Oct 28, 1989

BRAZIL, INDIA AND KOREA OUTLINE SOME IDEAS FOR ELEMENTS.

GENEVA, OCTOBER 26 (BY CHAKRAVARTHI RAGHAVAN)— Brazil, India, Singapore and South Korea were among the third world countries who have outlined in the Uruguay Round Group of Negotiations on Services (GNS), their preliminary ideas on some of the elements for a multilateral framework on trade in services.

The preliminary ideas of Singapore and South Korea have been outlined in communications circulated in the GNS. The two delegations explained them at this week's meeting, but they would be taken up for detailed discussions at the next meeting in November, when the U.S. paper would also be discussed.

The Indian and Brazilian views were set out in some lengthy interventions by the Indian and Brazilian delegates.

The Indian views on elements for a framework are expected to be set out in a paper for the GNS, perhaps after the general elections, which have been ordered. Brazil too is expected soon to put down on paper the views it outlined this week at the GNS.

India in its interventions underscored the importance of the service sector for growth and development of the third world, where several service industries were "not even born leave aside being in an infant industry status". The international services market was unequal, and third world countries were at a disadvantage because of large amounts of capital and technologies needed for attaining economies of scale and competitivity in world markets.

A multilateral agreement would have some meaning for third world countries only if they were able to participate in the world market, and their capacity to develop service industries were not stunted.

A number of elements specifically outlined in the mid-term accord, but which were absent in most of the texts of industrial countries before the GNS, were very important.

The mid-term accord on increased participation of third world countries would involve strengthening their domestic service capacity and increasing their export earnings in this sector.

The infant industry argument applied much more to services sector than even in goods, and third world countries should be able to shelter their domestic service industries for a much longer period against foreign competition.

It would not be enough to apply the same rules and disciplines, with limited time derogations of five, ten or 15 years.

Third world countries should, for example, be able to ensure domestic competition by internal deregulation, without having to allow foreign competition.

To provide confidence to their domestic suppliers, governments should be able to give them preferences, and subsidy discipline concepts should not apply to them. The industrial country domination of the world markets in services was such that they need not fear any subsidised competition.

Another measure needed to strengthen third world domestic capacity was to attack the anti-competitive restrictive policies of TNCs. Unfortunately no attention was being paid to this in the services negotiations or in the TRIPs and TRIMs negotiations. Irrespective of whether a multilateral framework provides for this or not, third world countries should be able to deal with this through their own regulatory system or the operating conditions they set for foreign service suppliers.

As regards "market access", third world countries should be able to give domestic service providers preferential and supportive treatment, and limit if necessary foreign participation.

Where market access was provided, third world countries should be able to set operating conditions, and this should not be seen as impinging on the concept of "national treatment". The national treatment principle would have to be subject to conditions stipulated for imported service suppliers.

The mid-term accord had provided a certain symmetry between flows of capital and labour in regard to the definition of "trade in services". The various papers from the industrial countries had disturbed this balance. Labour flows were sought to be related to immigration, and limited to skilled personnel or other factors.

India would be unable to accept any definition of trade in services, which brought in any asymmetry as between labour and capital.

Both the EEC and New Zealand papers argued that the proposed multilateral framework was one for "trade" in services and not one for investment or immigration. But when "commercial presence" was defined to include automatic right to set up wholly owned subsidiaries, joint ventures, etc., it was really a claim for "automatic right for foreign direct investment".

The right of commercial presence would have to be subject to national regulations about foreign ownership or kind of transactions. It would be up to the country to decide, for example, whether a foreign bank operating could be a wholly owned subsidiary, joint venture, branch bank or whatever.

Progressive liberalisation would have to be subject to appropriate flexibility for third world countries so as to be compatible with their development objectives.

A third world country, while giving market access should be able to stipulate that this should be accompanied by transfer of technology to be monitored by the host country government or that the foreign service provider should undertake to build export capacity and not focus only on consumption of the service in the domestic market.

Brazil in its intervention outlined what it considered could be elements for a framework. The multilateral framework, Brazil underlined, should promote economic growth of all trading partners and development of third world countries, including their technological capacities.

The multilateral framework could only apply to trade in services, and this could be said to occur only when there was cross-border movement of services, consumers or factors of production where this was essential to suppliers of the service. But this last was subject to its "limited duration", "specificity of purpose", and "discreteness of transactions". Permanent establishment of factors of production, whether international immigration or foreign direct investment was outside the scope of definition of trade in services. Even "commercial presence" would have to be identified and defined precisely, as also the concept of "essentiality" for suppliers, of cross-movement of factors of production.

The services agreement should be drafted to avoid any a priori exclusion of sectors.

The agreement should include firm commitment of signatories to engage in long-term process of liberalisation. This would include discussion in future negotiations of the possible application of principles to specific sectors and types of transactions as a means of reducing adverse effects of laws, regulations and administrative guidelines. But in the process of liberalisation, four basic principles would always apply: respect for national policy objectives, consistency with development objectives, balance of benefits among participants, and exceptions.

Respect for national policy objectives meant no country should be obliged to frustrate, modify or abandon such policy objectives for sake of liberalisation. Countries should be able to establish priorities for import or export of services, and right to negotiate only sectors and transactions that would be a priority for growth and development.

Consistency with development objectives would mean ability to maintain and implement internal mechanisms and policies for development process. It would include concepts like development security and technological security.

Through the process of liberalisation, balance would have to keep between concessions and offers, with criteria established to take care of development situation of countries, including assurances about access to technology and financial support.

Exceptions that could be invoked would include grounds of national security, public order, technological development, infant industry protection, cultural and development objectives.

Legitimate invocation of these should not result in resort to "non-application" procedures by others. "Transparency" requirements should apply both to governments and service suppliers. The latter should provide information on their operations to national and local authorities. Governments should have obligation to publish all laws and regulations relating to international trade in services.

There should be firm commitment by signatories to secure increasing participation of third world countries in world trade in services and expansion of their service exports. This would include strengthening of their domestic service capacity, efficiency and competitiveness. Third world countries should not be expected to concessions from which they were unable to benefit.

There should be preferential financial mechanisms established for third world countries for the export and import of services.

The agreement should not impinge on autonomy of these countries to pursue macroeconomic policies for implementation of their development programmes, including the right to decide on compatibility of the market operators with national policy objectives.

The framework should have an MFN clause, but without excluding third world countries benefiting from preferential access granted by industrialised countries or exchanging mutual concessions among themselves.

Market access conditions set by third world countries could include surcharges on foreign service suppliers, restrictions on number of suppliers, preferential and effective market access to third world countries including guaranteed access to information and distribution networks, and right to ensure firms benefiting from negotiated access commitments maintaining standards of corporate behaviour consistent with the third world country's development and technological objectives.

Modes of delivery of services would also have to conform to national policy objectives.

The national treatment principle would apply to third world countries only to the extent national policy objectives were served. Foreign service suppliers should not end up with "more favourable treatment" and would have to share the social and development responsibilities of national suppliers.

To prevent foreign suppliers from appealing to their home governments for support to strengthen bargaining position with national suppliers, the framework would have to provide that domestic legislation of host countries would be applied for settlement of disputes.

The Brazilian intervention, expected to be circulated as a written communication, also dealt with issues of safeguards, regulatory situation of third world countries, facilitation of competition in international trade, creation of commonly agreed statistical basis for liberalisation negotiations, disciplines for individual sectors and measures to avoid adverse trade effects.

The Korean paper presenting outlines of essential elements of a GATS, has suggested a two step approach, keeping in view the midterm accord that the agreement should enter into force by end of the Uruguay Round and the less than a year left for the conclusion of the round. In the remaining period, a general agreement on trade in services should be constructed with initial commitments on a few principles and rules such as transparency aimed at achieving the long-term aims of the agreement through subsequent negotiations on concessions.

Such negotiations on market access and national treatment would "be continued periodically after the Uruguay Round. A single general agreement covering all commercial services should be adopted, and sectoral agreements made only in exceptional cases.

This, South Korea points out, is because most third world countries would have difficulties in pushing their interests in agreements on each major sector, and hence would hesitate to join such sectoral agreements, which would then have only a few contracting parties.

In the South Korean view, the general agreement should contain the principles and rules included in the mid-term accord, as well as provisions on subsidies and countervailing measures, government procurement, anti-dumping, dispute settlement, and obligations of local governments.

On market access, the agreement could contain mechanisms for progressive increase of market access to foreign service suppliers according to the results of negotiations. But as in the case of tariffs on goods, the same regulatory conditions would be imposed on foreign services and suppliers.

Conditions of market access could be imposed on different ways of delivery - establishment and mode of commercial entities (subsidiaries, branches, offices), establishment of foreign networks and access to domestic networks, number and duration of foreigners to be employed, scope and region of business, establishment of global quota.

Progressive liberalisation could be achieved by concessions in conditions of market access in subsequent bilateral, plurilateral and multilateral request/offer negotiations, and the benefits would be extended to all on unconditional MFN basis. "Concession" would mean each signatory's commitment to market access and national treatment for progressive liberalisation including a time-table for market opening. It could be by sub-sector, activity and transaction. Concessions on conditions of market access could be in accordance with national policy objectives and level of development of individual signatory country. But the conditions should be "obvious", "foreseeable", and should be gradually eased. National treatment would mean no less favourable treatment to foreign service providers than that given to domestic service providers in business activities in terms of laws, regulations, and administrative guidelines. But this would apply after the foreign service provider has been permitted to enter the market under conditions imposed by the host country. Transparency would involve publication of all laws, rules and administrative guidelines but limited to services conceded (for the liberalisation), and all contracting parties providing an enquiry point for enquiries. There should however be no requirement about prior notification, pre-consultation, cross-notification, etc., relating to each country's different legislative procedures. To enable increasing participation by third world countries in services trade, the agreement should provide for technology transfer to third world countries and improved methods of market access to industrial country markets from third world. The principles and rules of market access would apply to all commercial services, and reservations could be permitted by an agreed procedure.