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MANAGING THE CHALLENGES OF WTO PARTICIPATION: CASE STUDY 42

Uruguay in the Services Negotiations: Strategy and Challenges

Soledad Salvador and Paola Azar (with the collaboration of Claudia Rucci)*

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 Disclaimer:
Opinions expressed in the case studies and any errors or omissions therein are the responsibility of their authors and not of the editors of this volume or of the institutions with which they are affiliated. The authors of the case studies wish to disassociate the institutions with which they are associated from opinions expressed in the case studies and from any errors or omission therein.

Case Studies main page
Introduction

   

ON THIS PAGE: 
I. The problem in context
II. The strategy-building and decision-making process
The players and their roles
Relevant features of the strategy-building process
> III. Challenges faced and the outcome
> IV. Lessons for others
>  Bibliography


I. The problem in context    back to top

Uruguay is a small South American country lying between Brazil and Argentina. In relation to the rest of the continent, it is a small country with a land surface of approximately 176,000 sq km; it is also small in demographic terms — its population is only 3 million — and in economic terms — gross domestic product (GDP) in 1998 was around US$23 billion. However, Uruguayan society enjoys high social integration and low levels of inequality.

As in other countries, the services sector represents two-thirds of employment and about 60% of GDP. During the 1990s the sector was an engine for national exports and its share in the total volume of exports increased threefold. Uruguay is a net exporter of commercial services (travel, transport and ‘other commercial services’),(1)  which account for 34% of global exports (the average for Latin American countries is 20%). Those classified under ‘other services’, including communications, construction, financial intermediation, business services, information-technology-related services, as well as royalties and property rights, have been the most dynamic.

The international expansion of the services sector seems to be a promising alternative to the exploitation of the country’s natural resources. Yet the small size of its domestic market poses a challenge to efforts to liberalize the sector. Deregulation should be followed by re-regulation in order to ensure the effective operation of competition in the domestic market. The decision-making process needs to be founded on a sound basis (with good regulatory frameworks and appropriate institutions), with appropriate evaluations of risks and opportunities.

From this perspective it is important to ensure that policies and strategies are being co-ordinated and supported by the major players; this would help trade negotiations to become effective in empowering the country’s international presence. Ideally, the actors involved should include policy-makers from the trade and services sector; firms from the services sector, professional associations, trade unions and civil society organizations.

During the first round of the GATS negotiations — the Uruguay Round (1986-94) — Uruguay, along with other developing countries, did not have a clearly defined strategy. This partly explains why their interests were barely reflected in the results emerging from that process. During negotiations Uruguayan negotiators claimed to have taken a defensive attitude; in the Doha Round (opened in 2001), local negotiators claim to have adopted a more assertive and liberalizing negotiating position.

This gives rise to the need to address the following questions:

  • How have the actual strategy-building and decision-making processes been designed in the light of the new round of services negotiations?
     
  • What lessons can be learnt from the first round of negotiations on the General Agreement on Trade in Services (GATS)?

At first glance, the level of interest shown in the GATS appears to have grown, as compared with the situation during the first round. Hence government actors have shown themselves to be eager to interest the general public and the private sector. They point to the fact that their central challenge lies in making the range of players aware of the ‘commercial nature’ of services.

Services firms are not completely aware of the GATS, its relevance and potential. Those firms that have been engaged in selling their goods abroad have done so by pursuing informal channels (such as personal contacts) rather than using institutional backups.

Actors from civil society more acquainted with the trade agreements alert the public about the scant information on the negotiations, on the confidentiality of the decision-making process at the government level and the need to open up the debate.

 
 

II. The strategy-building and decision-making process    back to top

The players and their roles

The government institutions directly involved in the trade policy design process as well as in the negotiations themselves are the Ministry of Foreign Affairs (MFA), the Planning and Budgeting Bureau (OPP — Spanish abbreviation)(2) and the Ministry of Economics and Finance (MEF). Depending on the nature of the issues under negotiation, these bodies ask for the participation of sectoral bodies related to the activities under discussion. The MFA is responsible for the negotiations and the decision-making process at the WTO, and it therefore provides the Uruguayan delegation in Geneva with directives and co-ordinates the participation of the different national actors.

Uruguay’s positions vis-à-vis WTO negotiations are discussed in a body known as the ‘National Section on the WTO’; this body groups representatives from the ministries, the OPP, regulatory agencies and the Central Bank of Uruguay. As multilateral negotiating strategies are discussed there, the position on GATS is also part of the agenda.

Within this general structure the OPP played a particular role in the GATS negotiations, as it was in charge of preparing the requests and offers to be presented to the other members of the WTO.

Multilateral negotiations have, to date, focused on financial and telecommunications services; this has meant that the Central Bank of Uruguay (CBU) and the Communication Services Regulatory Agency (URSEC)(3) have been frequently consulted on a variety of issues. The Ministries of Tourism, Transport and Education have also been asked to assist in elaborating issues to be discussed. The latter, in turn, consulted public and private tertiary education institutions to know their positions.

There is no single institutional channel to communicate with the private sector, such as entrepreneurs, trade unions and civil society. This is equally true for general WTO negotiations as for specific ones such as GATS.

As described above, those responsible for elaborating requests and offers have principally consulted government bodies. M. A. Peña, head of the integration and trade policies department at the OPP, has pointed out that if there is a ‘macro policy’ designed by the government in certain areas, it is taken as the ‘rule’ and there is no need to make further contacts. In other cases, the government tries to consult with the private sector.

Hence in May 2002 the MFA and the OPP co-ordinated various rounds of contacts between public- and private-sector representatives involved in a range of service activities. The objective was to disseminate information about the ongoing negotiations and gather any demands that might be made and data needed to support the preparation of requests and offers. The meetings were attended by representatives of the Uruguayan Chamber of Information Technologies (CUTI, a strong exporter of software and related services), members of maritime transport associations, the Chamber of Construction, the Association of Private Promoters of Construction, professional associations and delegates from the country’s universities.

In the view of the MFA’s representatives, private-sector firms needed to be exporting already in order to show interest. They affirmed that ‘if firms are not exporting, they don’t feel any need to participate’. But probably the lack of awareness about GATS and its possible implications has been the main cause.

The firms interviewed for this case study represent the main players in the newly emerging services export sector; examples of these companies include an advertising agency, an audiovisual producer and a consulting engineering company, all of which said that they had never been contacted by the MFA. On the other hand, CUTI, a pillar of Uruguay’s services export sector, acknowledges that it has developed better communications with the MFA, although ‘we are not informed about the negotiating process and the decisions adopted’.

Professional consultants (in architecture, engineering, medicine and construction management) involved with Mercosur’s negotiations through the CIAM,(4) have taken different approaches to the GATS negotiations. Health professionals did not participate in a systematic manner in the consultations, even though they eventually exchanged information with government representatives. The construction management firm was invited to participate in some of the consultations, but did not consider that the matter was important to them. The architects’ association was questioned by the MFA but did not provide any answers because their members felt very detached from the negotiations and claimed not to have been informed about its progress. Finally, representatives of the engineers’ association attended all the meetings they were invited to but pointed out that they had not received any further information on the progress of the negotiations, and asked for an ongoing exchange of information.

Trade unionists(5) were only invited to participate in a seminar which took place before the WTO Ministerial Conference in Cancún. The government presented the current state of play in the negotiations and the general contours of the national strategy. The union’s reaction with regard to the talks is summed up by one its representatives, J. Silva: ‘That mechanism would only serve government to legitimize its actions with the civil society.’

Non-governmental organizations (NGO) neither participated nor were consulted on the negotiations. They demanded more ‘space’ since ‘the MFA has never paid attention to our claims and proposals’.(6) Conversely, the contact between NGOs and the Congress is more fluid, thanks to personal connections and informal exchanges of information. NGOs and workers’ representatives maintained that new trade-related issues (such as services) are not usually discussed at the legislature, ‘not even in the congressional international affairs commission’, revealing the existence of information gaps. In fact, the Congress has not participated in any of the decision-making processes related to WTO negotiations. This would take place only if some foreign entity presented a demand or claim that justified the call for the Minister of Foreign Affairs to give an explanation to Congress members.

Government actors working at the elaboration of the national strategy and the decision-making process on services are the same for all the different levels of integration. This has contributed to the co-ordination of negotiations, but also to the accumulation of experience. The Mercosur negotiations have provided a good background for the negotiations on GATS. Its institutional mechanisms have been successfully used to integrate the different actors (trade unions, firms and civil society) in negotiations, promote awareness and engage various concerned parties with the matters discussed.

 

Relevant features of the strategy-building process    back to top

The MFA’s authorities have said that up to now trade in services was not a tough issue to negotiate: ‘most of the countries are hardly consolidating their status quo’, ‘the present negotiations are at the stage of bilateral exchanges, and…. their progress is very slow, because it is mainly determined by progress in the agriculture negotiations’. However, Julio Lacarte Muró, a former Uruguayan economic and commercial advisor in Geneva, said, ‘we are being encouraged to use the services liberalization to obtain the agriculture liberalization’.

The need for a strategy for participating in the negotiating process has now been accepted by the actors involved. Ernesto Medina (from the MEF) said, ‘at first, there was a defensive attitude, as it was assumed that the WTO was a “rich countries’ club” created to further their interests. Afterwards, in government circles this image was altered, and a change was made towards taking a more pro-active and positive attitude that extended into other trade negotiations. Currently, a more active stance is being pursued.’

Carlos Pérez del Castillo, special advisor on international trade negotiations to the president of Uruguay, stressed the shift towards a more aggressive and liberalizing position as reflected in the attitude of the Uruguayan delegation in the Doha negotiations compared with the Uruguay Round: ‘Our country was the first developing economy to submit the initial offers. It means that we have important advantages compared with the rest of Latin American countries.’ Hugo Cayrús, a negotiator in Geneva and the person behind this change, has remarked that this was the best way to gain a better negotiating position.

All government actors have highlighted that this attitude was not reflected in any similar changes in domestic institutions or regulations. In fact, according to comments from MFA officials, ‘all that we have submitted is already subject to liberalization and it is only an initial offer that does not imply many changes in relation to the Uruguay Round commitments’. They also added that ‘for the time being, nobody is thinking of consolidating the liberalization beyond the status quo’. However, this sort of statement co-exists with clear difficulties for the government in assessing the current regulatory framework for the services sectors and modes of supply covered by GATS.

Up to now Uruguayan offers have included some competitive services which are already exporting and are liberalized domestically (e.g. software and tourism-related activities such as hotels, restaurants), and those where protection against foreign competition is not regarded as relevant (e.g. real estate services, designers). M. A. Peña argues that the rationale is that ‘if it is the case of a competitive sector or a sector in which Uruguay has not a specific qualification, there is no need to be protectionist’.

The government’s survey of the demands formulated by the private sector showed that professional associations were concerned about the harmonization of basic curricula at the regional level and, mostly, about the need to create an agency or institution responsible for the recognition of local qualifications abroad. This would be considered under Mode IV, traditionally regarded as the most interesting one for developing countries. They were also interested in knowing which discriminatory rules were already included in existing regulatory frameworks.

In relation to companies, the government was aware that their reaction, where information was not easily available and the situation therefore uncertain, was generally cautious. Entrepreneurs have suggested to negotiators that ‘in case of doubt, it is preferable not to offer any commitment’. Finally, the MFA’s officials pointed out that firms exhibit ‘great difficulty in considering strategies of access to extra-regional markets’. Meanwhile, as M. A. Peña has pointed out, ‘Uruguayan requests were generally focused on developed countries’.

Some of the interviewed entrepreneurs who had developed an export-oriented strategy were in favour of liberalization and aware of the possibility of developing services exports because of their good quality and low costs. They were interested in greater openness because they felt confident about their chances to compete, and are likely to make a contribution to the offers put forward by Uruguay in the course of negotiations. They also stated that up to the present, asking for government support or establishing direct contact with official authorities was not part of their business strategy. For instance, the director of the advertising agency said that their export strategy was built on personal and informal contacts and considered that these sorts of network really worked. The same applied to executives or consultants working in the audiovisual, engineering and construction sectors.

In the case of software exporters, the government stated that these firms act autonomously: ‘they know what they want and they move in the fields they know in order to get it’. However, CUTI’s representatives expressed it differently: ‘we have a rather discontinuous relationship with ministries. We have received some calls from time to time, but after we answered their questions we were not told about the steps that have been taken’. They mentioned that the government had contacted them to find out about the opportunities and barriers that they had faced in the bilateral exchanges.

 
 

III. Challenges faced and the outcome    back to top

The non-tradable nature of services, the lack of experience in assessing the effects of trade policy and the non-existence of an institutional machinery to construct links between the different actors are but some of the challenges faced by Uruguay. M. A. Peña said that ‘it is hard to deal with this subject, because the tradable nature of services has not been assumed yet. It has not been integrated into the popular wisdom…. Developed countries have a wider experience in this approach as regards to regulations and opportunities. But developing countries tend to look at the matter with certain apathy.’

Despite the political shift brought about by the government’s decision to comply with the GATS schedule, more was needed to keep the process on track. To devise a trade policy agenda aimed at finding out the advantages and costs of the process means that as many players as possible need to be considered. Uruguayan policy-makers have attempted to address this matter through the implementation of some rounds of consultations. However, their outcome was rather limited (in both the government’s and the firm’s view). Whether the mechanisms chosen for consulting the private sector were not the best ones or the policy-maker’s conviction about the benefits of a wider participation was not strong enough, the result is that the construction of an inclusive commercial strategy is still far from being achieved.

Private-sector agents and civil society representatives have expressed their willingness to improve communication channels with government negotiators. They pointed to the convenience of setting up an information flow with government agencies to exchange ideas and suggestions. They claimed that effective participation in the decision-making process not only requires asking about the expected effects or benefits of certain measures, or the detection of particular problems; it really needs to involve social and business entities in the daily strategic decision-making process. A more fluid contact between all the actors would ease the dialogue by translating trade policy rules and technical foundations of WTO agreements into a more comprehensible and attainable language.

From this perspective private-sector and government representatives held contrasting views of the mechanisms to institutionalize consultation and participation. The former stated that government demands for information are too specific and are not followed by any lesson-learning or inclusive-exchange process. The latter admitted the need to facilitate closer collaboration and partnership with other actors. However, apart from recognition that the situation existed, the interviewed policy-makers did not refer to any concrete measure that might be taken to enhance and promote joint activities with other important players.

Roberto Bissio(7) considered that the most critical challenge is to acknowledge the core significance of the subject, something which the government has not completely embraced. He held that ‘Trade in services possesses characteristics that make it different from goods and requires careful deliberation and attention in the liberalization process because it entails irrevocable changes in national legislation…. Consequently, the debate about these questions must not remain secret.’ He stated that ‘keeping the trade issues in the shadow is part of a deliberate strategy’. The ‘secret’ avoids debate on the strategies, which could complicate the course of the negotiation: ‘Less awareness imposes less pressure.’

Lacarte Muró emphasized another aspect of the same point. For him, the most serious difficulty the country had to overcome was ‘the disregarding attitude of the government’, related to the prevailing ignorance on the real relevance of these negotiations for Uruguay. He said that it was necessary to identify the sectors involved in this trade and hear their messages. Besides, he considered that ‘communication channels at the government level frequently do not work properly and the decision-making processes are less structured than was envisaged’. So the negotiating team in Geneva was deemed to be rather ‘isolated’ from local bodies.

The absence of a clearly designed strategy-building and decision-making structure usually left the communication channels subject to the personal qualities of the actors. In the view of both the private sector and the government, the changes in personnel in leading positions affected progress.

Different civil society, private-sector and government actors agreed that the country’s trade strategy has no clear direction. Asked about this, government officials said that ‘Discussions about trade in services are framed in the absence of sectoral policies. The country does not have any long-term agreed development policies.’

All those interviewed highlighted the excellent qualifications of the Uruguayan delegation, as well as its long and rich experience in multilateral negotiating for a such as the WTO. But this expertise needed to be complemented with a well-prepared strategy. The substantive content and the outcome of the country’s trade strategy are affected by the lack of a distinct ‘macro-economic policy orientation’. This might affect the final negotiating positions in reflecting personal ideas and convictions independently of the interests of the majority of actors involved. Hence while the MFA’s representatives adopted a cautious position, other government actors considered that liberalization ‘is always good and favourable’. On the other hand, Lacarte Muró observed, ‘unbridled trade liberalization is not wise. Countries must develop and retain the ability to make strategic choices.’

Furthermore, he pointed out that none of the local actors really knew about Uruguay’s domestic regulations: ‘The United States and the European Union [EU] have a deep knowledge about their regulatory frameworks and seek to adapt WTO’s norms to those already applied in their countries in order to avoid introducing changes to their local rules. While the United States and EU negotiate in full awareness about their legislation, in our case international commitments are automatically integrated as national law.’

The lack of human and material resources undermines the evaluation of the potential risks and gains of liberalization and the compliance of domestic regulations. In Lacarte Muró’s words, ‘that is why Uruguay finds it so difficult to identify where the real advantages lie’, and ‘our ignorance about the local and international regulations leaves us very little leeway to negotiate’. Indeed, some government officials have observed that ‘the lack of clear regulations on competence and consumer protection makes the situation worse and should inhibit the benefits of liberalization as new practices could affect rights which were not considered up to that moment. It damages our negotiating position before countries with clear and consolidated regulations.’

The multiple negotiating fronts at bilateral, regional and multilateral levels and the diversity of issues under discussion bring new complexities. In particular, in the case of services, building a strategy implies a full understanding of the rules, disciplines and commitments included in the different modes of supply by each sector, and a good command of the sectoral classification list used in the negotiations.

The targeted markets have not been the same for policy-makers and for the private sector. Until now, professional consultants and firms have oriented their business strategy towards regional or developing countries. While government actors have been concerned in putting forward offers to developed countries, the private sector sees that as complex and restrictive. Ultimately, during the 2004 International Trade Centre Conference,(8) Cayrús pointed out that ‘current negotiations should not be seen as a North-South, or developing versus developed countries issue. They must be seen as an excellent opportunity for developing countries to negotiate commitments in sectors and modes of supply, of their interests in order to contribute with their national realities.’

Uruguay’s services negotiating position is subject to what is gained in agriculture. Nevertheless, the real impacts and effects of this posture have never been truly analyzed. Here inertia is again present: the country seems to ‘go with the flow’. No resources are systematically devoted to the collection and examination of data to assess the comparative effects in terms of employment and added value of trade in services against trade in agriculture. Therefore there is no evidence to support the present strategy, or discussion about the effective competitive advantages for the country.

Government actors have said that WTO negotiations progress at the speed imposed by developed countries. ‘Developed countries push the process. If they don’t make requests, the rest of the countries don’t move forward…. So our countries act as a reflex of that push.’ In this sense, officials declared that it was hard to follow a fixed line of action, as ‘we have to act in response to pressures, because we are a little and poor country’.(9)

According to some of those interviewed, if Uruguay has not been a target of international pressures it is because its position has been generally in line with what was ‘expected’.

 
 

IV. Lessons for others    back to top

The supposed change in the country’s negotiating posture appears as a response to its inaction during the Uruguay Round. It is intertwined with knowledge gained about managing the services negotiations, what the rights and obligations of the countries are, and the government’s capacity to implement the provisions of the Agreement. Government delegates suggested that the advantages of such a shift have not been appreciated by most developing countries.

The ‘offers’ and ‘requests’ were carefully elaborated. In contrast to the Uruguay Round, this time the interests of the services sector were considered. It was further noted that the expertise derived from the practice at Mercosur’s negotiations on the subject contributed to an improvement in the government’s relationship with firms. This suggested that Uruguay was abandoning its earlier dismissive attitude, evident in the inclusion of ‘the fewest sectors possible’ during the Uruguay Round, for a more considered one, more concerned to accommodate the country’s interests.

However, the ‘new strategy’ alleged by the government did not seem to be noticed by the rest of the consulted actors. The still limited contact between policy-makers and other players involved in the process (mainly service sector firms and civil society) might result in the government’s engagement in defending interests far from what the private sector has identified as relevant. If this is not realized before liberalization intensifies, the performance and development of the liberalized services sectors will be prejudiced.

Despite the fact that government and private-sector actors recognize the need to bridge the information gaps and to use surveys and assessments to determine the exact nature of the ongoing regulation as well as the potential effects of modifications of trade measures, no actions or resources have been devoted to meet these needs effectively. This is especially evident in the absence of any review of the regulatory framework in Uruguay, in contrast to what has taken place in Argentina and Brazil, for example.

In this sense, the services negotiation by negative list agreed with Mexico implies the identification of those sectors to be excluded. This seems to be inconsistent with the unclear regulatory norms and national interests.

Given the absence of open debate on trade in services and the lack of information on the progress of negotiations, it is difficult to expect entrepreneurs ‘spontaneously’ to gather together and claim a space for participation. Those who are already participating are those who have clearly identified advantages in international trade and are interested in being considered in the negotiations. Thus the ongoing mechanism of consultation with private actors seems to have reached only those firms that government has recognized as potential exporters, while it has left the rest ‘invisible’.

The option to establish an institutional mechanism in local trade policy formulation and implementation which would involve entrepreneurs and civil society could be successful, as in the case of Mercosur. For instance, the professionals taking part in CIAM have had the opportunity to exchange ideas and analyze the potential advantages and disadvantages of regional integration, which has successfully involved them in the negotiating process.

One critical aspect is related to the role of stakeholders in determining negotiation mandates and monitoring the process. General opinion has been that the local delegation is well prepared. However, the research has shown that local agents need to be trained not only to improve the scope of their political interventions but also to widen and deepen inter-agency collaboration and civil society involvement. Several players referred to the experience of joint participation of government actors, entrepreneurs and civil society in the case of Brazil and Chile as a pattern to be followed.

In the words of Pérez del Castillo, ‘trade in services is the negotiation of the future’. However, there is no sign that any future opportunities to promote research, to look for access to new markets or even to build a solid and distinguishable strategy will be taken. No long-term strategies are being constructed, despite the shared conviction that there is need of them.

 
 

Bibliography    back to top

Cayrús, H. (2004), ‘Trade in Services Negotiations at the WTO’, speech at ‘Business for Development’, International Trade Centre (ITC) UNCTAD/WTO, Latin America and the Caribbean Regional Conference, Rio de Janeiro, 8-9 June
 
De Brun, J. (1994), ‘Assessment of the Effects of Liberalization on Regional Trade in Services at the Mercosur: The Uruguayan Case’, report for the Inter-American Development Bank, November
 
Direction of International Economic Organisms, Ministry of Foreign Affairs (2004), Report on Services Negotiations at the WTO
 
Vaillant, M. (1998), ‘Trade Policy on a Country Basis and the Uruguay Round: The Case of Uruguay’, mimeo
 
World Trade Organization, Trade Topics, Services, Sector by Sector
 
Hoekman, B., A. Mattoo, and P. English, eds. (2002), Development, Trade and the WTO: A Handbook, Washington, DC: World Bank


 

NOTES:
1.- The available figures of trade in services from the balance of payments underestimate the true extent of the fields covered by the General Agreement on Trade in Services (GATS). back to text
2.- The OPP is an advisory organ operating under the auspices of the President’s Board. back to text
3.- The URSEC regulates and controls the telecommunication and postal services. back to text
4.- Commission for the Integration of Surveying, Agronomy, Architecture, Geology and Engineering of Mercosur (Comisión para la Integración de la Agrimensura, Agronomía, Arquitectura, Geología e Ingeniería del Mercosur). back to text
5.- There is a single umbrella organization (PIT-CNT), formed by the different sectoral unions (from both the public and the private sector). back to text
6.- Eduardo Gudynas, director, Latin American Centre of Social Ecology (CLAES). back to text
7.- Director, Third World Institute (ITEM), Uruguay. back to text
8.- International Trade Centre (ITC) UNCTAD/WTO, Latin America and the Caribbean Regional Conference, ‘Business for Development’, Rio de Janeiro, Brazil, 8-9 June 2004. back to text
9.- These ideas were expressed by various trade officials. back to text
 

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*  Interdisciplinary Center for Development Studies, Uruguay — CIEDUR, Montevideo. We should like to acknowledge the contribution of Claudia Rucci, who was contracted by CIEDUR for this work