Will GATS be Good for the Region? [Archives:1999/26/Focus]

June 28 1999

Riad al Khouri
Whether or not a country’s export markets flourish can often depend on how efficiently the goods are transported from place to place. What’s the use of producing something cheaply and efficiently only to have transportation costs make it prohibitively expensive to sell on the world market? For much of the region, transport remains an area where there is a lot of room for improvement. It isn’t just a question of building efficient airports, roads or ports Ð though these are important Ð but also of how best to manage transport. In the case of maritime transport for example, in the Middle East in general, port and support services are often provided by either public monopolies or legal cartels, in many cases quite inefficiently. Private management of ports is still rare in the Arab world, with Aden in Yemen being a notable exception. As for ownership of such facilities, the Omani trans-shipment center of Salala is the only major example of a port in the region that is not owned by the state.
The market and regulatory structures that govern maritime transport services can negatively affect the costs and quality of shipping. Liberalizing this sector by allowing more private sector activity could improve the efficiency of maritime shipping services and thus have a positive impact on an economy as a whole in terms of ability to compete on world markets.
This is where the WTO’s General Agreement on Trade in Services (GATS) comes in. GATS has extended internationally agreed upon rules into a large and rapidly growing area of international trade, and also created a commitment to liberalize commerce in services.
GATS includes practically all measures taken by WTO members that affect trade in services. The agreement has created two types of disciplines. The most important of the first type is the Most Favored Nation (MFN) treatment, which prohibits discrimination between trading partners, and transparency, which requires each WTO member to publish promptly all relevant laws and regulations that apply to a particular sector. The second type arises from specific commitments undertaken by individual members to provide market access ( i.e. not to impose certain entry restrictions on foreign services and service suppliers), and national treatment (not to discriminate between national and foreign services or service suppliers). Binding commitments made under GATS to provide market access to foreign investors and offer them national treatment will help to create a transparent and secure regime for them.
In maritime transport, a more liberal regulatory framework could play a significant role in solving the problems caused by inadequate port and auxiliary services in many countries of the region. Liberalizing maritime transport had been a central concern of the negotiations that finally led to the WTO being set up. However, only a few countries were willing to offer commitments, most with limitations, in this sector. To get better results, it was decided to extend maritime transport negotiations until mid-1996. These were to be comprehensive, aiming at commitments in international shipping and auxiliary services, and access to and use of port facilities. Unfortunately, the WTO’s members again could not achieve a successful conclusion even over the longer period. It was decided therefore to suspend talks and resume them only with the next round of comprehensive services negotiations, during 2000.
So, even though maritime transport is an integral part of GATS, it is for the moment not subject to its full disciplines. First, the application of the MFN obligation to this sector has been temporarily suspended. Second, since it has not yet been possible to reach a negotiated agreement on the level of specific commitments that members are willing to make, the provision of market access and national treatment are limited to those cases which some members have made unilaterally.
Sea shipping is a relatively open sector in the Middle East. However, barriers exist in the case of auxiliary and port services, though the good news is that the public sector is gradually retreating and more competition is being introduced. In the increasingly important area of multimodal transport (whereby goods pass from one country to another by various methods in addition to shipping by sea), even though foreign firms usually receive non-discriminatory access to continuing land transport, they frequently encounter difficulties in establishing their own inland operations. This can put them at a disadvantage in situations where integration provides overall benefits.
There are reasons to be optimistic that, in the GATS shipping negotiations due to restart in a few months, sufficient liberalization commitments will be forthcoming to achieve a successful outcome. First, in the next round of comprehensive service talks, it may be possible to break the stalemate in maritime transport by exploiting intersectoral negotiating tradeoffs. In other words, a country might offer concessions in maritime transport in exchange for something agreed upon by another country in a totally different sector. Second, it may be easier to reach commitments in the important multimodal area when all types of transport are being negotiated rather than the maritime one alone.
Anyway, although much more needs to be done, liberalization of this sector is becoming a priority for more countries in the region. Restrictions on maritime trade impose a significant expense on the whole economy, and an agreement in this sector in the GATS framework will be a boon to world trade. This should be especially true for our region, which remains a bastion of over-regulation in shipping.