Gats –Liberalization of Life

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The third, what has a role in the bankruptcy of Indonesian shipping sector is called fiscal policy, Free on Board (FOB), in which goods from Indonesia are exported and the price is paid only until an Indonesian port of entry. So, the cost of ship and insurance is born by the buyers. It seems to give an advantage to the exporter, but the result is that the foreign buyers can choose which shipment and insurance company they will use, and most probably not Indonesian companies5. On the other hand, when importing, foreign buyers use the pattern of CIF (Cost Insurance and Freight), in which the sellers bear the cost of freight and insurance. As a result, there is only few Indonesian ships serving export-import activities because most of Indonesian ships do not gain the allotment of load.

Minister of Transportation, Agum Gumelar says that one of the contributing factors to the recession of maritime business is Presidential Instruction number 9 year 1985. The main goal of this Presidential Instruction is to increase the earning of foreign exchange out of non oil and gas export by giving foreign ships a release to drop their anchor in all Indonesian seaports as long as they help export activities run well. Consequently, Indonesian maritime business cannot be the master in its own country. The Director General of Sea Transportation, Tjuk Sukardiman also admits that due to the mastery of foreign maritime business doers on Indonesian national maritime sector, the deficit in shipment sector ever reached up to 9.6 billion dollars6.

The existence of regulation obliging foreign ships to cooperate with Indonesian companies does not help national maritime transportation arise either, because the joint venture that foreign maritime companies have done is a mere falsehood. In its practice, those foreign maritime companies only register to the government on the basis of the identity card of the driver, which they claim as the ‘local owner’. Those foreign companies also have most of the ownership shares, frequently up to 95 percent, and their local partners only have 5 percent. In such a ‘joint venture’ the foreign company will then be treated equally to the local company, for instance, in serving inter-insular shipment.

Just like a ship, Indonesian maritime transportation sector goes through a leakage in many parts. But before the leakage is patched, ships from other countries come along, compelling the leaky ship to be sailed on the ocean of free market.

  1. ABOUT GATS (General Agreement On Trade In Services)

In the economic and political perspective of global trade, the tragic story of Indonesian maritime mentioned above cannot be released from its relation to GATS. What is GATS, in fact?

GATS (General Agreement on Trade in Services) is one part of world’s trade agreement in WTO, which has been applied since January 1995. WTO, as an organization, has a strictly different character from GATT (General Agreement on Trade and Tariffs), its predecessor. GATT only regulated the international trade of goods by decreasing tariff barrier to make the flow of export-import run smoothly, while WTO does not only regulate the traffic of trade of goods, but also establishes the rules for the trade in services (GATS) and the protection of Trade Related Intellectual Property Rights (TRIPs). The ratification of GATS has become the new episode-in the internationalization and institutionalization of service provision.

Before the item ‘services’ was negotiated and then became a part of WTO, the production, provision, and trade of service have been widely carried out in every country. Service being put into the framework of GATS has production, distribution, and trade done in accordance with the principal framework and rules of WTO, such as the existence of a comprehensive conflict resolution system and an obligatory agreement.

‘Services’ in a broad sense is defined as, “The product of human intangible activities done by human needs”7. Many of service products ‘adhere to’ goods in such a way they are intangible8, e.g. the provision of electrical services, water, gases and beauty parlour. A few service products are related to the provision of service after the goods is manufactured from the factory, such as the service of car repair, computer reparation, goods distribution and retail service. Some other kinds of services belong to the intangible ones, like banking services, nurse’s services, insurance services, doctor’s services, and radio broadcasting services. Some other service products are related to the public services, such as fire extinction, police, provision of basic health, drinking water, and education. Just like products of goods, everyone from their birth to death needs service products.

Thus, the market potency for trade of service all over the world is 6 billion lives, which is the total population of the world. In Indonesia itself, the market potency for service products is 200 million people.

    1. GATS: The result of agreement?

The derivation of agreement on trade in services was in a meeting of ministers of GATT’s contracting party in 1982. Then, in the 1986, the issue on trade in services was officially put into Uruguay Round. An observer of negotiation, Charkaravary Raghavan9 judges that the success of negotiation on service sector becoming GATS in 1994 was affected by many factors. A few to mention, minimum available information caused less awareness amongst many politicians, the parliament and people of developing countries, while information are influential on the negotiated subject and the implication which will come up. Only very few people are directly involved in quite intensive debate about negotiation on service.

Besides, the un-transparent negotiation, which is only done by a few countries to be the fundament for ‘common decision’, becomes frequently-happening phenomena. The negotiation also uses the system of single undertaking, in which each country cannot disagree one of the issues but agrees another issue. An Indonesian diplomat10 says, “That comes all in a package. The negotiators are faced with a choice. Take it or leave it.”

Some Indonesian diplomats ever took part in the negotiation on service in Uruguay Round say that a few developing countries were basically in the position of refusing the negotiation on service, Intellectual Property Rights, and investment. Even generally, the negotiator of developing countries, inclusive of Indonesia, did not have sufficient comprehension of Intellectual Property Rights and service. But on the other side, developing countries was very much concerned with market access for their agricultural products and textile negotiation amongst developed countries. Therefore, in the beginning developing countries hoped that there would be ‘an exchange of interest’ in which developing countries ‘submitted’ the issue of service and Intellectual Property Rights to come to accord, and on the other hand, developed countries open their market for agricultural and textile products from developing countries. Would this hope come true?

The former Indian ambassador for GATT, Baghirath Lal Das says that the signing of GATS and TRIPs is a defeat for developing countries because they do not gain the expansion of market for their two products of excellence; textile and agricultural products. The market for agricultural products of developing countries is even still closed now, while they have to sign two agreements of which their content and implication are unknown.

What Das says seems to be reasonable. The data issued by WTO in the trade of commercial service in 1999 shows that exporters of the trade in services are the developed countries. The United States of America exports 251.7 billion dollars every year or it means that the country dominates 18.8 percent and England gains 7.6 percent or 101.4 billion dollars. On the other hand, most of developing countries and all least developed countries are the importers of service. Developing countries and least developed countries do not have capacity to produce service for their own people, so that they have to import it 12.7 billion dollars.

In a much different condition in which a negotiation is done by some net importers and the minority is exporters who wants to expand the market, the issue of service is put in. The result is predictable that the negotiation does not go in balance. In addition, big countries have economic and political power to impose a pressure on their counterparts. A country with severe debt like Indonesia meets difficulties to have a maneuver in negotiation11. There are only two choices; We will say yes or we’ll find another way to say yes.

Another Indonesian diplomat12 interviewed in this research has also taken part in such negotiation. According to him, the logic of trade should be a reciprocal sale and purchase. But in the case of service trade, Indonesia does not have any producing capacity at all. Indonesia is even a net importer. So, Indonesia is indeed in a weak position and what Indonesia often does in such a negotiation is to defend itself while attempting to make the domestic situation better.

GATS, which should be a general agreement on the trade in services, if we consider what it stands for, is in point of fact a false agreement.

1.2. GATS- One Size Fits All
GATS consists of three frameworks of general obligations and regulations, enclosed list of a few specific sectors, such as the liberalization of financial services, telecommunication, air transportation, manpower flow, and the exception of MFN (Most Favoured Nations), and enclosed scheduled of specific commitment of each country.
There are 32 articles in GATS, which are divided into 6 parts. Part I is concerned with the scope and the definition of services. Part II contains, among others, the rules of MFN principles, transparency, promotion of developing countries’ participation, domestic regulations, and provision of services for government. Part III regulates market access, national treatment, and additional commitment. Part IV is concerned with step-by-step liberalization. And part V is concerned with the rules of institution while part VI is a closing rule.
1.2.1. The Scope of GATS
In the preamble of GATS, it is mentioned that the aim of establishing the framework of multilateral trade in services is the transparent extension of trade in service through a progressive liberalization in order to improve the development in developing countries and to help promote developing countries’ participation in the international trade in services, which is among others, by strengthening domestic capacity, efficiency, and competitive value in the field of services.
In Article I, it is stated that this agreement is valid for all countries of member from central government all the way down to local government, including non-governmental organizations gaining the delegation of authority. The scope of this negotiation includes all services, except those, which can only be provided by the government, such as, central bank, policy, and military services.
The concept of ‘service’ in the first article covers wide and limitless economic activities. The secretariat of WTO divides them into 12 sectors and 155 subsectors13. The division of sectors is on the basis of Central Product Classification (CPC) established by UNO. These divisions keep changing and developing in line with the will of countries of member. Furthermore, this system allows all sectors of service to give their mechanism up to the market. Even the currently unimaginable sector is very much likely to be liberalized because at the end of each sector, it is always written ‘other sub-sectors not yet mentioned above’ (see Box 1).


The Scope of GATS

The services covered in GATS are based on the UNO’s CPC including 12 sectors, they are:

  1. Business (including professional services and computer services)

  2. Telecommunication Services

  3. Construction Services

  4. Distribution Services

  5. Education Services

  6. Environmental Services

  7. Financial Services (including banking and non banking, such as insurance, leasing)

  8. Health Services

  9. Tour and Tourism Services

  10. Recreational, cultural, and sport services

  11. Transportation Services

  12. Other services not yet to mention above

Those sectors are divided into 155 subsectors indicated by the number of code:

  1. Elementary Education Services – number CPC 921

  2. Intermediate Education Services – number CPC 922

  3. High-Level Education Services – number CPC 923

  4. Education Services for Adults – number CPC 924

Other Education Services – number CPC 929

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