Sectoral / Plurilateral Negotiations and the Pitfalls for Development Examples of Key Sectors

13 December, 2005

US and EU want sectoral /plurilateral negotiations in Services to be launched after the Hong Kong Ministerial. The language in the draft text that will facilitate such negotiations are para. 21 and Annex C.

What are sectoral /plurilateral negotiations? These are negotiations usually amongst a critical mass of countries knocking together an ambitious framework of rules to liberalise a sector. This framework will then be bound in international law (WTO) and will be the yardstick by which all economies will be judged by foreign investors. The framework of rules will lock countries into providing the same treatment to foreign investors as local suppliers. The US and EU would like negotiations in about 10-15 sectors including energy, distribution, finance, transport, computer services, postal services / express delivery.

In 1997, the WTO completed sectoral negotiations in Telecommunications and Financial Services. These negotiations, together with Maritime and Mode 4 had been carried over from the Uruguay Round. The negotiations on Telecoms and Finance, sectors US and EU were most keen on liberalizing, were successfully completed, whilst negotiations in the other two sectors collapsed. The EU/ US agenda is to conclude the Round by 2006/7, but have sectoral negotiations take place after that.

In the current Round, it was agreed by all Members in 2001 that liberalisation can be advanced through bilateral, plurilateral or multilateral negotiations, but that the main mode of negotiations would be the request-offer approach. Negotiations are to also respect the flexible bottom-up approach enshrined in the GATS where countries can choose their pace and level of commitments. However, the EU, US, Japan, Australia etc are exerting great efforts in Hong Kong to change the rules and launch mandatory sectoral negotiations through Annex C and para. 21 of the draft Ministerial text (see Annex C, 7b). Even if these are not mandatory, but formal sectoral negotiations do take place, countries will be hauled into the room for negotiations (eg. through World Bank, IMF conditionalities etc).

Domestic suppliers in most developing countries are hardly competitive in comparison with the multinational giants. Aggressive liberalisation through sectoral negotiations will have serious implications on the survival of local suppliers, employment and the economy. The following are some examples of what the demands and implications are in key sectors.

A key objective of the negotiations in distribution, is to allow the access of foreign supermarkets into all countries. In practice, this means that the few large supermarket chains such as Wal-Mart, Tesco, Carrefour and Metro, which already dominate the retail market in most continents, will expand even further. These large supermarket chains use practices that lower prices for consumers but squeeze their suppliers and sometimes exploit their employees. For instance, Carrefour and Walmart Korea have been fined for bringing prices down by too large a margin, affecting other local retailers. The demand for supply in large volumes and high quality by supermarkets has also excluded small farmers and local suppliers from accessing the market.

If sectoral negotiations are launched, a pro-liberalisation framework of regulation would be put in place. This will include:
- eliminating economic needs tests which are currently used by governments to assess whether new supermarkets or hypermarkets have any negative economic, social or environmental impact.
- elimination of any domestic regulation disallowing foreign supermarkets from carrying certain items. Such exclusion is sometimes implemented to promote the interests of domestic suppliers.
- elimination of zoning laws that keep some small shops in town centers viable.

The GATS agreement already has a model for rapid liberalisation of investment and trade by foreign banks, insurance companies and other financial services, called the Understanding on Commitments in Financial Services. If sectoral negotiations are again launched, the liberalisation agenda would build on the current Understanding.

Already, this model requires far reaching liberalisation, and only very few developing countries have undertaken full commitments according to this framework. Apart from listing the many financial services that need to be liberalised, this model requires governments:
- to remove any obstacle to foreign financial services
- to guarantee that foreign financial service suppliers will be permitted to introduce new financial services (in other words, without an assessment if this will cause financial instability or meet the needs of the domestic economy)
- governments not to apply exemptions allowed by the GATS agreement. This ensures, for example, giving the same treatment to foreign and domestic service providers for procurement of financial services by public entities.

The US, EU and others, argue that financial liberalisation helps developing countries become more efficient. But this ignores the fact that:
- foreign banks and insurance companies are targeting the rich clients, excluding small companies and poorer clients from credit and other financial services, which stifles the economy and increases the gap between the rich and the poor,
- foreign financial services increase cross border capital flows which can lead to financial instability and crisis ,
- the EU is requesting many developing countries to eliminate regulation that governments have in place to avoid a new financial crisis or to stimulate loans to poorer companies and clients.

GATS negotiators from the North have ignored the lessons learnt from the Asian financial crisis that liberalisation of financial services and capital require the necessary regulation and a well organised sequencing, rather than swift liberalisation.

If the health sector is fully liberalised, this would mean the prohibition of any limits on the numbers or activities of service providers (even if such policies are completely non-discriminatory, applying equally to foreign and local service providers).