SERVICES CHAIR'S DRAFT HONG KONG TEXT LEAVES DOOR OPEN TO BENCHMARKS

Services Chair Mexican Ambassador Fernando de Mateo's draft ministerial declaration text on services trade leaves the door open to mandatory benchmarks for liberalisation, which is likely to earn the ire of WTO Members who are firmly opposed to the concept.

The draft ministerial text was prepared by de Mateo under his own responsibility after numerous consultations in both open-ended and small-group format. Sources report that in those consultations, the major 'demandeurs' for benchmarks such as the EU, Japan, Australia and Korea advocated binding, mandatory numerical targets for the number of services sectors and sub-sectors in which Members must make liberalisation commitments as part of the Doha Round negotiations.

The EU's 28 October comprehensive proposal on the main negotiating issues of the round called for developed countries to undertake commitments in 139 of the 163 subsectors covered by WTO services rules, and for developing countries to do so in 93 (see BRIDGES Weekly, 2 November 2005).

Most developing countries firmly oppose these mandatory numerical benchmarks. Many have pointed out that a cursory examination of the EU's existing and offered services commitments reveals that they correspond roughly to the numerical target that it has set for developed countries. The US and Japan likewise would have to undertake minimal additional commitments to meet the target. Developing country Members protest, on the other hand, that simply trying to meet the EU's proposed benchmark would require them to make many more commitments, even in subsectors where they may be ill-prepared to open their markets any further.

Setting the stage for deeper commitments

Presently, the draft text incorporates both multilateral and plurilateral approaches to enhance liberalisation.

Multilaterally, the text exhorts Members on a 'best endeavour' basis to formally bind existing levels of openness to foreign competition in the services sector, as well as to commit to further liberalisation. Outlining a set of qualitative targets for each of the four 'modes' into which services trade is classified by the General Agreement on Trade in Services (GATS), it stipulates that "Members should strive to ensure that their new and improved commitments adhere" to them. It also encourages them to reduce or eliminate any restrictions that they may have placed on most-favoured nation (MFN) treatment.

With regard to the 'cross-border supply' of services, or Mode 1, the draft asks Members to remove restrictions that require companies to have a commercial presence in a country before they can provide services there. It also urges Members to extend "commitments at existing levels of market access" multilaterally, "across sectors of interest" to other countries. Similar injunctions are placed on Mode 2, which covers the consumption of services abroad.

The Chair's draft encourages Members to permit higher levels of foreign ownership of services companies as part of the targets for the commercial presence of foreign services companies, or Mode 3. It also asks them to place fewer restrictions, such as joint-venture requirements, on how such companies can function.

Members are also exhorted to improve commitments on the so-called 'movement of natural persons, or Mode 4, which covers the crossborder movement of individuals to provide services. Notably, the draft calls on governments to de-link new commitments from the commercial presence of an enterprise, and to remove or reduce economic needs tests such as those that require employers to prove that no domestic workers are available before they can bring in foreign workers under the GATS. Such restrictions have helped keep South-North movement of service providers to a minimum.

The text provides for a plurilateral variant of the bilateral request-offer process, which would allow groups of countries to make collective market access requests to other Members, and subsequently negotiate on these requests plurilaterally before deciding on a level of liberalisation to offer to the entire WTO Membership. It also specifies that the negotiations would be guided by the Chair's summary of the sectoral and modal objectives expressed by Members, which is included as an annex to the text

Even more controversially in light of the strong opposition of so many Members, the Chair's text retains a 'placeholder' for multilateral, mandatory numerical targets, although it does not spell out any details on if, what or how the controversial numerical targets or indicators will be used in the services negotiations. Nor does it elaborate on how exactly the sectoral and modal objectives contained in the annex would provide guidance to the negotiations.

Sources say that de Mateo may flesh out the text with language stipulating mandatory compliance with fixed numerical targets, which has been a major demand of the EU. This, they say, would be a mistake at a time when Members are "recalibrating" their expectations for Hong Kong. Some delegates say, however, that the best chance for agreement on the text would be to imbue the numerical benchmarks with a 'best endeavour' -- that is, non-binding -- character, similar to what was adopted for the qualitative benchmarks on the various modes of supply. However, these delegates say that this compromise is not likely to rear its head until the Ministerial Conference itself.

Members seek balance with rules negotiations

The draft ministerial text has also been criticised for its lack of emphasis on concluding the rule-making component of negotiations by the end of the round.

Trade experts point, for instance, to the proposed text on the negotiations on an emergency safeguard mechanism, which merely instructs Members to engage in more focused discussions on the technical and procedural questions relating to how a potential mechanism could work. This, they argue, has been exactly what Members have been doing over the last five years. The emergency safeguard has been a key demand of certain developing countries which say that such a mechanism is necessary to address situations where a sudden increase in foreign competition causes injury to a country's domestic industry.

Some observers note that the rules aspect of the negotiations is deeply linked to market access, pointing out that developed countries' push for benchmarks should lend justification to creating the safety net that an emergency safeguard mechanism would provide. They argue that compliance with benchmarks would increase the probability of ill-advised commitments, which would in turn result in situations justifying safeguard measures.

The draft text likewise instructs Members, on the issue of services subsidies, to intensify their efforts to fulfil the GATS-mandated information exchange, and to engage in more focused discussions on Members' proposals, including the development of a possible working definition of subsidies. Again, some trade analysts point out that the reference to focused discussions is little different from what has been going on anyway in the Working Party on GATS Rules.

On the other hand, the draft text's mandate on government procurement appears to put greater emphasis on proposals for a possible framework for government procurement. This has been criticised by some developing countries as being biased in favour of the EU's proposed framework for specific market access commitments in government procurement, and for failing to recognise Members' continuing differences on the scope of the mandate contained in the GATS.

De Mateo is continuing his consultations with delegates on the text. The section on disciplines on domestic regulation is still being negotiated in the Working Party on Domestic Regulation.

ICTSD reporting.