UNAMBIGUOUS DEFINITION NEEDED FOR SERVICES FRAMEWORK.

Nov 17, 1989

UNAMBIGUOUS DEFINITION NEEDED FOR SERVICES FRAMEWORK.

GENEVA, NOVEMBER 14 (BY CHAKRAVARTHI RAGHAVAN) – Any possible multilateral framework for services must be based on an unambiguous definition of trade in services and a "clear understanding" of the meaning of "Development", according to a report prepared for the UN Conference an Trade and Development (UNCTAD) by an Indian economist.

The report by Deepak Nayyar of the Jawaharlal Nehru University in New Delhi is in pursuance of the mandate to the UNCTAD Secretary-general by UNCTAD-VII, asking the secretariat to analyse the implications of issues and explore appropriate problematic of Trade in Services.

Trade in Services, the report says, should be defined to involve transactions between producers and consumers resident in their respective countries, non-resident producers and resident consumers, and resident producers and non-resident consumers.

Development, the Indian economist points out, is not synonymous with growth. Development would mean not only increase in national per capita incomes but also a reduction in poverty, inequality and unemployment to produce an improvement in living conditions of the majority of the people.

"Also, economic development is not simply about resource-allocation: it is as much about resource-utilisation, resource-mobilisation and resource-creation".

The report rules out as "inappropriate" any framework for services modelled on the GATT - both because "services" are different from "goods" and also because "trade in services" can't be separated from movements of capital or labour across national boundaries whereas international trade in goods is a substitute for factor mobility.

Referring to problems faced by the EEC in liberalising trade in services within the Community, the report suggests that the EEC model, being EEC specific, would not be suitable as a conceptual basis for trade liberalisation in services.

However, any international framework should allow for regional trade arrangements among Industrialised and Third World countries alike and for preferential arrangements among Third World countries.

There are a number of sector specific international agreements in force - the ICAO agreements on Civil Aviation, the UNCTAD Liner Code in Shipping and the ITU's instruments and regulations.

Such sector specific agreements have advantages in that concessions could be exchanged in a quantifiable and meaningful manner within a sector, and the specific needs and characteristics of particular sectors could be taken into account in a pragmatic way.

Also, in such sectoral arrangements, it would be easier to recognise differences in levels of development among countries and incorporate necessary remedial provisions.

The problems of compatibility between a general and sectoral specific framework could best be solved by excluding sectors where international disciplines or agreements already exist.

Discussing some of the concepts and principles suggested for a multilateral framework, the report points out that the preference (of some Industrial Countries) for conditional MFN would be a retrogressive step.

The concept of "national treatment", developed in the GATT context of trade in goods, would not be appropriate for trade in services.

National treatment is provided for "trade in goods" after the "goods" cross a frontier whereas for "services" it would have to be given to the producers of services.

Any national treatment principle which requires provision of the "right of establishment" for a corporate entity or the right of residence for individuals would be outside the realm of "trade in services".

Also, any international transactions in services requiring temporary commercial presence for corporate entities or temporary work permits for individuals, national treatment would become the equivalent of free trade in services.

The concept of "transparency" developed in the context of trade in goods where restrictions, largely in the form of tariffs, were visible and quantifiable had been seriously violated even in GATT context by the new protectionism: market sharing via "grey area" measures, other non-tariff barriers, explicit or implicit trade subsidies and restrictive government regulations.

Given the characteristic of "services", "it is most unlikely that the concept of transparency can be written into a legal regime".

The principle of "reciprocity" across sectors could not also be transplanted from the realm of goods into services, particularly since reciprocity within sectors is the prevalent rule in sectors like banking, telecommunications and civil aviation.

How could landing rights in civil aviation, Nayyar asks, be exchanged for right to open branches in banking? How could restrictions on transborder data flows be relaxed in exchange for relaxation on right of doctors to medical practice in foreign countries?

The services sector, as a whole is strategic to national development, national security and national culture. Hence any multilateral framework would have to think in terms of national sovereignty over economic space in the services sector as a starting point and a governing principle for any international discipline in trade in services.

The development of Third World countries, an objective mandated by the Punta del Este Declaration, could be more easily incorporated into a multilateral framework.

Any multilateral framework should have a flexible rather than rigid structure, perhaps minimum, set of basic concepts and principles accepted on a multilateral basis by all countries, and within which sectoral arrangements could be negotiated.

Such a two-tier arrangement would have some clear advantages: it would enable negotiation of a skeleton, even if minimal, framework. cope with heterogeneity of service sectors; and, recognise differences in levels of development between countries and incorporate necessary remedial provisions within sectors.

Any discussions on a multilateral framework should begin with acceptance of two basic premises.

Firstly, development is a fundamental objective, which can't be provided for as an exception to the rule. In any multilateral framework, general or sectoral, each country should have the same right as others but with obligations as a function of the level of the stage of development.

Secondly, countries have sovereignty over their national economic space in the services as elsewhere. Any framework would thus have to respect the policy objectives of national laws and regulations with respect to services, without getting into an untenable situation where national laws would have to conform to the framework.

Apart from the sectoral agreements already in place, sectoral coverage would be a matter for negotiations but with the ultimate decisions being based on two criteria: a balance of benefits between participants and consistency with development objectives.

This would mean that any sectoral coverage package would need equity and symmetry, if not a one-to-one correspondence between interests of the Industrialised Countries on the one hand and Third World countries on the other.

Also, Third World countries should have the right to include or exclude any sector in accordance with their national development objectives.

Any appropriate multilateral framework would have to divide service sectors into three categories: those in which there is no trade, those with limited trade, and those with open trade.

Such demarcations would have to be decided nationally, and could not be the same across countries or over time, but with the degree of openness increasing with increase in development. Hence, as a rule, sectors should move from the "no-trade" category to the "limited trade" category and from "limited trade" to the "open trade" category.

There should be bilateral determination of any balance of benefits between participants, through sectoral negotiations subject to the MFN principle and equal or preferential opportunity.

The MFN principle would mean that trade liberalisation or concessions negotiated between two strong trading partners in a sector would be multilateralised for benefit of all.

The concept of equal or preferential opportunity would provide more equal opportunities for unequal trading partners.

However, while necessary, these might not be sufficient, unless obligations are also directed towards corporate entities providing services and their home country governments with respect to financial resources or technology transfer.

Any multilateral framework, while necessary, might not be sufficient, unless obligations are also directed towards corporate entities providing services and their home country governments with respect to financial resources or technology transfers.

Any multilateral framework, general or sectoral, should permit interventions in or restrictions on international transactions in situations where countries are striving to develop their infant service economies or a particular infant service sector, manage their balance-of-payments, or preserve their autonomy and independence in macro-economic policy spheres.

While the first two are significant in the goods sector too, the preservation of autonomy and independence in the sphere of macroeconomic policy is specific to services.

Finally, any possible multilateral framework for trade in services would not be meaningful unless it went beyond the realm of government regulations and dealt with the problem of Restrictive Business Practices (RBPS) of the Transnational Corporations in their international service transactions.

However difficult it may be to design or implement, a "regime for identification, notification, consultations and remedial actions to control or eliminate RBPs which have an adverse impact on development, is imperative".

"The disciplines addressed to TNCs would need to be combined with obligations for their home country governments if the regime is to be effective in terms of compliance", the Indian economist concludes.