Nov 14, 1985

INSUFFICIENT DATA AND HETEROGENEITY OF SERVICE SECTORS.

GENEVA, NOVEMBER 12 (IFDA/CHAKRAVARTHI RAGHAVAN) -- An year-long examination and exchange of information in GATT on issues in the services sector has confirmed the heterogeneity of these activities, difficulties of a harmonised definition, and lack of adequate data for measuring and comparing services trade activities.-

This comes out in the report of the chairman of the Contracting Parties, Felipe Jaramillo of Colombia, on the meetings organised by him for exchange of information on service issues, in pursuance of the decisions at the 1984 annual session.-

The U.S., with the support of some of the other industrial countries, has been pushing to bring "trade in services" under the jurisdiction of GATT, and create a framework of principles and rules to apply to this sector.-

At the 1982 GATT Ministerial meeting, it was agreed that interested Contracting Parties (CPs), should undertake national examination of issues in the services sector and exchange information on such matters among themselves inter alia through international organisations such as GATT.-

In 1984, the annual session of the CPs agreed on a procedure for this exchange of information, and authorised the chairman of the Contracting Parties to organise meetings for this purpose.-

The GATT Contracting Parties are to decide, at their 41st session beginning November 25, whether any multilateral action on services was "appropriate and desirable".-

So far fifteen industrial countries (Australia, Belgium, Canada, Denmark, Finland, France, West Germany, Italy, Japan, Netherlands, Norway, Sweden, Switzerland, U.K., and the U.S.A.) have submitted national studies, and the EEC for the Community as such.-

None of the Third World countries have so far provided any national studies.-

Besides the national studies, several of the international organisations had provided reports of their activities in the services area and in particular sectors.-

Both the industrial countries who have circulated copies of their studies, as well as others including several Third World countries (who oppose inclusion of services in GATT or in any new round), participated in the eight meetings organised by Jaramillo where the issues in the national studies, were examined and discussed.-

During these meetings, most of the countries that have submitted national studies would appear to have spoken of the desirability of multilateral action on services, and GATT as the forum.-

However, the French national study, does not even mention GATT, and a French delegate in presenting the study and explaining material in it would appear to have drawn attention to this.-

Among the reasons advanced in several of the studies is the growing importance of service activities in their economies, that services were the most dynamic element in many economies, and stimulation of services trade would help world economic growth.-

Viewing both trade in goods and services as similar and part of trade, the theory was also advanced on need to liberalise to get the benefits of comparative advantage through free trade.-

However, the French study has underlined that the theory of comparative advantage does not necessarily hold good for trade in services as in goods.-

This viewpoint is shared by many Third World countries, while an UNCTAD study questions the underlying assumption that "services" are a stage of development, after agriculture and manufacturing.-

Though the 1982 decision called for national studies on "issues in the services sector", most of the national studies have confined themselves to "trade in services", and less to trade and more to rights of "establishment" and "investment" in foreign countries in service sectors.-

The U.S., in seeking to bring services into GATT, has listed a wide range of so-called service activities from accounting to transport - and argued that the right to trade must include the right of establishment.-

The exchange of information and examination of national studies has however brought out that the services activities are "very heterogeneous" and diverse, and cannot be defined in terms of any common economic activity.-

Most of the studies have stressed the difficulty of defining precisely the range of activities that could be considered as "services".-

Some of the national studies have attempted to get around this by defining services residually as "all economic activities other than agricultural or industrial production", while others have merely listed a series of activities as "services activities".-

It was generally noted during the exchange of information that it would even be "premature" to attempt any "harmonised definition" of services.-

But the U.S. and some others seeking to set up a GATT-like framework and discipline on services have been arguing that the absence of "a harmonised definition" should not preclude discussions on possibility of multilateral action.-

However Third World countries have held to the view that unless there are "some common characteristics" among the various service sectors, there would be little scope for dealing with issues across-the-board or for discussion of possibilities of multilateral action.-

Another fact brought out in most national examinations, and "widely recognised" in the discussions, has been the inadequacy of available data on services, making international comparisons based on this "misleading".-

No country or international organisation compiles data in a manner that fully and accurately measures services trade activity or disaggregate the data to reflect activities in individual sectors, it is noted.-

Most of the national studies agree on the need for national and international efforts at coordination and development of methods for collecting and classifying the data, the coverage of international transactions, classification of activities, kinds of data needed for analysis, and issues of confidentiality.-

Despite these acknowledged difficulties, the U.S. and some of its supporters have argued that since it would not ever be possible to have as precise data on services as for trade in goods, discussion of multilateral actions in services should proceed on basis of currently available data.-

Some of the national studies have brought out that some services have to be provided in the place of consumption.-

From this, they have argued that to enable international transaction in services, those seeking to provide the particular services in foreign markets should be able to establish on these markets subsidiaries of the parent enterprises.-

But several of the Third World countries have pointed to the inappropriateness of identifying the concept of "right of establishment" and "right of investment" with the "right to trade".-

Most of the national studies have not only acknowledged the difficulty of defining "services", but also the difficulty of defining "traded" or "tradeable" services, and have sought to get around this by relating the "service" to the manner and measure in which it could be related to goods in production and trade.-

Others have however questioned this and have pointed out that the issues of trade in services have been addressed "without really defining clearly what that trade was".-

These countries have underlined that before any conclusions could be drawn on the exchange of information, it was necessary to differentiate between "the trade element" in services and separate it from the "investment" and "establishment" aspects.-

Some of the national studies, and the discussions on them, have brought out the range of regulatory activities in countries in individual service sectors that the protagonists of GATT action want to attack and discipline.-

While the U.S. originally talked of applying GATT principles to trade in services, its studies and views put forward in these meetings have been significantly silent on the application of the basic GATT principle, namely the most-favoured-nation (MFN) treatment in articles one.-

Through notification requirements for "transparency", application of the principles of national treatment to foreign imported services the "right of establishment" to provide such services, and restrictions on government support and subsidies, the U.S. in effect is seeking gradually to force governments to eliminate governmental restrictions in the service sectors and adopt a laissez faire approach.-

The U.S. has now indicated that it wants to extend to the so-called "trade in services", GATT principles like national treatment for domestic and foreign suppliers, transparency (of administrative and legal regulations), prohibition of government support or subsidy, and dispute settlement.-

The U.S. wants countries to notify their various regulations in the service sectors, to enable their consideration and scrutiny at the multilateral level, from the point of view of the reasonableness of the regulations and the "balance between regulatory requirements and restrictive effects on trade in services".-

However most of the Third World countries who participated in the discussions have said that many of these service sectors are instruments of sovereign national economic and development policies in their countries, and third countries could have no voice or say in determining these national policy goals or the regulations to attain such goals.-

While the U.S. has been arguing that growing regulatory measures in the services sectors were acting as constraints to international trade in services, several of the Third World countries have pointed out that the notion of constraint was often a subjective one, and no a priori conclusions could be drawn from the existence of any such regulation.-

The European Community has supported this latter view.-

The U.S., U.K. and a few other studies have listed a range of regulations that impinge on trade in services, and seek to liberalise or eliminate them through multilateral actions:

Currency control and foreign exchange regulations; requirements of state authorisation for purchase or lease of real property; laws governing establishment of foreign companies; regulations on entry, exit, residence and employment of foreigners; regulations relating to business competition, protection of industrial property, protection of national security, planning, employment, etc.-

The need of further study about the role of TNCs in the services sector, and how to deal with them, was raised by several third world delegations, who underlined that the national studies had not properly addressed this issue.-

Also linked to this issue of TNCs and services, in their view, would be the question of restrictive business practices of TNCs in the services sector.-

In the view of several Third World participants, the national studies or views of delegations, has not provided any objective basis to draw a parallel between trade in goods and trade in services or determine whether any action was needed, and if so where and how.-

Apart from the national studies, the Jaramillo organised exchange had also before it information from various international and inter-governmental organisations about their activities in particular service sectors and agreements projected or concluded by them.-

Several of the Third World delegations have stressed that many of the international organisations had a primary role in particular service-sectors, and had a full mandate to address issues in specific sectors.-

Hence, unless some common characteristics applicable to all service sectors could be clearly identified and established, it would be impossible to decide whether there was any need to supplement the activities of these international organisations through action in GATT on trade in services.-