WTO Services Negotiations Advance Liberalization Process

 
After years of attempts to create a rules-based organization for trade and investment in services, the General Agreement on Trade in Services (GATS) entered into force in 1995, offering a regime similar to that for merchandise trade in the GATT (now WTO). GATS signatories agreed to begin negotiations on further liberalization in services trade within five years.

In January 2000 the new negotiations were inaugurated. By the end of March 2001, after 15 months of negotiations in the Special Session of the Council on Trade in Services, significant progress had been made. Most important was the adoption of Guidelines and Procedures for the Negotiation of Trade in Services, as well as agreement on the Objectives and Principles, Scope and Modalities and Procedures for future negotiations. The Objectives and Principles state that negotiations will be carried out on the basis of progressive liberalization while recognizing the right of countries to regulate the supply of services. The Modalities and Procedures stipulate that negotiations will be carried out in the Special Sessions of the Council using a request/offer approach.

The agreement addresses the needs of developing countries by directing the negotiations toward their increased participation in services trade. It also takes into account the level of development and size of economies in the liberalization process. Special attention is to be paid to supply sectors that are important to developing countries and technical assistance will be provided to help them carry out national assessments.

The negotiations will now move into rule making and the market access phase. The council will review the progress of the talks following negotiating sessions in May, July, October, December and March 2002. Seventy negotiating proposals have been submitted for consideration.

GATS Limitations and the Benefits of Further Liberalization in Trade in Services
GATS is made up of a general framework agreement as well as specific national schedules. The general framework covers market access, most-favored-nation treatment and national treatment. Each member takes on commitments by listing the services sectors it wants in its national schedule. It then must allow foreign services and suppliers to enter its market without restrictions. Members further agree to treat foreign services suppliers no less favorably than domestic suppliers.

It is important to remember that member governments choose the service sectors in which they are willing to guarantee the rights of foreign suppliers. Governments may also set limitations specifying the level of market access and the degree of national treatment that they guarantee. They may limit commitments to one or more of the four recognized "modes of supply" through which services are traded and may make exemptions to the MFN principle, usually limited to 10 years, to give favorable treatment to certain trading partners.

As with all liberalization efforts, one can expect that greater openness will lead to greater efficiency and innovation. Some of the benefits likely to be derived from advances in GATS negotiations (or the FTAA, where services remain an important area of negotiation) are:

• More competition by opening domestic markets to foreign services suppliers.

• Lower prices from increased competition and innovation.

• Faster innovation in products and processes.

• Higher employment generated by increased activity from innovation and greater efficiency.

• Greater transparency and predictability from clear rules of the game for consumers and investors achieved through the commitments of each member in national services schedules.

• Technology transfer as a result of new products and investments following new market opportunities and domestic firms and employees learning new techniques and skills.

Labor's Position on Trade in Services
When the US negotiated a free trade agreement with Singapore, the AFL-CIO and some NGOs and think tanks argued that it should exclude all public services. "GATS excludes only those public services that are provided on a non-commercial basis and not in competition with any private provider," the groups complained. "The GATS formulation could impose disciplines on non-discrimination, quantitative restrictions, and domestic regulation in many government services, including health care and education. This increases pressure on governments to privatize, contract out, and deregulate public services."

The same groups also opposed the FTAA's attempt to open up all service markets to international competition, arguing that the negotiations should instead "protect people's basic right to essential services."

According to WTO Director General Michael Moore, however, "governments have unequivocally endorsed some of the fundamental principles of the GATS: Governments' right to regulate and to introduce new regulations on the supply of services in pursuit of national policy objectives; their right to specify which services they wish to open to foreign suppliers and under which conditions; and the overarching principle of flexibility for developing and least developed countries."

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