Injecting Services into the Uruguay Round

In the period between 1982 and 1984, the U.S. was joined by other OECD countries in support of the services case, while the developing countries block started to disintegrate. In May 1983 the U.S. broached the idea of a new round and soon gained the support of Japan (Shukla 2000: 15). The U.S. submitted its national study in early 1984 based on the database regularly updated by the USTR with private sector inputs.

The submission was followed by other studies notified by advanced economies (Stewart: 1993: 2347). Although they did not submit any national studies, developing countries recruited the UNCTAD Secretariat to explore services from a developing countries’ point of view. This decision resulted in the release of an encompassing UNCTAD report in August 1984 critical of the applicability of a generic trade approach to services deregulation (Kelsey 2008: 67). Despite the United States’

repeated calls for the new round including services during the GATT meeting in November 1984, the outcome became a decision to continue to review the results of national studies on an informal basis outside the GATT ambit (GATT 1984).

However, new studies as well as informal debates in Geneva, led some developing countries to refine their interests and became more receptive to the idea of a GATT initiative on services. Some developing countries participated in an informal group created in 1983 by Felipe Jaramillo, Colombian ambassador to the GATT, to examine the trade aspects of services (Singh 2006: 57; Kennedy 1992: 3-4). While in May 1984

developing countries were still united under G77 arguing against the legal jurisdiction of the GATT to negotiate services, the block was reduced to 24 countries the following year, and 10 in 1986 (Shukla 2000: 16). The ASEAN countries declared their willingness to launch the new round in July 1985 with South Korea and Chile revealing that they would not oppose the inclusion of services to its agenda (Croome 1995: 25). At the same time India submitted a proposal opposing new issues and garnered support of 24 developing countries. The proposal outlined the concerns of developing countries regarding protectionism in textiles and agriculture, and called for a decision on standstill and rollback (Croome 1995: 24).

In the meantime Arthur Dunkel, the Director General of the GATT, commissioned a group of eminent persons to prepare a report to address the problems in the trading system and produce recommendations (Golt 1988: 12; Croome 1995: 18-20). The group was chaired by Fritz Leutwiler, chairman of the Swiss National Bank and President of the Bank for International Settlements. The Leutwiler Group was composed of public and private professionals in the financial sector, as well as trade in manufacturing.⁷⁴

74 The following individuals were the members of the Leutwiler Group: Mario Henrique Simonsen of Getulio Vargas Foundation and former Minister of Finance of Brazil; Bill Bradley, U.S. senator, member of Senate Finance Committee; I.G. Patel, Director of London School of Economics and former Governor of Reserve Bank of India; Guy Ladreit de Lacharriere, Vice President of the International Court of Justice; Sumitro Djojohadikusumo former Minister of Trade and Industry and Minister of Finance of Indonesia; and Pehr Gyllenhammar, Chairman

The report of the group entitled “Trade Policies for a Better Future,” published in March 1985, was supportive of the linkages between trade and the trading system with other realms in the global economy: “[t]he health and even the maintenance of the trading system, and the stability of the financial system, are linked to […] better international coordination of macro-economic policies, and greater consistency between trade and financial policies” (GATT 1985: 49). Unsurprisingly, it also put emphasis on “services” by pronouncing that “[g]overnments should be ready to examine ways and means of expanding trade in services, and to explore whether multilateral rules can appropriately be devised for this sector.” (GATT 1985: 45).

Notwithstanding, the controversies on services continued in the Preparatory Committee, which was established in November 1985 to set the agenda of the forthcoming round.

The declaration that initiated the Uruguay Round was an outcome of informal talks between three coalitions that emerged right before the Punta del Este summit scheduled for September 1986. A group of moderate developed countries led by Switzerland including EFTA countries, Canada and Australia, excluding the U.S. and EC, formed the G-9. This coalition favoured an ambitious new round, but also recognized the needs and certain considerations of developing countries (Singh 2006:

of AB Volvo. The project was financed from private non-profit resources, largely the Ford Foundation.

58; Croome: 1995: 29). The second coalition was comprised of hardliners led by Brazil, which submitted a joint proposal in June 1986 sponsored by ten developing countries including India, Yugoslavia, and Egypt. The G-10 proposal suggested a limited agenda for the new round including a decision on rollback and standstill while excluding the new issues (GATT 1986a). In parallel, a group of likeminded moderate developing countries such as Uruguay, South Korea, Colombia, Chile and Jamaica created another coalition distinguishing themselves from the hardliners as they supported the launch of negotiations on trade in services while emphasising the needs of the South (Croome 1995: 29). The consensus in Punta del Este emerged from dialogue between the coalitions of moderate middle powerhouses from the North and the South, which were orchestrated by Colombian Jaramillo and the Swiss Ambassador Pierre-Louis Girard (Kennedy 1992: 7-8). Consequently, a Swiss-Colombian “café au lait” proposal was jointly submitted to reflect the concerns of both developed and developing countries with clear wording on new issues, textiles, agriculture, and standstill and rollback (GATT 1986b).

After laborious negotiations between the United States and hardliners, the consensus was forged upon a revised version of the café au lait proposal. Until the eleventh hour, the hardliners insisted that the GATT lacked legal competence to negotiate an agreement on trade in services and opposed any legal action within the GATT. The

impasse in services would be overcome with a solution proposed by ambassador Jaramillo that would allow the launch of the talks, but on a separate track from negotiations in goods (Croome 1995: 23-4; Kennedy 1992: 9-10). Accordingly, the final Declaration was designed in two parts (See Annex 2). Part I clarified all details of negotiations in goods including intellectual property rights with great substance, whereas Part II on “Negotiations on Trade in Services” outlined the mandate in services in a few paragraphs. The language in the two parts was expressive of the nature of consensus: whereas Part I was noted as a decision of the GATT “Contracting Parties”, Part II began with “Ministers also decided.” This was to satisfy the hardliners insisting on preventing any official recognition of the legal competence of the GATT to negotiate services. Trade in services would be negotiated on a separate track within a Group of Negotiations on Services (GNS) whereas all other negotiation chapters would be carried out under the Group of Negotiations on Goods (GNG). Yet, both groups would report to a Trade Negotiations Committee (TNC). This procedural two-track solution would keep services integrated to the round, but it did not legally recognize services as part of the GATT system. The negotiations would be conducted upon “single undertaking”, i.e. there would be no deal until the negotiations in all chapters including services were concluded. According to the Swiss-Colombian working draft, negotiations on services would focus on building up a “framework of principles and rules” before the contracting parties would make a decision on “its

incorporation in the GATT system” (Golt 1988: 18). However, the final Declaration omitted language on the relationship of the final framework with the GATT and simply stated:

Negotiations in this area shall aim to establish a multilateral framework of principles and rules for trade in services, including elaboration of possible disciplines for individual sectors, with a view to expansion of such trade under conditions of transparency and progressive liberalization and as a means of promoting economic growth of all trading partners and the development of developing countries. Such framework shall respect the policy objectives of national laws and regulations applying to services and shall take into account the work of relevant international organizations (Punta Del Este Declaration, full text given in Annex 2).

This outcome was parallel to the arguments of the demandeurs claiming services as a tradable domain of activities. It also recognized the applicability of GATT procedures and practices to negotiate and liberalise trade in services. However, the result was far from the ambitious expectations laid out in the U.S. proposals (Kennedy 1992: 9-11).

According to the mandate, the negotiations would lead to the expansion of services trade through “progressive liberalisation” and “transparency” to sustain “economic growth” and “development of developing countries”. Reference to “progressive liberalisation” and “development” and the sentence “[s]uch framework shall respect the policy objectives of national laws and regulations applying to services” reflects the compromise that took on board developing countries as well as the EC. This carefully crafted mandate shaped the agenda of the services talks for the rest of the round and

enabled a constructive dialogue between the Southern and Northern actors towards creating the GATS framework. As Ambassador Shukla noted, this outcome was clearly “a further milestone on their march toward the goal of transforming GATT”

(Shukla 2000: 18).