Dr Fahmida Khatun writes on service waiver for LDCs in the WTO, published in The Daily Star on Wednesday, 27 November 2013.
Services waiver for LDCs in the WTO: Only a blank promise?
Fahmida Khatun
AS the Bali Ministerial Conference of the World Trade Organisation (WTO) is approaching discussions on the outcome of the conference have intensified, particularly outside the official stream. Though there is very low expectation from the 9th WTO Ministerial Conference as trade talks in Geneva under the Doha Round had failed to provide any positive directions, there are a few areas where progress has been made to some extent in recent years. One such area is the agreement on trade in services.
On December 17, 2011, during the 8th Ministerial Conference of the WTO in Geneva, least developed countries (LDCs) were given services waiver under which these countries would receive some preferences in case of exports of services. The waiver provides preferences in two forms: market access preferences; and non-market access preferences. LDCs can gain market access in different sectors and modes of services which are of interest to them. The waiver will be granted immediately to all LDCs and preferential treatment cannot be conditional to complying with non-trade issues. The waiver also has the provision of rules of origin which will not allow any other country to be a free rider, that is, it prohibits other countries to benefit of preferential access by establishing companies in LDCs. These are undoubtedly some of the positive features of this services waiver.
During the run-up to the Bali Ministerial, the LDC group at the WTO led by Nepal tabled a draft decision in October 2013 on the operationalisation of the waiver concerning preferential treatment to services and service suppliers of LDCs. The draft decision has been put forward for consideration as part of the outcome of the Bali Ministerial Conference, and has made seven recommendations.
Among others, it proposes that the operationalisation of the services waiver be a standing item on the agenda of the Council for Trade in Services (CTS), and that an annual review be undertaken to assess the status of operationalising the waiver. It also proposes that the General Council convene a signaling conference in July 2014, with a view “to accelerating the process of securing meaningful preferences for LDC services and service suppliers and to fully operationalise the waiver.”
In the preamble, the draft decision proposes, amongst others, that the Ministerial Conference reaffirm that the waiver granted by members to provide preferential treatment to services and service suppliers of LDCs constitutes an important positive effort to help increase the participation of LDCs in world services trade. It has also been noted that WTO Members are yet to make use of the waiver since its adoption in 2011. The last point of the draft decision of LDCs refers to the Enhanced Integrated Framework (EIF) and the Aid for Trade (AfT) initiative to overcome LDCs’ constraints.
The submission of the LDC group has been motivated by the lack of progress in implementation of the services waiver and the attached challenges in operationlising the services waiver given to LDCs. The first challenge of the services waiver is its non-binding nature, due to which the waiver is not an obligation for developed and developing country members of the WTO. Granting preferential market access to services of LDCs will depend on the willingness of developed and developing countries. Secondly, there are also uncertainties in it since it is the unilateral decision of developed countries to grant such preferences, and they can withdraw market access any time. The services waiver will be valid for 15 years.
Challenges as regards implementation of non-market preference are even harder. Non-market measures relating to domestic regulation, national treatment and subsidies need to be authorised by the CTS. If a developed country member is ready to provide special benefit only to LDCs, but not to others, it will need approval from the CTS. The need for such approval can be discouraging for the grantors of the preference to use the service waiver. Approval of the CTS is not an easy task since there may be opposition from some members on some preferences.
However, the most important challenge is the lack of capacity of LDCs in exporting services. If the signaling conference is held in July 2014 will LDCs be ready with identified potential export sectors which are of interest to them? LDCs in general lack detailed data and regulatory information on services exports. This may put them in a disadvantageous situation in terms of accepting the offer of developed countries more than articulating their own interests.
Additionally, specific obligation to offer market access for the movement of natural persons from LDCs across borders for providing services (Mode 4) is not provided in the waiver. Several barriers, including non-recognition of skills and academic degrees, certification of services, difficulties in getting licenses, quota for foreign professionals and lack of market information by LDCs stand in the way of operationalisation of Mode 4.
Therefore, developing supply side capacity is a pre-condition for taking advantage of the waiver. The demand for financial and technical support through EIF and AfT is a legitimate one since LDCs suffer from supply side constraints in utilising their full potential from preferential market access. Education, training and skills development are essential for accessing the markets of developed countries. Support is also needed so that LDCs can bridge data gap through primary investigation and identify their own sectors, sub-sectors, mode of supply and destination markets.
Finally, services waiver, though a positive move on the part of the developed members of the WTO, is not an obligation for them. Therefore, it is only the political will of the developed country members which matters towards the implementation of the waiver. So far we have not seen such political will. This risks the waiver for granting preferential market access for LDC services and service suppliers becoming a non-deliverable commitment.
The writer is Research Director at the Centre for Policy Dialogue.