The Next Round of Services Negotiations: Identifying Priorities and Options

T agreement to create a General Agreement on Trade in Services (GATS) was one of the major innovations to emerge from the Uruguay round. Trade in services was not covered by the 1947 General Agreement on Tariffs and Trade (GATT), even though such trade had always accounted for a non-trivial share of the foreign exchange earnings (expenditures) of many countries. The best estimates available suggest global trade in services— defined to include sales of services by affiliates of multinationals—stood at $2.2 trillion in 1997 (Table 1). Clearly this is not a nontraded sector. Given the novelty of the subject for trade officials, it was not surprising that most of the efforts expended during the Uruguay Round negotiations on services centered on conceptual and “architectural” issues—how to define trade, what rules and principles should apply to measures affecting this trade, and devising mechanisms to determine the coverage of the agreement. No liberalization of trade in services occurred during the Uruguay Round. Instead, what emerged was a framework under which liberalization could be pursued in the future, with explicit commitments to engage in further negotiations to liberalize trade in services five years after the entry into force of the GATS, and periodically, thereafter. Thus, new negotiations on services were launched in 2000. Although post-Uruguay Round sectoral negotiations to expand the coverage of GATS in the areas of basic telecommunication and financial services attracted a significant amount of media attention, the GATS, itself, has not generated a lot of public interest. Its provisions, let alone its existence, remain relatively unknown or understood even among those who have an interest in the functioning of the trading system. No major disputes regarding the implementation of the agreement have been brought forward, no doubt reflecting, in part, that no liberalization was achieved. This suggests the agreement is not perceived as particularly relevant to the various stakeholders, in particular, multinational business. Indeed, in the run up to the coming negotiations, services industries have made it clear that substantial efforts are required to make the GATS more relevant to the needs of business, in particular, as a tool for enhancing market access conditions.1 There is wide recognition among both the business community and government officials that the status quo is not an acceptable option, simply because the existing schedules of commitments in the GATS are not particularly useful. The correspondence between what is scheduled and the effective barriers to trade and investment that are in force is rather loose, to say the least. The question of how to proceed on services is particularly acute for developing countries. Almost all governments increasingly recognize the vital role that an efficient and vibrant service industry plays in the process of economic and social development. That is, certain services are basic inputs or components of the economic infrastructure, whereas other services can be a provisional shelter useful for social stability. In principle, the task confronting World Trade Organization (WTO) members in the area of services appears straightforward: to achieve a significant degree of liberalization and “lock-in” through scheduling commitments in the GATS. Realization of this objective will require governments to identify where domestic liberalization and policy reform would be beneficial from an economic development and growth perspective. Multilateral liberalization of trade in services will be more difficult to achieve than in the case of merchandise trade, as the characteristics of services and the policies restricting trade in services lend themselves less readily to the method of reciprocal exchange of market access