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How the US is using a secret agreement on services to wriggle out of its WTO obligations

The Wire | 17 Jul 2015

How the US is using a secret agreement on services to wriggle out of its WTO obligations

By Chakravarthi Raghavan

It is increasingly evident that the TiSA negotiations are an attempt to pressure developing countries to grant greater liberalisation in sectors of interest to the US and other industrialised countries, without the latter having to pay any price for it.

WikiLeaks has done us all a favour by leaking the draft negotiating texts of the ‘Trade in Services Agreement’ – or TiSA, to use the current official trade jargon. Read together with the secret chapters of the TransPacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) it leaked earlier, we now have a clear textual picture of the attempts by the United States to drive a coach and four horses through the entire post-war multilateral trade, money and finance systems and establish in their place global corporatism and American hegemony over the world.

Each of these so-called “high quality” global trade agreements is being promoted and negotiated in secret by the United States, with the administration of President Barack Obama keen to conclude them on its watch, without too much contemporaneous public or parliamentary scrutiny and debate within participating countries. With Capitol Hill having ceded its authority in such matters to the administration under the Trade Promotion Authority (TPA), the Obama administration can conclude the agreements, and send them to the US Congress for ‘rubber stamping’, with Congress having the right only to just vote ‘yes’ or ‘no’ but not change any part.

Other participating countries will be signing on – and restricting even more their development policy options by giving free rein to global corporate activities within their borders – without even this minimum level of legislative scrutiny.

“Together, the three treaties (TPP, TTIP and TiSA) form not only a new legal order shaped for transnational corporations, but a new economic ‘grand enclosure,’ which excludes China and all other BRICS countries,” WikiLeaks publisher Julian Assange aptly declared in a press statement.

Of the three, the TPP and TTIP will be presented as ‘Free Trade Agreements’ or regional agreements permissible under the World Trade Organisation, subject to WTO multilateral scrutiny as Regional Trade Agreements (RTAs) and other procedural conditions. In both cases, adversely affected non-members may be able to invoke some remedies. Neither TPP nor TTIP appear to have a separate mechanism for settling disputes between member states.According to US trade lawyer Simon Lester, dispute settlement between states under the TPP or TTIP would then require them to invoke their rights within the WTO and seek the jurisdiction of the WTO’s dispute settlement understanding (DSU). However, the right to invoke the DSU with its procedures and binding rulings can only arise for violations of the WTO agreement (and not external agreements) and if the dispute is of one member’s actions upsetting the balance of rights and obligations of the other under the WTO. Even if the TPP or TTIP provide for invoking the DSU, the WTO membership would have to agree, which is unlikely given complaints of delay and of the WTO’s secretariat, panels and appellate body already being overburdened.

Thanks to WikiLeaks publishing hitherto secret material, both the TPP and TTIP have attracted considerable public disquiet and criticism over their proposed mechanism for dispute settlement between ‘investors’ and the state concerned. Even conservative personalities and groups, normally supportive of “liberal” or “free trade” principles, have voiced their protests.

In Britain, for example, Ben Goldsmith, a financier and chairman of the Conservative Environment Network, and supporter of a recently launched group ‘Artists Against TTIP’, wrote in the London Evening Standard on 30 June: “TTIP is not a fringe issue but would mean seismic changes for the UK…. It is profoundly hypocritical of our current government to highlight threats to UK sovereignty while also promoting TTIP within Europe. Rather than trying to hide the deal from the British public, ministers should facilitate a fuller debate — and, if such a debate demands it, include the suspension of TTIP in the package of reforms and opt-outs being demanded from the EU.”

When admitted conservatives and ‘financiers’ start raising concerns publicly, it is a warning signal that British and European governments cannot ignore or brush under the carpet.

Nor is it easy to comprehend the reported requirement that all documents be kept secret for five years, whether talks succeed or fail. What happens if negotiations fail is a different matter. And while member governments may try to keep negotiating texts secret, there is no way negotiated agreements can be kept under wraps for five years. They would all need to be immediately notified to the WTO, or any non-member can notify a purported text. Notification is also a pre-requisite if these agreements are to be considered FTAs, Regional Agreements, or whatever else under the WTO. And, when several governments (and, within each, numerous officials and envoys) are involved, nothing can remain secret for all time in diplomacy. The days of Bismarcks and Metternichs and secret agreements are long gone and cannot be conjured up in today’s world of digital communication.

Why the US wants TiSA

Unlike the TPP or TTIP, of which there is some information at a general level, not too much is known about TiSA even by the media – let alone the public. That is why it has not attracted the same degree of public attention or controversy.

TiSA is undoubtedly the most important of the agreements being spearheaded by the US and is likely to have a greater negative impact on the economies of both participating and non-participating countries (including India, Brazil, South Africa and China), as well as many others, however big or small their individual or collective trade or economic weight in the world.

The vast trove of TiSA texts now made public by WikiLeaks will enable governments and public interest activists across the world to focus on the agreement’s likely benefits, if any, and highlight the vastly greater negative effects on their countries. However, the very quantum of documentation now in the public domain may have the unintended effect of causing an information overload, turning people’s attention off the subject. It is important, therefore, to guard against and counter such a possibility.

The papers made public now are the ‘Core’ Text of TiSA and its various annexes relating to individual sectors of ‘trade in services’, as well as provisions relating to domestic regulation. Each of the texts come with links on WikiLeaks, providing analysis for the public at large, written by academics, activists and civil society groups campaigning on these issues.

Without going into relative merits of each individual analysis or the technicalities of each sector, there are some fundamental issues, common to the core text and the annexes, that need to be underscored and brought into the open for public debate.

Before we do that, however, it is important to relate TiSA to the rights and obligations of countries within the global multilateral trading system incorporated in the Marrakesh Agreement establishing the WTO and its related agreements and annexes. Many of the systemic issues raised by TiSA already find mention in some provisions of the Marrakesh Treaty, and the General Agreement on Trade in Services (GATS), currently incorporated in the WTO. There is also the Financial Services Agreement, a part of GATS, concluded in 1997, and incorporated into the WTO from 1999.

WTO members launched the Doha Development Round (DDR) negotiations in 2001 as a ‘Single Undertaking’ (SU) that would embrace a range of subjects on the organisation’s agenda. These included

- Issues of continuing agricultural reforms process, as required under WTO’s Agreement on Agriculture (or AoA),
- Non-Agricultural Market Access (NAMA),
- Trade in Services,
- Rules to correct some of the unfair imbalances of WTO,
- Trade facilitation, and a range of development issues

It is worth recalling that the DDR itself was pushed by the US and EU in the wake of 9/11, which the European Commission said was an attack on world commerce that needed a response through a new round of trade negotiations at the WTO. As a key minister in the Vajpayee-led NDA-I government, Arun Jaitley played a key role at the Cancun Ministerial Conference (2003) in thwarting a US-EU effort at that time to change course, reverse their agricultural commitments, and wind up the DDR at the cost of India, Brazil and other developing countries.

After difficult negotiations, several detailed texts have emerged in the areas of agriculture, NAMA and Services, with a few bracketed texts, and there have been a number of General Council and ministerial declarations and decisions aimed at bringing the talks to a successful conclusion. The Doha Round, however, remains deadlocked, mainly over the unwillingness of the US to carry out its commitments and obligations, reduce its overall agricultural support (aggregate measure of support), and change its trade distorting policies.

In this situation, the US and some of its allies have been attempting to resile from all their commitments, abandon the ‘Single Undertaking’, and reach side accords favourable to them in select areas, thus scuttling the integrity of the Doha Development Round.

Plurilateralism as step one

The move for plurilateral negotiations and an agreement on services – in areas of benefit to the US – now being pursued as TiSA, has to be seen in this context.

The idea of plurilateral negotiations in services first surfaced at the time of the WTO’s Hong Kong Ministerial Conference in 2005, during the ongoing DDR negotiations of which further liberalisation of trade in services under GATS is part of the SU. In Annex C of the Hong Kong declaration, relating to the services negotiations, the ministers said that in addition to bilateral negotiations, “we agree that the request-offer negotiations should also be pursued on a plurilateral basis in accordance with the principles of the GATS and the Guidelines and Procedures for the Negotiations on Trade in Services. The results of such negotiations shall be extended on an MFN basis.” (emphasis added).

This plurilateral approach was a highly controversial one at Hong Kong, and was resisted by many developing countries, who reluctantly yielded ground at the end, but with at least two developing countries (Cuba and Venezuela) entering reservations.

When this issue came up at the WTO Services Council meet in February 2006, Brazil and several others made clear their understanding that participation in this approach would be voluntary. Collective requests in some 14 sectors were made among others by Australia, Canada, EU and US, as also some developing countries (Singapore, Hong Kong, Taiwan and South Korea) in particular sectors.

Each of the collective requests with demands for a response were made to about 20-25 members, listed the names of demandeurs and the coordinator for that demand (mostly from the OECD countries); however, members to whom the requests were addressed were not made known, but became known informally to be the larger or ‘more prosperous’ developing countries. The ‘collective requests” with demands, and the sectors covered became known informally – finance, telecommunications, construction, energy, environment services, computer and related services, maritime transport and architectural and engineering services. For some of the sectors like computer and related services, a few developing countries (including India, Pakistan, Chile, Peru) joined. The demands related to various modes of supply – Mode 1 on cross-border supply of services; Mode 2 on consumption abroad of services, Mode 3 on commercial presence and Mode 4 on movement of natural persons.

All the plurilateral collective requests typically made extreme demands in the first three modes of supply, with maximum freedom to be provided to foreign firms and operators to engage in trade and investment, and receive national treatment in host countries. And in Mode 3, commercial presence, the demand was that there be no restrictions on foreign enterprises and investors in terms of share of ownership, form of legal entity and hiring of foreign personnel, with firms to be given “national treatment”, or treated at least as well as local firms.

However, the entire services negotiations and with it, the plurilateral approach, as with other parts of the Doha negotiations, have got stuck on agriculture due to the inability and unwillingness of the US and EU to cut their support programmes.

Looking beyond the confines of Doha

The current US drive for a Trade in Services Agreement, and other regional Trade and Investment Agreements is an effort to go back on its legally binding commitments under the WTO treaty, and end the embarrassment that the Doha Development Round negotiations have become. The plurilateral approach to DDR’s services component in the multilateral negotiations is altogether different from the TiSA plurilateral agreement under negotiation among a subset of WTO members outside the WTO.

The “Core Text” for the TiSA framework agreement, still incomplete with a plethora of square brackets, is almost a word-for-word reproduction of the multilateral GATS provisions, be they those relating to the definition of trade in services, other definitions (with changes in some of the definitions), market access, national treatment, scheduling of commitments etc. A significant omission is the notion of ‘progressive liberalisation’ as reflected in Article XIX of the GATS.

This suggests that the participants are taking this course with a view to facilitating the entry of new members to the agreement or of fully multilateralizing it. It may also be that through selective leaked information an attempt is being made to entice or panic some of the major developing countries to join in. This is confirmed by place holders in the draft for such provisions for others to come on board at some stage.

The TiSA financial services annex appears to be an attempt to seek greater liberalization of this sector, although the core provision of the annex are more or less on the lines of the Financial Services annex in the GATS. From the large number of square brackets in all the negotiating texts, now leaked, it seems that there is a lot of disagreement among the participants on some key provisions.

The Core Text and its annexes also do not address question about the legality of such an agreement on trade in services outside the WTO, or even as a plurilateral agreement within the WTO, issues that go to the heart of the problem.

TiSA contra WTO

Under the terms of the Marrakesh Treaty, to which all members are committed, this is not possible at all. It is not clear as to why the issue has not been raised by the non-participating members of the TiSA exercise, but may be partly tactical. However, it is perhaps time for developing countries to bring this issue into the open at the WTO in a collective way and challenge the US and its “friends” that are systematically attempting to dismantle and whittle down the rules-based multilateral trading system.

The WTO is now a rules-based international organisation set up under an international treaty, with binding rights and obligations for all members, a binding dispute settlement process, and specific provisions for any amendments to the treaty and agreements annexed to it.

Under Article II:1 and Article III:2 of the Marrakesh treaty, any negotiations for any trade accord on any of the agreements in Annex 1 (1A on goods trade, 1B on services trade and 1C on TRIPS) are to be conducted with the WTO as “the forum for negotiations” (emphasis added).

Also, Article II:1 of the GATS on MFN treatment, relevant to the TiSA issue, stipulates: “With respect to any measure covered by this Agreement, each member shall accord immediately and unconditionally to services and services suppliers of any other Member, treatment no less favourable than it accords to services and services suppliers of any other country.” The wording is unambiguous and, as stipulated by the Vienna Convention on the Law of Treaties, the words are to be read and given their ‘ordinary meaning’. Besides, there is more than 50 years of jurisprudence on the interpretation of this (MFN) provision in the GATT agreement. The GATS provision on MFN is a mirror image of the GATT provision in this regard.

Article II of the GATS does set out some exceptions and limitations: it provides for derogation from MFN if it is listed in a particular way in a member’s GATS schedule, as also for the ability of two adjacent countries to confer advantages to services locally produced and consumed in contiguous frontier zones. These exceptions/limitations are not relevant to the consideration of the TiSA issue.

Thus, under the WTO rules, the parties to the planned TiSA cannot make liberalisation of their services markets applicable only to other TiSA members. Nor can they extend it to other WTO members on any conditional basis. In other words, liberalization (i.e. reduction of barriers) in any sector by any WTO member has to be unconditionally extended to all other WTO members, whether TiSA or non-TiSA.

TiSA cannot be made WTO-compatible

There have been suggestions floated that TiSA can be added to Annex IV of the WTO treaty titled ‘Plurilateral Trade Agreements’.

The four existing agreements listed in Annex IV were negotiated as ‘codes’ during the GATT’s Tokyo Round. While several Tokyo Road codes were further negotiated and became binding agreements, and signed on to by all participants at the end of the GATT’s Uruguay Round, there was no appetite among the general membership for translating the TR codes in these areas into agreements to form part of WTO agreement. That is why the Annex IV approach was adopted as a via media. The four agreements listed in this Annex are: Agreement on Trade in Civil Aircraft, Agreement on Government Procurement, the International Dairy Trade Agreement, and the International Bovine Meat Agreement. The last two have been terminated by its members in 1998.

However, it would be a massive legal stretch for an issue like services that is already covered by an existing WTO Agreement, namely the GATS, to be considered a separate subject, an issue of interest to a minority of WTO members, and thus included in Annex IV as a plurilateral agreement. Any attempt to use such an approach to TiSA will strain credulity. Moreover, for the TiSA to co-exist with the GATS and for its inclusion in Annex 4 of the WTO treaty, it needs conform to Art.IX:9 of the treaty, which says:

“The Ministerial Conference, upon the request of the Members parties to a trade agreement, may decide exclusively by consensus (emphasis added) to add that agreement to Annex 4.”

If WTO members, particularly developing countries not involved in TiSA, unanimously agree to go down this route, it is equivalent to committing hara-kiri.

At one stage, there has also been a suggestion, from media reflecting US thinking, that it could be fitted into the WTO framework as a GATS Article V ‘economic integration’ agreement among its members. However, for TiSA to be presented as an Article V agreement, it must have “substantial sectoral coverage”. As a footnote in the GATS explains, “This condition is understood in terms of number of sectors, volume of trade affected, and modes of supply. In order to meet this requirement, agreements should not provide for the a priori exclusion of any mode of supply.”

Moreover, under GATS, any non-TiSA WTO member can raise a dispute on the ground of its rights and obligations being impaired, and get a binding ruling via the DSU. Such a grievance could arise for a WTO member if it finds its own existing access to the services markets of the TiSA members reduced despite Article V clearly saying that any integration agreement, in respect of a non-member, “shall not … raise the overall level of barriers to trade in services within the respective sectors or subsectors compared to the level applicable prior to such an agreement.”

Promoting a sense of panic

The TiSA negotiations appear to have gone into several rounds of discussions, but as the WikiLeaks documents show, the texts are still full of brackets. In the latest round of negotiations currently underway in Geneva, there is still no agreement. TiSA proponents want to wrap things up in time for the WTO’s Nairobi Ministerial Conference this December. However, some participants say this is not feasible.

Thus, all the current noise about an impending agreement can be understood only as an attempt to spread panic among the major emerging economies (and/or their particular service sectors or subsectors)- that have stood out but fear loss of markets or loss of competitivity vis-a-vis other trading partners and their suppliers – and induce them into joining the TiSA negotiating process.

It is increasingly evident that the TiSA negotiations are an attempt to pressure developing countries to grant greater liberalisation in sectors of interest to the US and other industrialised countries, without the latter having to pay any price for it. There is nothing in the draft framework agreement either to indicate any possibility of greater liberalisation under mode 4 – the movement of natural persons.

A ‘working paper’, written by two staff members of the WTO’s services division and published by the WTO Secretariat in 2014 addresses what it calls “The TISA Initiative: An Overview of Market Access Issues”, with a disclaimer “This is a working paper, and hence it represents research in progress… represents the personal opinions of individual staff members and is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members.” The 33-page paper explores options for implementation of TISA including as a ‘Plurilateral Agreement’ in Annex IV, and notes that this can only be done by consensus by the Ministerial Conference. It completely avoids the core issue, and the legal conundrum, as I have argued above, of how the WTO can have two trade agreements on the same subject: an agreement on ‘trade in services’, the GATS with an MFN principle, and a separate conditional one, also on ‘trade in services’ in Annex IV.

The vast majority of developing countries have raised their voices and made it clear that they will not agree to abandon the Doha Development Round as a Single Unit. They will not allow the US and the industrialised world to resile from their obligations, in particular on agriculture, and agree to what is known as a “recalibrated” DDR agenda that can be wrapped up at Nairobi in December 2015, so that the US and its friends, as well as the WTO secretariat, can move on to new agendas.

With the DDR – and as a part of it, the services negotiations – on the agenda, but totally stalemated, and armed with the TiSA documents that WikiLeaks has released, countries like India, Brazil and China can and must raise the issue collectively at the next scheduled meeting of the Council for Trade in Services. They must demand an explanation from TiSA proponents and participants for their activities as well as their disregard of the WTO requirement for the WTO to be the forum for all or any such talks on GATS issues, bilaterally or plurilaterally.

The legal division of the WTO Secretariat should be asked to give an opinion on the legality of simultaneously existing plurilateral and multilateral agreement on services within the WTO legal framework. Caveats must be entered both on this, as well against any attempt to use this by the secretariat to promote its own agenda for completion of the DDR on terms acceptable to the US and dominant trading partners.

As a side-issue, the WTO Director-General should be asked to disclose or clarify any kind of informal help or support being provided by secretariat staff to the TiSA talks outside the WTO forum, and if so under what authority. If no Services Council meeting is due to be held soon, they should demand a special session to specifically address this issue. The non-participants should collectively prepare and table an official document or paper, bringing into WTO records the WikiLeaks texts. Such a paper should also raise in a prominent way the systemic implications for the WTO, and the irrevocable damage that will ensue both to the organisation and to the world trading system. Raising the issue, and holding a media briefing of their own, will help create public awareness too.

Chakravarthi Raghavan is Editor-Emeritus of ‘South-North Development Monitor SUNS’, and has been following and monitoring negotiations at the WTO and the old GATT 1947, since 1978. He is the author of several books and publications on trade and development issues. His latest publication is Third World in the Third Millennium CE (2014), Vols 1 and 2, with Vol.2 devoted to trade issues

 source: The Wire