10 February 1989 - 12 February 1989

The Global Market and the Service Industries: Can GATT Cope?

Chair: Mr Glen R Moreno

This conference came two months after the Montreal mid-term review of the Uruguay Round. The negotiations on services - relating at this stage to a statement of principles - had made considerable progress, but were deadlocked (along with everything else) over the agricultural issue. It was therefore timely and useful to review the significant progress made in the services industry sector and to discuss how to build on it. The conference was asked to consider the increasing scale and importance of the service industries, their increasingly international nature, the role of national regulatory bodies and the means by which national regimes could be liberalised in an international system which would reconcile them and the conflicting interests of the developed and developing worlds. Could the GATT be adapted to this or should another forum be sought or created? Indeed, was an international regime necessary?

At the outset, two related hurdles were identified: unreliable or defective statistics and confusion about the definition of a service industry. On the one hand it was suggested that, while one definition, that a service could be neither transmitted nor stored, was inadequate (cf. legal advice), anything that did not produce a material chattel, something which, dropped on your toe, would hurt, was a service! It was also recognised however that much work ancillary to material production (design, accountancy, marketing) was properly a service but would not appear as such in the statistics if it was conducted “in house”. “Tradeable services” should not include the remission of savings, interest or dividends. Some suggested that we should not be too worried by all this: for practical purposes we knew what we were talking about. In any case, the size of the field was clearly growing in all developed economies, though in parallel with manufacturing, extraction and agriculture, not at their expense. In the UK, for example, it was estimated that service industries accounted to-day for 56% of GNP and 67% of the labour force (68% and 76% respectively in the US) and the proportion continues to grow since most new jobs are in the services field. The sector appeared to be growing faster domestically than internationally, but even so, it was estimated, it accounted for 30% of world trade and in Britain’s case contributed about half of the country’s foreign earnings.

Against that background there was general agreement on two basic principles: that there should be freedom to establish business of a trade-related kind; and that regulatory regimes should be “transparent” with no hidden or undeclared barriers. The detailed requirements to give effect to these principles, however, were more difficult. Most participants assumed that this could best, perhaps could only, be achieved through a system of international regulation within GATT. Some, however, asked whether it could not be left to the market, to perceived self-interest, to “regulatory arbitrage” (with business gravitating to the most liberal national regime) and, where necessary, to bi-lateral arrangements between countries. For these sceptics the principal anxiety was that any international regime would inevitably be more restrictive and would stifle the beneficent growth of services. It was my impression that this conflict was never completely resolved, the ardour of the proponents of an international regime remaining undamped and the sceptics unconvinced but resigned.

On that basis, there was much discussion about the way forward. In general, participants doubted if negotiators should be too ambitious. It might be best to try to establish a sort of “net” (or floor) of basic principles to which all national regulations should at least conform, providing for freedom of access and establishment, with the necessary freedom of movement of personnel, “national treatment”, “transparency” and, perhaps most important, a mechanism and criteria for challenging national regulations. Reciprocity was a thorny issue, as was mutual recognition of qualifications. Indeed freedom of access for the professions raised different problems from those applying to financial services such as banking and insurance. The tendency to look for reciprocity of results, as opposed to treatment, was to be resisted. Even ‘‘national treatment” could conceal hidden barriers of a bureaucratic or cultural kind and the risk was that the more successful an international regulatory regime was, the more ingenious nations would be in finding ways to frustrate it. Regulatory arbitrage was seen by some as a danger, but by others as an advantage, as compelling, by competition, greater convergence. Systems and levels of taxation were mentioned as restraints, but not pursued, though one participant suggested that, in the end, no international system for regulating services could succeed without a convergence of taxation at least among the principal nations involved.

It was generally agreed that under an umbrella agreement enshrining principles, similar to those announced at Montreal (though one participant pointed out that these in fact left all options open), there should be subsidiary more detailed sector agreements to which the broad principles would apply and which would take account of the particular characteristics of each. Tourism and insurance were suggested as first candidates for this treatment, mainly, it seemed, because they might be easier than some others. Some, however, questioned whether at least in the case of tourism (sui generis in that it was not so much a service industry itself but was served by a number of different service industries and was pre-eminently susceptible to consumer-choice) this was not an example of regulation for regulation’s sake.

The question arose whether regulation should apply to the institution providing the service or to the product. Where safety was involved (e.g. air or sea transport), the product was clearly the key, but in the case of financial services, the reputation and resources of the institution were probably the better test, giving greater scope for innovation and competition.

Some sectors, notably air and sea transport, were already regulated by international agreement and long tradition. Change there would be particularly difficult.

There was debate whether to aim for a GATT-wide agreement, which would inevitably have to be broad and pitched to the lowest common denominator, or to concentrate on a more limited group, perhaps the OECD countries, with the aim of concluding an agreement to which others could accede as they, or an independent body, judged that they were capable of fulfilling the obligations - all this in the context of how the developing countries, not represented at Ditchley, could be persuaded that it was in their interest to participate at all. The higher the aspiration, the smaller the number of countries which would subscribe. While in the area of services some developing countries, more developed than others, had an interest in obtaining access to the developed world’s markets, most, it was felt, would require some concession over trade in goods, if they were to be drawn in, agricultural products, the construction industry or textiles being the obvious candidates but all presenting political difficulties. The suggestion of an agreement negotiated among OECD members, to be held out for later accession by GATT members, was rejected, since anything negotiated in their absence would be unacceptable to developing countries: better to go for an open-ended agreement negotiated within GATT.

Finally, there was discussion of the level of commitment that might be appropriate in such an agreement, the spectrum ranging from guide-lines to full legally-binding treaty obligations. The service industries, and national regulations applied to them, presented much greater difficulty of enforcement than trade in goods, since on the one hand, unlike tariffs, there was no clear objective measure and on the other, once a service industry was established, it was not so easy in practice to close it down and (for example in insurance) the damage could not easily be undone. No conclusion was reached. Enforcement would always be a problem: while “national treatment” involved “national discipline” the question of enforcement in GATT raised difficult issues and required further study.

This Note reflects the Director’s personal impressions of the conference.  No participant is in any way committed to its content or expression.

Conference Chairman: Mr Glen R Moreno
President, Fidelity International Limited and Chairman, Fidelity International Management Holdings Limited, London


Professor Jacques Steenbergen

Partner, Braun, Claeys, Verbeke, Sorel, Brussels

Mr Julian Arkell

Director and Company Secretary, RMJM Ltd, Architects, Engineers and Planners; Member, LOTIS Committee, representing British Consultants Bureau; Consultant to the British Invisible Exports Council; Chairman, Working Party, European Community Services Group
Mr Nicholas P Bayne CMG
Deputy Under-Secretary of State, Foreign and Commonwealth Office (FCO)
Miss Babette Brown
Member, Legal Practice Directorate (International), The Law Society; member, Liberation of Trade in Services (LOTIS)
Mr Michael A Butt
Chairman and Chief Executive, Eagle Star Holdings pic and Eagle Star Insurance Company; Director, BAT Industries pic
The Rt Hon Edmund Dell
Chairman, Public Finance Foundation; Director, Shell Transport and Trading Company pic; Deputy Chairman of Council, London Chamber of Commerce and Industry
Mr Andrew Duguid
Head of Market Services, Lloyd’s of London
The Hon Robin Hoyer Millar
Secretary-General, The Committee of London and Scottish Bankers
Mr Christopher Johnson
Chief Economic Adviser, Lloyds Bank pic; Visiting Professor of Economics, Surrey University; Chairman, Executive Committees, Institute for Fiscal Studies and the Employment Institute; Member, Economic Situation & Europe Committees of the Confederation of British Industry (CBI); Member, Council of the Royal Economic Society, the Royal Institute of International Affairs
Mr P E Leslie
Deputy Chairman, Barclays Bank pic
The Rt Hon the Earl of Limerick KBE
Deputy Chairman, Kleinwort Benson Ltd; Director, Kleinwort Benson Lonsdale pic; Director, TR Pacific Basin Investment Trust pic; Director, De La Rue Co pic
Sir Richard Lloyd Bt
Joint Chairman, Hill Samuel & Co Ltd; a Governor, Member of the Council of Management and Chairman of the Finance and General Purposes Committee, the Ditchley Foundation
Mr David Love
Assistant Secretary, External European Policy Division, Department of Trade and Industry
Mr Peter Montagnon
World Trade Editor, Financial Times
Mr David P Thomson
Director-General, British Invisible Exports Council; Member, Monopolies and Mergers Commission; Chairman, Jufcrest; Director: Finance Co Viking, Zurich; Applied Photophysics; Member: Court of Governors, Henley Management College; Director, Henley Distance Learning
Sir Robert Wade-Gery KCMG KCVO
Executive Director, Barclays de Zoete Wedd Ltd

Dr John Curtis

Senior Policy Advisor, Multilateral Trade Negotiations Office, Department of External Affairs, Canada; Lecturer in international trade, investment and finance, Carleton University, Ottawa

Mr M G Mathur

Deputy Director-General, General Agreement on Tariffs and Trade (GATT)

Dr Dietrich Barth

Head of Division for GATT Negotiations on Trade, Services and Intellectual Property, Ministry of Economics, Bonn
Dr Hans Michael Pott
International lawyer, specialising in international tax law; Partner, Knobbe & Pott, lawyers; Managing Director, chartered accountancy and tax firm
Miss Ellen Schneider-Lenné
Deputy Member, Board of Managing Directors, Deutsche Bank AG, Frankfurt am Main; Chairman, DB UK Finance pic, London; Chairman, Supervisory Board AKA Ausfuhrkredit-Ges.mbH, Frankfurt; Deputy Chairman, Supervisory Board: Deutsche Bank, Luxembourg SA; Zurich Investment Ges mbH, Frankfurt; Industriebank von Japan (Deutschland) GmbH, Frankfurt; Member, Supervisory Boards: Eisen- u. Hüttenwerke AG, Koln; Herberts GmbH, Wuppertal; Karstadt AG, Essen; Lahmeyere Intern. GmbH, Frankfurt; Rheinisch-Westfälische Kalwerke mbH, Dornap

Signor Gianni Manca

Partner, Manca, Amenta, Biolato, Corrao & C., Italian lawyers, Rome; Vice-President and President-designate, Consultative Council of the Bar and Law Society, European Community

Mr Hiroshi Hashimoto

Minister and Head of Chancery, Japanese Embassy, London

Mr Claude Barfield

Director, Science and Technology Policy Studies, American Enterprise Institute (AEI)
Professor Jagdish N Bhagwati
Arthur Lehman Professor of Economics and Political Science, Columbia University; Ford International Professor of Economics, MIT until 1980; author and writer; Fellow, Econometric Society, and American Academy of Arts & Sciences
Professor Richard N Cooper
Maurits C Boas Professor of International Economics, Harvard University
Mr Geza Feketekuty
Counselor to the US Trade Representative; formerly Senior Staff Economist for International Finance and Trade, Council of Economic Advisers; Visiting Professor, Cornell University; Adjunct Professor, School of Advanced International Studies, Johns Hopkins University
Mr Peter J Finnerty
Vice President, Public Affairs, Sea-Land Corporation and Vice President, Maritime Affairs, CSX Corporation; member, US Administration’s Advisory Committee on Service Industries
Mr Harry Freeman
Executive Vice President, American Express Company; Member, Services Policy Advisory Commit­tee to US Trade Representative
Dr DeAnne Julius
Director of Economics, The Royal Institute of International Affairs, London
Mr William M Ohnsorg
Director, International Policy and Plans for the Business Market Groups, International Services Division, AT&T Communications
Mr Michael Patterson
Patterson, Executive Vice President and General Counsel, JP Morgan & Co Inc and Morgan Guaranty Trust Company of New York
Mr Isaac Shapiro
Partner, Skadden, Arps, Slater, Meagher & Flom, New York Office; Member, Services Policy Advisory Committee to the United States Trade Representative; Director, The Bank of Tokyo Trust Company, Carl Zeiss of America Holding Corporation
Professor Robert M Stern
Visiting Professor of Economics, Brandeis University, on leave from the University of Michigan, Ann Arbor, where he is Professor of Economics and Public Policy and Head of the International Program, Institute of Public Policy Studies
Mr Kenneth P Veit
President, AEtna International Inc; Chairman, AEtna UK; Chairman, AEtna Life & Casualty of Canada; Member, Board of Directors, AEtna Australia, AEtna Chile, AEtna Spain (La Estrella); AEtna Malaysia (Universal Life & General), AEtna Hong Kong (East Asia AEtna), AEtna Taiwan (ALICA); Member, Services Policy Advisory Committee, USTR
The Hon John E Washbum
Director of Insurance, State of Illinois