Jan 25, 1990

MODEST APPROACH TO TRADE IN SERVICES FRAMEWORK ADVOCATED.

GENEVA, JANUARY 24 (BY CHAKRAVARTHI RAGHAVAN)— The structure of a multilateral framework for Trade in Services is of utmost importance, but "overly ambitious" approaches attempting "to lock" signatories into across-the-board access commitments from the beginning would only tend to discourage wide acceptance of the framework.

This is one of the conclusions presented by two senior UNCTAD staff members, Murray Gibbs and Michiko Hayashi in their overview in the book "Trade in Services: Sectoral Issues", published by the UN Conference on Trade and Development (UNCTAD/ITP/26).

Gibbs is the Chief of UNCTAD’s International Trading System unit while Hayashi is the Economic Affairs Officer of the Unit.

The book, part of the UNCTAD/UNDP technical assistance project for the Uruguay Round Negotiations, has several papers on implications vis-a-vis the Uruguay Round of some of the trade issues in a number of service sectors - telecommunications, insurance, construction and engineering design, access to networks and services trade, media services, business services, professional services.

There are also papers on the impact of the EEC post-1992 unified market on the service sectors in the Uruguay Round and questions about services as an element of cooperation and integration among Third World countries.

The examination of sector-specific issues in the book, the Director of UNCTAD's International Trade Programmes, B. L. Das, explains in his introduction, is an attempt to facilitate the negotiating process in the Uruguay Round.

Any attempt to devise a multilateral framework to permit progressive liberalisation of trade in services while supporting the development process, has to bear in mind the complexities of the extremely heterogeneous service sectors, he adds.

If carried out selectively and within the appropriate regulatory framework, Gibbs and Hayashi argue, the liberalisation of service imports could have a dynamic effect on the development process in the Third World - through stimulation of efficiency in key sectors, access to technology and support to exports.

"In such liberalisation. care should be taken that imports of services do not undermine the ability of developing-country governments to carry out strategic national objectives, including national security and cultural sovereignty, nor result in the development of higher skills, knowledge-based services and information resources".

"Access to services needed to ensure their ability to compete in foreign markets should not result in developing-country producers or consumers becoming ‘captive’ to foreign service suppliers, nor result in exacerbating existing balance-of-payments disequilibria".

"The developing countries themselves", the authors add, "would be in the best position to judge where liberalisation could have a relatively positive impact on their economies".

In virtually all the main traded service sectors, Gibbs and Hayashi point out, firms from the Industrialised Countries (ICs) are dominant, and their competitive strength is based on "the underlying comparative advantages inherent in developed countries, as well as specific factors at micro-economic level".

These include financial capacity, accumulated knowledge and skills and established reputations, access to and domination of telecommunication and information technologies, established relationships and market presence, networking ability, economies of scale, government incentives, etc.

If liberalisation of trade in services is to benefit Third World Countries their firms would have to acquire these capacities, but these may be possible only in the context of solutions to their more general problems of debts and infrastructural development.

The growing concentration of ownership in many service sectors, which would always result in reduced competition, could create barriers for firms from the Third World and promote geographical concentration of services production.

In sectors, which have a particular strategic character that could affect direction of trade in other services and goods, "control considerations would seem to outweigh efficiency considerations".

There was also need for greater degree of transparency on the part of both governments with respect to their laws, regulations and administrative practices affecting trade in services as well as by corporations trading in services.

Greater transparency on the part of corporations was essential both to obtain a clearer idea of the market structure and to ensure that their activities are consistent with the objectives of greater efficiency, development of Third World Countries and the expansion of their service exports.

Liberalisation of trade in services would have to address the "adverse effects" of regulation and not deregulation per se.

The acceptance of commitments with respect to liberalisation of the movement of factors of production within the definition of trade in services also call for the resolution of yet unresolved legal issues with respect to the treatment of foreign "persons", and would give rise inter alia to considerations of the "obligations" to be accepted by such "persons".

Applying trade-policy concepts to trade in services would require care "to avoid the introduction of new discriminatory and restrictive measures or an unnecessary undermining of the unconditional most-favoured-nation principle".

"Difficulties will be encountered in providing effective reciprocity to developing countries whose firms rarely have the capacity of translating liberalisation in developed countries into expanded service exports".

Liberalisation within the context of integration schemes among Third World Countries could, in addition to furthering the overall integration process, provide an opportunity for Third World Country firms to strengthen their competitive positions and reinforce the eventual ability of these countries to accept broader commitments to liberalise the trade in services within a multilateral framework.

The structure of the multilateral framework would thus be of utmost importance and overly ambitious approaches would only tend to discourage wide acceptance of the framework.

It would seem sufficient that the initial framework include basic elements such as a definition of trade in services to delineate the scope of the framework and of the concessions that could be requested and granted, progressive liberalisation in the form of a commitment to engage in future negotiations, a commitment that such future negotiations will aim at increasing the participation of developing countries in world trade in services, and transparency.

Specific market access commitments, which could include a national treatment principle where applicable, could be offered as "initial payment" to consolidate the legal structure of the framework agreements and further commitments could be negotiated in future rounds.

An exception clause, comparable to the general and security exception provisions in articles XX and XXI of the General Agreement and a safeguards mechanism (where countries felt it necessary to modify negotiated access commitments for reasons of BOP, market domination, etc.) would also appear to be necessary, the two authors conclude.