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Services and the WTO

Date
Time (GMT +00) 13:00 14:15

Speakers:

Pascal Kerneis, Managing Director, European Services Forum
Chawe Mpande-Chuulu, COMESA secretariat

Chair:

Dirk Willem te Velde, Research Fellow, Overseas Development Institute

1. Pascal Kerneis opened the meeting by explaining that the ESF was a private lobbying organisation based in Brussels mandated to defend the interests of the European services industry in the multilateral, plurilateral and bilateral trade and services negotiations. The forum consists of around 80 members of whom about half were trade associations and the other half were multinational companies. The ESF's clients excluded service providers in health and education and emphasised that the organisation's concern was on promoting the export of services outside of the European Union (EU) '25', and hence the key focus of the organisation was progress in the WTO. He went on to explain why the ESF was pushing for progress in WTO services negotiations: in Europe agriculture accounts for only 2% of GDP, while services account for 68%. In the world as a whole the share of agriculture was only about 8% while the share of services was 26%. China and India were the only two countries where services had less than a 50% share in GDP. He emphasised that these figures did not represent mode 3 of the General Agreement on Trade in Services (GATS), which enables a country to extend its commercial presence into another country.

Pascal Kerneis said this was a paradox since businesses required an international agreement for them to establish their commercial presence in another country, and therefore to be out of the purview of international trade. He emphasised that GATS is required as a tool for market access

2. Pascal Kerneis then explained the position of ESF in relation to GATS negotiations. By way of background, he explained that the GATS negotiations involved a request and offer system where countries put forward proposals of service liberalisation. He also explained that it was difficult to reach decisions on services in the WTO (unlike negotiations on agriculture and non-agricultural market access) since the ministers at trade meetings did not have the required competency. This formed the basis for the ESF to put forth requests to countries rather than waiting for them to make offers. Based on these requests, countries put forward initial offers. This is followed by bilateral meetings/negotiations. Kerneis stated that to date there were 70 initial offers and 28 revised offers; he thought that this number was extremely low considering there are 149 members in the WTO. About 30 of the remaining are Least Developed Countries (LDCs) and are not to be pushed into negotiations or to make quantitative commitments as they cannot afford such commitments; nonetheless, discounting those countries, there are countries whose presence is missing. Pascal Kerneis drew attention to South Africa, who is an important trading partner of the EU (12th in terms of service trade volume (exports and imports) had not tabled an initial offer; a situation which was unacceptable. Venezuela was the other important country that had not committed to a service agreement.

3. Pascal Kerneis continued by saying that there should be a more balanced approach in the WTO with equal importance to agriculture, services and non-agricultural market access. Most of the countries in the WTO discuss only agriculture. The ESF was still trying to find a strategy to bring this balance in the Doha Development Round - and was in support of agricultural liberalisation.

4. Pascal Kerneis concluded by speaking about the possibility of those countries who were willing to go further in committing certain sectors to open plurilaterally. But, Pascal Kerneis argued, for this to be successful and beneficial to the ESF members there had to be a critical mass of countries willing to do this otherwise there might be the problem of 'free-riding' and this might negatively affect the EU economy in the long term, given the fast rate of economic development of many emerging countries, like China, India, Brazil, etc..

 5. Chawe Mpande Chuulu opened her presentation by explaining that she had taken some of the proposals and looked at the kind of impact it had on three different groups: the developed countries, the developing and the less developed. Three main trends, according to her, seem to be emerging:

Focus has been on export interests of developed countries, and little consideration has been given to the export interests of developing countries and LDCs. No effort has been made at all on export potential of the latter group, which could be improved by de-linking mode 3 from mode 4, removing impediments to mode 2, and providing technological improvements required to make each mode feasible and viable for the same group of members.

Plurilateral and sectoral proposals totally ignore the fact that developing and LDCs countries lack the regulatory capacity to manage sudden rises in trade volumes. Additionally, the effects of existing liberalisation models have yet to be assessed, and thus a new model can only be discussed with an informed review of the effects of both models.
Appropriate technical assistance in terms of trade and training of sectoral services negotiators leaves much to be desired, and direct domestic regulatory capacity-building is virtually non-existent.
6. Chawe Mpande-Chuulu emphasised that while the previous speaker had pointed out that the WTO was not the World 'Agricultural' Organisation (which according to him had too much emphasis on Agriculture at the expense of other negotiating areas); neither was it the 'European' Trade Organisation or the 'American' Trade Organisation. Chawe Mpande-Chuulu emphasised that developing countries would like to participate but would like their participation to be mutually beneficial and not just beneficial to the business leaders from developed countries, which made up a small percentage of the members. Chawe Mpande-Chuulu argued that in services negotiations the export interests of developed countries shown by market access opening demands were more dominant than the export interests of the developing countries and particularly those of LDCs. Chawe Mpande-Chuulu said that this was not a question of exempting the LDCs but was more an issue of taking on board the problems of the LDC to effectively participate in GATS, and of putting forward more sustainable solutions. For example, many of the LDCs do not have the regulatory capacity to engage in plurilateral negotiations. On the one hand developing member states in other forum have talked about promoting South-South trade, and the same large developing countries that were targeted by the developed countries were also important trade partners for the smaller developing countries and LDCs. The sole purpose of developed members was to open up these markets regardless of the effects of these opening up on fostering south-south trade and in consideration of the exports interest of LDCs and the impact on them either. In addition they did not consider whether assisting in the growth of South-South trade would create larger, more viable and predicable developing exports markets in the long run which would be more mutually beneficial to all partners in world trade.

7. In legal services Chawe Mpande-Chuulu pointed out that the export considerations were emphasised through the opening up in mode 3 then in mode 4 (temporary movement of natural persons). It could be appreciated that efficient infrastructural services such as telecommunications services, financial and transport services were essential for the modern economy, but that requests made by developed countries should take on board the lack of proper regulatory capacity in developing countries that could impede the positive impact of liberalisation. She emphasised that the important issue is managing services in a much more efficient manner, rather than just opening up.

8. Finally Chawe Mpande-Chuulu pointed out a few of the specific observations of the COMESA Secretariat on the EU position on services which she believed were representative of the concerns of most of the LDCs and developing countries. One of these was that the quantitative targets of the EC's offer should take into account that developed countries are source countries and developing countries were recipient countries which were extremely vulnerable. The emphasis should be on providing stronger regulatory mechanisms and awareness within the less developed countries rather than focusing purely on quantitative targets of industries to be liberalised.

9. Dirk Willem te Velde: opened the floor to discussion and emphasised that there were three issues to be discussed: 1) the lack of progress and offers in services negotiations 2) negotiation procedures including the advantages and disadvantages of plurilateral negotiations 3) the issue regarding technical assistance to developing countries to participate in the negotiations.

10. In the discussion that followed a question was raised whether it would make more sense to de-link the agricultural and services negotiations. Pascal Kerneis explained that since there was a built in agenda for both agriculture and services they were bound to be together and that he was not entirely sure whether they should be de-linked. The reason for this being that once the agricultural issues were resolved, it was not clear whether member countries would return to negotiate on services issues. Pascal Kerneis was sceptical.

11. The issue arose of expected benefits of agricultural liberalisation being more for developing countries and the benefits of services liberalisation being more for developed countries. Pascal Kerneis argued that that this was not necessarily the case. The countries that were to benefit from the agriculture included such countries as Brazil, Argentina, Australia, New Zealand, Canada, while African countries stood to gain less. Services liberalisation would benefit countries not just by helping them increase exports. GATS should not be seen as a mechanism to increase less developing country's exports but as a mechanism to help them to develop sustainably by increasing the amount of foreign direct investment. Chawe Mpande-Chuulu, however, argued that the priority for poorer LDCs was building export capacity rather than increasing their FDI.

12. When asked whether the similarity of target countries of both the ESF and the Comesa were the same there be chances of an alliance, Chawe Mpande-Chuulu explained that the possibilities were not there at the moment since each group had different purposes and means of targeting such countries.

13. Following Chawe Mpande-Chuulu's comment about the importance of mode 4 to developing countries in the services negotiations, Pascal Kerneis was asked by Dirk Willem te Velde to comment on mode 4. Pascal Kerneis said that the expectations on mode 4 benefits were exaggerated since the framework provides for temporary movement of people related to trade. This was just a very small issue and would not have large benefits. Pascal Kerneis continued to explain that liberalisation of movement of people was unlikely to happen, and that movement of people was not even happening within the EU 25. In response, Chawe Mpande-Chuulu argued that there was also an exaggeration on the part of the developed countries in terms of mode 4 regulation. Developing countries did realise that mode 4 liberalisation was only for temporary movement but the stumbling blocks faced by these countries were related to permanent migration issues.

14. The chairperson concluded the meeting with the hope that further progress might be made at Hong Kong.

Description

This event looked at the role of services in the WTO and the effects of services on development.