EU Services Demands in Free Trade Agreements. IDEAS Workshop, Bangkok, 8-9 Dec, 2009 Shefali Sharma, Third World Network. Overview of Services trade and Inv . World Services Exports in 2007: 3.3 trillion USD (UNCTAD 08) DCs share in world services exports unchanged at 25.4%
IDEAS Workshop, Bangkok, 8-9 Dec, 2009
Shefali Sharma, Third World Network
EU: ~¾ of EU GDP from Services trade
$1248 billion inflows to US, Uk, NL, Canada, EU
Two thirds going to EU;
$1692 bill outflow (top five countries account for 64% of outward FDI: US, UK, Fr, Germany, spain)
Flows mainly b/w ICs
DCs: $500 bill inflows;
Outflows from DCs $253 bill (Asian TNCs) (UNCTAD WIR 2008)
FDI to and from Ind Countries expected to fall—financial crisis and weaker econ. growth
(i.e. Water and Sanitation, Education, Health Finance, Distribution, Energy, Power, Telecom, Transport, Postal)
And does FDI lead to development outcomes?
GATS: crafted by US and EU services lobbies, negotiated over several years; first multilateral agreement on trade in services (and investment since lg # of services transactions are investment oriented—2/3)
EU FTAs: EU template---natural progression of EU interests (going beyond commitments in WTO)
M1/Cross border: Service crosses border
M2/Consumption abroad: Consumer crosses border to Service across border
M3/Commercial Presence: Service provider sets up commercial presence across border (investment)
M4/temporary movement: Service provider sends employees across border
FTA Cross border=Mode 1, 2 and limited Mode 4)
Imbalance of power b/w N-S: expertise, experience, bargaining power (lack of adequate and appropriate data a big handicap in Services transactions according to Modes)
How many services in Asia not supplied on commercial basis or in competition with at least one supplier; how many under “pure” governmental authority? Not clear what “commercial basis is”—do user charges count? Public-private partnerships?
Applies to measures “taken by”:
(same definitions in EU FTAs and leads to enormous implications on governance based on commitments made)
(in GATS this is def. of “supply of service”)
Implication: GATS referred to the supply up and down a value chain; EU-Korea talks about measures that can either directly or indirectly “affect” the value chain
Considerably expands scope of challenges against domestic rules, laws, decisions etc
GATS: Art. XIX flexibilities(mutually advantageous basis, overall balance of rights and obligations, national policy objectives, flexibility for indiv DCs, fewer sectors, fewer types of transactions, dev situation, negotiating guidelines)
FTAs: “Substantial sectoral coverage” as per GATS Art. V---no flexibilities, reciprocal behavior; expected to progressively liberalize
What are tradeoffs with development and other social objectives; pace, sequencing; regulatory capabilities; capacity to understand scheduling implications for future?
Cannot limit # of service supplies (quotas, monopolies, exclusive service supplies or Econ. Needs Tests)
Establishment: No limits on # of establishments, operations, value of transactions, quantity of output, participation of foreign capital or max % of shareholding, on specific type of legal entity or joint venture, # of natural persons needed (No ENTs)
Implications: GATS is “technology neutral”; so how do we understand “like” services? Scope extremely broad, covers all kinds of investments (must know what to list as exemptions)
How do countries reconcile measures “affecting” production, distribution, marketing, sale and delivery when they schedule their services sectors?
In GATS: immediate and unconditional; but allows list of exemptions; applies to “like services”
EU FTA (Korea): also immediate and unconditional; applies to Mode 1 and 2 and establishment; allows for list of exemptions and exceptions; applies to “like services “
No less favourablethan that it accords to like services and service suppliers of any third country in the context of an economic integration agreement signed after the entry into force of this Agreement
Could MFN clause violate Art V GATS (flexibilities for DCs, accordance with level of development for sectors and sub-sectors)? Enabling Clause of the GATT?
Hamper South-South Trade, what happens to S-S agreements?
Reduce bargaining power in future agreements?
First Mover syndrome? Exclusive relationship w EU?
GATS Plus: Establishment; Regulatory Chapters; “Substantial” Coverage
GATS Minus: Flexibilities for DCs (reciprocal), Mode 4 constrained
Makes sense for EC; but does it for DCs, even so-called advanced Asian economies?
“each Party retains the right to regulate and to introduce new regulations to meet legitimate policy objectives.”
What is considered “Legitimate?”
More onerous qualification--GATS does not include reference to “legitimate policy objectives”; refers to national policy objectives
Applies to cross-border, establishment and Mode 4; broad range of instruments
EU negotiated additional commitments for regulatory oversight by a Fin. Services Commission (FSC) on insurance underwriting activities of Korean postal service (NT)
Allow “New Financial services” into the other territory (more nuanced than the Understanding—don’t have to change existing laws), but opens door for more risky instruments—”authorization refused only for prudential reasons” and decision reached w/in “reasonable time”
FS commitments import risky instruments, behavior; lead to deregulation of financial sector
Pro-FS lib would say, does not de-regulate but HOW you regulate; But purpose of FS lib is to facilitate FS transactions
Could many EU and US efforts at bailouts and re-regulations begin to be subject to GATS challenges because of their actions taken during the Financial Crisis?
Are their choices restricted by their commitments in the GATS? (Ban on certain types of products, limits on how big?, firewalls b/w transactions etc)
Payments: No restrictions on payments and transfers from current account; free convertible currency
Capital Movement: Free Movement of capital (in accordance with host country laws for direct investment); for commitments in S&E chapter;
“host laws” reference likely not apply to repatriation and liquidation of profits or those commitments in S&E chapter
Mvmt of capital from host country also applies to credits on fin. transactions, financial loans and credit, capital participation
No new restrictions on capital and making existing arrangements more restrictive (prevention of crisis?)
Consultations for further movement of capital
Exceptions: In order to secure laws and reg (as long as they are in line with this chapter and not “unjustifiable” discrimination or “disguised” restriction on capital) –for public safety, morals etc; measures on futures, derivatives, securities, defaults
Safeguards: 4 footnotes with conditions on when and how safeguards can be applied and how to interpret
Chapter on Trade and Sustainable Development” –Govt consultations, Panel of Experts (some from non-parties)—Not Dispute Settlement, lot of best endeavor language
(invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society)
Services and Investment highly concentrated—mergers and acquisitions dominated by ICs; anti-competitive behavior
FTA includes entry of investors in both goods and services
DR rules still being negotiated in WTO;
No clear link that such agreements bring the investment and trade wanted—can do so without binding
These concessions in addition to BITs, TRIMs, GATS
Technological neutrality forecloses options for governments in the future once commitments are made
What role of local, state governments? (India has state, centre, concurrent subjects)
What lessons from current financial and food crises?