Text Box: GATS Negotiations 
Developments since the Hong Kong Ministerial 
 

 

 

 

 


by Suparna Karmakar

 

Net Gains in Services – A Status Report

 

Arguably, the current deadlock in the WTO stems from a lack of convergence on the agriculture modalities pertaining to the phase-out of domestic farm subsidies (including export subsidies) in developed countries. However, the main stumbling block in the ongoing negotiations under GATS is arising from the lack of satisfactory quality of offers from Members vis-à-vis intra-modal asymmetries as well as continuance of MFN exemptions. While initial expectations from negotiations (the so called ‘ambition’) were high, in view of the lukewarm nature of the offers made by Members, narrowing down on any viable and generally acceptable deal is becoming impossible. Despite contributing a share of world GDP, the fact that services are not as actively traded as goods is a clear indicator of the extent of protection that countries accord to the domestic stakeholders in the sector; internationally, services is the second most protected sector after agriculture. The reflection of the above is in the weak offers that Members have made in GATS. Progress of liberalization under the bilateral request-offer approach, as experienced so far, has been rather slow. Members are of the view that the two rounds of request offers has not resulted in satisfactory quality of offers, and merely having another round of the same without more specificity and direction will not bring desired results.

 

Also, the asymmetries between different modes and sectors had not been addressed in the revised offers. Recognizing that gaps still exist between the offers and levels of autonomous liberalization in Member countries, that there have been very limited offers of new market openings, and large numbers of MFN exemptions still remain, the Draft Declaration has set out guidelines and objectives for scheduling of commitments. The main text and the Annex C on Services in the final Draft Ministerial Declaration reaffirms that while the objectives and principles stipulated in GATS and in the Doha Declaration will be followed, in order to achieve a progressively higher level of liberalization of trade in services, Members should make commitments in modes 1 & 2 to bind ‘existing’ levels of market access, de-linked from the commercial presence requirements, and under mode 3 for Members to make commitments on ‘enhanced levels of foreign equity participation’, allowing greater flexibility on the types of legal entity permitted and removal or substantial reduction of economic needs tests. In mode 4, in paragraph 1, the objectives and scheduling guidelines indicate that ‘new or improved’ commitments are to be made in select categories of temporary service suppliers de-linked from commercial presence, to reflect inter alia removal or substantial reduction of economic needs tests and indication of prescribed duration of stay and possibility of renewal, if any.

 

However, how far these will contribute towards actual improvement of offers by Members remains to be seen, especially in view of the fact that Members are cautious even to take commitments that match their domestic levels of liberalization, or lock-in existing domestic regimes. Developing countries are in a peculiar quandary; while services liberalization offer larger gains than in any other pillar of market access, given that domestic regulatory regimes are rather weak in most economies, it becomes difficult for them to open up aggressively for fear of being unable to rise to the regulatory challenges that such an action would entail. India herself is not in a position to do that for a large number of sectors where unilateral domestic reforms have taken place. It is even more difficult for those developed countries that have already opened a large number of sectors, and are not able to make significant improvements to existing offers because of domestic sensitivities, most critically pertaining to rising unemployment in a scenario of weak growth prospects.

 

But, to address the concerns of Members as regards the weak ‘quality of offers’ and ‘slow progress’ of multilateral negotiations under the bilateral request-offer approach, the Draft Declaration retained the possibility of engaging in the ‘plurilateral’ request-offer negotiations, the results of which however ‘shall’ be extended on a MFN basis. In the run-up to the Hong Kong Ministerial, India along with some other like-minded Members had formed a ‘Friends’ group on Services, which supported the usefulness and need for such complementary approaches in an effort to increase the ‘modal coverage’ and gather the ‘critical mass’ required to achieve a more comprehensive liberalization of the services sector under the DDA. This complements India’s offensive interests in the sector, and India has been one of the major demandeurs in the GATS negotiations.

 

The Way Forward

 

In the months leading up to the WTO Ministerial Meeting in Hong Kong, several proposals had been made by WTO Members suggesting ways in which the existing request-offer approach can be supplemented. Some of these proposals called for embarking on a negotiations strategy with ‘common baseline’ for services or a ‘benchmark’ which would require WTO Members to make a minimum commitment to liberalize  trade in certain services. India was actively engaged in these deliberations and has been an integral part of the group ‘Friends of Mode 4’.

 

Recognising that bilateral negotiations through requests and offers tends to slow down the pace of liberalisation in the services sectors, it was decided at the Hong Kong Ministerial meet that voluntary plurilateral negotiations would also be carried out simultaneously. And as expected this is an area where one has seen traction. For India in particular, though a second-best solution, plurilateral deals would still be an incremental step forward, given that the majority of our larger trade partners in the services sector belong to the said Friends Groups and would address to a large extent our immediate market access concerns. In view of the country’s offensive interests, India continues to support the usefulness and need for complementary approaches, and is an active Member of four of the seventeen plurilateral sectoral groups that have put forward their requests.

 

The other area of focus and push would need to be in Services Rules. Members have been deliberating on different elements of Rules under GATS since the beginning of the Doha Round, but progress so far has been rather slow. Even in areas like Domestic Regulation (DR) where convergence had been largely achieved at Geneva during the Council for Trade in Services (CTS - Special Session) meetings prior to the Hong Kong Ministerial, the draft failed to come up with concrete modalities. It is commonly accepted that for developing countries to realize the Round’s development potential, a focus on movement of natural people (mode 4) as well as cross border supply of services under modes 1 and 2 is a must. Developed countries have not been very accommodating on this account. The fact remains that given that DRs are used as de facto market access barriers by importing countries, unless there is any agreement on disciplines on their indiscriminate use, no amount of market access in mode 4 would ensure gains for developing countries from the services liberalization, thereby defeating the development agenda of the Round.

 

While it is possible that an ambitious multilateral deal in GATS may be unattainable in the current round of negotiations, it is quite feasible that the plurilateral agreement be made as comprehensive as possible. Towards that end, the fact that the present mandate on plurilateral negotiations is very narrowly focused on only market access seems counter-intuitive. WTO Members should certainly consider incorporating at least the most critical of the GATS Rules negotiations, namely the DR, as a part of the plurilateral negotiations for market access in services.

 

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