Global Policy Forum

Mounting Pressure to Liberalize Services: Developing Countries Need to Put Their People's Needs First


By Rosalina Muroyi

International South Group Network
May 29, 2002

The 4th World Trade Organisation (WTO) Ministerial Meeting held in Doha, Qatar, in November 2001, saw the adoption of an unrealistic paragraph 15 on Trade in Services. The paragraph gave dates for the submission of initial request and offer proposals by WTO Members to the Council of Trade in Services (CTS). These were pinned to 30 June 2002 for requests, and 31 March 2003 for offers.

These deadlines are unrealistic given the weak participation of developing countries in the negotiations on the General Agreement on Trade in Services (GATS) initiated in 2000. While the group's participation in shaping development-friendly guidelines for the negotiations was remarkable, its participation in terms of the number of proposals submitted to the CTS has been deplorable. This poor participation is due to a number of factors. These include, among others, the inability of most developing countries to identify sectors of interest to them, that is, sectors where they could compete on equal basis with developed countries, and then unavailability of a cost-benefit analysis on the sectors that they have already liberalised. The crux of the matter is the lack of capacity and resources to conduct analyses of the domestic situation that would allow to identify one's interest and evaluate the results of previous liberalization. There is almost no GATS meeting, be it WTO official or unofficial, of developing countries negotiators, or civil society, that has not ended without a call for the assessment of trade in services. To officialise this call, a group of 10 developing countries (Cuba, Dominican Republic, Haiti, India, Kenya, Pakistan, Peru, Uganda, Venezuela and Zimbabwe) submitted a statement, a few weeks before the Doha conference, WTO document: S/CSS/W114, emphasising the imperative of a proper assessment of the trade in services. The 10 countries make reference to the negotiating guidelines which explicitly say that, "the CTS should carry out an assessment of trade in services in overall terms and on a sectoral basis with reference to the objectives of the GATS and of Article IV in particular." The assessment of trade in services is stipulated in the GATS itself, it is not something that developing countries have to beg for. In spite of all this effort to try to be heard, the so-called 'member-driven' organisation adopted paragraph 15 as is. [Note: A second submission on assessment on trade in services was also submitted to the CTS by the following countries on 6 December 2001: Cuba, Senegal, Tanzania, Uganda, Zimbabwe, Zambia; S/CSS/W/132].

While most developing countries still have no clue of where to start regarding meeting the 30 June 2002 deadline, leaked European Commission (EC) proposals show that the EC is determined to get maximum concessions out of the developing countries. Countries on the current list of EU's draft requests include South Africa, Egypt, India, Argentina, Brazil, Malaysia, among others. The 29 leaked documents are downloadable from These requests show business corporations, which focus only on profit making even if this is at the expense of may poor in developing countries, are the driving force behind the EU's proposals. Among other sectors, the EU is asking for the opening up of basic services such as water supply, electricity, telecommunications, news agency services and banking. The EU is also asking for a reduction in limitations scheduled in most of the developing countries' commitments. Emphasis is also put on relaxation if not elimination of regulatory laws on foreign investment.

It might be too early to give a categoric judgement on the EU's requests, but the EU's negotiating tactics are now well known to the developing countries. They always give developing countries a chance to complain and argue, that is, 'to participate' in the negotiations and therefore making the EU appear to be very democratic. This makes the developing countries feel that they are "equal partners" with a 'voice' in the negotiations. They call it 'confidence building' in WTO terms. Once the developing countries are 'confident' in their participation, the EU as well as other developed countries find it easy to pull out their carrots. This is nothing new. The EU used the Cotonou waiver issue to conquer the ACP resistance at Doha. The ACP's 'active participation' at Doha could however not change the content of the final document. It was a non-contributive participation with consolation prizes here and there.

Why did the developing countries agree to adopt the document if this paragraph did not suit them? The Doha draft text had a total of 45 paragraphs on different issues. All these had to be discussed and agreed upon 'by consensus' by 141 countries within five days (later extended to six days). There were three other additional detailed documents on Implementation Issues, TRIPs and Public Health, and Procedures for Extension under Article 27.4 for Certain Developing Country Members (relating to Subsidies and Counterveilling Measures). It is however, not time that mattered here. The Ministerial meeting is essentially a political event. All technical negotiations are done well before by the trade negotiators with the guidance of their ministers. Normally, the draft is presented to the Ministers for fine-tuning as they exercise their political right. This however, was not the case with the Doha draft. The developing countries were not happy with the draft and had objected to it being taken to Doha without appropriate articulation of issues most pertinent to them. This was however ignored by the then Chairman of the General Council, Mr. Harbinson. He forwarded the document without amendments and with an accompanying letter to the Chairman of the Ministerial Conference. What does this mean? It means that in this 'member-driven' organisation, some members are more equal than others. Hence, developing countries could not win the Doha battle. Besides the carrots dangled to most developing countries during the week long meeting, a lot of pressure was exercised on the 'stubborn' vocal developing countries.

So the developing countries have all reasons to be cautious with the requests of the EU. The GATS lacks clarity on many issues which make it difficult for developing countries to stand for their people's basic rights when faced with powerful trading partners like the EU. The typical example is found in the first article of the GATS which specifically excludes from scope, "services supplied in the exercise of governmental authority." However, the same article goes on to define such a service as one "which is supplied neither on a commercial basis, nor in competition with one or more service suppliers." In most countries public provision of services like education and health coexists with private sector provision. This therefore means that, in such cases, public services are covered by the agreement. Water is also such a service which, traditionally used to be under the provision of government authority, but is now being provided by private corporations too. For developing countries, services like water and electricity supply are still under government provision and it is the government's responsibility to adequately make such services available to all its people. However, since they now fall under the GATS, they are treated as commercial commodities. The government cannot prevent other business players from providing these services. If it cannot compete, it has to leave the provision of these commodities to the competent corporations. People who can afford will pay for the service, those who cannot will have to do without it.

Liberalisation of Water Supply

In the 29 leaked documents, the EU is requesting all members to open up sub-sector of "Water for human use and waste water". This falls under the Environmental Services sector. Let us give a glimpse of the two African countries that figure on the list, Egypt and South Africa (the "developed" countries of Africa). The EU is asking these two countries to liberalise water for human use and waste water management. This includes water collection, purification and distribution services through mains, except steam and hot water. Egypt has not yet made any commitments in the whole environmental sector. Although South Africa has already made commitments in some of the sub-sectors, it has not yet opened up water supply. Should these countries respond positively to the EU's request, water will certainly become too dear to the already suffering people of Soweto, for example. A recent Survey by a South African NGO, Municipal Services Project, revealed that ten million people in this country have their water supplies cut because they cannot afford to pay their bills. Poverty is at the root of these non-payments, not unwillingness to do so.

In its bid to ensure provision of basic services to all its people, the South African government introduced free water and electricity policies. Under these policies, poor South Africa households are entitled to a minimum amount of free water and electricity. Will opening up these services to market forces not compromise such humane policies? Will the EU corporations be ready to operate in such conditions where a big part of their market is stolen away by the government? When big corporations come, they will promise honey and milk. They may propose unbelievable discounted rates just to win their contracts, but soon, the rates are hiked out of this world - as Vivendi Water did to the people of Argentina. Liberalisation of basic services like water is not only a worry for developing countries. Even a developed country like Canada has its civil society bitterly denouncing the liberalisation of water given its ever increasing unaffordability to low-income earners.

Liberalisation of Financial Services and Promotion of Foreign Direct Investments

When it comes to foreign direct investments (FDIs), developing countries may want to exercise caution. The FDI issue makes the GATS an investment agreement. It is a revived multilateral agreement on investment (MAI), making the GATS a wolf in sheep's clothes. The developed countries have been pushing this issue for a long time. The United Nations' International Finance for Development Conference held in Monterrey Mexico in March 2002, has also endorsed the idea. Foreign direct investment, goes the FDIs promotion song, is a sure way of helping developing countries overcome poverty since it claims to bring with it jobs and technology transfer, among other things.

The EU is pushing for more market access in financial services. For example, the EU is requesting Egypt to do the following on insurance services: take full commitment on cross-boarder supply of all services auxiliary to insurance, eliminate economic needs test in all sub-sectors of insurance services, and eliminate restrictions and allow 100% foreign capital equity in all sub-sectors. Furthermore, Egypt is also being requested to take commitments on wholly foreign-owned subsidiaries in the banking sector. The EU, among other things, is actually pushing for the elimination of any discrimination measures in the treatment of foreign and domestic financial service providers, elimination of any barriers to the cross-border provision of the financial services. This seems to contradict the other seemingly good side of the GATS framework such as: the right of governments to regulate and introduce new regulations on the supply of a service within their territories in order to meet national policy objectives (stipulated in the GATS Article VI.4).

Even though liberalisation of financial services is said to have considerable potential to generate growth, especially through FDIs, developing countries must resist pressure to deregulate financial services and take countries like Argentina as their guiding lessons when they make decisions. Argentina is now in crisis. One of the major reasons of the crisis is that the foreign banks could not lend to small and medium sized firms and therefore these companies had to fold up. After all the mess, the foreign banks closed up and went back home leaving Argentina poorer and more miserable than before. This is just an example of what unregulated financial flows can do. The EU's requests are calling for developing countries to remove regulatory measures on FDIs.

The developing countries succumbed to the Doha pressure. They are unlikely to be able to survive the new pressure on further liberalisation of their services, even those in the domain of basic services. It is therefore, strongly advisable for developing countries to: - make further commitments in GATS only after they are satisfied by a quantitative and qualitative assessment that allows them to identify the sectors and modes of export interest to them and their gains/losses from the sectors they have already opened up. The Negotiating Guidelines, re-affirmed at Doha, have failed to strengthen the imperative for assessment. Developing countries need to push for the operationalisation of every aspect of the Guidelines. Third World governments should put the humanitarian and developmental aspects of their people first. They should therefore publicise their service offers and hold cross-sectional consultations of all stakeholders before they make any further commitments on services, and thus, make informed decisions.

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.