes, and trying to promote rights of establishment and commercial presence for capital.

The secretariat paper has referred to what it has called "establishment-related" trade as different from "cross-border" one.

"Establishment-related trade" in banking and securities services, it has said, could be defined as "financial services produced by factors of production whose ownership reside in one country and sold to residents of another through some form of direct presence of the supplier in the client's country".

Objecting to this, India would appear to have pointed out that this went far beyond the Punta del Este mandate or the mid-term accord.

There could be no definition of trade based on ownership of factors of production. The concept of "establishment-related trade" appeared to be an attempt to bring within the gambit of a services framework, investment related activities which third world countries distinguished from cross-border trade.

The mid-term accord, in calling for further work on definition on the basis that it could involve cross-border movement of services, consumers and factors of production, has narrowed this in terms of "specificity of purpose", "discreteness of transactions", and "limited duration".

This would appear to rule out, as part of a multilateral agreement, both right of "establishment" or permanent commercial presence for capital, and permanent immigration right for labour unskilled, skilled or professional and managerial).

On financial and banking services, mutual differences amongst the U.S., EEC and Japan reportedly surfaced.

There were differences amongst them on the concept of reciprocity - how far U.S. and Japan would open up their own domestic markets in order to benefit from the EEC’s internal liberalisation under its post-1992 single market concept.

The U.S. and Japan saw considerable domestic problems in liberalising their markets in financial and banking services for foreign competition, but want to benefit from the EEC’s 1992 liberalisation.

In the EEC view, negotiations for liberalisation would have to include the issue of non-discriminatory restrictions on operation and activities of established institutions, whether in terms of sectoral segmentation or territorial limits. Also, while the MFN principle should apply, signatories should have right of partial or total non-application in regard to those not seen as making enough liberalisation commitments.

All these EEC caveats seemed aimed at U.S. and Japan.

On professional services, the U.S., EEC and other ICS are not ready to liberalise by recognising foreign qualifications and facilitating movement of personnel, nor ensure "transparency" in their regulations and their administration and, in a non-discriminatory way, in regard to grant visas, work permits, etc.

Switzerland’s sought to equate right of "establishment" and grant of "visas". But third world countries said the equivalence of right of establishment for capital was permanent immigration right for labour and professionals.

Limited duration visas were equivalent to right sought for capital, as supplier of service, crossing the border for limited duration to deliver the service to the consumer.

Third world countries had already done considerable liberalisation in these matters and it was necessary for ICS to reciprocate, including greater transparency in regulations and grant of visas.

Several of them could not also understand the distinction sought to be made between "accredited" and "non-accredited" professional services and saw it as a ruse to exclude some of the professional services of advantage to the third world. this would not be acceptable.

In financial services, the U.S. drew a distinction between banking and other related activities (where it is unwilling to liberalise) and insurance where it wants others to. Japan viewed banking and other such services and insurance as similar and posing problems for it.

Most other industrial nations saw no distinction between banking and other financial services and insurance. The EEC reportedly said it could not contemplate a services agreement not covering all financial services and including insurance. .

The U.S. also said some countries which had previously private sector operation (open to U.S. enterprises) had since nationalised insurance. Liberalisation in these cases should mean creating a competitive environment to enable foreign participation.

This was presumably a reference to countries like India, which have nationalised insurance. The insurance sector in India is a target of U.S. attacks in its "super 301" proceedings. India has said it would not negotiate with U.S. on this issue, and nationalisation of insurance was not negotiable multilaterally.

Many industrial and third world nations seemed to agree that the financial services were at the heart of macro-economic policies of any country, and thus posed problems in incorporating them into a multilateral framework.

On the issue of regulatory situations, third world countries made clear that in many of their countries, there was currently little or no regulation in many of the financial service sectors. In their cases more, and not less regulations would be needed have to be allowed in future.

Hence no multilateral framework or sectoral agreement providing for progressive liberalisation could be on the basis of standstill and freeze on new regulations or restrictions.

In regard to the concept of increasing participation of third world countries in services trade, third world countries flagged a number of ideas: financial support for market activities, increasing third world's domestic and international competitive capacity through macro-economic policies. It was not enough to increase third world participation in services per se. It was necessary to assist them through macro-economic measures in their development effort and create an environment supportive of it.

The industrial countries however viewed these, as outside the scope of Uruguay round or the GNG.

On the issue of safeguards and exceptions, the U.S. was against their use to restrict imports, and wanted very strict provisions as it was seeking in the trade in goods over BOP restrictions, while the EEC was against any permanent exceptions.

Brazil, on the other hand, pointed out that without knowing what was being included it was not possible to discuss safeguards or exceptions. A country like Brazil would import services that would enable it to expand trade, and limit those not necessary or crucial for trade and development.

In other comments, Australia and Canada would appear to have flagged the issue of "subsidisation" of service exports and need for clear provisions against it.