MARITIME TRANSPORT SERVICES WITHIN THE WTO / GATS FRAMEWORK

MARITIME TRANSPORT SERVICES WITHIN THE WTO / GATS FRAMEWORK Dr. Benjamin Parameswaran International Max Planck Research School for Maritime Affairs, Hamburg, Germany Maritime Transportation Services under the GATS Agreement, Challenges for Viet Nam Hanoi, 24 October 2005 Hai Phong, 26-28 October 2005

Contents of Speech • The Economic Importance of Transportation Services in General and Maritime Transport in Particular • Maritime Transport and GATS: The Status Quo • Reasons for the Failure of Maritime Negotiations • Maritime Transport and GATS: An Outlook

The economic importance of transport services in general • Transport... • is the connecting link between supply and demand. • accounts for major share in attaining level of development. • is a major service industry in its own right. • is an indispensable ancillary activity for trade in goods. • accounts for 30 per cent of all trade in services. • represents 4-8 per cent of GDP and accounts for 2-4 per cent of total employment in developed countries. Of all modes of transport, maritime is most important.

The economic importance of maritime transport services (MTS) All trade is world trade, all world trade is maritime trade. Sir Walter Raleigh • Maritime transport: • 90-95 per cent of all trade in goods (by volume and weight) is carried by sea. • Close relationship between efficient shipping services and prospects for economic development. • Maritime transport services account for 10 per cent (!) of all trade in services. • 3 per cent average annual growth rate over last decade. In short: Maritime transport is of huge economic significance as a service sector in its own right but also as an indispensable ancillary activity for trade in goods.

Barriers to Trade in Maritime Transport Services • cargo sharing agreements • restrictive access to government and strategic cargoes • national preferences • limitations on local presence and on investment • restrictions on presence of natural persons • mandated use of monopolized port services • discriminatory taxes and charges • unnecessary administrative requirements Effect: increase in freight rates leading to negative effects on trade, employment, national income, balance of payments etc.

Liberalizing Maritime Transport Services • Efforts have been undertaken on the bilateral, regional and international level (OECD, UNCTAD, WTO). • However, there is until today no global regime governing shipping.

Maritime Transport in WTO / GATS:Developments in Uruguay Round • Negotiations began with start of Uruguay Round (1986). • By end of Uruguay Round (1993), still no agreement on shipping • Annex on Negotiations on MTS • Ministerial Decision on Negotiations on MTS • On the basis of these documents: • Extension of sectoral negotiations in NGMTS until 1996 • Suspension of MFN obligation • No meaningful market access and national treatment commitments in schedules. THEREFORE: de facto exclusion of MTS from GATS

Maritime Transport in WTO / GATS:Developments in NGMTS (’94-’96) • NGMTS negotiations began in 1994 and lasted until 1996. • By end of talks, still no agreement on shipping • Decision on Maritime Transport Services (28 June 1996) • On the basis of this document: • Resumption of negotiations with next trade round (2000) • Further Suspension of MFN obligation • No meaningful market access and national treatment commitments in schedules THEREFORE: de facto exclusion of MTS from GATS

Maritime Transport in WTO / GATS:Developments since 2000 • Negotiations were resumed in the context of general services talks in 2000. • New trade round launched in 2001 (Doha Round), currently expected to finish by end of 2006. • So far, no rules of substance have been agreed upon, i.e. the situation remains the same as it was before, i.e.: • MFN obligation does not apply • No specific commitments on market access and national treatment THEREFORE UNTIL TODAY: de facto exclusion of MTS from GATS

Reasons for Failure of Maritime Negotiations in WTO / GATS: • No offer from the USA as the world‘s leading trading nation. • No substantial offers from many developing countries and newly industrialized economies of Asia, South America and Africa. • Shipping industry resistance in the US and Europe.

Maritime Transport in WTO / GATS:An Outlook • The three pillars of maritime transport • Multimodal transport: the fourth pillar? • Benefits of potential MTS agreement under GATS • Possible outcome scenarios at the end of the Doha Round

The three pillars of maritime transport • Pillar 1: International Maritime Transport • Pillar 2: Maritime Auxiliary Services • Pillar 3: Access to and Use of Port Services

Pillar 1: International Maritime Transport • This pillar covers the actual transportatiom service as such performed once the cargo is on board a vessel in country A until the port of destination in country B. • Liberalization in this pillar is crucial in view of providing free access by foreign shipping companies to cargoes for international carriage, irrespective of whether or not a commercial presence has been set up in either country involved. • Regulatory restrictions on all outbound and inbound cargoes must be progressively abolished. • Problematic issues: cabotage, shipping conferences

Pillar 2: Maritime Auxiliary Services • These include for instance • cargo handling services • storage and warehousing services • customs clearance services • container station and depot services • maritime agency services • freight forwarding services

Pillar 2: Maritime Auxiliary Services • In this pillar, many restrictions remain to be tackled. • This pillar is characterized by monopolized ventures. • A liberalization of Pillar 2 would bring considerable efficiency gains in the competitive supply of these services. • These adjuncts to the primary sea leg have become increasingly important in the past years. • They must be included in any comprehensive liberalization approach.

Pillar 2: Maritime Auxiliary Services There are two aspects to the liberalization of these services: • One component is to allow foreign ships serving the domestic market non-discriminatory access to such services. • The second component is to allow foreign participation and competition in the supply of the service itself.

Pillar 3: Access to and Use of Port Services • Port services include: • pilotage • towing and tug assistance • provisioning • fuelling • garbage collecting • port captain services • navigation aids • emergency repairs • anchorage • berthing

Pillar 3: Access to and Use of Port Services • What is sought in this pillar, is not the ability for foreign service suppliers to provide these services, but the ability for foreign shipping companies to have access to and use these facilities on non-discriminatory terms. • Access to Pillar 3 is crucial and many States tend to be too restrictive here. • Pillar 3 must be an essential component of any liberalization undertaken.

Multimodal Transport: The Fourth Pillar of Maritime Transport? • Multimodal transport: carriage of goods by at least two different modes of transport (e.g. water and road) by the multimodal transport operator on the basis of one single contract from point of loading to point of delivery. • Today: transport consumers demand “one-stop freight shop“ because of efficiency gains • Traditional MTS are increasingly replaced by integrated services where the blue water leg is one of many transport components.

Liberalization Offer for Pillar 2

Benefits of a Potential Maritime Agreement under GATS • WTO today is the forum for successful international trade liberalization. • competences for both the goods and the service sector • global coverage: 148 Member States, 90 per cent of all trade in services covered • membership structure: all major developed countries AND most developing countries

Benefits of a Potential Maritime Agreement under GATS • Liberalization of MTS leads to • more foreign investment • increase of trade volumes • more employment • economies of scale • promotion of international division of labour • state-of-the-art technology • effective management of shipping services • decrease in transport costs for the benefit of consumers

Benefits of a Potential Maritime Agreement under GATS • A maritime transport agreement under GATS would • create solid legal obligations for open shipping markets • abolish the risk of backtracking to more restrictive maritime transport regimes • bring legal certainty for international entrepreneurs and thus foster investment in infrastructure, especially in LDCs • guarantee legal enforceability through the WTO dispute settlement mechanism

Benefits of a Potential Maritime Agreement under GATS • If Doha Round negotiations on maritime transport failed again, there would be... • a severe setback for the WTO (and for world trade). • the realistic risk of reappearance of various forms of protectionism. • a danger that developing countries with a negotiating disadvantage cannot benefit (via MFN) from the concessions negotiated between the big trading nations.

The Doha Round Negotiations on MTS: Possible Outcome Scenarios Four scenarios seem possible: Scenario 1 Negotiators are unable to find any maritime agreement at all. • MTS remain de facto excluded from the GATS • Lack of legal certainty. • Danger of backtracking to protectionism

The Doha Round Negotiations on MTS: Possible Outcome Scenarios Scenario 2 Negotiators are unable to find a consensus on a maritime agreement, but manage to agree on standstill binding for all WTO Members. • MTS remain de facto excluded from the GATS • Guarantee that current degree of market openness is maintained • Establishment of a baseline for liberalization

The Doha Round Negotiations on MTS: Possible Outcome Scenarios Scenario 3 Maritime transport Code based on reciprocity only applying to some WTO Members that decide to adopt it. • Maritime players willing to subscribe to full liberalization may do so and have all the rights vis-à-vis other Code Members while other countries are not bound and cannot benefit. • Code could be first step on the way to a future multilateral instrument binding for all. • However, reciprocity and Code conditionality are normally non-WTO instruments.

The Doha Round Negotiations on MTS: Possible Outcome Scenarios Scenario 4 A critical mass of developed and developing countries decide to make substantial commitments on market access and national treatment and MFN enters into force for MTS. • Creation of the first global framework providing for progressive liberalization of MTS for the benefit of international maritime service suppliers, consumers and world trade in general.

The Doha Round Negotiations on MTS: Possible Outcome Scenarios Taking a Guess... USA still not likely to make a substantive offer, but: • trading interests of many countries have shifted towards newly emerging, dynamic Asian markets, which might provide the necessary initiative for many countries to make an offer nonetheless. • Meaningful participation of developing countries still uncertain, but: • there seems to be increasing acknowledgement in many LDCs that liberalizing MTS is one of the key factors to foster economic growth. • Industry Lobby is now supporting inclusion of MTS.

MARITIME TRANSPORT SERVICES WITHIN THE WTO / GATS FRAMEWORK