6:36 AM Sep 14, 1993

GNS TO TRY SETTLE TEXT OF GATS

Geneva 14 Sep (Chakravarthi Raghavan) -- The Group of Negotiations on Services, at a meeting here Monday, agreed on a work programme for this week to settle, if possible, some of the outstanding questions relating to the text of the draft General Agreement on Trade in Services (GATS).

The group was due Tuesday to tackle some issues relating to arrangements within integration groupings which would enable parties in such groupings to undertake preferential liberalization measures within the integration grouping.

Other issues to be considered this week include questions relating to some provisions relating to pricing of basic telecommunications services in the telecommunication annex as well as to the more general questions of taxation and its effects on GATS concessions.

Some participants like India have objected to provisions in the GATS on these, arguing that these matters are beyond trade policy issues, and have to be dealt with elsewhere.

The telecommunications annex deals with basic telecommunication services (access to and use of public telecommunication transport networks and services, but excluding measures affecting cable or broadcast distribution of radio or television programming).

In respect of various sectors and sub-sectors of services, among the modes of delivery is one by telecommunications.

Each party, on joining and in making concessions, can specify in its schedule the sub-sector or sector in respect of which it was making the concession as well as the mode of delivery.

One of the telecom annex provisions relates to the question of costs that could be charged for such use of the basic telecom services of a country for delivery.

During the negotiating stage, the US and some other industrialized countries sought to provide a provision requiring a party to charge for the use of the telecommunication services for delivery of a particular service (financial, consultancy etc) based on costs.

This was intended to ensure that there is no "cross-subsidization" of domestic or other basic telecommunication service by charging high fees for across-the-border delivery.

At present, under the ITU regulations, in respect of telephone, telex, fax and other such services, the costs as well as its sharing is determined between the originating and receiving country.

In most publicly owned telecommunication enterprises of countries and, until recently, in privately-owned by publicly regulated telecom enterprises, it is common practice to find PTTs meeting the costs some of the services for public use (like home telephones, or telephone and telegraph facilities to rural areas) being subsidized by other more profitable sectors like business etc.

In the industrialized countries, and more so in countries where the communications are being privatized, the more powerful business lobbies with access to government policy-makers, have had policies changed to ensure that there is no such cross-subsidization, and the price paid by them are related to the costs.

As bulk users they thus manage to pay proportionately lower tariff/costs, whether for domestic or international use, than say a person having a phone or a fax at his house or in remote rural areas.

The World Bank, through its structural adjustment policies and pressure on developing countries to privatize, has also been advocating such a 'market-approach'.

The efforts of US and some others to introduce such a provision in the GATS, in its telecommunications annex, did not succeed as a number of developing countries resisted it, as also some like Japan who believed that this was a matter that had to be left to autonomous decision of a country, subject only to non-discrimination between domestic and foreign suppliers of any service using a basic telecom mode of delivery.

As a result, in the Dunkel text (of December 1991) of the GATS draft Art. 5.2 provides "Each Party shall endeavour to ensure that pricing of public telecommunication transport networks and services is cost-oriented".

India, Egypt and one or two others have put a reserve on this, implying that this had not got their approval and needed further consideration.

The US and others, and the GATT secretariat, have been arguing that since the provision is only on a 'best endeavour' basis, and related to 'cost-orientation' rather than 'cost-basis', there is no commitment involved and does not prevent cross-subsidization policies, but at best requiring that the cost charged should not be arbitrary.

However, its critics like India, say that this could just be the thin edge of a wedge, and once the agreement comes into being and in further rounds of negotiations envisaged, there would be pressure to change the 'best endeavour' to a commitment, and 'cost-oriented' into 'cost-based'.

The consideration of the issue in the GNS, before the Dunkel text was tabled, and since then in the off-and-on consideration of texts in the Round, has been within a relatively small number of delegations. Though they are open-ended, many smaller delegations seldom participate.

But their non-participation at some stage, if not now in the drive to the conclude the Round, at a future stage of further negotiations to liberalize (envisaged in the GATS), it could prove a costly mistake, particularly for developing countries who are still trying to develop basic telecommunications to serve the entire country and its development needs.

They may find their fledgling service industries, not only facing problems of sophisticated competition, but with the foreign supplier having a built-in right to have cheap modes of delivery via telecommunication networks.

The other question that has been raised by some of the industrial countries relate to the differing taxation on services and services transactions and the need for 'harmonization'.

Several of the developing countries, as well as others, have ruled it out, again pointing out that these issues are totally outside the scope of any GATS or GATT agreements.