News and Analysis • Volume 10 • Number 6 • September 2006
A Way Out of the Fruitless Debate on Services Safeguards?
It is no surprise that the debate on emergency safeguards in services has not made concrete progress. This article reviews the main problems that have arisen from the discussions and then suggest an alternative approach.
One of the reasons for the stalemate is the lack of clarity of the mandate in Article X.1 of the General Agreement on Trade in Services (GATS), which states in part that there “shall be multilateral negotiations on the question of emergency safeguard measures based on the principle of non-discrimination” (author’s italics). Many developed country delegations take the wording in italics to mean that there is no agreement on whether or not disciplines should be created in this area. Most developing countries hold the view that a long-standing mandate exists under Article X.1 to craft an emergency safeguard mechanism (ESM).
At the time of the GATS negotiations, the negotiators (the writer of these lines was one of them) could not foresee the many technical questions related to the functioning of a safeguard in services that were later encountered by the Working Party on GATS Rules. Had they known, they would certainly have looked for clearer language!
We should keep in mind that a number of concepts and principles of the GATS were incorporated directly from the General Agreement on Tariffs and Trade (GATT), in many cases without prior evidence justifying their inclusion in the WTO services world. This fact has given rise to a considerable amount of debate, particularly given the legal uncertainty surrounding safeguards under the GATT. Indeed, panel and Appellate Body rulings involving the existing Agreement on Safeguards, have not articulated a coherent legal interpretation on the application of safeguard provisions with regard to trade in goods.1
What Measures Would Be Eligible?
Members have not been able to clearly determine what safeguard measures in services trade – beyond those already available in the GATS (i.e. general exceptions under Article XIV and trade restrictions imposed to safeguard the balance of payments under Article XII) – would be eligible for a mechanism originally designed for goods. The theoretical examples that could justify the application of the GATT’s safeguard approach to services do not seem to correspond to the little real life evidence we have.
When we try to visualise practical situations of an unexpected surge of services imports and the related injury (or the threat of injury) to domestic industry, and the causal link between the two, the arguments tend to get thin.
Of the four modes of services supply covered by the GATS2, commercial presence is the most likely candidate for safeguard action. Let us, as an illustration, look at the potential injury caused by the market expansion of a foreign logistics enterprise. It may absorb some similar domestic companies or force others to leave, while significantly increasing employment in the sector. How can the injury be measured? In terms of employment, the number of enterprises displaced, or the turnover?
Could we be sure that the expansion was the result of a sceduled concession or could it rather be attributed to the trend of the economic environment that permitted the development of that activity? And, if the expansion creates new jobs, what other indicators could the authorities possibly evoke to justify the need to take a measure to protect the domestic industry?
The important number of formal and informal documents that have been presented at the WTO, as well as other fora, bears witness to these kinds of difficulties, but fall short when it comes to finding workable solutions.
One of the recurrent points made by those who are reluctant to enter into the discussion of the feasibility of an ESM is the lack of statistics reflecting the reality of trade in services under the GATS as defined by mode of supply. However, the lack of sound and reliable statistics is one of the weakest excuses given by the opponents since scant data does not seem to prevent progress in other areas. Take market opening requests and offers: on what commercial basis do they rely, apart from certain sectors’ specific trade interests? Nevertheless, the paucity of data is always presented as an impediment to progress on the ESM.
In spite of these complexities (and others of a technical and juridical nature outside the scope of this article), many delegations stubbornly try to stretch the ESM mandate instead of stopping to consider whether it is actually not the mandate itself that is inappropriate.
Protectionism or Need to Adjust Policies?
From a negotiating standpoint, the very word ‘safeguard’ has a protectionist connotation that derives from its definition.3 Quite frankly, this does not further the crusade of the developing countries interested in this matter. Developed countries continue to view ‘safeguards’ with suspicion, seeing – often with no justification whatsoever – the position in favour of an ESM as merely protectionist.
There is another point to be kept in mind from the perspective of negotiating tactics. Many developing countries argue that emergency safeguards must be kept firmly on the WTO agenda, partly because that is what the GATS establishes, and partly because developed countries are opposed to discussing the issue. So, in order to level the generally unbalanced playing field, developing countries continue to vigorously defend their position.
Yet, there would be nothing worse than creating a diffuse, unclear and ineffective mechanism only because a negotiating mandate exists. It would not be wise to create new disciplines that might enlarge the few grey areas that are already contained in the GATS. Instead, new disciplines should only be created when they are necessary to maintain the agreement’s global balance and add to legal predictability.
Although the use of certain types of argument can be a valid negotiating strategy, they should be used with care so as to avoid the debate on any issue turning exclusively into tactics and losing focus on the essence. The ESM debate is a typical example. Suppose that the developing country demandeurs (some developing countries are not) abandon for the time being, or definitively, their position. Would that bias the GATS balance against their interests? This would be very unlikely.
If this is so, could we not make the focus of emergency safeguards more pragmatic? Honestly, the risk that this would damage the GATS global balance for developing countries is not high, and is even lower with regard to the global balance among all WTO agreements. Of course, the consideration of an alternative should lead us to something more concrete than what we have now.
Many also argue that there is still enough ‘water’ protecting the level of the existing commitments. In other words, countries are far from having consolidated current regulatory regimes and even further from having consolidated ‘pure liberalisation’. That means that the margin to exercise domestic regulatory policy continues to be generous. The threat that trade liberalisation could pose is thus not clearly evident so far, which makes it difficult to envisage the need for an ESM at present.
There may be no need for measures now, but that will not be the case forever. It cannot be denied that developing countries need some kind of instrument that they could use to modulate the speed and the depth of liberalisation. While the effects of liberalisation cannot be predetermined with any precision, a flexibility instrument could be extremely valuable for all countries in the end, and developing and least-developed countries in particular. So, what can be done?
Shift the Debate
Probably the best choice would be to a call spade a spade so as to stop going around in circles. In that case, why not start with the assumption that it is possible that the debate on safeguards, in the strict sense of the GATT, does not have much concrete validity in the GATS world?
Perhaps the original sin was to name ‘safeguards’ something that was not intended to be a safeguard in the sense reminiscent of trade in goods. Therefore, I suggest freezing – but not closing – the debate on the classical GATT concept of safeguards.
The truth is that WTO Members, especially developing and least-developed countries, should have an escape valve not only to respond to unexpected cases (true, difficult to conceive in advance) but also to help them face the (legitimate) internal pressure from the regulators and politicians to whom we must present convincing evidence in order to gain their support for further liberalisation.4
There is no sense in assuming that there could be liberalisation without the willingness of governments. The GATS is first of all a challenge to the government’s regulatory capacity. Underlying it is a permanent tension between different interests regarding the legitimate right to regulate and the exogenous stimulus coming from multilateral negotiations. This is why it is fundamental for the authorities to be able to count on assurances in order to support that process.
It is also undeniable that the speed of regulatory changes and the experience with the evolution of the services sectors are not the same among developing and developed countries. Therefore, why should we forego a mechanism that could help countries steer the pace of liberalisation and make the necessary adjustments that could perhaps determine the need to modify bound commitments in the GATS?
A Possible Solution
I consider it important to explore the possibility of a mechanism akin to GATS Article XXI on the modification of schedules. Why this, instead of an ESM? Because countries need an instrument more oriented to accommodating potential policy changes than one responding to unexpected circumstances.
So, we could think of a quick recourse to an instrument that could be used by all Members. But how?
The first step would be the submission of well-grounded elements to justify the request to impose an emergency safeguard measure. The submission should be documented by the modifying party, which could be required to notify the measure some time prior to its implementation, a month, say.
A subsequent multilateral consultation process (with a view to adjust the measure in order to minimise its potential negative effects among the Members concerned) could last from three to six months. The modification would be for a period no longer than three years. Once that period is over, the modifying Member would have to revert to the original situation. If necessary, an extension could be considered subject to negotiation with other Members and, if it is used, compensation could be envisaged. The extension should be no longer than the duration of the original measure. Multilateral authorisation would be necessary in case of extension.
Instead of trying to design a monstrous mechanism5, too prescriptive, with theoretical procedures whose efficiency would be more than doubtful, I suggest we leave the burden of proof to the modifying Member. It would be up to that Member to present solid and complete evidence to support its petition. If it is weak or incomplete, other Members should request more data and information in order to clearly understand the nature of the request. What the Members would not be entitled to do is to block the implementation of the modification required.
Who would show interest in the question? Obviously, only those with concrete commercial interests. From this point, the distinctly over-rated questions of compensation and the scarcity of data become less complex. Why should we compensate on a most-favoured-nation basis, instead of leaving it up to the interested Members to solve the problem?
To recap, the main elements of my ‘ESM’ proposal are:
• It should not be a permanent change of the commitment, but one of a temporary nature.
• The possibility of the modification could not be blocked.
• Open period for consultations in order to minimise the effects of the measure.
• The mechanism should not be a blank check or a platform for abuses.
• Developing and least-developed countries should have the right to implement the modification without waiting for the expiration of the three-year period prescribed in GATS Article XXI.1.
• In practice, the mechanism would be applied only to fully bound commitments, as it would not make sense to apply a ‘safeguard’ to commitments scheduled as unbound.
• Compensation should not be necessary, except in the case of an extension that shall require multilateral authorisation.
The fact that the provision would apply to full commitments is also an incentive for countries to consolidate more, hence expanding the scope of their concessions. This is an important argument that could go down well with those developed countries that are reluctant to consider an ESM.
Naturally, from the legal point of view, the implementation of the suggested provision is not fully presented here. The relevant articles of the GATS would probably have to be amended. The past experience of other WTO Agreements could serve as a guideline to find a more appropriate legal mechanism. In any case, the aim of this article is to provide some food for thought by exploring an alternative path of analysis, not to provide an exhaustive diagnosis, or answers to all the possible questions.
Luis Pablo Niscovolos is Director of Multilateral Economic Negotiations at the Ministry of Foreign Affairs of Argentina. The views expressed are personal and do not necessarily reflect his country’s position. The author would like to thank Jorge Vigano and Celina R. Pena for their helpful comments.
Endnotes
1 See in particular Section II in Alan Sykes, The Safeguards Mess: A Critique of WTO Jurisprudence, Chicago University, June 2003.
2 Trade in services comprises four modes of supply: cross-border supply (mode 1), consumption abroad (mode 2), commercial presence (mode 3), and movement of natural persons (mode 4).
3 Safeguard: “a thing that serves as a protection from harm, risk or danger.” Oxford Advanced Learner’s Dictionary.
4 Recent crises in major developing countries (not to mention the intense debate in the developed world on privatisation) reinforce the need for some kind of an escape valve.
5 See Marconini, Mario. Emergency Safeguard Measures in the GATS: Beyond Feasible and Desirable. UNCTAD, March 2005.