Paul Kruger, tralac Researcher, discusses the General Agreement on Trade in Services

It has been reported that a subgroup of WTO member states is currently holding exploratory talks with the view to pursue a plurilateral services liberalisation agreement. The countries discussing the possible services agreement are part of a group called the Real Good Friends (RGF) of services liberalisation and include the 16 WTO member states of Australia, Canada, Chile, Colombia, the European Union, Hong Kong, Japan, Korea, Mexico, New Zealand, Norway, Pakistan, Singapore, Switzerland, Taiwan and the United States. According to the group, a plurilateral agreement would pave the way to energize the global trade in services. Since the Uruguay Round, little progress has been made in the WTO to further develop services trade and liberalisation. Most of the initiatives originate from within regional and bilateral negotiations, but the lack of progress at the multilateral level also complicates matters at the other levels. This is evident from the uncertainty surrounding the recent EAC services negotiations (read tralac’s Hot Seat Comment: The linking and delinking of the EAC annexes). Developments at the multilateral level have the potential to clarify areas of uncertainty and support the creation of international best practice frameworks for countries to negotiate services agreements more effectively. Therefore a strong case can be made for the advancement of services negotiations at WTO, regardless of the format of these attempts.

India, Brazil and South Africa along with other developing countries have expressed their concern over the use of the plurilateral format to craft an exclusive agreement that is not be negotiated amongst all WTO member states. The developing countries believe that a departure from the multilateral approach will cause irreparable damage to the Doha trade negotiations and the WTO system in general. Although the discussion is taking place within the RGF group, the talks are open to all WTO members outside the group. Thirty countries have been invited to the discussion that is taking place this month, but it is not clear how many accepted the invitation. The participation of developing countries is nevertheless important for the formation of a plurilateral agreement as these are the markets where most opportunities exist. There are also advantages for developing countries, as participation will show a willingness to reform their domestic regulatory frameworks which could potentially lead to increased investment.

It is unclear how the process will unfold as it is currently only a concept in development. Key questions, such as the participation base, its architecture and the extension of benefits are still under discussion. To take the process forward, there are a number of plurilateral options available to the group.

1. MFN based plurilateral agreement: The agreement will be plurilateral in its origin based on the participation of a ‘critical mass’ of WTO member states. The Information Technology Agreement (ITA) and the results of the financial services and basic telecommunications negotiations are examples of agreements reached through the critical mass approach. In all three negotiations, the critical mass was set at around 90 percent of world trade in the covered areas. One problem with this approach is that the percentage of world services trade covered by the RGF group is not high enough. The BRICS countries alone already constitute over 10 percent of the global services trade. Although this approach is selective in the negotiation, it is universal in application, meaning that the benefits are extended to all WTO members on an MFN basis. It is however unlikely that the group will prefer an outcome where non-participants receive benefits, as this will leave little incentive for third parties to join the group and open their markets.

2. Conditional MFN based plurilateral agreement: This agreement is also plurilateral in its outcome, as the benefits are confined to the participants. Only countries taking part in the negotiations will receive preferential access to the domestic markets of their partners. Such an agreement, as pointed out by the developing countries opposing the plurilateral approach, could raise serious concerns over how it can be implemented in line with WTO rules. It is likely that the group will have to approach WTO members for a waiver if they want to negotiate the agreement within the architecture of the WTO system. After 1996 a consensus decision making approach was adopted for granting waivers, thereby requiring every WTO member to give its permission. This can complicate the process for the participating countries to acquire a waiver, as approval will possibly be linked to concessions in the other Doha negotiating areas of agriculture and non-agricultural market access (NAMA). A waiver would allow the agreement to be created within the WTO framework, so that the existing disciplines and rules, including the dispute settlement mechanism, would apply. Another possible advantage of this approach is progress on the stalled Doha issues through the negotiation of waiver concessions.

3. Economic Integration Agreements based on GATS Art. V: Another option would be to design an external agreement to conform to the principles of GATS Art. V. Such an agreement will exist outside the WTO architecture as a standalone services FTA between the participating countries. It will still have to comply with the requirements stated in GATS Art. V, most notably having ‘substantial’ coverage of the services trade. This could place a significant burden on certain participants, especially the lesser developed countries, which will have to substantially open up their markets to the more developed partners. It would also make accession to the agreement more complicated, as the degree of openness from prospective candidate will be a deciding factor. It is also not clear if some of the more developed countries are prepared to substantially open their services industries.

The greater the participation in the plurilateral initiative, the more meaningful the outcome will be. However, since the inception of the GATS, services trade has proved to be a very sensitive area, partly because the implementation of international commitments meant reforming countries’ domestic regulatory frameworks. It can be argued that another reason for the sensitive nature of services negotiations is the lack of progress at the multilateral level to come up with a best practice approach to progressively liberalise and develop the services sectors. There has been a general lack of exposure to services issues for many developing countries; and a closed services agreement have to potential to further increase the divide. Developing countries should however critically consider the potential investment opportunities that can arise from closer association to the RGF group. It is a daunting prospect to substantially open domestic markets to developed partners like the United States and European Union, but for countries serious about services development it may be a risk worth taking.

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