First draft on services sketchy

Updated: Nov 16 2005, 05:30am hrs
The first ministerial draft for the services negotiations prepared by the World Trade Organisations (WTO) council for trade in services (CTS) is in circulation. The sketchiness of the first draft, in terms of ambitions in various modes and the modalities, reflects the wide differences which exist among members on the direction the negotiations should take.

An encouraging point for developing countries is that the draft maintains that the request-approach should be the main method of the services negotiations. The EUs attempt to introduce the formula approach in the services negotiations has more or less been discarded.

Developing country members had opposed the proposal tooth and nail as they want to maintain flexibility in determining how much they want to liberalise and in which sectors.

However, the EU proposal of introducing quantitative benchmarks has found a place in the draft in the form of numerical targets and indications mentioned as a brief point.

India and a number of other developing countries do not want quantitative benchmarks as it would bring in an element of coercion in the talks and force members to make commitments where they may not be comfortable.

The draft also laid down the objectives in various modes. In mode 1, related to cross-border movement of services including business process outsourcing, the draft suggests that commitments to existing levels of openness on a non-discriminatory basis across sectors of interest to members should be made and the existing requirements of commercial presence should be removed.

In mode 2, which covers consumption of services abroad, the draft states that commitments to existing level of openness should be made and commitments should be made in sectors where mode 1 commitments exist.

In both mode 1 and mode 2, the draft has refrained from mentioning the sectors where the offers should be made.

In mode 3 of the negotiations related to establishment of commercial presence (the area of prime interest to developed countries), the draft states that commitments to enhanced levels of foreign equity participation should be made.

It also proposes substantial reduction of economic needs tests and commitments allowing greater flexibility of types of legal entity allowed.

Regarding the movement of natural persons which falls under mode 4 and is of great interest to India, which has a huge skilled and semi-skilled labour force, the draft calls for new or improved commitments on the categories of contractual services, suppliers and independent professionals.

The draft added that there should be removal or substantial reduction of economic needs tests, an indication of prescribed duration of stay and possibility of renewal, new or improved commitments in the categories of intra-corporate transferees and business visitors specifying prescribed duration of stay.

Irrespective of what the first draft states, the real acceleration in the talks will take place only when there is a realisation among developed countries that they have to concede more in the areas of interest to developing countries i.e. mode 1 and mode 4.

Touting security reasons (like the US) for not increasing access to their labour market or allowing internal politics to put a limit on outsourcing will not help as developing countries would retaliate by not making offers in the areas of interest to developed countries.

In order to ensure conclusion of talks by end of 2006, the draft has come up with a time-table. However, dates for concluding various areas of the negotiations have been kept in brackets. The dates can be filled in only when convergence of views emerge among members. The going will surely not be smooth in Hong Kong. Developing countries need to watch out!