Subsidies, Services and Sustainable Development
Programme on Trade in Services and Sustainable Development Series • Issue Paper 1
Ten years after services were included in the multilateral trading system, the WTO’s General Agreement on Trade in Services (GATS) remains an unfinished project. It continues to arouse scepticism among its original proponents — given the arguably low level of liberalisation attained so far — as well as deep concern among others with regard to the policy orientation of its provisions. In the context of international negotiations, the GATS was the result of a knotty process of political quid pro quos that catapulted services into a major component of the Uruguay Round negotiations. By and large, major services providers in the US and Europe acted as demandeurs for services rules and for a process that would lead to global trade expansion in the sector. Their counterparts in developing countries were confused, and their development concerns — omnipresent in the process — were ultimately left appallingly vague. The absence of data, commercial insecurity and a crippling perception of an unfavourably tilted playing field prevailed in development circles throughout the negotiations. Broad public policy issues remained off the negotiating table. Difficult tensions — arising, for instance, from the fundamentally different approaches of diverse public law traditions to the role of the State in the provision of certain services — permeated the discussions. The eight years of talks to design the GATS represented a hugely rich, creative and analytical effort, characterised by complexity, technicality and a high degree of politisation.
The implementation of the Agreement has perpetuated the pattern. In the past few years — as we move into the liberalisation phase mandated as a built-in agenda in the GATS — policymakers in developing countries, academics, and civil society analysts and advocacy organisations have expressed serious reservations about the potential implications of requiring developing countries to make greater market access concessions; the need to sequence liberalisation; the lack of adequate domestic regulatory frameworks; the imperative of universal access for essential services; and institutional reform and good governance. The unresolved discussion on whether liberalisation and further advancement of negotiations can proceed in the absence of the mandated impact assessment of implementation seems to be most troubling for practically all parties. Indeed, a comprehensive policy analysis of the implications of trade in services for sustainable development, and of the policy spaces available for implementing public policies, is still missing.
Among the most challenging and controversial issues currently on the table are negotiations aimed at establishing multilateral rules for subsidies in services. In a largely unexplored field such as the production and international exchange of services, subsidies could either distort trade and competitiveness, or enhance them. Little is found in the literature with respect to the use of incentives in the field, but it seems safe to presume that GATS Member countries are unequally endowed with the resources and ability to use policy tools to promote business activity in the services sectors. In addition, for some — whether developed or developing countries — subsidies may be a critical policy instrument to enable productive activity in otherwise unviable or incipient sectors to ensure the provision of essential services, as well as to maintain viable public services sectors. Subsidies may also provide incentives for existing service providers to operate in a more environmentally and socially supportive manner. So far, subsidies, granted mostly by OECD countries, have raised serious concerns for many developing countries. Developing countries see these subsidies as major stumbling blocks on the way to increasing their participation in the services trade. In the ongoing GATS negotiations, WTO Members “shall aim to complete” negotiations on services subsidies under Articles XV of the GATS prior to the conclusion of the services market access negotiations. Services negotiators are therefore faced with the challenge of finding the right balance between disciplining trade-distortive subsidies, while at the same time retaining spaces for the pursuit of key public policy objectives.
As a contribution to the debate, this paper explores possible options for the establishment of new multilateral disciplines on subsidies from a sustainable development perspective. It is the first of a series of Issue Papers on systemic and sectoral topics of relevance to the current GATS negotiations produced under ICTSD’s programme on Trade in Services and Sustainable Development. This programme aims at empowering developing country policy-makers and other stakeholders at regional and international levels through information, dialogue, capacity-building and research targeted at influencing the international services trading system so that it advances the goal of sustainable development.
We hope you will find this pleasant and informative reading and an effective contribution to the debate.