Trade in services at top of the agenda

Date: 16/09/1999

By Tim Jones

IF ROMANO Prodi's decision to give Frenchman Pascal Lamy the European Commission's trade portfolio is going to have any impact on the EU's stance in global trade talks, it will be when it comes to negotiating a new deal on trade in services.

Everyone, from protectionists to old-fashioned liberals, agrees that trade in services has swollen in importance even in the short time since the General Agreement on Trade in Services (GATS) was signed in tandem with the Uruguay Round settlement five years ago.

The Uruguay Round concentrated on setting up rules for trade in services and was followed by separate agreements on telecommunications and banking, securities and insurance.

All sides accept that this trade is vital for the EU, accounting for two-thirds of its gross domestic product, half of overseas investment and a quarter of cross-border export earnings.

Where they part company is over further liberalisation and, however much of a free-trader Lamy turns out to be, he will certainly not take predecessor Sir Leon Brittan's ultra-liberal line over GATS 2000.

Philosophically, Brittan believed the Asian financial crisis showed that services markets should be more open and transparent, and his doomed championship of the hated Multilateral Agreement on Investment (MAI) was undimmed by French-led approbrium.

A quick glance at the potential sectors to be covered by the GATS renegotiation make it clear that it will be hard for a Frenchman to accept the concessions necessary to get a deal.

Agreements on shipping and civil aviation, express delivery services, energy distribution and supply, audiovisual and foreign establishment of such services will be arduous to negotiate and virtually impossible to sell back home.

Nevertheless, at the level of rhetoric at least, EU politicians are keen on winning an accord on services which will concentrate on market access rather than the establishment of yet another rulebook, although it will be hard to avoid a new deal on public procurement.

Brittan wanted a new market access agreement with no sectors barred. "The liberalisation must not only allow European providers to offer their services in foreign markets from a European base but also allow them to establish in foreign markets," said the outgoing Commissioner last year.

Air cargo shippers are putting pressure on all sides to throw civil aviation into the GATS 2000 pot; an idea which would find strong support among parts of the Clinton/Gore administration and the Commission.

In theory, the Europeans believe the maritime transport sector is inadequately covered by the GATS. But they are not prepared to move significantly until the Americans undo their discriminatory Jones Act.

As former World Trade Organisation Secretary-General Renato Ruggiero put it: "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."

The GATS 2000 talks will be a fascinating test case of Lamy's independence not only from blatant national political interference but also from the philosophical habits of a lifetime.

Article forms part of a survey on world trade, p13-20.