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2 June 1998

"Towards GATS 2000 - a European Strategy"

Address to the Conference on Trade in Services, organized by the European Commission, in Brussels.

Two weeks ago today we celebrated in Geneva the 50th Anniversary of the Multilateral Trading System - that visionary postwar construction which has provided such an astonishingly durable basis for the expansion of trade and wealth worldwide. 

This was a very significant moment for a number of reasons.  It was an occasion to recall the major contribution of the trading system to economic growth and international relations since 1948, and to reinforce the equally powerful contribution it can make to stability and prosperity in the future.   What brought together world leaders from all points on the political spectrum and from all regions was a shared belief in the importance of the multilateral trading system - and a firm commitment to its basic principles of consensus, non-discrimination, and the rule of law. 
 It was also an opportunity to look back on the highly successful first years of the new World Trade Organization -  an organization which, in the last eighteen months alone, has successfully concluded agreements on information technology, on basic telecommunications, and on financial services.  Taken together, their value equates to a new Round - the finance and technology Round for the 21st century. 

 And the anniversary celebration - and the Ministerial conference which accompanied it - was an occasion to look to the future of the trading system.  A future in which services trade will play an ever-increasing part because governments are moving to open up and deregulate many of their key service sectors.  At the same time, technology is changing the way in which many services are delivered across borders, breaking down national barriers and creating the potential for a single, borderless market.  One of the most important aspect is certainly electronic commerce for which the last Ministerial Conference of WTO has launched an ambitious working programme and a standstill for custom duties in electronic commerce transactions.  The global reach of services - especially in the telecommunications or financial sectors - is transforming the growth and modernization equation also in much of the developing world.   For all of these reasons, the future work of the multilateral trading system will be linked very much with our ability to manage and build upon these changes. 

 This reality is reflected in the decisions we have already taken to undertake further liberalization in the services sector.  As part of the Uruguay Round, all Members have agreed that negotiations to liberalize market access in services would start at the end of next year, and preparations for the new negotiations have already started in the Services Council.  I therefore applaud the timely initiative taken by Leon Brittan and the European Commission in convening this conference, and particularly the obvious determination to involve industry from the beginning in the strategic planning for the round.  This is another example of the leadership role which the EU and the Commission have assumed at many critical moments in the short history of the GATS. 

 The services agenda has been stimulated and shaped from the beginning by developments in the Community.  Indeed, I have no doubt that the movement towards liberalization and integration of services markets in Europe, culminating in the European Single Market of 1992, was a major factor in the decision to bring services onto the Uruguay Round agenda, and thus in the genesis of the GATS.  The integration of the European market in basic telecommunications and financial services were vital in clearing the way and providing motivation for the highly successful negotiations in those sectors.  I also remember co-operating with Leon Brittan at certain critical moments in those negotiations - most notably in June 1995, when the financial services negotiations would have collapsed but for the leadership shown by the Community. 
 Let me now turn to the main theme of this session - what the GATS offers to business and what it currently lacks.  On the benefits of the multilateral trading system I shall be brief because they are familiar.  Simply put, as far as trade in services is concerned, the GATS is the multilateral system.  It offers all the benefits which the GATT for 50 years has provided for goods trade, the most essential of which is the stability provided by a system of law and the binding commitments on market access which Member governments have assumed in their national schedules.  Stability makes long term planning possible, and in service industries where direct investment in the market is often the only way to deliver the service efficiently, this is critical.  But the GATS provides guarantees over a much wider field of regulation and law than the GATT;  the right of establishment and the obligation to treat foreign services suppliers fairly and objectively in all relevant areas of domestic regulation extend the reach of the Agreement into areas never before recognised as trade policy. 

 I suspect that neither governments nor industries have yet appreciated the full scope of these guarantees or the full value of existing commitments.  But the suppliers of services are not the only beneficiaries, and not even the most important ones.  Consumers - whether private individuals or businesses - will always be the most important beneficiaries of competition.  User industries pushed the negotiations on telecoms and financial services because they know that efficiency in the service sector - particularly these great infrastructural services - is essential for growth in the global, information-based economy which is now taking shape.  Without an efficient and innovative service sector, no country can hope to flourish in this new global economy. 

  I believe the pace of liberalization in services will be far greater than it was in goods, because the economic cost of protecting inefficient services is even more evident than the cost of protectionism in the goods sector.  Propelled by its own logic, regulatory reform and liberalization will accelerate - and the GATS will provide the means to make this a coherent and cooperative process.  It also permits the peaceful resolution of disputes through legal processes, taking them out of the dangerous arena of political pressures. 

 But the more interesting question for our purpose today is what is lacking in the GATS, since the new round will provide an opportunity to make good its deficiencies.  The most obvious deficiency at present is in the volume and quality of national commitments:  the sectoral coverage of many schedules is small and many of the commitments which do exist are subject to important limitations.  Only in telecoms and financial services have we begun to see real liberalization.  To obtain the full benefit of the Agreement, we must now aim for a great expansion in the number and coverage of commitments, and for the removal wherever possible of existing limitations. 

 The GATS also lacks adequate coverage of some major sectors.  The most obvious example is aviation, where the entire sector, but for three relatively minor services, was deliberately excluded from the coverage of the Agreement.  It is already agreed that this situation should be reconsidered, with a view to the possible further application of the GATS to aviation, and this is certain to be an important issue in the new round.  There is increasing interest in the GATS among business users of air transport, particularly the shippers of air cargo, and I expect powerful pressure from that quarter for more competition.  It is easy to understand why.  It has been estimated that in Europe only 6 per cent of the continent's routes are serviced by more than two airlines.  All the rest are still controlled by pairs of national airlines.  If you want to see the consequences of that, just compare the price of a ticket from Brussels to Geneva with one from Brussels to New York. 

 Maritime transport is also inadequately covered, in the sense that neither the EU nor the US have commitments in that sector.  Here too there is already an obligation to negotiate.  At the end of the maritime negotiations in 1996 - the results of which were far less than satisfactory - it was agreed that new negotiations should be resumed in the context of broader talks at the end of the century.   I hope that progress will then be possible.  It is hard to claim that the GATS provides the basic infrastructure for world trade so long as the services which carry the world's goods are not properly covered by it, and hard to insist on comprehensive commitments by others so long as major sectors are excluded by the great powers. 

 But the negotiations will cover all sectors.  Some of you will have noticed that in his speech at the fiftieth anniversary celebration, President Clinton spoke of ensuring openness for dynamic sectors such as express delivery (which has implications for the air transport sector), environmental, energy, audiovisual and professional services.  Other governments will have their own candidates.  I myself believe that the liberalizing momentum generated in the telecoms and financial sectors will ensure that we shall see further advances there. 
 We know too that the GATS still lacks disciplines in the three areas which were deliberately deferred in the Uruguay Round - safeguards, subsidies and government procurement.  Negotiators are already working on these, and have agreed on a deadline of July 1999 for the work on safeguards.  But it seems clear that work on subsidies and government procurement will not be completed before the start of the broader negotiations, and will therefore probably become part of it. 

 There is another ongoing negotiation, on domestic regulation in the accountancy sector under Article VI under the GATS, which will be finished well in advance of the new talks but which gives rise to a systemic question which governments need to consider now. Article VI sets out important general principles for the domestic regulation of all services:  they are intended to ensure that measures relating to qualifications, technical standards and licensing, which are fundamentally important conditions for entry to many regulated services, are objective, transparent and reasonable.  But as drafted the principles are exceedingly general, hardly precise enough, for example, for the purposes of dispute settlement in case of a complaint.  Article VI therefore calls for the elaboration of more precise disciplines, and following a Ministerial decision that priority in this work should be given to the accountancy sector, disciplines for that profession are likely to be completed in the next few months.  This means that after three years of work, we shall have rules to facilitate trade in accountancy, and to settle problems arising from domestic regulations in that sector. 

 But there is no reason to believe that problems will arise only in accountancy, and Article VI is supposed to apply to all services.  Can we afford to continue this sector-by-sector approach to domestic regulation, which is a fundamentally important issue for so many services?  The question governments must consider now is whether they should move to a horizontal approach.  I think the logic of the GATS suggests that they should.  At the same time, they should be considering the need for improvements in the architecture of the GATS itself. 
 Finally, we need to do more to better inform our public opinion about the benefit of GATS and free trade in general. The services sector, where the potential for global free trade is by far the greatest, is the most powerful agent of globalization, and there will be opposition from some to the very principle of further services liberalization. 

 Some of this, as we saw in Geneva two weeks ago, is irrational or worse.  But we have to recognise that many perfectly reasonable people are concerned about the dislocations, uncertainties and painful adjustments which are inevitable in all periods of fundamental change. And we have to address these concerns seriously, making the case that globalization is an inescapable process, one that does carry costs which governments must minimise through cooperation, but which also holds out prospects for the globalization of welfare, even for the abolition of poverty, that were unimaginable  only twenty years ago. I have committed myself to make this case everywhere I go, and I shall continue to do it.  But the responsibility lies also with industry.  It is for you to explain the vital importance of this system, and the costs of turning away from it.  Your public support for the launch of the new negotiations will be a good opportunity to make your case.