Trade in Services and EPAs Some preliminary thoughts

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Trade in Servicesand EPAs Some preliminary
thoughts

• Matthew Stern

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Outline

• Trade in services - facts and theory
• What about GATS?
• Plurilateral service agreements
• Services and EPAs
• Concluding thoughts

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Trade in services

• 25 of global trade
• Fastest growing sector (trade FDI)
• Dominated by OECD (70)
• Highly regulated
• Critical determinant of competitiveness

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World service exports ( millions)
EMU
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Application of trade theory

• Trade in services, in general, display the same
  characteristics as trade in goods
• The theory of comparative advantage does apply to
  services trade
• Given high levels of regulation (protection) in
  the service sector, economic factors alone cannot
  explain the pattern of trade in services
• The removal or reduction of barriers to trade in
  services would contribute to major increases in
  global welfare

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Importance for developing countries

• 50 of GDP
• Fourfold increase in trade over last 15 years
• Important contributor to economy-wide efficiency
  and development
• Labour intensive
• More dependent on trade in services than
  industrialised countries

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Service/merch. ExportsWDI2002
Service/merch. imports
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Constraints to and limitations of unilateral
liberalisation

• Domestic opposition
• Lack of expertise and resources
• Unable to improve access for domestic exporters
• Cannot fully address anti-competitive practices
  of foreign firms
• Inadequate stability or international credibility

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What is GATS?

• Implemented January 1995
• 140 member countries
• All sectors (except government and air traffic
  rights)
• Positive list approach
• All modes of supply

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GATS Coverage

• Strong institutional regulatory difference
  between jurisdictions
• Financial services
• Business services
• Health services
• Education

• Infrastructure services, capital intensive, scale
  economies
• Communication
• Transport

• Other
• Environmental services
• Recreation
• Culture
• Sport
• Construction

• Traditionally liberal services
• Distribution
• Tourism

Source Adlung (2000)
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GATS Obligations

• General
• MFN treatment
• Transparency
• Specific
• Market access
• National treatment

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GATS Modes of supply

• Mode 1 Cross border supply
• relatively few bound commitments
• Mode 2 Consumption abroad
• relatively open
• Mode 3 Commercial presence
• market access restrictions prevail
• Mode 4 Movement of natural persons
• most restrictive

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Exports of Health Services

• Cross Border
• Call and claim centers

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Exports of Health Services

• Cross Border
• Call and claim centers
• Consumption abroad
• Health tourism

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www.medibroker.co.uk
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Exports of Health Services

• Cross Border
• Call and claim centers
• Consumption abroad
• Health tourism
• Commercial presence
• NHS contracts

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NHS health care contracts

• 900 cataracts in Lancaster
• R10 million
• 45 personnel
• 12 000 ENT in Middlesex
• 300 hips and knees in Southport
• 1 000 orthopedics in Gosport

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Exports of Health Services

• Cross Border
• Call and claim centers
• Consumption abroad
• Health tourism
• Commercial presence
• NHS contracts
• Movement of natural persons
• Nurses

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Foreign nurses registered in UK
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GATS Developing country concerns

• The benefits would mostly accrue to
  industrialised countries, which have a
  comparative advantage in services.
• Negotiations on services would detract from
  negotiations on goods, in which developing
  countries may have some comparative advantages.
• Services include politically sensitive social and
  infrastructure activities.

Source Bhagwati (1995)
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GATS Commitments
Source GATT Secretariat (1994)
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Can plurilateral agreements do better?

• Fewer participants
• No free riders
• Regulatory cooperation more feasible
• Gain at expense of the rest of the world

Mattoo and Fink 2002 Stephenson 2002
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And in practice?

• At least 14 regional services agreements include
  developing countries
• Compared to GATS
• More transparent
• More stable
• More ambitious
• Greater discipline
• Deeper liberalization
• Brazil, Mexico and Singapore have all made
  stronger commitments in regional agreements than
  under GATS

Stephenson 2002
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What can we say about EPAs

• Structurally
• What would they look like?
• Economically
• What could they achieve?
• Constraints
• Is Africa ready?

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Structure of EPAs?

• GATS-type approach
• Framework agreement
• Positive list
• General rules/disciplines
• Negotiated commitments
• Flexible non-transparent
• Examples
• MERCOSUR
• ASEAN

• NAFTA-type approach
• Investment cross-border services
• Top down / negative list
• No schedules of commitments
• Lists of exceptions
• Stable transparent
• Examples
• Chile-US/Canada/Mexico
• Aus-NZ CERA
• US-Aus
• CARICOM
• Andean

Stephenson 2003
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The EU experience

• EU - Chile / Mexico
• general principles
• extensive schedules
• do not go much beyond GATS
• EU SA TDCA (article 30)
• expressions of goodwill
• unspecified future liberalisation

Stevens 2004
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What does GATS require?

• Article V
• substantial sectoral coverage
• the absence or elimination of all discrimination
  among its parties in the sectors it covers
• must be designed to facilitate trade between
  parties
• it should not lead to a fortress effect
• In practice
• 26 notifications, 2 concluded
• no guidelines, precedents or challenges
• qualitative approach

Stevens 2004
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GATS sectoral coverage( of African countries)
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Economic impact according to the EU

• Development dimension
• Trade instrument for development
• Address supply-side constraints
• Regional integration
• Support integration into the world economy
• Increase market size for investment

SAIIA Conference, November 04
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Economic impact according to the literature

• The good
• Competition and economies of scale
• FDI and agglomeration
• Learning by doing and knowledge spillovers
• The bad
• Multiple reforms and regulations
• Locks-in preferred producers
• High sunk costs
• Large economies of scale

Mattoo and Fink 2002 Stephenson 2002
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Possible constraints

• Geographic configuration
• Capacity
• Different interests
• Movements of people
• High levels of protection
• Low and skewed levels of trade

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Low levels of trade in services
BOP 2000 GBP millions
BOP 2000 Euro millions
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Skewed trade (UK 2000)
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Skewed trade? (Germany - 2000)
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Concluding thoughts

• Africa lags rest of the world in services trade
  and barriers are generally higher
• Plurilateral agreements might contribute to
  deeper liberalisation
• North-South agreements are likely to deliver
  greater gains than South-South agreements
• Capacity constraints are substantial but
  expectations modest (TDCA Article 30)
• Sequencing is key!