Jul 16, 1985

SERVICES - THE CAMEL IN THE THIRD WORLD TENT.

GENEVA, JULY 15 (IFDA/CHAKRAVARTHI RAGHAVAN)— If the United States gets what it seeks in the area of "trade in services", it would end any prospect of Third World countries developing their services sectors in future or their capacity to use services to develop their manufacturing or agricultural sectors and be competitive internationally.-

It would also require an amendment of the General Agreement on Tariffs and Trade whose provisions now make clear that they apply only to trade in "goods" or "products".-

This becomes clear on a reading of the U.S. paper on "trade in services", spelling out the U.S. objectives and aims in bringing services under GATT and developing a multilateral framework for services.-

The U.S. ideas in services and the international "integration", of Third World economies, would achieve what the concept of "annexation" did in the 18th and 19th century to political independence of the Third World, one Third World diplomat privately commented.-

The U.S., supported by other Industrial countries, has been pressing for the launching of a new round of multilateral trade negotiations in GATT, and to include "trade in services" within its ambit.-

The whole subject is due to come up for consideration of the GATT Council on July 17 and 18.-

The western countries are pressing that the GATT Council should decide to convene a high level meeting of the GATT Contracting Parties in September to consider the issues for a new round, and agree on rules and modalities of such negotiations, to pave the way for the launching of the new round early in 1986.-

A number of Third World countries have been resisting the launching of a new round to include "trade in services", and other new themes - like protection of industrial property and counterfeit goods - not covered by GATT, and insist that any new round should be confined to trade in goods only.-

At an informal meeting of some Trade Ministers of Industrial and Third World countries at Stockholm in June, the Industrial countries agreed to put down on paper their submissions relating to a new round, to enable the GATT Council to consider them in formulating its decisions.-

A U.S. paper on trade in services is one of the documents that have been circulated to GATT Council members on this issue, and spells out some details of what the U.S. is seeking.-

Though talking of "trade in services", the U.S. paper seeks also to cover investments in the services sector, through provisions for "right of establishment" to enable foreign enterprises to set up branch offices or subsidiaries to produce and sell services in any country.-

Many service industries, the U.S. argues, have severe problems of doing business abroad since they could not own the facilities for the production of services locally.-

A services trade understanding, in the U.S. view, should hence cover those activities providing for the right of commercial presence of foreign service firms for the purpose of marketing and facilitating a service imported into that country.-

The U.S. envisages that ultimately problems of investment should be addressed in a framework similar to what it envisages for "trade in services", since without it foreign enterprises would not be able to take advantage of the full range of commercial opportunities.-

This is like the fable story of the camel and the Bedouin Arab in the tent, one Third World diplomat commented.-

The U.S. paper says that in the U.S. view "a legal framework of rules and procedures should be established dealing with internationally traded services".-

As to the activities to be covered by the tern "services", the U.S. says that "specificity" would not be "appropriate" at this stage, but that it has in mind readily traded commercial activities like banking, insurance, telecommunications, data processing, shipping, aviation, construction and engineering.-

At the same time it rules out "labour", under the argument that capital and labour remittances (included under "services" in IMF balance of payments statistics) represent the disposition of earnings of actors of production in both goods and services.-

Several Third World countries contend that if services are to be covered by a new international framework, it should cover all factor services, including "labour services".-

They argue that it is not logical to say that in order to trade "banking" or "insurance" or engineering and construction or other services, the capital involved in the foreign enterprise should have the right of establishment, but that labour as a factor of production will not have the same right of establishment through immigration -

Other Industrial country submissions, in seeking inclusion of "services", argue that since "services are an integral element of goods transactions", barriers to trade in services would become barriers to goods too.-

The U.S. paper says that negotiations for a framework of contractual understanding in services should be carried out "under GATT auspices, using the GATT secretariat and its administrative, apparatus" for appropriate support.-

The U.S. first raised the services and investment issues in GATT in 1981 in the preparations for the 1982 Ministerial meeting.-

The investment issue was opposed even by other Industrial countries, while several Third World countries challenged GATT jurisdiction in services and investment issues.-

The preamble to GATT talks of "production and exchange of goods", while articles one and three talk of "products".-

In article XVII, where also the term "goods" is used in relation to activities of state enterprises, a foot note makes clear that "the term 'goods' is limited to products as understood in commercial practice, and is not intended to include the purchase or sale of services".-

The objectives of an international framework in services, the U.S. says, should result in transparency, obligations of national treatment, open regulatory procedures, restrictions on public monopolies in the services sector, dispute settlement, market access, negotiations of a sectoral character in individual service sectors, negotiations of a functional character including intellectual property issues, and right of establishment or investment for trading in services.-

Even the U.S. now appears to concede that the general agreement as it stands would not apply to "services" and therefore a new legal framework of rules and procedures should be established.-

One issue that has been raised by Third World countries has been that if bringing "services" within the scope of the general agreement would require an amendment of articles one - which could only be done in GATT through unanimity could negotiations or discussions towards this end be held in GATT without unanimity either.-

Could GATT for example discuss or negotiate without a unanimous decision, doing away with the most-favoured-nation (MFN) principle in article one, or revise article one to bring in bilateral or regional MFN only or have GATT provisions apply only on basis of "reciprocity".-

The rectification of errors in tariff schedules annexed to GATT under article two is done in GATT practice without any requirement of unanimity, under the well-established international law principles for "rectification of errors".-

And "revisions" of tariff schedules is done by agreement of two or more GATT Contracting Parties, again without need for "unanimity", provided it is done on the MFN principle.-

The various codes under the Tokyo Round were adopted, providing for various rights and obligations to signatories, but only on the basis of covering areas rooted already in some GATT article.-

But none of these precedents would seem to apply to the services issue.-

The 1982 decision of the GATT Contracting Parties - for national studies to be done and information exchanged, and for a future consideration of whether a multilateral framework was necessary - became possible only because it was by consensus, with several countries reiterating their "reservations" on GATT jurisdiction after adoption.-

Similarly, the 1984 GATT Contracting Parties decision authorising the chairman of the GATT Council to "organise" the GATT meetings for exchange of information on national studies, and for a very limited GATT secretariat role in this, again became possible only because it was by consensus.-

An issue that the GATT Council would be faced with this week would be if any consideration of negotiations in services could be remitted to the high level meeting of officials by the GATT Council, excepting through unanimity.-

Apart from this constitutional issue, the U.S. aims via a regulatory framework would hit Third World countries, particularly those who at present have no service sectors or regulatory frameworks for them, from instituting any in the future.-

In the area of shipping, an UNCTAD developed code on liner transport enables allocation of cargoes between the originating and importing country, and third parties, in the ratio of 40:40:20.-

In other bulk transports many Third World countries have national laws or regulations enabling cargo allocation to their national flag ships.-

The international services framework, and he national treatment requirements, restrictions on public monopolies, and market access provisions that the U.S. seeks, would effectively nullify these, liner code provisions and national laws in these and other areas.-

Banking and insurance, in Third World countries are not mere "services" but important instruments for domestic capital mobilisation.-

In these sectors, the international regulatory framework sought by the U.S., would effectively inhibit the use of the banking and insurance instruments to ensure domestic savings mobilisation or their direction towards development goals.-

Also, while state enterprises and public monopolies in these areas would be forced to have "arms length dealings", this would not apply to transnational enterprises and their subsidiaries, involved in the same international trade.-

In many of the Industrial countries, where there are already regulations in effect, to some extent they would be saved and only future amendments to regulations that would be against any new services framework would be prohibited.-

But in the case of Third World countries, many of whom are yet to develop any such regulatory domestic framework, it would be hit by the proposed new international services framework ab initio.-

The same would also be the effect in respect of technology transactions.-

This would be even more so in respect of informatics, whose use in designing and manufacturing of goods, and controlling their processes, is becoming an increasingly important element to ensure international competitivity.-

But the U.S. seeks to give top priority to this area of "international information flows", in order to ensure that a regulatory framework is set up now, when only a few of the industrial countries, and none from the Third World, are competitors to the U.S.-