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Out of Service, but Obsessed with Services

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Photos from the WTO Public Forum 2019 CC BY-SA 2.0, WTO/Jay Louvion

The WTO launched its World Trade Report 2019 on the future of the service industry at its annual Public Forum, but fierce debates during the event prove that the WTO is almost completely “out of service” due to ongoing trade wars as well as US attacks on Special & Differential Treatment.

While the hype around e-commerce was the major theme of the World Trade Report and the lynchpin of the World Trade Organization (WTO)’s hopes for future growth in world trade in 2018, this year’s report focuses on trade in services as the prospective source of even more trade growth until 2050.

In order to justify these hopes, the report’s authors aim to document the significance of the service sector via statistical means. For this purpose, however, traditional statistical methods are no longer considered enough. That the era of “servicification” has already begun can no longer be proved by merely counting real services and those which are in fact an integral part of the production process as particular economic activity, because now they are often outsourced and provided by specialized service providers – often via internet. Instead, what is needed is a revision of trade statistics to further highlight the significance of services in world trade. The WTO therefore decided to group so-called “mode 3” exports (a service supplied by one WTO member state, through commercial presence, in the territory of any other member state) into service sector statistics. Together with “mode 1” (a service supplied from the territory of one WTO member into the territory of any other member, thus “consumption abroad”) and the other modes (2 and 4), the value of traded services statistically increased by 20 percent and reached a total amount of 13.3 trillion US Dollars in 2017. The World Trade Report noted that “commercial presence … (mode 3) accounted for 58.9 percent of services trade in 2017, followed by cross-border services transactions (mode 1), at close to 30 percent.”

In light of the obvious trend to incorporate more and more provisions that were originally part of the (currently stalled) Trade in Services Agreement (TiSA) into the definition of what is considered a “service” – for example, a book can be seen not only as a thing but also interpreted as the provision of either a non-fiction or entertainment service – the number of services and their financial value are due to increase even more rapidly in the future. Based on its Global Trade Model, the WTO estimates that the share of services in overall world trade will reach 50 percent by 2050.

And this does the trick: in times of trade wars and a general slowing down of world trade, the WTO needs to justify its raison d’être by all means – in particular by proving that it is able to generate trade growth, albeit through statistical revisions.

Yet the Public Forum, the annual event at which the World Trade Report is launched, proved that the WTO is in deep crisis. For some time now, this flagship event where trade experts are expected to dialogue with representatives of NGOs, entrepreneurs, politicians, and academics of all kinds has already been sharply divided into at least two separate group events under one roof, namely that of the WTO Headquarters in Geneva.

On one side are the critics of free trade and ongoing global economic liberaliziation. These people – mostly NGO representatives, a few academics, and leftist politicians – meet each other again and again in the working sessions (out of about 140) facilitated by like-minded organizations. One of their major concerns is the WTO’s so-called “development agenda” – an agenda, however, that overextends expectations concerning the role of the WTO into areas which traditionally fall under the competency of the UN Conference on Trade and Development (UNCTAD). Not least in the agreement establishing the WTO itself, the purpose of the world trade regime is defined as raising living standards all around the world – but today this is equated to maximizing trade as such. Since the WTO’s inception in 1995, trade policy has always been linked to efforts to reduce if not remove development from the multilateral discourse inside the organization. Indeed, promoting development and maximizing trade have increasingly come to be viewed as synonymous, to the point where the latter easily substitutes for the former.

On the other side sits the “expert community” – WTO officials, entrepreneurs, neoliberal economist, and the like – who, isolated from the activists, meet in their own circles and often debate nothing less than the (gloomy) fate of the global multilateral, neoliberal trading system, and in turn the destiny of the WTO. As much as the “free traders” jointly aim to preserve the global liberalization agenda in the era of trade wars and unilateralism, giant new conflicts are already looming. In particular, the US launching an attack on the principles of non-discrimination and Special & Differential Treatment (S&DT) may have serious consequences for the WTO.

As is well-known, earlier this year the US government put forward four criteria designed to disqualify a WTO member state from classifying itself as a Developing Country in the future: (a) all WTO members that are members of the Organization for Economic Cooperation and Development (OECD); (b) members of the G20; (c) states classified by the World Bank as “high-income countries”; and (d) WTO members that account for no less than 0.5 per cent of global merchandise trade. With the exception of South Korea and Singapore, all of the roughly 34 Developing Countries concerned – including China, India, Brazil, and South Africa – sharply rejected this intervention and submitted a detailed response to the WTO.

This is certainly not the end of the story. The conflict has the potential to escalate to an extent that the US might consider leaving the WTO on the spot – a step that would most likely cause the sudden death of the organization.

Arndt Hopfmann holds a PhD in development economics and works as senior adviser on economic and trade policies for the Rosa-Luxemburg-Stiftung in Brussels.