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Jane Kelsey WTO: Standoff on Services

Standoff on Services

BULLETIN # 5 FROM HONG KONG: 15 December 2005
By Dr Jane Kelsey

See also:
BULLETIN #1 - Creating a Climate of Fear in HK
BULLETIN #2 - The Antidote to Fear-Mongering
BULLETIN #3 - Opening skirmishes
BULLETIN #4 - Development Deceits

Negotiations on the WTO’s agreement on ‘trade in services’ (the GATS) have taken a controversial turn at the 6th ministerial conference in Hong Kong. In the giant chess game of the Doha round, services have tended to have a low profile. Now it seems they may become the deal-breaker at Hong Kong.

At the end of this week’s meeting, the 149 trade ministers are supposed to agree on a text that sets out their decisions on the negotiations to date and the pathway for the future. These range across agriculture, non-agricultural market access, services, intellectual property and other rules.

The current draft contains a main document and a number of Annexes, including Annex C on services. According to WTO procedures, there is supposed to be consensus about the final text. Two days into the meeting, there is anything but consensus.

The text on services has become a critical issue because the reference in the main document to the Annex on services appears in square brackets. In trade-speak, this signals disagreement among WTO members.

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If the brackets that refer to Annex C are taken away, the Annex will then form the basis for future negotiations. That is what the EU is insisting on.

If it is the sentence that is currently in brackets that disappears, so will Annex C. That is the position of the Africa, Caribbean and Pacific countries and the members of ASEAN. As a second option, they are currently proposing an alternative text.

Why is this so critical to the outcome of the ministerial? Because if the current standoff is not resolved to the satisfaction of the EU, the meeting may well collapse. The reason for that is as much about agriculture as it is about services.

Since early 2005, the European Union has insisted that it cannot offer concessions on agriculture without compensation that provides new openings for its transnational services firms. Priority areas are maritime transport, telecommunications, banking and environmental services, notably water.

In other words, the agriculture negotiations are stalled until the negotiations on services move in ways that satisfy the EU’s demands.

That movement is not happening. Instead, the negotiations on services have crawled along since they began in 2001. Governments have become very cautious about making commitments that guarantee foreign companies access to their services markets and remove their right to provide preferences for local services providers.

A major reason for that is a sustained international campaign to oppose the incursions of trade agreements in areas of social and cultural policy, such as health, education, public services and broadcasting. That caution has been reinforced by a recent decision of the WTO’s dispute settlement body that saw the US government caught by commitments on cross-border gambling services that it insisted it never intended to make.

To break the deadlock over services, the EU has floated two proposals for what are euphemistically called ‘complementary approaches’ to negotiations. If these are adopted they would change significantly the structure and reach of the GATS. These changes would reduce the much-vaunted flexibility that allows a government to decide which and how many of its country’s services it locks open to foreign firms. Annex C holds the key.

The EU’s first proposal, floated in June this year, would have required all WTO members (except Least Developed Countries) to commit a minimum number of service subsectors to the GATS rules. There are 163 such subsectors, ranging from health, education, postal and broadcasting services to banking, telecommunications, transport and distribution.

The EU’s initial ‘non-paper’ back in June proposed ‘quantitative benchmarks’ should be set at 85% of subsectors for developed countries and 57% for developing countries. The EU got strong support for this proposal from Australia. It enjoyed moderate support from the New Zealand government, which was desperate for movement on agriculture, but also concerned that a bare percentage approach might mean that governments avoided commitments in its main area of interest – export education.

The proposal stalled in the face of intense opposition from developing countries. It appeared that the EU was going to drop the proposal from the discussions in Hong Kong. However, it is now clear that they still intend to push the idea of targets, but more as ‘objectives’ to be achieved by the end of the round than as mandatory requirements. They may also be considering lower targets than they initially proposed.

The second approach has more legs.

The EU has proposed that groupings of governments who share an interest in a particular sector should draw up their ideal ‘model schedule’ on a sector. These model schedules would set out what they want other WTO members to agree to. They would then present their demand collectively to some or all the other WTO members. The current wording of Annex C says they would be required to respond.

In theory, of course, governments could negotiate and then say ‘no’. But that can be very difficult, especially where there is a major imbalance of power between the governments involved. Even the costs of having to respond to such demands in a number of sectors could be crippling for poorer countries who already struggle to participate in the Doha round negotiations.

Australia and New Zealand are pushing the plurilateral approach hard, partly because they want other countries to open up their services markets in areas of interest to them, but also because this holds the key to unlocking the agriculture talks.

Again, New Zealand is concerned at suggestions that this plurilateral approach could be linked to quantitative targets – requiring a WTO member to respond positively to, say, three such requests because that would not include its primary ‘niche market’ for services exports, that of export education.

At present there is enormous pressure on those who are opposing Annex C, especially the ACP grouping and ASEAN. The ‘aid for trade’ package (discussed in a Bulletin #4) appears to be the inducement for achieving this in a classic exercise of divide and rule.


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