SERVICES sector is presently the fastest-growing component of global economy accounting for nearly 20 per cent of world trade and three-fifths of the global FDI flows.
The global trade in services has significantly increased in last two decades. World trade in commercial services increased from 12 per cent ($400 billion) of the total export in 1980 to 20 per cent of total export in 2002 amounting to $1570 billion. On an average, it grew 6.9 per cent annually, higher growth rate than trade in goods.
Ten years ago, countries agreed on certain principles and text to pursue the services liberalization. Those principles were further endorsed in Doha Ministerial Declaration and various other instruments.
The process as well as contents of current negotiations leading towards Hong Kong ministerial deal such as complimentary approaches, numerical targets, pushing for multilateral approaches rather request – offer process, linking progress on agriculture with GATS, putting elements in draft ministerial text without consensus of the members, are not only deviating from the basic principles and architecture of GATS but demonstrates the intention of developed countries leading towards forced liberalization to serve the corporations rather under-served poor population of developing countries.
Despite the opposition by a majority of members, EU is adamantly persuading the formula approach which leads to mandatory commitment for opening up 93 sub-sectors out of 163 in developing countries without knowing the social, economic and environmental implications of such big jump in services liberalization.
In addition to these numerical targets, EC proposal is ambitious for so-called ‘qualitative’ targets to remove the restriction under different modes of supply and other instruments available to promote the national policy objectives such as limitations to foreign equity under mode-3, economic needs tests, certain standards and qualifications and restriction to certain type of legal entities.
The recent move by EU to link the progress in agriculture with services was never agreed nor was it part of the current negotiations on agriculture. A big trading partner like EU demonstrates that EU is not willing to offer much in agriculture and wants to lower the ambitions of developing countries in agriculture by linking it with their ambitious agenda in services.
The GATS agreement covers broad range of services pooled into 12 sectors and 163 sub-sectors. The agreements also define four modes of supply of services.
Agreements like GATS have an inbuilt inequality. GATS is about the liberalization of the entry of foreign services and foreign services providers into a country. Clearly, it is for the benefit of countries that have the capacity to supply services to others. As developing countries do not generally have much supply capacity in this area, their prospect of benefiting from the GATS process is limited.
Privatization of public services is now an important part of the GATS within the World Trade Organization (WTO). The provision of basic services, which is enshrined in the United Nations universal declaration of human rights such as the rights to water, health and education are the fundamental responsibility of states.
Giving weight to this notion, countries around the World are committed to provide education, health and water under UN’s Millennium Development Goals.
The privatization of water services in the Philippines, Argentina, Bolivia, South Africa and Indonesia has exposed the whole privatization paradigm. In these countries, privatization of water led to disconnections of water lines, heightened water tariff, manipulation of national regulations, revision of concession contracts, and restriction of communities to harvest rain water; consequently the poor communities were bent backward to buy water services from profit making companies.
On the one hand, rich countries are putting pressure on poor countries to open up their services sectors for private corporations and on other hand ,the basic services sectors in rich countries are managed by public sector or with huge public sector spending (table).
Public expenditure on health and education in selected rich countries
In the preamble, GATS makes provisions for national governments to decide whether or not to open up services sector. Currently developing countries are under pressure to open up the services sectors.
Developed countries are not satisfied with the offers tabled so far by developing countries, and that’s why developed countries are adamant on establishing the benchmarks – a minimum level of binding commitments for key sectors/sub sectors and models.
For instance, EU has suggested that developing countries should commit to open up 93 sub-sectors out of 163. This proposal would bind members to make offers in minimum number in key sectors/sub-sectors, and also define the percentages of different modes for supply of services.
This approach of benchmarking or common baseline is fundamentally flawed, being incompatible with GATS and with the development principles of Doha Round. This will take away the flexibility that poor countries now have of making binding commitments only when they are ready and in a position to do so.
GATS Article XVII requires that foreign companies must be given the same treatment as domestic firms. This National Treatment principle and removing all discrimination in favour of local provider, could potentially limit governments’ policy options, like regulations to ensure that foreign companies’ investment primarily benefit local employment and local suppliers. Without appropriate regulatory measures, nascent service providers may be driven out of business.
Once a member state makes a binding commitment, it becomes very difficult to reverse it even in situations where the services provided are of poor quality. The process can be too costly for developing countries and they would lose control over service providers. GATS article VI provides that members shall develop the necessary disciplines to ensure that measures relating to qualification requirements and procedures.
Technical standards and licensing requirements do not constitute unnecessary barriers to trade. Developed countries seek to protect, via these negotiations, the profit of service investors and deny the right of states to regulate.
To bring in a true development agenda, the following problems need to be addressed:
* concerns of the developing countries and ambiguities in the schedules submitted by the developed countries.
* developed countries need to withdraw benchmarking proposals which are are against the basic architecture of the GATS, erode flexibility, depart from negotiations guidelines, disregard differences among countries and create room for further manoeuvring.
* services’ liberalization commitments should be made after comprehensive sectoral impact assessment to weigh carefully the benefits and burdens of liberalization.
* developing countries should protect their sovereign right to regulate the trade in services according to their national policy objectives. The developed countries should not push their agenda of discipline on domestic regulation that undermines the right to regulate.
* social service sectors such as education, health, water, agricultural extension and environment must be explicitly excluded from liberalization commitments.
* developed countries should address the LDCs demands to remove the undue restrictions on market access under mode -4 and incorporate in their offers semi-skilled and unskilled labour forces.