Trade deals spark battle over services

National governments are delaying attempts by the European Commission to secure free trade agreements with some of Asia’s fastest growing economies because of their concerns about the impact on public services in the EU.

Belgium and other EU member states have expressed reservations about what trade deals would mean for their public utilities at home.

The issue is delaying the start of serious talks to establish free trade agreements (FTAs) with India, South Korea and the Association of South East Asian Nations (Asean).

EU member states are currently discussing the mandate that they will give the Commission to negotiate the deals.

Proposals put forward by the Commission would place safeguards on audiovisual and cultural services, but not on health, education and water, according to diplomats.

Belgian diplomats are worried that the Commission’s proposals to liberalise service provision in the education and health sectors might make their current systems unworkable and increase costs dramatically. The Belgian government, consumer groups and mutual insurance organisations together control the capacity of hospitals and the amount of equipment bought in order to manage costs.

The Belgian development group 11.11.11 is opposed to the Commission’s approach to FTAs because of its possible effect on Belgian services. According to spokesman Marc Maes, the Commission has made repeated attempts to whittle away public service exceptions in trade deals.

"The Commission has been constantly and systematically changing the signposts. At the beginning there was a horizontal exception - for all public services - the Commission is now getting rid of some of those, next it will get rid of all of them," said Maes.

According to one trade diplomat the issue has taken on "the highest political importance", dimming the prospects of an early solution to the impasse.

India’s strength in the services sector is proving the biggest headache. According to the Commission’s own statistics, trade in services between the EU and India was worth more than €7 billion in 2004, with the EU running a services deficit of half a billion euro each year.

Although efforts to reach a deal will continue in Brussels this week, officials said the issue was likely to be discussed by EU foreign ministers when they meet in Luxembourg on 23 April.

The ministers will also have to deal with a host of other political problems related to the FTAs.

An EU demand to include clauses on non-proliferation and commitment to democratic principles has irked Indian negotiators who have warned the EU not to insist on their inclusion in negotiations.

These clauses have been included in all of the EU’s bilateral accords since the 1990s, but were described in March by India’s top trade official, Kamal Nath, as a "deal breaker".

That comment sparked divisions between trade officials, who argued that the economic benefits were the most important, and foreign policy officials who argued that leaving out the clauses could set a dangerous precedent. The EU has previously struggled to convince countries such as Syria to accept such clauses.

Member states have yet to agree on a way round the vexed question of Myanmar’s (formerly Burma) participation in the FTA with Asean. Solutions being put forward include a proposal for the EU to negotiate one FTA with each Asean state, or one FTA covering all countries except Myanmar, Cambodia and Laos.

In October the EU announced its intention to negotiate a series of FTAs in response to slow progress towards agreeing a multilateral deal at the World Trade Organization. The deals are expected to be concluded within two years and will have a heavy focus on investment and the trade in services.

Accords are also being discussed with China, the Gulf Co-operation Council, Mercosur, Central American countries and the Andean community. The Commission hopes to begin talks with South Korea in May. Analysts say that talks with South Korea will be the least problematic of the three mandates currently being discussed, despite strong competition in the agriculture, pharmaceutical and car markets.

National governments are delaying attempts by the European Commission to secure free trade agreements with some of Asia’s fastest growing economies because of their concerns about the impact on public services in the EU.