The WTO Trade in Services Negotiations: An Appraisal on their Status and on Issues of Concern to African Countries
Since the General Agreement on Tariffs and Trade (GATT) came into force in 1948, international trade rules have governed cross-border trade in goods, not services. This changed when the General Agreement on Trade in Services (GATS) came into force in 1995. For the first time, legally binding rules were set for trade in all “commercial services”, such as engineering, communications, entertainment, construction, finance, retail trade, tourism and transport. Only two sectors are not covered by the GATS. These are air transportation and any “services supplied in the exercise of governmental authority,” defined as those not provided in competition with other suppliers, nor on a “commercial” basis.
The services sector is the largest and fastest-growing sector of the world economy. It provides more than 60 per cent of global output and in many countries, an even larger share of employment. Studies show that Africa’s share of world trade exports in services totals just about 2.1 per cent.1 While Africa’s participation in international trade in services is low, the domestic services sector is relatively large, contributing for instance, about 40 per cent to the gross domestic product (GDP) of Uganda and 50 per cent to that of Zambia. In Kenya, South Africa and Zimbabwe, tourism is an important foreign exchange earner. Benin, Côte d’Ivoire and Tanzania get revenue from shipments from neighbouring landlocked countries transiting through their ports, while Ghana and Mali receive remittances from their citizens working in service sectors abroad. It is this huge, untapped domestic service market that the General Agreement on Trade in Services (GATS) seeks to open up to foreign competition and participation. The objective of the services negotiations in the World Trade Organization (WTO) is the “achieving a progressively higher levels of liberalization.”2
Services liberalization is a complex and relatively new process and its benefits to economies, especially weak economies such as those in most of Africa is not clear-cut. For most developing countries, privatization by opening up to foreign companies is very much a ‘natural’ consequence of services sector liberalization, since the government, and local suppliers are not be able to withstand the competition. While there are positive examples, there have, undeniably also been many less successful outcomes of liberalization and privatization in the various developing countries. In many cases, the goals of poverty reduction and development have not materialized, but have even been affected negatively. Accordingly:
Opening up essential services to foreign or domestic competition could have an adverse effect on the poor… If a country is a relatively inefficient producer of a service, liberalization and the resultant foreign competition are likely to lead to a decline in domestic prices and improvement in quality.
In the course of the negotiations, WTO Members will have to make choices regarding the privatization of state-owned enterprises, the introduction of competition in hitherto monopolistic ventures, the opening up of markets to foreign investment and the establishment of effective regulatory structures. No country has gone the full length in all of these elements however attractive they may have been painted to be. A gradual process of liberalization on all fronts seems to be the preference of most governments. Hence, countries have introduced competition but limited the number of firms as a matter of policy, privatization has been done with a limit on foreign participation and separate regulators have been created but government participation, and control, is still evident. Arguably, this gradual liberalization process is better, at least from the perspective of most developing country governments.