Trade in Services and EPAs Some preliminary thoughts

1. Trade in Servicesand EPAs Some preliminary thoughts Matthew Stern

2. Outline • Trade in services - facts and theory • What about GATS? • Plurilateral service agreements • Services and EPA’s • Concluding thoughts

3. Trade in services • 25% of global trade • Fastest growing sector (trade & FDI) • Dominated by OECD (70%) • Highly regulated • Critical determinant of competitiveness

4. World service exports ($ millions) EMU

5. 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

6. 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

7. Service/merch. ExportsWDI:2002 Service/merch. imports

8. 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

9. What is GATS? • Implemented January 1995 • 140 member countries • All sectors (except government and air traffic rights) • Positive list approach • All modes of supply

10. 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)

11. GATS: Obligations • General • MFN treatment • Transparency • Specific • Market access • National treatment

12. 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

13. Exports of Health Services • Cross Border • Call and claim centers

14. Exports of Health Services • Cross Border • Call and claim centers • Consumption abroad • Health tourism

15. www.medibroker.co.uk

16. Exports of Health Services • Cross Border • Call and claim centers • Consumption abroad • Health tourism • Commercial presence • NHS contracts

17. 900 cataracts in Lancaster R10 million 45 personnel 12 000 ENT in Middlesex 300 hips and knees in Southport 1 000 orthopedics in Gosport NHS health care contracts

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

19. Foreign nurses registered in UK

20. 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)

21. GATS: Commitments Source: GATT Secretariat (1994)

22. 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

23. 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

24. What can we say about EPAs • Structurally • What would they look like? • Economically • What could they achieve? • Constraints • Is Africa ready?

25. 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

26. 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

27. 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

28. GATS sectoral coverage(% of African countries)

29. 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

30. 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

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

32. Low levels of trade in services BOP 2000: GBP millions BOP 2000: Euro millions

33. Skewed trade (UK – 2000)

34. Skewed trade? (Germany - 2000)

35. 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!