Feb 1, 1989

SERVICES RULES SHOULD DIRECTLY SUPPORT DEVELOPMENT.

GENEVA, JANUARY 30 (IFDA/CHAKRAVARTHI RAGHAVAN)— Any agreement on trade in services in the Uruguay round should be based on a system of checks and balances, and within a policy framework that would ensure its consistency and coherence with overall development objectives, according to the UN Conference on Trade and Development.

The UNCTAD Secretariat comment is in a report (TD/B/1117) on "services: issues raised in the context of trade in services".

The report points out that expansion of trade in services, depending on how it takes place and within what policy framework, could advance or set back third world development objectives.

Expansion of trade in services could enhance the ability of third world countries to further objectives like upgrading their human capital, transfer of technologies and development of indigenous technological capacities and knowledge-intensive services.

Expanded trade could also help more equitable redistribution of incomes, strengthen infrastructures, and increase foreign exchange earnings through increase in exports of goods and services.

However, expansion of trade in services could also have the opposite effects.

Knowledge-intensive services could be transferred to the major industrial country centres, indigenous technological capacities could be undermined, inequitable income distribution could be exacerbated and Balance Of Payments (BOP) disequilibria could be aggravated.

Any framework to emerge from the Uruguay round negotiations should hence be based on a system of checks and balances.

It should recognise that liberalisation is not synonymous with "deregulation", and liberalisation in itself would not lead to expansion of trade, economic growth or the development of developing countries - stated objectives of the Punta del Este mandate for trade in services.

The framework for trade in services should be so constructed as to maximise the positive effects of liberalisation while reducing possibilities that such liberalisation could be accompanied by elements detrimental to development.

Any opening up of third world markets to imported services should be accompanied by other measures to ensure that such liberalisation result in decentralisation of service production on a wide basis, a reduction in concentration of corporate ownership, and an increase in publicly accessible information networks and greater public access to technology.

If trade liberalisation in services is to further the development process, it should meet at least three criteria, according to UNCTAD.

Firstly, liberalisation should be accomplished within a multilateral contractual framework in which third world countries would be able effectively to implement policies to develop their services sector and develop a supportive infrastructure of "knowledge-based" services.

The multilateral framework should clearly recognise the legitimacy of such policies and prevent trading partners from designating such policies as "unjustifiable" or "unreasonable".

Secondly, third world countries should have meaningful access to world markets for services, taking account of their essential weaknesses in delivering even those services where they have comparative advantage.

For many third world countries the only means of delivering services is through persons crossing international frontiers. Hence access of people to foreign countries should be assured.

Third world countries would also need to be assured of access to information and information networks so that these countries would be able to enter world market for new services and derive greater value added for goods and services they are now currently exporting.

Practices of major service suppliers should be aligned with the development process of the host country and it should be ensured that such practices, whether or not they are Restrictive Business Practices (RBPS), do not exclude new entrants from third world countries into these markets.

Thirdly, third world countries should retain the right to make access to their markets conditional upon contribution of the foreign service supplier to their overall development objectives.

They should be able to discriminate in favour of those firms that are willing to make such contributions - transfer of technology, access to distribution and information networks, etc.

While negotiations on "trade" in services are taking place in the Uruguay round, there are no accepted definitions of this "trade".

Any definition would have to address the frontiers between trade in services, which involves some movement of persons or capital on the one hand, and immigration and investment on the other.

Economic growth and economic development, UNCTAD points out, are not synonymous.

Growth is measured in terms of increase in aggregate national income or per capita incomes, while development involves not only increase in per capita national incomes but also reduction in poverty, inequality and unemployment.

Development is not simply about resource allocation. It is also much more - about resource utilisation resource mobilisation and resource creation.

The contribution of services to allocation, utilisation, mobilisation and creation of resources is the key to the process of development, and this could be affected by trade in services.

Trade in some services, such as tourism and workers' remittances have provided many third world countries with foreign exchange and helped them relieve their BOP.

But overall third world countries run deficits on their services trade and most of them on services as a whole.

The deficit on services trade is closely associated with their lack of ownership of key services involved in the trade in goods - shipping and other transportation, insurance, banking, etc.

In addition to their contribution to development, some services like the "producer" services and "knowledge-based" services play a key role in enabling a country to adapt and apply advanced technologies in production to innovate and produce more efficiently and to adjust to competitive forces in world markets.

With producer services becoming an ever-increasing component of value added, if domestic service capacities are not upgraded third world countries would be forced to import ever-increasing amounts of such services to remain competitive on world markets.

This would affect their BOP situation.

There is also greater scope for price discrimination in trade in services than in goods. This too could aggravate the imbalance.

A number of proposals have been advanced in the Uruguay round for liberalisation of trade in services.

These include the right of commercial presence (or right of establishment), national (equal) treatment between foreign and domestic suppliers, unrestricted data flows between a firm and its parent or other branches abroad, and reduction in scope and activities of government monopolies in the services sector.

These proposals, UNCTAD points out, seem designed to enable firms possessing a strong internationally competitive position in services to penetrate world markets more effectively and operate more efficiently on a global basis.

The proposals would facilitate such firms to locate abroad, transfer information within their global networks and compete with local suppliers.

These initiatives thus aim at reducing regulation of services and bring them into conflict with regulations aimed at accomplishing a variety of national goals.

"Liberalisation of such regulations", UNCTAD warns, "would not necessarily benefit developing countries as, to a large extent firms there (in developing countries) lack the means of delivering services to foreign markets".