Session XXII: Session on Services Market Access

Organized by the American Chamber of Commerce to the EU

Liberalization of trade in services has been limited to the sector-specific commitments WTO members have made under the General Agreement on Trade in Services (GATS). Now, in the Doha Round, negotiations aim at continuing liberalization under the 'positive-list approach' of GATS in which members designate which sectors they choose to liberalize, as well as increasing the participation of developing countries in negotiations. However, these aims are not without controversy. Some have problems with the 'positive-list approach' that has prevailed in services negotiations, and others question how much further service liberalization will benefit developing countries.

In other sessions of the WTO Public Symposium, some NGO panelists criticized the GATS-style approach for its inflexibility and unfairness. WTO members agree to commitments under GATS by engaging in bilateral negotiations, initiated by requests for the opening of a specific sector. Opponents of this approach cite the weakened bargaining position that developing countries face in bilateral negotiations as one concern. Another is the difficulty in reversing sector liberalization if, for some reason, a country needs to change its policies. Lastly, because the broad goal of GATS is to progressively liberalize services, WTO members are continually pressured to offer up additional sectors.

In negotiations, developed countries and large developing countries, like India, have been active participants. They have submitted numerous requests to almost every WTO member requesting sector liberalization. Contrastingly, no Least Developed Country (LDC) has submitted a request as of yet. They have voiced the need for better technical assistance and capacity building to help them participate more. Some of the concerns LDCs would like to see raised in negotiations include: establishment of emergency safeguards, protection of domestic regulation, and an overall assessment of service liberalization.

Panelists and Viewpoints

Claudio Murri, Electronic Data Systems on Electronic Commerce

Opening trade in services would benefit developing countries, particularly with regards to e-commerce and information technology (IT). IT brings technology, management skills, and know-how to developing countries. Another benefit is that IT production requires less capital costs than manufacturing. Developing countries such as India, which have attracted IT investors, are poised to become net exporters. The competition created by nascent software industries in developing countries forces firms in developed countries to strive to be better. Thus, consumers also benefit from liberalized service sectors. As argued in an EU proposal for opening computer-related services, liberalization must be a flexible process both to accommodate developing countries and to reflect the rapid changes characteristic of the sector. Liberalization that allows foreigners to enter another country to provide a service is critical for experiencing the full benefit of open service sectors. Professionals must be able to move freely because human capital is crucial to the health of a firm. The ability to move trained professionals to firms in foreign countries also encourages the transfer of knowledge that is such an asset to the host country. However, this is acknowledged to be a sensitive issue because it is linked to immigration concerns.

Philippe Wintrebert, AT&T on Telecommunications

While the telecom industry had taken many hits in the recent global economy, it is still a crucial component of economic growth. This is especially true in developing countries that often lack dependable communication technology. Thus, it is important the services negotiations work to liberalize the telecom sector. Most of the emphasis needs to go toward making the host country's market attractive for investment by reducing regulations and barriers to foreign ownership of a domestic firm. Liberalization needs to be thorough, not piecemeal. By opening up telecom sectors to foreign investors, developing countries will be able to tap into value-added services like internet services, electronic mail, security systems, etc. Furthermore, liberalization promotes healthy competition and raises the standards on all firms world-wide.

Mark van der Horst, UPS on Express Delivery Services

In the greater discussion of liberalizing trade in services, it is important to address issues of trade facilitation as well. Cumbersome customs processes that are repetitive, opaque, and inefficient prevent free trade in services even in sectors that have been opened. Thus, customs processes must be simplified, replaced with electronic solutions, and better managed so as to reduce redundancies.

A major benefit to liberalizing trade in services will be the 'level-playing field' that results. It is unfair to subject foreign firms to the costs and burdens of regulation and performance requirements that are not imposed on domestic firms. Instead, countries should allow the principles of competition to foster better services, better prices, and innovation. For example, the express-mail industry should be considered a separate sector from the state-owned mail monopolies, and removed from the cumbersome barriers erected by foreign countries to protect their domestic operations. This would allow express-mail firms to improve their specific services and compete with each other, for the benefit of consumers internationally.

Richard O'Toole, Goldman Sachs on Financial Services

A well functioning financial market is key to a growing economy. For the financial sector to be assured of utmost efficiency and high-level functioning, it must be a liberalized, competitive industry. Developing countries should be particularly interested in opening their financial sectors if they wish to develop domestic financial skills. The transfer of knowledge inherent in a liberalized sector could create niche financial activities in any country. By attracting capital flows with a deregulated financial sector, developing countries will also attract technology and expertise. That said, developing countries may benefit from a balance of restrictions and regulations so long as they remain attractive to investors.

The informal economies of developing countries pose an interesting challenge. Many people work without receiving contracts, benefits, or a taxable salary and others live on land without a title of ownership. In those examples, there is an enormous amount of unused capital that holds a great deal of potential. But because these assets and income are undocumented and extra-legal, they are a major cause of economic failure. For example, Haiti is estimated to $5.2 billion in undocumented land/real estate/assets, which is more than all the documented assets and FDI going in to Haiti combined. If those assets could be transferred into securities, they could then be used in financial markets to the benefit of the economy. Solving the problem of informal economies is a truly win-win situation.

Further Comments by Panelists and Delegates

Angry voices from the audience

A number of people raised strong accusations that business interests were strangling young entrepreneurs in developing countries and fighting to remove regulations that save developing countries from financial flight or global economic turmoil. One audience member also wanted the panelists to respond to the use of regulation to fulfill social goals, as opposed to their portrayal of regulation as anti-competition. The panelists responded by affirming that  liberalization and regulation went hand in hand. Both were needed to ensure a smooth transition. But, they asserted, equating international presence in a country as vulnerability to economic volatility was not accurate. Instead, foreign firms could offer another line of safety through their investments and transfers of technology. Furthermore, a country's ability to protect itself is only as good as its government. Thus, even good regulations can be used inappropriately in the wrong hands.

ICTSD's Doha Round Briefing Series: Trade in Services