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MANAGING THE CHALLENGES OF WTO PARTICIPATION: CASE STUDY 2 Argentina and GATS: A Study on the Domestic Determinants of GATS Commitments Roberto Bouzas and Hernán Soltz* |
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The case study is based on a comparative examination of Argentina’s GATS schedules and open interviews with many of those who participated in the policy-making process.(1) The report is organized into four sections. Section briefly summarizes the factors that can shape trade policy formation. Section makes a comparative assessment of the coverage and depth of the Argentine list of offers. Section reports our main qualitative findings about the major factors that shaped its content. Section draws some conclusions from the case study.
I. Determinants of trade policy formation back to top In their study of the determinants of financial services commitments, Harms, Mattoo and Schuknecht (2003) refer to the vast body of theoretical and empirical work arguing that ‘trade policy formation is determined by self-interested politicians granting protection or liberalization to special interests’. According to this view, one key factor behind trade policy formation would be the relative influence of alternative interest groups. This hypothesis may be useful to understand trade policy-making in normal times, but it may shed less light during periods of stress and deep policy reform. Apart from the role of domestic interest groups, multilateral trade negotiations can also be regarded as a strategic game in which governments look for reciprocal concessions. Thus, the level of concessions made by one country at one point in time may be upheld with the expectation of obtaining larger gains in future bargains. In line with this view, Harms, Mattoo and Schuknecht (2003) maintain that ‘the incentive to trade off current gains from unilateral liberalization against even larger gains from reciprocal opening in the future would seem to be most important for countries that faced high protection in their areas of export interest and possessed, alone or as a group, sufficient negotiating leverage to extract liberalization commitments from their trading partners’ (emphasis in original). Argentina fits in this category, since it was both an exporter of temperate agricultural products and an active member of the Cairns group.(2) At first sight, the Argentine case does not seem to fit well with any of these explanations. The political economy behind services liberalization is unclear, since trade unions in the reformed sectors were probably more powerful than the consumers potentially benefiting from higher quality and — presumably — lower priced services. Similarly, there may have existed strong bargaining considerations for upholding concessions in order to extract more reciprocal benefits in the future. Where does Argentina fit? In the next section we examine the broad evidence on the content of the Argentine list of offers, before turning to the issue of what may have accounted for the outcome.
II. Argentina GATS schedules back to top This section reviews Argentina’s GATS schedules and compares them with those of its neighbours. Berlinski and Romero (2001) were the first to point out that Argentina’s GATS commitments had a relatively high sectoral coverage and level of openness, higher even than Chile (generally taken as the Latin American paradigm for an open and deregulated economy).(3) Table 1 shows that Argentina made binding market access commitments for 232 items (out of a total of 620(4)), 144 of them bound with no restriction (‘none’).(5) This means that Argentina undertook market access commitments for 37.4% of total negotiable items, nearly a third of which had no restrictions. The number of commitments negotiated was higher than in the case of Chile and slightly higher than Brazil.(6) The contrast between the Argentine offer and those of its neighbours deepens when the comparison is made using the ratio of no-restriction commitments to the total number of negotiated items. In effect, while Argentina bound 62.1% of its commitments under the ‘none’ category, the Brazilian and Chilean ratios were only 22.3% and 31.0%, respectively. Cross-country differences in national treatment are slightly less marked than in market access, but they maintain the same pattern (see Table 2).(7)
Table 1
* Total GATS list = 620
Table 2
* Total GATS list = 620 The cross-country comparison of market access commitments across service sectors displays differences and similarities (see Table 3). First, Argentina, Brazil and Chile show uneven coverage ratio across sectors. None of the countries made commitments in the fields of education, environmental services, social and healthcare services, recreational, cultural and sporting services, and other services. In addition, Chile undertook no commitments in construction and construction-related engineering and distribution services. Consequently, in the case of Chile market access commitments were concentrated in only five sectors (business services, communications, financial services, tourism and transportation). Second, in four out of five sectors in which Chile undertook market access commitments (business services, communications, financial services and tourism), the coverage ratio was lower than that of Argentina. Only in the case of transportation (where Argentina made no offer) do the commitments made by Chile show a higher — but still very low — coverage ratio. Interestingly enough, Chile’s coverage ratio is lower than that of Brazil in communications, financial services and transportation. Third, when the sectors in which the three countries made commitments are compared, financial services shows the highest coverage ratio, followed by communications and business services. As far as the depth of commitments was concerned, in most cases where Argentina undertook market access commitments it did so under the no-restrictions modality (‘none’). The exceptions were communications, financial services and the horizontal restrictions applicable to Mode 4 (see below). In addition, in most sectors where Argentina made market access offers the degree of openness committed was higher than the OECD average (see Table 4). III. The making of Argentina’s GATS offer back to top Stage 1: learning what services negotiations were about Argentine trade officials had traditionally focused on trade in goods (particularly temperate agriculture products) and were thus not prepared for undertaking international negotiations in services. This confronted them with the imperative to understand the nature of the issues under negotiation and the implications of alternative modalities and commitments.(8)
Table 3
* GATS 1994/ GATS Fourth Protocol. Table 4
* Figures only include commitments undertaken in
GATS94. Apart from that novelty, services negotiations were characterized by inherent complexities. On the one hand, the service sector includes a broad range of activities, most of them heavily regulated by different layers of government. Since border barriers are an exception (and when they exist they are seldom the most relevant restriction on services trade), national officials had to review a large number of dispersed domestic regulations and understand their relevance for the issues under negotiation (such as market access and national treatment). On the other hand, statistical information on services trade was scarce, unreliable and generally unsuited for providing a basis for negotiation (Marchetti 1999). These challenges were compounded by the fact that GATS adopted a broad definition of ‘services trade’, which included domestic sales of services made by foreign-owned companies established in the domestic market (strictly speaking, ‘investment in the provision of services’). Immediately after the launching of the Uruguay Round (UR) in 1986, the Argentine government allocated the functional responsibility for the technical work on services trade to the Economy Ministry, at that time still responsible for the conduct of international trade negotiations. In 1988 that agency produced one of the earliest proposals on services negotiations submitted to the GATT by a developing contracting party.(9) When responsibility for international trade negotiations was transferred to the Ministry of Foreign Relations and International Trade in 1989, a small task force was organized in the newly created Secretariat of International Economic Relations (the Economy Ministry staff hitherto responsible for the negotiations were transferred to the new agency). One of the first activities of the task force was to make a survey of those domestic regulations with implications for international trade in services. This demanded regular consultations with other public-sector agencies, such as the Central Bank, the Insurance Superintendent, the Secretaries of Communications, Transportation and Tourism, the National Immigration Service and other agencies with normative and regulatory responsibilities for public utilities. Many public officials interviewed underlined that one of the major obstacles faced was not so much that of gathering the required normative information, but interpreting it in the light of what was necessary to build a national list of commitments. Moreover, in areas where there was not a single responsible agency (such as business services), the task force had to engage directly in identifying existing regulations and drawing direct inputs from the private sector (such as professional associations). During this stage the task force consulted regularly with the private sector (first informally and later through formal channels) to identify sensibilities, barriers to access to third markets, and domestic regulations relevant to the preparation of the list of commitments.(10) Commercial representations abroad also researched market access and regulatory restrictions that affected Argentine service suppliers. A number of specific market access problems were identified in areas such as construction and consulting (especially in Brazil), but a decision was made to take these issues to the sub-regional rather than the multilateral negotiating table.
Stage 2: accounting for Argentina’s GATS offer back to top Argentina submitted an initial offer at the beginning of 1991, more than two years before the presentation of the final list in 1993. We were unable to reconstruct the changes made to the initial offer, but some public officials interviewed mentioned that the final list was ‘technically superior’ to the initial offer (due to an ongoing ‘learning process’) and responsive to some requests made by other contracting parties (particularly the United States). However, there seems to be a consensus that the major factor that shaped the content of Argentina’s final offer was the environment of deep regulatory change that prevailed between 1990 and 1997, when the last protocol was negotiated. In effect, during these years Argentina entered into an ambitious process of reform in which economic institutions were overhauled. The GATS offers largely reflect this phenomenon. The list of Argentina’s horizontal commitments (exceptions) is very short. In line with what most countries did, in Mode 4 it includes binding commitments only for senior business employees (executives, managers and specialists).(11) The Argentine list also includes a horizontal restriction to the acquisition of real estate in border areas (150 sq km inland and 50 sq km in coastal regions) in Mode 3, which remains unbound.(12) Argentina undertook no market access and national treatment commitments in six sectors, namely education; environment; social and healthcare; recreation, culture and sport; transport; and other services. These exclusions were not unique to the Argentine offer, but very much in line with those of other developing countries, which have typically undertaken very few commitments in these areas.(13) In sectors such as social and healthcare services and education, one major reason for omission was the extensive presence of the public sector. In others, such as environmental and other services, technical uncertainties and poor information may have also played a role. In transport, the limited extent of commitments was a result of the combination of the Argentine authorities’ preference for a ‘clean list’, the uncertainty as to the evolution of some regulatory frameworks (such as in the railways), and the lack of interest of OECD countries in agreeing in certain areas.(14) In the business services sector, where the Argentine offer shows a comparatively low coverage ratio, domestic interest groups, technical complexities and limited information also played a role, taking into consideration in particular the limited availability of qualified human resources. The preference for a ‘clean list’ shows itself in the fact that in those areas in which Argentina made commitments, these were taken under the ‘no restrictions’ modality.(15) Ex post facto, some testimonies also pointed to strategic considerations (‘we should keep some bargaining leverage’). In the five remaining service sectors (of which finance and communications stand out in terms of economic significance), the extent of the commitments was comparatively generous in terms of both coverage and depth. Argentina undertook all its commitments in financial services during the UR, meaning that it did not take part in the negotiations of the second and fifth protocols. This suggests that strategic or reciprocity considerations, the last of which was at the centre of financial services negotiations, did not play a relevant role. Instead, the evidence seems to suggest that the financial services offer was used as a ‘lock-in’ device for autonomously taken policy reforms. The only sub-sectors unbound were services auxiliary to insurance (including broking and agency services), other financial services and new financial services (except national treatment for commercial presence, bound without restrictions). Most restrictions on financial services applied to cross-border trade. Insurance and insurance-related services were either unlisted or listed with restrictions (except maritime and air transportation insurance). Insurance services were unbound for Modes 1 and 2 (market access and national treatment). Mode of supply 3 was restrained by the suspension of new authorizations for establishment (removed in 1998).(16) Reinsurance services were listed with no restrictions except for commercial presence, subject to the same constraint as general insurance services.(17) Banking services were listed with no restrictions, except for cross-border trade (unbound). Argentina’s offer in banking services is quite open when compared with other countries in the region, and the depth of commitments is similar to the OECD average. In the case of communications Argentina undertook commitments for approximately two-thirds of the total number of negotiable items.(18) Telecommunication services were bound in the context of the negotiations of the basic telecommunications protocol agreed after the conclusion of the UR.(19) Local telephone services, domestic and international long-distance, international data transmission and international telex services were bound without restrictions after 11 August 2000 for Modes 1 and 3. Mobile telephone services and PCS were bound without restrictions, but in the case of PCS the authorities retained the capacity to determine the maximum number of operators per area. Domestic data and telex transmission, electronic mail, voice mail and electronic data interchange were bound with no restrictions. The Argentine offer did not include the provision of satellite facilities of geo-stationary satellites operating fixed satellite services, which, in addition, was excluded under the GATS Article — exception.(20) In the sector of construction and construction-related engineering services all sub-sectors were bound with no restrictions except for general construction works for civil engineering, which was excluded. The reason for excluding this sector is related to domestic interest groups and, according to some of the negotiators, strategic considerations such as keeping leverage for future negotiations, including regional preferences under GATS Article V (Stancanelli 1997). In distribution services, Argentina bound with no restrictions retailing and wholesale trade services and franchising. No commitments were undertaken for commission agents’ and other services. Tourism and travel services, at last, were bound with no restrictions. Based on this examination and our interviews, it is a plausible hypothesis that Argentina’s GATS offer was seen as a mechanism to send a strong signal of commitment to economic reform and to ‘increase the costs’ of future policy reversals. This liberalization drive was led by the Economy Ministry, headed by the architect of the economic reforms and a former Minister of Foreign Relations (1989-90). According to testimonies, in a context of deep regulatory reform the outstanding policy guideline behind Argentina’s commitments in GATS was to strengthen the reform process, either by ‘locking-in’ reforms already undertaken or by submitting a ‘clean list’ that would show limited government interventions. In the words of a senior negotiator, the GATS was regarded as ‘an opportunity to bind internationally some of the reforms undertaken’ (Stancanelli 1997). Another senior trade official wrote that the predominant thrust of Argentina’s services offer was to provide ‘an anchor to domestic reform’ (Niscovolos 1991) and to ‘prevent a return to protectionist policies’ (Niscovolos 2003). In a few sectors (such as business, insurance, construction and construction-related engineering services) the pressure of domestic interest groups may have also played a role. However, in general the participation of the private sector in the preparation of Argentina’s list of offers was very limited. Most negotiators interviewed referred to the limited engagement of the private sector and the lack of technical preparation and understanding of the GATS. According to various testimonies, meetings organized to gather information to build the Argentine offer frequently ended in a list of demands over domestic policies (such as tax policy) rather than international negotiations. The GATS was regarded as something distant and unrelated to business concerns, probably increasing the discretion of national authorities.(21) IV. Conclusion back to top The elaboration of the GATS list of commitments faced many technical and information obstacles. In contrast to the GATT agreement, negotiating the GATS required close co-operation between different governmental agencies and an adequate understanding of a regime still in the making. In addition, the extended regulations which typically characterize the service sector demanded a significant effort to understand their meaning and significance from the standpoint of market access and national treatment. Doing this work ideally required multi-agency teams of highly trained personnel, which were frequently scarce. Argentina’s list of commitments in the GATS was characterized as ‘exemplary’. Indeed, the available evidence suggests that Argentina undertook broader and deeper commitments than its neighbours, including an outward-oriented country such as Chile. Moreover, in sectors such as telecommunications and financial services Argentina’s commitments were close in coverage to the OECD average. In those sectors in which Argentina undertook commitments, they were even deeper than the OECD average. The major driving force behind the construction of the Argentine list of commitments seems to have been to ‘lock in’ economic reform initiatives, especially in communications and financial services (two of the service sectors with the largest economic impact). Other participants demanded concessions from Argentina (especially in telecommunications), but the extent of commitments seems to have been basically driven by domestic considerations, rather than external pressures or strategic considerations. This approach may reduce leverage in future multilateral as well as preferential negotiations, as shown by intra-Mercosur negotiations and other inter-regional preferential negotiations, such as that between Mercosur and the European Union. Placing bargaining or strategic considerations in a secondary place as opposed to unilateral reforms may be justified on efficiency grounds. The objective of this case study was not to criticize a particular policy choice, but to underline the domestic roots of trade policy-making and, in this particular case, the driving force of policy-makers willing to ‘lock in’ a policy regime and send strong signals to the market. If the anticipated efficiency gains do not materialize in the future, responsibility should not be assigned to the rules that govern the multilateral trading regime but to the peculiarities of the domestic policy-making process. Berlinski, J. (2002), Dimensiones del Comercio de Servicios en la
Argentina, Buenos Aires: ITDT/Siglo XXI Editores NOTES: |
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