Legally, the only constraint on the trade in services aspects of FTA is Article V of the GATS. Regional Trade Agreements that involve ƒâ€š  a WTO member must have (undefined) 'substantial' sectoral coverage; eliminate or phase out, prevent their introduction of, 'substantially all discrimination' (also undefined) in those sectors; and be implemented immediately or within an (again undefined) 'reasonable time-frame'. Barriers to non-parties cannot be raised 'overall'. Developing countries enjoy greater, but again undefined, 'flexibility' in removing discriminatory barriers and implementation.

The WTO rules set minima, not maxima. Vague as they are, the rules ensure that agreements involving WTO members maintain the neoliberal paradigm and contain WTO-plus elements. They relate only to goods and services, leaving governments free to demand the inclusion of a range of non-WTO issues, often as means to undermine resistance to those topics within the WTO.

The South Centre's Yash Tandon divides regional trade agreements (RTAs) (the term used by the WTO) into three types: (1) 'integrative partnerships' where partners have compatible interests and work on the principles of solidarity and subsidiarity to benefit the weakest members; (2) 'enforced partnerships' where one side dictates the terms and the other side either has to 'take it or leave it'; and (3) 'structured regionalism' where the partnership is enforced and located in structures that are linked to historical relationships.[2]

By 2005 every WTO member except Mongolia was party to at least one of the 200-plus free trade agreements.[3] Almost all follow Tandon's second or third typology. Aggressive services liberalizers, such as the US, EC, Singapore and Chile, seek to push the boundaries beyond what can be achieved in the WTO. At the same time, the major powers avoid new openings of their own services markets to each other - only one agreement since 2000, the US Australia FTA, was between developed countries. The rest were North/South or less commonly, South/South.

The current phase of FTAs falls into three categories. Some are purely liberalization instruments. They are driven by diverse motives. For larger regional players, such as Singapore, South Africa and Chile, bilaterals offers a means to establish their credentials as a regional hub and entry point for foreign investors. Ideologically driven free traders, such as New Zealand, initially followed the bilateral path for its 'demonstration effect' in bolstering trade liberalization. As the Doha round disintegrated they have become anxious that competitors are gaining privileged access to markets through regional or other bilateral arrangements. Many poor countries are negotiating FTAs because their trade preferences are being terminated or they fear that competitors will secure advantages in larger markets.

The second category of South/South integration agreements have been promoted as an antidote to asymmetrical bilateralism. But they must still be WTO-compatible and are beset by their own power dynamics. Because they involve governments that struggle with liberalization, are unlikely to be enforced against each other and are often undermined by the divide and rule tactics of the major powers they tend to move relatively slowly. Many were originally regional cooperation initiatives that were created for different reasons. ASEAN is a classic example. The ASEAN Free Trade Area was created in 1992 and the ASEAN Framework Agreement on Services (ASAF) in 1995.[4] A decade later, an ASEAN assessment reported poor progress towards GATS-plus levels of bound liberalization and regional integration.[5]

A third category of agreements are products of competitive bilateralism, primarily between the US and EU. Trade liberalization is almost incidental. As Tandon observes, the US and EU treat bilaterals as instruments of geopolitical power. Mirroring the imperialism of old, poorer countries are treated as pawns in a global chess game, as the major powers compete to reshape the world in their interests.

The European is exporting its model of regional economic and political integration through 'development partnerships' that expand the 'trade' agenda to encompass a broad menu of economic policies and prescriptions for 'good governance'. It also seeks to align trade and aid through technical assistance and capacity building that create favourable policies and opportunities for European transnationals. The Commission insists that the EPAs must provide for liberalization of services. This ties in with the EU Water Facility and EU Energy Facility that provide technical assistance, policy advice and consultancies that construct the marketized structures that EU corporations can benefit from through services and investment commitments.

The US became more active on bilaterals around 2000 out of concern that new trade and investment regimes were being created over which it had no control. When USTR Robert Zoellick supported renewal of President Bush's 'fast track' authority in 2002 he warned Congress that 'each [bilateral] agreement made without us may set new rules for " ¦ countless " ¦ areas of the modern, integrated global economy - rules that will be made without taking account of American interests'.[6]

Armed with fast track until 2007, the US pushed the boundaries with sufficient success that FTAs overtook the GATS as its preferred negotiating avenue. This blended seamlessly with the growing US obsession with security. Bilaterals became vehicles for strategic alliances to reward its allies and entrench its geopolitical supremacy in diverse parts of the world. Between 1993, when NAFTA was signed, to the start of negotiations with South Korea in June 2006 the new FTA partners collectively amounted to less than 10 percent of total US trade. The first free trade agreement after NAFTA was a politically motivated deal with Jordan in 2000. US 'security alliance diplomacy' intensified post '9/11'. In 2003 Zoellick described an FTA as a privilege, not a right, for which the US seeks 'cooperation - or better - on foreign policy and security'.[7] US allies seemed eager to prove their fidelity by matching military sacrifice with economic surrender.

New economic powerhouses of China and India have begun strategically exploring their options, beginning close to home (China with Hong Kong and Macau, India through framework agreements mainly within Asia). Japan has been slowly testing the waters, starting with ASEAN members but subsequently reaching out to India and Mexico.

Some of these offensive are directed strategically at individual countries. But increasingly they are targeting sub-regional groups. For example, pressure on the Philippines government intensified as old and emerging powers courted ASEAN. In 2002 and 2003 ASEAN members signed a succession of framework agreements that committed them to negotiate bilateral trade agreements on goods, services and investment with China[8] and Japan,[9] both to be established by 2012, and with India,[10] to be concluded by 2007. Despite comfort words on flexibility, reciprocity and sensitivity, mainly targeted to the newer ASEAN members, all three agreements required GATS-plus liberalization of services with substantial sectoral coverage, and progressive liberalization of investment regimes that included investor protection.

The US launched its own Enterprise for ASEAN Initiative in 2002, as it concluded bilaterals with Singapore and Australia. By 2005 this had become the US-ASEAN Enhanced Partnership. One year later, the US goal of a common vision across a full range of economic, political and security issues had been realized; an initial five-year Plan of Action had given birth to a US-ASEAN Trade and Investment Framework Agreement.[11] The starting point for these negotiations will be the precedents established in existing US FTAs, outlined below.

The Japan Philippines Economic Partnership Agreement (JPEPA), signed in September 2006, was a practice run.[12] Both countries were relative novices and the agreement was cautious. Even then, it contained commitments on energy services, disciplines on domestic regulation and investor protections against creeping expropriation that conflicted with the Philippines Constitution. In particular, Article 4 required each party to examine the possibility of amending or repealing laws that pertain to the implementation and operation of the agreement, where the circumstances or objectives that gave rise to them no longer existed or could be addressed in a less trade-restrictive manner.

Within their broader geopolitical objectives, major powers are attracted to bilaterals because they can tailor the content in ways that are impossible in the GATS. A WTO study on services in 2006 reveals how the US, especially, uses preferential trade agreements to secure GATS-plus outcomes (Roy et al 2006). The review of the mode 1 and 3 commitments of 29 WTO members in 28 RTAs signed since 2000 shows a higher number of commitments in bilaterals for all sectors, except for health, than in even the new GATS 2000 offers. First time and 'improved' commitments were made in key infrastructure areas, such as financial services and telecoms, and in the traditionally sensitive areas of education and audiovisual. These commitments often matched or exceeded the GATS 2000 plurilateral requests made in 2006. There was some evidence of 'new liberalizations' (beyond locking in the status quo). Most of these involved phasing out of laws and regulations by specified dates.

Predictably, the US agreements contain the broadest and deepest commitments: 'the US, a key services demandeur and also signatory to many PTAs, has gotten very significant access in various services where its industry sees particular interest, e.g., financial services, express delivery, distribution, audiovisual.' (Roy et al 2006: 54) Agreements that use negative lists - primarily those involving the US - are more likely to lock in the parties' existing levels of liberalization. They also pre-empt new, more restrictive regulation, including of currently unregulated service activities like digital technologies. Smaller, especially developing, countries tend to make the deepest commitments. Agreements that do not involve the US have lower levels of GATS-plus content. Developed countries make fewer new commitments and their sensitive areas (maritime and some professions for the US, audiovisual for the Europeans) remain protected.

The WTO officials interpreted these outcomes as suggesting that services exporters are more easily convinced of the gains from FTAs than for the GATS. Such endorsement can add political impetus to the bilaterals and help their advocates to overcome domestic and institutional resistance. Governments might also be holding back from making GATS 2000 offers to maximize their bargaining coin in the bilaterals. The absence of North/North agreements meant the GATS was likely to remain an important arena for liberalization commitments between the major powers. But if the US could get what it wants through bilaterals, its diminishing appetite for the GATS could reduce the scope for trade offs in the broader Doha round.

The WTO's study in 2006 identified three different types of architecture:

• the standard GATS model;
• the NAFTA approach; and
• a hybrid that seeks to apply the same rules to all investments and all modes of services supply.

New frameworks cut across different WTO agreements. Sector specific chapters and disciplines are becoming more common, variously covering air transport, movement of persons, financial services and telecoms, energy, e-commerce and government procurement. Occasionally, governments use bilaterals to claw back previous commitments on politically sensitive issues, such as audio-visuals and culture or indigenous rights, and attach legally impotent side agreements or exchanges of letters on labour and environmental standards.

Every item on the corporate shopping list for a GATS-plus agreement has been included in at least one bilateral agreement by 2007:

• WTO-plus coverage of investment, government procurement, competition and e-commerce;
• new liberalization beyond what has been committed in the GATS or GATS 2000 offers;
• negative list commitments to standstill and rollback of restrictions, with a ratchet to lock in further 'autonomous liberalization';
• services within investment chapters that are protected against expropriation;
• comprehensive and uniform model schedules;
• clusters of 'high quality', comprehensive commitments;
• updated reclassification of services;
• stronger disciplines on domestic regulation;
• transparency requirements of prior consultation on new regulations; and
• scheduled reviews to improve commitments.

Different countries have key demands. The US places priority on pre-empting regulation of the transport and content of digital products, which can now cover almost anything. The reclassification of telecommunications to include digital content has became a routine element of the US bilaterals. Congress made the removal of barriers to the digital trade environment a core tenet of the President's Trade Promotion Authority in 2002. Wunsch-Vincent describes the package, tailored to delivery of digital products as 'elimination of tariffs on physical media carrier, the liberalization of trade in telecommunication, computer, entertainment and other electronically deliverable services, free trade chapters on ecommerce, and a strong protection of intellectual property rights (IPRs) - especially copyrights - in an online environment.'[13]

This complements the principle of 'technological neutrality' that has taken hold in the GATS, reinforced by the US-Gambling case. This means that any new technology that allows a new means of delivering within a mode that is committed is automatically covered. Governments can easily find themselves bound by a commitment in ways they did not foresee when it was made. This is so much more dangerous with a negative list, because governments cannot predict in advance new technologies and exempt them once they arise.

The European Union's agenda was framed by the Framework Directive on telecommunications adopted in 2002. The directive sets core principles of proportionality to objectives, technological neutrality, promoting competition, development of the internal market and protection of end-user interests, with subordinate protection for social cohesion and consumer protection are subordinate concerns.[14] This domestic regime informs the EU's standard negotiating template, whose architecture blends services, investment and e-commerce into a single chapter, while maintaining a special proviso that keeps audio-visual content safe.

Financial services are routinely taking the form of the GATS Understanding designed by and for OECD countries. Trade in services agreements are blunt instruments designed to foster the expansion of financial markets. The definition of investment commonly includes intellectual property rights, real estate, derivatives and sometimes debt instruments. The merging of investment and services chapters opens the door to extending protections against takings (measures tantamount to expropriation) over services, including in the context to discrimination and denial of market access, supported by investor-initiated disputes. There is clearly some nervousness about this process, with both Australia and Chile holding back on full investment chapters in agreements with the US and Singapore/New Zealand respectively.

What is even more dangerous but less well recognized, is the routine US requirement that parties to bilaterals remove capital controls, with no provision for their use even in a balance of payments emergency. In the Chile and Singapore agreements there is no right to introduce exchange controls even temporarily. There is no balance of payments safeguard in the agreements.

Even a senior IMF legal counsel thinks this is 'unnecessarily severe', especially if it is applied to higher risk countries (and could interfere with the IMF's own jurisdiction)![15] She argues that these agreements have more impact than the stand-alone BITS because they cover a broader range of commercial transactions and a broader definition of investment. Investors in 'hot money' transactions could seek protection under the investment rules because various financial products are defined as investments. Investor-state arbitration could be invoked where states apply capital controls or other measures even temporarily during an economic or financial sector crisis. Further, she recognizes that the US says it intends to 'raise the bar' from this precedent.

Foreign direct investment thresholds are also being raised well beyond what were in the old GATS 1994 schedules (which were often before the major FDI liberalizations occurred). Existing levels are locked in, preventing more restrictive thresholds and criteria. In some cases there is an automatic ratchet that binds any new level of liberalization that is introduced. While this is rarely applied on an MFN basis beyond the parties to the FTA, it has that effect in practice.

Government procurement chapters also bypass the paralysis in the GATS Article XIII negotiations by integrating goods and services, usually with a threshold and the ability of each government to reserve certain kinds of contracts.

The US insists on a broader national security exception that creates more scope for parties (or at least the US) to make their own rules and determine when essential national security interests justify breaching the FTA obligations. This is not subject to the dispute processes.

At the same time as the FTAs are extending the rules, they have complicated the technical problems they were intended to solve. The WTO's 10-year review echoed the concern voiced in 1995 by Jagdish Bhagwati that a 'spaghetti bowl' of inconsistent, overlapping and partial agreements would be inefficient to negotiate and undermine multilateralism (Bhagwati 1984; WTO 2005b). While the trade in services rules remain very similar, the new architecture, classifications and preferential sectoral commitments have intensified the fragmentation and incoherence that the transnational corporations are seeking to overcome.

Footnotes

[1] Roy, M., Marchetti, J and Lim, H. (2006) 'Services Liberalization in the New Generation of Preferential Trade Agreements (PTAs): How Much Further than the GATS?', WTO Staff Working, Paper Economic Research and Statistics Division, http://www.wto.org/english/res_e/reser_e/ersd200607_e.pdf

[2] S. Shahikant and R.Tayob, 'UNCTAD meeting warns of effects of bilateral, regional FTAs', SUNS 20 March 2007, www.bilaterals.org/article .php3?id_article=7527

[3] Roy et al. 6-8

[4] ASEAN Framework Agreement on Services http://www.aseansec.org/6628.htm 'Philippines Schedule of Specific Commitments' Annexes to the Protocol to Implement the Fifth Package of Commitments under the ASEAN Framework Agreement on Services, Cebu, Philippines, 8 December 2006 http://www.aseansec.org/19353.htm

[5] Thanh, V.T. and Bartlett, P. (2006) 'Ten years of ASEAN Framework Agreement on Services (ASAF): An Assessment', Jakarta: ASEAN Secretariat, REPSF Project No. 05/004, Final Report, 6

[6] quoted in Dent, Chris (2006) New Free Trade Agreements in the Asia-Pacific, Houndmills: Palgrave Macmillan 233

[7] Speech to the International Institute of Economics, Washington DC, 8 May 2003: 'Markets Must Open, U.S. Warns', http://www.tradeobservatory.org/headlines.cfm?refID=18715

[8] Framework Agreement on Comprehensive Economic Cooperation Between the Association of South East Asian Nations and the People's Republic of China 2002, http://www.bilaterals.org/article.php3?id_article=2488

[9] Framework for Comprehensive Economic Partnership Between the Association of Southeast Asian Nations and Japan 2003 www.aseansec.org/15275.htm

[10] Framework Agreement on Comprehensive Economic Cooperation between the Republic of India and the Association of Southeast Asian Nations 2003 http://www.aseansec.org/15278.htm

[11] Trade and Investment Framework Arrangement between the United States of America and the Association of Southeast Asian Nations 2006 http://www.bilaterals.org/article.php3?id_article=5771

[12] http://www.business.gov.ph/DTI_News.php?contentID=136

[13] Wunsch-Vincent, S. (2003) The Digital Trade Agenda of the U.S.: parallel Tracks of Bilateral, Regional and Multilateral Liberalisation, http://www.petersoninstitute.org/publications/papers/wunsch0303.pdf, 8

[14] Raworth, P. (2005) Trade in Services. Global regulation and the impact on key services sectors, New York: Oceana Publications, 327

[15] Deborah Siegel (2004), 'Using Free Trade Agreements to Control Capital Account Restrictions: Summary of remarks on the Relationship to the Mandate of the IMF' 10 ISLA Journal of International Comparative Law 297

| More...