Full Paper Forming the Basis of the Presentation to the Services Negotiations Cluster in the National Development Trade Policy Forum (NDTPF) for Zimbabwe’s Negotiation Strategy, October 2004.

Rationale for Regional Integration
Beyond mere political rhetoric there are sometimes gains to be realised when a group of countries agree on economic co-operation. At a multilateral level, the power that the European Union wields at the WTO is a strong indicator of the benefits (for the EU) of regional economic integration. The EU is able to use its common voice to muscle its way against diverse interests at the WTO and to push its own agenda. Political and development discourse in Africa has long held regional economic integration ambitions. The proliferation of regional political and economic blocs testifies to this point. These include in;

- Eastern and Southern Africa: the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), the Southern African Customs Union (SACU), the Indian Ocean Commission (IOC), the East African Community (EAC) and the Inter-Governmental Authority on Development (IGAD);
- Western and Central Africa: the Economic Community of West African States (ECOWAS), the Western African Economic and Monetary Union (UEMOA), and the Mano River Union (MRU); and
- Central Africa: the Central African Economic and Monetary Union (CEMAC), the Economic Community of Central African States (ECCAS), and the Economic Community of the Great Lakes Countries (CEPGL).

A study of the regional integration aspirations of the African states identifies the following benefits of regional integration:

- Regional integration enables neighbouring African countries to link their small economies to create relatively larger markets, thus allowing for benefits from economies of scale;
- Member countries of a regional integration arrangement can present themselves as a united and credible group in international trade negotiations;
- National-level reforms and other economic policies gain more credibility if closely coordinated and harmonized with neighbouring countries;
- An integration framework enhances the potential for sub-regional specialization and cooperation in a variety of economic and social spheres; and
- The deepening of integration within a sub-region may minimize the potential for hostilities between neighbouring countries.

For these benefits to be realised it is important that multilateral and regional trade agreements should have provisions which promote regional integration, if only to allow developing countries to grow each other first before their enterprises can compete with those from the developed world. Such provisions should allow for developing countries in a regional integration initiative to give each other trade preferences and to discriminate in each other’s favour at the exclusion of enterprises from more developed states. In the field of services it is important to look into the GATS, regional agreements, and economic partnership agreements to see if such provisions exist to the benefit of developing countries.

The General Agreement on Trade in Services

The GATS is a multilateral treaty which governs trade in services amongst the member states of the WTO. GATS is the services counterpart of GATT whose subject matter is trade in goods. Although there is no comprehensive definition of “services” in the agreement, services refer to intangible products which are distinct from physical goods. The agreements’ focus is primarily the liberalisation of trade in services. It is meant to make it easier for services providers to do business within the WTO membership. In this respect the membership of the WTO has obligations to make commitments as to which particular services they wish to liberalise or to open up to foreign participation.

Essential Articles

Article II Most-Favoured Nation Treatment

Each member is required to accord immediately and unconditionally to services and service suppliers treatment which is no less favourable than it accords to like services and service suppliers of any other country. A member may only depart from this obligation if they adopt a measure which meets the conditions of the Annex on Article II Exemptions.

Article III Transparency
Members are required to publish all relevant measures which pertain to or affect the operation of the agreement.

Article IV: Participation of developing countries
The agreement promises the participation of developing countries in the services sector through the negotiation of specific commitments. These commitments relate to the strengthening of the domestic services capacity of developing countries, through access to technology, the improvement of their access to distribution channels and information networks, and the liberalization of market access in sectors and modes of supply of export interest to them. Article IV.3 gives special priority to least-developed country members in the implementation of these commitments and provides that;

“Particular account shall be taken of the serious difficulty of the least-developed countries in accepting negotiated specific commitments in view of their special situation and their development, trade and financial needs.”

Article V: Economic Integration
This article is very important in the context of regional economic integration initiatives. The agreement does not prevent members from being party to an agreement liberalizing trade in services between or among parties to such an agreement. However, in terms of art.V.1. such an agreement must:

(a) have substantial sectoral coverage , and
(b) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under paragraph (a), through:
(i) elimination of existing discriminatory measures, and/or
(ii) prohibition of new or more discriminatory measures,
either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI, XII, XIV and XIV bis.

Developing countries are exempted from these conditions under art.V.3, which reads:

“(a) where developing countries are parties to an agreement of the type referred to in paragraph 1, flexibility shall be provided for regarding the conditions set out in paragraph 1, particularly with reference to subparagraph (b) thereof, in accordance with the level of development of the countries, both overall and in individual sectors and subsectors.
(b) Notwithstanding paragraph 6, in the case of the type referred to in paragraph 1 involving only developing countries, more favourable treatment may be granted to juridical persons owned or controlled by natural persons of the parties to such an agreement.”

Paragraph 6 reads;

“A service supplier of any other Member that is a juridical person constituted under the laws of a party to an agreement referred to in paragraph 1 shall be entitled to treatment granted under such agreement, provided that it engages in substantive business operations in the territory of the parties to such agreement.”

As is apparent, art.V.3. is an important clause as it recognises the special needs of developing countries, and gives them special exemptions.

Article XVII; National Treatment
To be read with art.IV is art.XVII. 1. which stipulates that;

“1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services.”

Regional Integration Agreements: the Eastern and Southern Africa example.

1. The SADC Protocol on Trade
Article 23 of the SADC Protocol on Trade commits members to liberalise trade in services in accordance with their obligations in terms of the GATS. Under this article services are recognised as important for the development of the economies of the SADC region. SADC also has protocols on energy, tourism, and transport and communications and meteorology.

Most Favoured Nation Treatment
Article 28 of the SADC Protocol on Trade requires member states to accord MFN treatment to one another.

2. The COMESA Agreement
Chapter 11 of the COMESA Treaty provides for the modalities governing trade in services relating to transport and communications. Related to this are:
- Chapter 13 on co-operation in the development of energy;
- Chapter 14 on co-operation in health matters, including training of manpower to deliver effective health care and exchange of research, development and information on health issues;
- Chapter 19 on promotion of tourism;
- Chapter 10 on monetary and financial co-operation; and
- Chapter 28 on the free movement of persons, labour, services and the right of establishment and residence.

Most Favoured Nation Treatment
Article 56 of the COMESA Treaty requires member states to accord MFN treatment to one another.

Economic Partnership Agreements: The Cotonou Agreement

To be read with the SADC and COMESA arrangements is Chapter 4 of the Cotonou agreement. With the exception of South Africa, member states of SADC and COMESA are signatories to the Cotonou agreement. However the South African exception is more apparent than real because South Africa has a separate FTA arrangement with the EU. The Cotonou agreement paves the way for reciprocal trade arrangements between the ACP blocs and the EU. Chapter 4 of this agreement addresses trade in services.

Article 41obligations and promises
Article 41 commits the member states to the Cotonou agreement to comply with their obligations under the GATS. In this respect it is envisaged that the ACP states will have to adopt the use of the MFN treatment under GATS for purposes of trade in services within the Cotonou framework. The process will also envisage further liberalisation of trade in services. Although not so elegantly phrased this is the import of art.41.4 which reads;

“The Parties further agree on the objective of extending under the economic partnership agreements, and after they have acquired some experience in applying the Most Favoured Nation (MFN) treatment under GATS, their partnership to encompass the liberalisation of services in accordance with the provisions of GATS and particularly those relating to the participation of developing countries in liberalisation agreements.”

Article 41.5 is a promise that the EU will support the ACP states’ efforts to strengthen their capacity in the supply of services. This clause promises to pay particular attention to the enhancement of the competitiveness of ACP services related to;

- labour;
- business;
- distribution;
- finance;
- tourism;
- culture; and
- construction and related engineering services.

Non-discriminatory maritime services obligations
Article 42 governs trade in maritime transport services between the ACP and EU membership. Of significance is art.42.2, which reads;

“They [Parties] undertake to promote the liberalisation of maritime transport and to this end apply effectively the principle of unrestricted access to the international maritime transport market on a non-discriminatory and commercial basis.”

Information and communication
Article 43 has provisions for trade in information and communication services.

Implications for Southern and Eastern Africa

Regional integration initiatives sometimes create a system of favours or preferential treatment amongst the countries forming a regional trading bloc. In the context of GATS, all members must accord the same treatment to other members. However art.V.3 gives developing countries a special exemption. If a group of developing countries has a regional integration agreement, such an agreement may deviate from the obligations under art.V.1 of GATS, that is the countries concerned may give each other favours or preferential treatment, and exercise certain discriminatory trade practices against countries which are not party to the regional agreement. The flexibility provided for by art.V.3 only applies where there is a regional integration agreement involving only developing countries.

The Cotonou agreement complicates things for the SADC and COMESA blocs. Under the SADC and COMESA treaties, the flexibility afforded to developing countries by GATS art. V.3. can be applied. Consequently SADC and COMESA countries can grant each favours and deny these to other countries which are not members of these treaties. However the countries which are members of the SADC and COMESA agreements are also signatories to the Cotonou agreement. The complication arises when one considers the effect of the Cotonou agreement on the application of art.V.3. of GATS within the context of the COMESA or SADC arrangements. The Cotonou agreement talks of reciprocal trade arrangements. It specifically adverts to the MFN treatment with respect to trade in services. Can SADC or COMESA countries still grant each other exclusive favours in the name of regional integration? It seems not. SADC and COMESA countries are parties to the GATS . Their obligations and rights are premised upon the GATS. These countries are now party to an agreement with a group of developed countries. This agreement makes provision for trade in services. Such trade must comply with the provisions of the GATS. The implication is that by signing the Cotonou agreement, the SADC and COMESA countries have signed away the exclusive favours they could previously grant each other under the exemption granted by GATS art.V.3. By extension the MFN clauses in both the COMESA treaty and the SADC Protocol on Trade are now redundant. In this respect art.41.5 of the Cotonou agreement is meaningless drivel, for how can the same article promise a stronger ACP services sector when the same sector will be subjected to competition which takes no account of the relative weaknesses of the ACP services sector.

This is a sad scenario. The infantile services industry in Africa is now expected to engage in a turf war with highly developed operators from the EU. This bodes ill for African regional integration initiatives.

Strategy Issues
Quite clearly the full extent of the implications of the Cotonou agreement were not really engaged with when African states rushed to sign the agreement. The reason why GATS art.V.3. exists is to benefit the services sector in developing countries. The architects of this provision understood that the services sector in developing countries could never sustain competition from the North without such an exemption of benefiting from regional integration initiatives. It seems quite contrived for the African states to demand the exemption allowing them to discriminate against EU service providers within the context of regional integration initiatives when they have signed an economic partnership agreement with the very same EU. In any case the EPA is a species of economic integration initiatives. This is a complicated mess which requires some remedial action.

Stop or slow down
One method is to stop the whole uninformed excitement about the EPAs. Pointing out areas of complications is one way of demanding that the whole externally driven negotiations be slowed down or stopped altogether. This will allow African governments to take stock of the real issues which will affect their people for decades to come. The truth is that Africans have not been given time to think about the EPAs. These negotiations are not about the discourse of friends. They are about mercantile interests. Business is in business to make money. But African governments should ensure that the money is made with the welfare interests of their people (including African business) having been taken care of.

Severe Chapter 4 of Part 3
If not inclined to slow down or stop the EPAs process, African states can negotiate services out of the Cotonou agreement. This will mean the deletion of Chapter 4 of Part 3 of the Cotonou agreement. In a sense this Chapter is superfluous seeing that all it does is refer one to the modalities under the GATS. It adds nothing new except the diabolical complication explained above. Alternatively, perhaps its inclusion was another way that the EU could achieve its market access commitments in trade in services by circumventing the complications of the Doha Round. Either way the removal of this part of the Cotonou Agreement will allow African states in regional integration initiatives to exercise the benefits guaranteed by GATS art.V.3. This is a very practical proposition.

Revisit GATS
A long-winded approach is to move for the amendment of GATS art.V.3 by inserting a clause after paragraph ( c ) to retain the exemption in favour of only the developing member parties where an agreement involves a group of developing countries and developed countries.

Conclusion
The above strategies point to the significance of regional integration. These strategies are of no use if the member states concerned do not sing the same tune. Africans need a strong services sector, but this can hardly be developed by granting external services providers an open field. The role of government is in making sure that liberalisation of the trade in services does not hurt local services providers and consumers. This can only be achieved by a consultative and cautious approach. It is not indicative of stupidity to agonise over what the Cotonou agreement really means for our services and the people who rely on them before putting signatures on paper. As matters stand, analysts are agonising over the issue years after the ink has since dried. This could be an exercise in futility if African governments are not prepared to use their rights to revisit treaties as provided for under international law.