Professor Yash Tandon, Executive Director of South Centre, Geneva, talks to Centad about the GATS negotiations and their implications for developing countries.

The Doha Round is expected to result in an aggressive outcome, in GATS. This is further propelled by the strong interest displayed by emerging economies of the South. What are the biggest risks, at present, in services negotiations for developing countries?

It has been said that services is the real commercial deal in the Doha Round. Developed countries look at the Round as entailing their having to make concessions as opposed to gaining market share in agriculture. This is particularly the case with China, India and Brazil. In trade in industrial products, they see a level of increment in market share through a reduction in tariffs by developing countries.

However, it is increased market access opportunities in services that will make the greatest contribution to global trade. It is for this reason that many developed countries have a large level of ambition in services. From the plurilateral negotiations that have characterised services negotiations in the post-Hong Kong Ministerial Declaration period, it can be seen that in sectors such as energy services, logistics, transport, professional, audio-visual, financial and telecommunications, developed countries are the major demanders.

The challenges that this brings for developing countries are manifold.

To start with, the concessions, however minimal, that developed countries make in agriculture, they will have to justify to their constituents through increased commitments in services -- greater market access particularly in large developing countries like China, India and others. Developing countries have to be mindful that this pressure is on, and check it through taming the push to make overly burdensome commitments, especially as they know that the real issues that have stalled agriculture negotiations in the Doha Round are far from resolved. When one considers that developing countries will also be losing market share, or traditional markets through preference erosion, the situation is of greater concern.

Another key risk is the potential to give up a lot of market access, and get nothing comparable in services. Developing countries have an interest in greater commitments in the construction sector, health, tourism, Mode 1 (for outsourcing) and, especially, the movement of natural persons. A group of developing countries, spearheaded by India, tabled the plurilateral request on Mode 4 in which they asked for some critical issues such as a de-link between Mode 3 and Mode 4 commitments.

Least Developed Countries (LDCs) have articulated, through a proposal, their interest in the liberalisation of market access for the movement of natural persons in the categories of semi-skilled workers. Developed countries are playing duck-and-dive on Mode 4. Europe repeats that the issue is too politically sensitive, while the US trade representative does not even have a mandate to negotiate Mode 4 -- clearly stripped of it by Congress.

Increasingly, it becomes clear that developing countries may not achieve Mode 4 in the Doha Round. The risk is that an opportunity to deliver on development will have been missed.

A big risk potentially coming out of the services negotiations is imminent loss of the prerogative to regulate in the public interest through negotiations in the working party on domestic regulation. Through such tests as is necessary to ensure the quality of the service, and nothing more, as the yardstick for what regulation will be WTO-compatible.

This is particularly worrying for developing countries because a country may not only have commercially efficient yardsticks behind its regulation but other critical considerations such as universal access to basic service obligations.

The absence of any real momentum in the possibility of establishing an Emergency Safeguard Mechanism (ESM) strips developing countries of a potential tool that they can use to protect their service sectors, albeit temporarily, from the negative and unanticipated results of an upsurge in liberalisation.

The GATS negotiations are being conducted on both the disciplines as well as the improvisation of schedules through ‘request-offer’. In each of these approaches, how should developing countries balance their market access interests with protection of domestic policy space?

In order to balance market access and protection of domestic policy space, countries should utilise fully the allowable limitations in GATS. Article XIX of GATS is clear when it talks about the need for progressive liberalisation to take fully into account the national development policies of countries as well as their right to regulate.

In Article XIX:2, developing countries are allowed to open fewer sectors, transactions, and when opening their markets to foreign services suppliers to attach conditions that can lead to the attainment of national policy objectives. This can be interpreted to mean that developing countries need only open their markets in situations where, in their own individual national assessment, such a move is judged necessary for national development. When they do, they can attach conditions to this liberalisation.

Some practical examples would include limitations on the number of players, conditions for joint ventures, limitations on minimal value of capital, and limitations allowing for a certain number of locals to be employed. Developing countries can also tactfully push more S&D in domestic regulation disciplines, so that, on the ground, they have a lot more space to manoeuvre and regulate in the public interest.

In any case, market access offers have to be conditional on the overall outcome of the DDA, and developing countries should assess this and then make a decision as to whether to bind commitments, vis-à-vis what else is being got from other aspects of the negotiations.

In terms of rules disciplines, the negotiations taking place under the auspices of the working party on domestic regulation probably pose the greatest challenge to developing countries in terms of loss of domestic policy space. It is one thing for a country to open up a sector, quite another for it to open a sector and lose the power to regulate the way in which players are operating in line with national development plans and objectives.

While developing countries are also very ambitious in terms of services negotiations leading to enhanced market access, it is critical that they carefully craft rules on domestic regulation that are development-friendly, as these will apply to market access commitments.

It is therefore proposed that developing countries push for:

• Tight disciplines on DR to be implemented by developed countries so as to enhance utilisation of market access commitments especially on issues such as qualification requirements and procedures, and technical standards.
• Best endeavour obligations on the part of developing countries to fulfil these obligations.
• In the event that this fails, to push for overall transparency being the major force behind the disciplines as opposed to overly hard and strict obligations for developing countries. This would entail issues like mandatory publication of laws and regulations that affect commitments made in the most convenient manner, for example through a national gazette, official newspaper, journal, or through the Internet, if appropriate.
• Mandatory provision of technical assistance and support for capacity-building for design and development of regulatory capacity from a sectoral and modal perspective.

GATS is largely considered to be an Agreement without preferential treatment for developing countries. Is there scope for operating Special and Differential Treatment (S&DT) in GATS?

GATS is very much viewed as an Agreement that offers preferential treatment to developing countries. All this can be seen from the preamble of the Agreement, Articles IV, V:3 and XIX, to mention a few. As such, from a strictly legal and even negotiations viewpoint, there is unlimited scope for greater preferential treatment of developing countries.

Article IV has strong provisions on special treatment for developing countries aimed at increasing their participation in international trade in services. Some of the provisions in this Article are the subject of negotiation, as, for instance, Article IV:3, which obligates developed countries to give special priority to LDCs in implementing requirements for improving market access through sectors and modes of export interest, strengthening domestic services capacity, access to distribution channels, and others. One way being proposed is to introduce an understanding on Article IV:3 that allows members to secure certain markets for LDCs, or give them special priority in accessing them, without being in contravention of GATS. There is nothing in GATS that blocks special and differential treatment for developing countries; quite the contrary, and in order to operationalise this, it will take concrete proposals from the intended beneficiaries to define in more concrete terms what S&DT they want.

During the Uruguay Round, GATS was largely considered to be an agenda of developed countries. However, in the Doha Round, a small number of developing countries are showing aggression, resulting in differences between developing countries. Do you think that in the Doha Round, the GATS negotiations will pose a risk to South-South solidarity?

There are a number of developing countries that have great ambitions in market access and domestic regulation. And yes, this does not go down well with the majority that is mostly on the defensive in these negotiations. This situation is not unique to services. In the case of preference erosion in agriculture and industrial products, the fight is really between and amongst developing countries. As such, overall, Doha is bringing out real tensions that threaten the rubric of South-South solidarity.