Trade in Services and Regional Agreements: Research Priorities

1
Trade in Services and Regional Agreements
Research Priorities
Aaditya Mattoo and Carsten Fink

• Development Research GroupThe World Bank

2
Regional agreements in services a conjecture

• Weak case for agreements that grant explicit
  preferences
• Strong case for regulatory cooperation
• - but not necessarily in a narrow regional
  context

3
Will there be trade preferences?
Protection
PGATS
PFTAA
PMERC
MERCOSUL
FTAA
GATS
Time
2000
T1
T2
T3
4
Measures affecting services trade
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Examples of preferences in services trade

• Preferential allocation of quotas in transport
  and audiovisual services
• Preferential relaxation of foreign ownership
  restrictions in financial services
• Preferential tax and subsidy treatment in health
  and education
• Preferential treatment through domestic
  regulation recognition of qualifications in
  professional services

6
There are gains from preferential agreements

• Gains from trade creation, but few costs of trade
  diversion because many restrictions increase
  costs of foreign providers without generating any
  benefits for the importing country
• Variable cost affecting measures (e.g.,
  cumbersome border formalities for multimodal
  transport operators)
• Fixed costs affecting measures (e.g., unnecessary
  requalification, licensing and local
  establishment requirements in professional and
  financial services)

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but from a purely efficiency point of view, a
multilateral approach is preferable

• Non-preferential liberalization offers access to
  the most competitive service providers
• Non-preferential liberalization avoids complexity
  for negotiators, administrators and business.
• If Brazil initially takes the regional route, the
  benefits of eventual multilateral liberalization
  may be lowerdue to the importance of location
  specific sunk costs in services.

8
A case can, nevertheless, be made for
preferential agreements

• Political imperative
• Because more effective bargaining may be possible
  in a plurilateral setting than in the
  multilateral context
• Learning-by-doing in the regional context
• Regulatory cooperation

9
Example Mexicos financial services policy under
NAFTA
Major Investors in Mexican Financial Services
(1994-2000)
25,000
US
Includes investments of U.S. based European banks
Spain
20,000
Holland
Canada
15,000
10,000
5,000
0
1994
1995
1996
1997
1998
1999
2000
Source Central Bank of Mexico
10
Example Mexicos financial services policy under
NAFTA
Foreign Participation in the Mexican Banking
Sector
Source Salomon Smith Barney (2000)
11
There is greater scope for regulatory cooperation
at the regional level

• Strengthening regulation pro-competitive and
  prudential
• Dealing with regulatory impediments

12
Compartmentalized regulatory cooperation?
13
Generic FTAA rules on services trade beyond GATS?

• Coherent architecture and comprehensive coverage
• Greater transparency for negotiators and business
• Greater security through comprehensive bindings
• Post-establishment national treatment as a
  general obligation
• Transparent and non-discriminatory government
  procurement
• Rules to challenge unnecessarily burdensome
  regulations

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Bargaining vs Efficiency the Role of Rules of
Origin in Services

• Local incorporation
• Local incorporation plus substantial business
  interest
• Ownership and control