Memorandum submitted by Dirk Willem te
Velde, Research Fellow, Overseas Development Institute
INTRODUCTION
This submission deals with services negotiations,
but I refer to other material on the ODI portal website (http://www.odi.org.uk/wto_portal/index.html)
for further information on other issues.
The services sector is an engine of growth and
poverty reduction, and so is trade in services. The literature
argues that there are big potential gains from trade in services
liberalisation, but there are also risks and these need to be
managed using appropriate regulation. The Uruguay Round (GATT)
set up the GATS (General Agreement of Trade in Services) as a
framework to govern multilateral liberalisation of trade in services.
The current Doha Round (WTO) uses this framework to govern requests
and offers by Member states. However, progress in terms of offers
to liberalise services has so far been slow, due to substantive
issues as well as capacity constraints. An important issue then
is to find appropriate negotiations procedures that allow developing
countries sufficient flexibilities to liberalise services sectors
while being helped by technical assistance and other support to
do assessments of liberalisation in trade in services sectors.
This submission argues that:
— Trade in services is increasingly
important for development.
— There is limited progress on services
negotiations in the current GATS round so far and thus there are
few expected welfare changes for developing countries.
— Additional GATS negotiation approaches
will need to be assessed on their merits. The EC has set mandatory
targets for developed and developing countries (with exceptions
for the most poor and vulnerable countries) to raise the ambition
in services negotiations in its trade offer of 28 October 2005.
This can be dismissed on procedural and substantive grounds.
— If WTO Members decide to pursue plurilateral/sectoral
negotiations (these are voluntary where Members can decide for
themselves whether to join or not), there is a need for developing
countries to ensure that
— mode 4 (temporary movement of service
providers, or temporary migration of workers on a contract basis)
is part of this;
— sufficient flexibility remains in
the negotiations, ie that countries can provide offers and requests
when they are ready to do so; and
— sufficient and appropriate technical
assistance (TA) is available to cover the costs of developing
countries' effective participation in time consuming services
negotiations.
— Developing countries need further
TA to help them to trade in services, regulate it, and participate
in the negotiations. At Hong Kong, WTO Members may want to:
— recall the importance of TA, not
just for Geneva negotiators but also for the capital based officials
to do services assessments themselves and improving regulatory
capacities;
— refer explicitly to the LDC modalities
for services negotiations, and making TA more automatic; and
— think about conducting a stocktaking
of existing TA for services negotiations with a view to increasing
this and making it coherent.
IMPORTANCE OF
TRADE IN
SERVICES FOR
DEVELOPING COUNTRIES
Services are growing in importance in developing
countries, have risen as a share of GDP (from 40% in 1980 to 55%
in 2003, for low and middle income countries), are substantial
in terms of export revenue (around 15% on average now) and impact
on development. Exports in services can be very important, for
example more than 50% of GDP in Antigua and Barbuda, though it
is not important in countries such as DR Congo (around 5%).
Imports of services: More efficient telecommunications,
infrastructure and energy services (with appropriate regulation)
are the backbone of an efficient economy and are valuable services
themselves. Countries with liberalised telecommunications tend
to grow faster. According to some service liberalisation (excl
mode 4) yields six times the welfare gains of manufacturing liberalisation
($250 billion a year), though such numbers need to be interpreted
with care. Much of the gains will depend on admitting foreign
service providers and this may work for development if the regulatory
framework in right.
Exports of services: There are several examples
of sucessful services exports from developing countries, and these
include (health) tourism, business and financial services (IT,
legal, call centres etc), shipping, education and mode 4.
Indian exports of services is the most prominent
example. Exports of IT enabled services grew from US 1.8 billion
in 1998 to US 9.9 billion in 2003 and is now responsible for a
significant share of Indian exports. Valued added in exports of
services increased GDP growth by 0.2 and 0.6 percentage points
annually over 80s and 90s. Reports suggest India is a favourable
destination for offshoring in future, increasing the importance
of services trade for India. UK offshoring of services to India
is good for development in India.
But other countries have also had successful
services exports, showing that services export interests of developing
countries cover, but also go beyond, mode 4. Take the example
of the Caribbean:
— Tourism: Contributes 15% of
GDP and 16% of employment in the Caribbean region, different roles
in different countries, mass tourism cruise ships to eco-tourism
and cultural tourism.
— Financial services: The offshore
sector has contributed significantly to services exports and GDP.
— Education services: There
are many partnerships between Caribbean and UK/US institutes.
There are several (medical) offshore schools in the region, exporting
services.
— Health services: Health tourism
is also important (eg surgery in combination with cruise holidays)
for the Caribbean region.
— Business IT services: The
market for offshored services such as IT and other back-office
operations is increasing (Jamaica, Barbados, Trinidad and Tobago,
St Lucia)
— Cultural services: Music:
Jamaican Reggae US 1.2 billion in 1995. Street festivals and Film
and Video: The Carnival alone contributes 12% of tourism receipts
in Trinidad and Tobago (2003), the Jazz Festival in St Lucia contributes
6% (2003).
Another interesting example of mode 4 exports
is South African doctors performing operations for a limited period
in the UK before returning.
Employment and poverty: several services sectors
are employment intensive (eg certain tourism and construction
sectors, and mode 4). Perhaps the effects may not be direct in
that call centres do not employ the poorest of the poor, but there
are significant indirect effects (eg remittances, employment effects
and indirect consumption effects). The effects of trade in telecommunications
and financial services on the poor will be felt differently (prices
of telephone calls, or interest rates), from the effects of tourism
trade (eg number of jobs for the poor), IT enabled services (foreign
exchange, dynamic incentives for skills, etc), or water (prices),
transportation (effect on efficiency of other business operations,
and on trade costs).
Development strategy: increased services are
a source of diversification away from natural resource dependence:
call centres in Ghana, financial services in Mauritius, health
tourism in Caribbean, IT in India.
SERVICES NEGOTIATIONS
AT THE
WTO
Progress in the services negotiations is unsatisfactory
to many. The Report by the Chairman to the Trade Negotiations
Committee (TN/S/20) on services offers noted in July 2005 that
"Overall, although the numbers have improved, the quality
remains poor", and "Few, if any, new commercial opportunities
would ensue for service suppliers".
The EU wants to see more movement in the area
of services, though we know that such progress is linked to movement
in other areas such as agriculture and special and differential
treatment. The EU's position has become substantially stronger
over the past months. The point about GATS is that countries can
commit services sectors when they are ready to do so, and support
might help in the process to help make services negotiations work
for development, but now the EU wants to see negotiations complemented
by ambitious mandatory country targets for services sectors to
be liberalised—agreed at Hong Kong; for developing countries
a lower target would apply that is equivalent to two thirds of
the target (139) for developed members, ie 93 sub-sectors. Substantially,
the EU has not specified how and whether sectors should be liberalised,
unlike the requests it sent around a few years ago. Instead a
plurilateral, voluntary approach might be much more fruitful for
developing countries so that they can discuss in groups, sectors
of their interest, and with the help of assistance, without the
requirement to make offers, which can continue to be done in request/offer
approaches.
If WTO Members decide to pursue plurilateral/sectoral
negotiations (the Uruguay Round was also extended in the complex
area of services in the form of sectoral negotiations in telecommunications,
financial services, mode 4 and maritime services with varying
success), developing countries may want to ensure that:
— mode 4 is part of this (again);
— sufficient flexibility remains in
the negotiations, i.e. that countries can provide offers and requests
when they are ready to do so; and
— sufficient and appropriate TA is
available to cover the costs of developing countries' effective
participation in time consuming services negotiations.
Developing countries may be interested in making
more offers, even though they should not and will not be compelled
to do so due to the flexible character of GATS. Often this turns
around market access and national treatment commitments in mode
3 (commercial presence of foreign services suppliers). In reality,
many developing countries already allow foreign firms into the
country in areas such as telecommunciations, hotels, financial
services, but they are not willing to bind this status quo, often
for the legitimate reason that they have not yet considered what
it would mean if they were to bind this or whether they are unsure
that the current regulatory framework could cope with a sudden
new influx of new foreign services suppliers.
However, there are some positive aspects of
making GATS commitments. The set of trade rules contained in GATS
(especially mode 3 on investment) provides for a transparent framework
conducive to private sector activities, reducing uncertainty and
encouraging cross-border investment. Signalling is another type
of effect. Countries that make offers and requests to GATS are
willing to seriously consider development of the services sectors,
sending positive signals to potential investors. Services firms
say they also look at GATS schedules when they make their decision
to invest, though of course it is not the most important factor.
In the specific case of a subset of Caribbean countries in the
tourism services sector, we found on the basis of statistical
evidence, that countries that had made more ambitious offers (though
this should coincide with impact assessments of increased FDI)
had also attracted more investment, but it should be noted that
this may not be applicable to other sectors/countries.
Easier access for developing country services
providers in developed and other developing countries, in particular
for temporary workers will be helpful for development. Mode 4
refers to temporary migration, so promoting this might
politically be better than promoting long-run migration (though
eventually host and home countries are likely to be better off
in both cases). Both ways of using the comparative advantage of
cheaper labour can lead to significant development effects and
these have been emphasised recently (remittances, diaspora investment,
exports of goods and services, skills learning, etc). That said
there might be negative effects for capacities in some sectors
or small countries.
In practice there are also other areas that
help easier access for short-term services providers that may
fall outside the narrow scope of GATS mode 4: make visa procedures
easier, cheaper and more transparent, or make it easier to recognize
foreign experience and qualifications. And, while efforts should
be devoted to make GATS mode 4 in EU countries less restrictive,
in the short run options appear to be limited (not least because
the EU Member States have full competence in this area).
One option could be to ask for an inventory
of all the temporary foreign worker schemes in the EU (some include
mode 4 aspects, others are more permanent migration type of schemes),
so that developing countries at least know of all the schemes
and how to apply for these (if UK firms recruit bus drivers in
Poland, this can be extended elsewhere).
For other potential options, we need to refer
to the mode 4 offer by the EC. The consolidated EU-15 and now
EU-25 offer introduced four categories to which it attaches market
access conditions:
— ICT (Intra-Corporate Transferees),
managers, specialists and new graduate trainees (some new commitments
here).
— BV (Business visitors), both for
services sellers and for establishing a business.
— CSS (Contractual services suppliers),
(more sectors and new time periods).
— IP (Independent Professionals) (new
category).
In all these cases, EU and national working
conditions, minimum wage requirements, and any collective wage
agreements will continue to apply (effectively undermining the
comparative advantage of developing countries services suppliers
in mode 4). EU Member States will continue to be able to refuse
entry to persons that pose a security threat or might abuse the
terms of their entry.
There are still major limitations on access,
including:
— Quotas (numerical ceilings) with
regard to entry of certain categories of workers will need to
be determined. Developing countries would like to see a high numerical
ceiling, but we have not yet heard the details on this.
— Economic needs tests or residency
requirements apply in certain sectors. Could these be held to
a minimum?
— Less skilled workers are not automatically
granted access through GATS provisions (though individual countries
may have their own schemes).
And limitations on post-entry treatment:
— EU and national working conditions,
minimum wage requirements, and any collective wage agreements
will continue to apply, effectively undermining the comparative
advantage of developing country labour.
— An important limitation on national
treatment (NT) in mode 4 relates to the fact that "EC directives
on mutual recognition of diplomas do not apply to nationals of
third countries". And recognition of the diplomas which are
required in order to practice regulated professional services
remains within the competence of each Member State.
These issues (mutual recognition, removal of
Economic Needs Tests, increase numerical ceilings) tailored to
specific sectors or occupations, would need to be discussed in
post Hong-Kong negotiations on mode 4 (if these were to happen),
and need intense discussion with immigration departments in EU
member states.
What could be done at Hong Kong?
It is easy to be pessimistic about how much
can be achieved before the end of 2006, as that is when some say
the Round will need to be finished. Services negotiations are
complex, much more complex than negotiations in goods trade. A
change in the regulatory framework is harder to make than a decrease
in tariffs. If countries come up with certain templates for sectoral
negotiations at some point (or even in Hong Kong), is there still
sufficient time to change the GATS schedules into new offers?
However, some developing countries may be willing
to progress on their services offers, but may not be able to do
so because of insufficient information or lack of appropriate
regulatory capacities. Technical assistance might help, even if
only a small part can be used effectively within the short period
until the end of 2006 while the rest could be aimed at capitals
to remove the constraints there in the medium term. Developing
countries need further technical assistance (TA) to help them
to trade in services. At Hong Kong, Members may want to:
— recall the importance of TA, not
just in Geneva but also back in the capitals for services assessments
and for improving regulatory capacities;
— refer explicitly to the LDC modalities
for services negotiations, and making TA more automatic; and
— think about a stocktaking of existing
TA for services negotiations with a view to increasing this and
making it coherent.
November 2005
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