Montreux, 5 octobre 2005

Export of Services: Hype or High Potential ? Implications for Strategy-Makers

ITC Executive Forum on National Export Strategy

Thank you to Denis Bélisle for the invitation to address a few words to this Forum, and congratulations to the ITC for the initiative of bringing together public sector officials and business representatives to discuss commercial opportunities and governmental strategies on services.

Coming to Montreux and talking about services is a welcome opportunity to breath some fresh air, after weeks of meetings in the offices of the WTO building. With the exception of the few days I spent in Washington for meetings in the IMF and World Bank and contacts with US Government and Congress representatives two weeks ago and my official visit to Bern, I have had little opportunity to leave Geneva and meet with the business community and government officials.

I was pleased, therefore, to be able to accept the invitation by the ITC to meet with you, who are the hands-on professionals in services. This invitation also gives me the opportunity to pay a tribute to the ITC. Denis Bélisle knows that my interest for this institution predates my arrival in Geneva as Director-General of the WTO. We have had fruitful contacts before and I am witness to the good and concrete work performed by the ITC. I also wish to express the satisfaction with which WTO staff has been cooperating and joining forces with ITC on many occasions — I will do my best to foster and strengthen this cooperation in the future.

Let me start these remarks with a general overview of the state of play of negotiations in the run-up to our Sixth Ministerial Meeting in December and give you a bit of background of where we are in terms of calendar, main issues and preparations.

First, the timing: we are today precisely 69 days — or less than 10 weeks — from the start of the Conference and there remains an immense amount of work to be done by Ministers, Ambassadors, delegates and the Secretariat if we are to achieve meaningful results in Hong Kong. The next days will be crucial to the definition of success in our Ministerial Conference later this year.

What are the landmarks in these 10 weeks that remain before us ?

By mid next week, i.e. the meeting of the Trade Negotiations Committee on 13 October, we will assess the movement in terms of positions of Members in key areas of negotiation. A series of high-level meetings will be taking place in the course of next week. We are hopeful that these meetings, if not resulting in convergence to agreements, will at least bring about new proposals which allow the discussions to advance towards our objective of arriving at two-thirds of the way to the end of the Round.

Negotiating Groups will continue to work on the technical aspects of the negotiations throughout the months of October and November. By mid-November, we should see a first draft of the Declaration, to be considered in capitals. Some delegations may need more time than others to fully review the draft and react to it. In early December, we must have a clear sense of areas where there is initial agreement and those where gaps exist which Ministers will be called upon to bridge during the Conference.

The time, as you see, is extremely short. In my first meeting as Chair of the Trade Negotiating Committee — the body which oversees the negotiations and gathers representatives of all Members of the WTO — I said that we were entering into a training camp phase, where all players should be primarily devoted to achieving the goals we are mandated with. If we take into account that the Doha Round must end in December 2006, we must play now with all our energy.

Second, the issues to be tackled from here until December. The list is not short and I will spare you the details. Suffice to say that, at this stage, we still need to see some basic movement on issues which are incomprehensible to the man in the street, but which may affect our daily lives in the future — and therefore carry a high political sensitivity. These are issues with cryptic names such as domestic support, blue box, AMS, specific and sensitive products, to mention just a few in the area of Agriculture. To these, one should add another set of somewhat unintelligible formulae and flexibilities, unbound tariffs and preference erosion, having to do with Non-Agricultural Market Access (NAMA) — and again, this is a non-exhaustive list of issues in only two of the main areas of negotiations.

As you can see, the level of ambition we had four years ago in Qatar, when this Round was launched, was quite formidable. It is our task now to deliver results that match that ambition, and to be faithful to the title we gave to this Round: the Doha Development Agenda.

There is a clear link between development and the benefits brought about by the opening of services markets. Proof of these benefits is that developing countries which have embraced and invested in the establishment of a services industry are clearly in the forefront of the battle against poverty and illiteracy. Countries with open services markets have seen greater product and process innovation, based largely on their access to foreign capital and world-class technology. The explosive growth of the Internet — and of Internet-related sectors — in liberalizing countries is only one example, however breathtaking. It clearly shows how modern services can help to overcome the constraints of economic poverty, geographic periphery, and social exclusion.

What I wish to underline briefly are the current framework, the problems and challenges in the services negotiations in the WTO.

Starting with the political framework: it is difficult to overstate the difference between the spectrum of positions in services negotiations at the time of the Uruguay Round and the situation today. We have moved from a picture where most developing countries were reticent, if not outright opposed, to negotiating services, to a new set of positions, where some important developing countries have become strong demandeurs in the negotiations. Availability of world-class services has enabled exporters in developing countries to capitalize on their competitive strength, whatever the goods and services they have to offer.

An increasing number of developing countries, building on foreign investment and expertise, have been able to make impressive inroads in international services markets. Services opening has become an indispensable element of development strategies. In turn, this has prompted many initially sceptical governments to change track. Having largely remained on the sidelines of the Uruguay Round, they now play an increasingly vocal role in the services negotiations.

The phenomena of outsourcing and cross-border supply of services, facilitated by IT and FDI, have introduced new strategic elements in the negotiations. Modes of supply of certain services, which were difficult to conceive in the past, have not only materialized in practice but in some instances have become commonplace.

Outsourcing of services has become an important feature of international trade in services. Developed countries have gained access to a new pool of talent abroad and have boosted productivity. Developing countries, on their side, have seen the establishment of high-tech industries and gained a substantive increase in income related to services jobs. Outsourcing is thus influencing policy decisions in both developed and developing countries, in ways which require complex examination of trade, economic and social factors.

Countries like India have seen exports of services such as software development, back-office support and services supplied by call-centres, expand in a significant way. Some African countries have also seen an increase in their exports of non-traditional services. The positive spin-off effects of liberalizing services have been felt in the form of increased Foreign Direct Investment and the creation of new businesses to support the new services providers. Matched with sound educational policies and investment in infrastructure, the services sector has proven a powerful engine for growth and development.

Not all of these changing features in international trade in services have been fully reflected in the negotiations. Also, these changes have brought about new concepts and problems. An array of challenges remain before us.

The first set of problems and challenges has to do with the political sensitivities of market opening in different services sectors. Several NGOs and civil society groups consider that opening services markets is a dangerous path to follow for less competitive economies. They claim that there is an intolerable level of intrusiveness by the WTO rules in areas of national policy competence such as education and health care.

The water distribution sector is a often cited as a good example of this debate. Water distribution is obviously a basic service in any country. It is difficult to conceive social and economic development without this service. On one side, this a service of general public interest, and as such it is generally owned and operated by the government, through public companies. On the other side, many governments simply do not have the financial capacity to put in place the infrastructure of water distribution in all areas where it is needed. Therefore, if the market is not open to private investment, a water distribution system will take much longer to be established, and delay productive investment in other areas.

What must be stressed in this debate is that the GATS does not require the opening, privatization or deregulation of any service. In respect of water distribution and all other public services, different policy options are perfectly legitimate and are open to all WTO Members. I wish to underline this point: neither the current rules in the GATS, nor the new round of negotiations will force WTO Members to open the totality of their services sectors to private or foreign competition. WTO Members are free to maintain a service as a public monopoly if they so wish.

What also needs to be stressed are the economic benefits of opening services markets such as helping exporters and producers capitalize on their competitive strength; enhancing consumer savings; fostering innovation and technology transfer.

A second set of problems and challenges has to do with inexperience with the GATS. Participation in services negotiations is more demanding than government officials were used to in old-fashioned trade negotiations on goods. The services economy is not only larger than agriculture and manufacturing in most countries in the world, it is also far more diversified. And the services agreement, the GATS, is far broader than conventional trade agreements for goods. It covers not only cross-border trade, but movements of consumers, of producers/investors, and of persons. Negotiations are thus more complicated — and so are the country-internal processes of preparation, coordination and implementation. Services negotiations generally require Trade Ministers to work with their colleagues who have regulatory responsibility in different services sectors — and the difficulties of such internal coordination should not be underestimated.

The complexities of services are also quite clear in the negotiations in the rule-making areas, that is on the disciplines for domestic regulation, the question of an emergency safeguard mechanism, as well as the need for and scope of rules on government procurement and on subsidies. Leaving aside the practical difficulties of some of these instruments, several Members argue that progress in rule-making would provide them with some degree of comfort to enable them to make further specific commitments. These Members point out that, if they knew they could count on a mechanism such as an emergency safeguard, more commitments could be made. In contrast, others are concerned that such a mechanism could unnecessarily undermine the predictability of the commitments sought in the Round.

For the moment, many governments continue to be more hesitant in their approach to services trade than they use to be in manufacturing. Although one can understand this situation, it is nonetheless unfortunate, since the benefits of services liberalization are key to any development strategy. Barriers are still far higher and less transparent in services than in most goods markets (with some notable exceptions such as agriculture).

What can be done about this? On our side in the WTO, a key factor is technical assistance. Based on donor funds, the Secretariat has been conducting a broad range of technical assistance activities. These include seminars in national capitals (some 20 to 25 per year), regional seminars, as well as workshops and symposia in Geneva. Tellingly, the most recent symposium dealt with the challenges and opportunities of cross-border trade in services.

Two further points need to be added to my list of negotiating 'challenges' in services.

One is the idea that one will only negotiate services once there has been movement in other areas of negotiations. Of course, bearing in mind a long and painful negotiating history in areas such as Agriculture, this is understandable. However, the quality of results of negotiations in services may be seriously affected by the delay in tabling requests and offers.

Services negotiations do not lend themselves to the same formula-based approaches as agriculture or goods. Rather, they are advanced mostly sector-by-sector in a host of bilateral meetings. There might not be sufficient time to successfully complete this time — and resource-intensive process if it is not allowed to advance at its proper pace.

This would be problematic especially for an area of focal interest to many developing countries: Mode 4 — the presence of natural persons. It is the most protected, most sensitive and, by the same token, most challenging area under discussion. I am fully aware of its particular importance for small and medium-sized companies that cannot maintain permanent offices in export markets, but need the flexibility to move staff as the opportunity arises. Any meaningful outcome, however, needs time — time for negotiation in Geneva and time for preparation, coordination and persuasion in capitals. Given the tight schedule before us, we cannot afford to wait any longer.

Finally, there is an urgent need for political guidance and orientation to services negotiators. It has become increasingly relevant in recent months that political input is badly needed to advance services negotiations. The main concern is no longer the absence of a sufficient number of offers — three-quarters of the Membership has participated in the process to date and submitted at least initial offers of new or improved commitments. But it is widely recognized that the quality is poor and, if implemented, would open hardly any new access opportunities for service providers.

We are at a crossroads. Should the bilateral request-and-offer process simply be continued, or do we need to develop complementary mechanisms that would (re-)launch this process on a higher plain? If so, what would these mechanisms look like — and how could they be translated into clear guidelines to be endorsed by Ministers in Hong Kong? Members need to focus further on these issues as a matter of priority — and arrive in Geneva with fresh instructions from their political leaders.

Services are a core element of the Doha Development Agenda — and a satisfactory result is a condition sine qua non for the whole project. Therefore, my message to you is: your support for the services negotiations is crucial to the whole Round.

Let me finish by emphasising my unwavering commitment to the Round and to keeping the negotiations on course. History has shown us that a fair and balanced trading system is a precondition for peace and prosperity. I am strongly inspired by the vision expressed by Victor Hugo in his address to the Third International Congress for Peace, held in Paris in 1849:

“Un jour viendra où il n'y aura plus d'autres champs de bataille que les marchés s'ouvrant au commerce et les esprits s'ouvrant aux idées ...”
[“A day will come when the only fields of battle will be markets opening up to trade and minds opening up to ideas ...”]
Victor Hugo, Discours au 3ème Congrès international de la paix, Paris 1849

Thank you very much and my best wishes for the success of this Forum.