Session XII: Trade in Services: What's at stake and for whom?

Panel Moderator: Ambassador Alejandro Jara of Chile

WTO Member countries have high ambitions for services negotiations under GATS, which proceed on a bilateral request-offer basis, and are not made public. Developing countries had produced about 13 of the 27 offers tabled at the deadline of March 31st, and some countries are still preparing requests due to technical and time limitations. However, at present there is no assessment made on the quality of the offers that are being produced, and this process is still a "work in progress".

Panelists and Viewpoints

James Hodge, Professor, University of Cape Town, South Africa

Dr. Hodge argued that least-developed countries had little to gain from market access for their own service exports because their potential gains were from sectors like tourism, unskilled labor (which is not currently on the agenda), natural resource access (like the Suez Canal), financial services (e.g. insurance), and national airlines. However, middle-income countries have many opportunities to benefit in the fields of health and educational tourism, legal services, data processing among others because of their depth of skilled professionals (and lack of capital). Mode Four, which refers to the entry and temporary stay of foreign persons for the purpose of providing a service, is of great interest in this case.

He raised two questions: Is liberalization in the interest of developing countries? If so, is committing to reform within the framework of the WTO the best arena? He argued that liberalization may have devastating effects of if there isn't adequate regulation of the financial sector, and if it happens too quickly and causes high unemployment. In many cases, liberalization is not the answer for developing countries, and each individual country should make the decisions regarding liberalization. The WTO is unlikely the best place to make reform commitments because countries can still get WTO credit for liberalization done outside of the framework, and the claim that WTO commitments bring in investors is not necessarily true.

Then, Dr. Hodge presented a number of reasons why developing countries shouldn't count on gaining leverage in other negotiations by making concessions in services. Developing countries have not yet seen much progress made in areas like agriculture and therefore shouldn't move on services until the other side moves. Additionally, developing countries are disadvantaged in that they have a reduced capacity to negotiate and the bilateral structure of these negotiations puts LDCs at risk of exploitation by developed countries. Dr. Hodge is not confident that the benefits of special and differential treatment will be realized anytime soon.

Barry Coates, Director, World Development Movement

Mr. Coates argued that developing countries should be cautious when entering into GATS because commitments made within it are effectively irreversible and it is impossible for LDCs to forecast the future of service sectors. The agreement's concern for "national treatment" is unfounded because MNCs often have huge advantages over domestic firms in the areas of credit availability, economies of scale, anti-competitive measures and taxes. There is uncertainty inherent in the language used in the agreement; for example "not more burdensome than necessary" can be interpreted widely. Mr. Coates broadly criticized the EU's set of requests saying that it targeted poorest countries in sectors like telecom, finance and water that interest the EU, not developing countries. Developing countries all used policies that are now being restricted under GATS (see) and it denies LDCs the opportunity to develop their own service industries (See Kicking Away The Ladder by Chang for more discussion on this topic). Another concern is the preponderance of corporate interest as a driving force behind EU negotiating decisions.

Christopher Roberts, Covington & Burlington, London

Mr. Roberts argued that liberalization and deregulation are two different things, and that regulation has been beneficial to banks, airline safety and the telecom industry. He reminded the audience that competition raises standards and that this will have a positive effect on the service industries. He also acknowledged that the EU could do more on labor mobility, which is an important area for development. Three principles are of utmost importance in the assessment and application of GATS: transparency, necessity and proportionality. One advantage to liberalization under GATS (as opposed to independent liberalization) is that GATS assures foreign investors and will encourage FDI. He stated that GATS commitments are reversible as long as adequate compensation was provided as outlined in the agreement.

Further Comments by Panelists and Delegates

A delegate from Canada suggested that GATS is widely misunderstood and under utilized, and that it could be used as a tool to teach LDC representatives how to negotiate and thereby help with capacity building. Dr. Hodge responded that GATS would be a training ground with very big risks, considering what is at stake. The important things for developing countries are two understand GATS and understand their own national interests, and these two goals might be better attained by participating in the process actively, but without making commitments that could be detrimental in the future.

A representative from the International Confederation of Trade Unions proposed that the problem of financing in development could be solved in part with money from the World Bank or public pension funds. Public-public partnerships between countries could help provide financing, management support and budget advice for developing countries in the areas of public service provision (e.g. water works).