Trade in Services and EPAs Some preliminary thoughts

Trade in Servicesand EPAs Some preliminary thoughts

Matthew Stern

2

Outline

Trade in services - facts and theoryWhat about GATS?Plurilateral service agreementsServices and EPA’sConcluding thoughts

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Trade in services

25% of global tradeFastest growing sector (trade & FDI)Dominated by OECD (70%)Highly regulatedCritical determinant of competitiveness

4

World service exports ($ millions)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

0

100,000

200,000

300,000

400,000

500,000

600,000East Asia & PacificLatin America & CaribbeanMiddle East & North AfricaSouth AsiaSub-Saharan AfricaEuropean Monetary Union

EM

U

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Application of trade theory

Trade in services, in general, display the same characteristics as trade in goodsThe theory of comparative advantage does apply to services tradeGiven high levels of regulation (protection) in the service sector, economic factors alone cannot explain the pattern of trade in servicesThe 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 GDPFourfold increase in trade over last 15 yearsImportant contributor to economy-wide efficiency and developmentLabour intensiveMore dependent on trade in services than industrialised countries

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0% 50% 100% 150% 200% 250% 300%

SudanCongo, Rep.

LesothoMalaw iGuinea

Cote d'IvoireSw aziland

FinlandSouth Africa

GermanyCzech Republic

NamibiaHungary

NetherlandsItaly

PolandFrance

LithuaniaBurundi

MadagascarSw eden

GhanaNorw ay

IrelandSw itzerland

PortugalAustria

United KingdomEstonia

DenmarkIceland

SpainUganda

LatviaMauritiusTanzania

CroatiaRw anda

SeychellesEthiopiaGreece

Sao Tome Cape Verde

0% 20% 40% 60% 80% 100%

LesothoLithuania

Sw azilandCzech

NamibiaPolandLatvia

PortugalSouth Africa

HungarySw itzerland

FranceGhanaCroatia

SpainFinlandEstonia

NetherlandsItaly

UnitedGermany

UgandaMalaw iBurundiGreece

MadagascarSw edenMauritiusEthiopia

TanzaniaAustriaSudan

Cote d'IvoireNorw ayIceland

DenmarkSao Tome

Cape VerdeGuinea

SeychellesIreland

Rw andaCongo, Rep.

Service/merch. ExportsWDI:2002

Service/merch. imports

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Constraints to and limitations of unilateral liberalisation

Domestic oppositionLack of expertise and resources Unable to improve access for domestic exportersCannot fully address anti-competitive practices of foreign firmsInadequate stability or international credibility

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What is GATS?

Implemented January 1995140 member countriesAll sectors (except government and air traffic rights)Positive list approachAll modes of supply

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GATS: CoverageInfrastructure services,

capital intensive, scale economies

CommunicationTransport

Source: Adlung (2000)Source: Adlung (2000)

Strong institutional & regulatory difference between jurisdictions

Financial services Business services Health services Education

Traditionally “liberal” services

Distribution Tourism

Other Environmental

services Recreation Culture Sport Construction

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GATS: Obligations

GeneralMFN treatmentTransparency

SpecificMarket accessNational treatment

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GATS: Modes of supply

Mode 1: Cross border supplyrelatively few bound commitments

Mode 2: Consumption abroadrelatively open

Mode 3: Commercial presencemarket access restrictions prevail

Mode 4: Movement of natural persons

most restrictive

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Exports of Health Services

Cross BorderCall and claim centers

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Exports of Health Services

Cross BorderCall and claim centers

Consumption abroadHealth tourism

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Provider Country Knee Replacement

Cataract Removal

Hernia Hip Replacement

Cardiac By-Pass

BUPA UK £8,500 to £10,000

£1,800 to £3,000

£1,400 to £1,900

£7,200 to £10,000

£13,500 to £17,500

BMI UK £7,000 to £8,925

£1,850 to £2,755

£1,280 to £2,785

£6,000 to £8,800

£10,645 to £11,500

Panorama Health

South Africa

£6,447 £1,262 £2,749 £6,275 £9,273

Specialized Surgery

South Africa

£5,380 £730 £3,850 £4,900 £9,000

www.medibroker.co.uk

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Exports of Health Services

Cross BorderCall and claim centers

Consumption abroadHealth tourism

Commercial presenceNHS contracts

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NHS health care contracts900 cataracts in Lancaster

R10 million45 personnel

12 000 ENT in Middlesex300 hips and knees in Southport1 000 orthopedics in Gosport

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Exports of Health Services

Cross BorderCall and claim centers

Consumption abroadHealth tourism

Commercial presenceNHS contracts

Movement of natural personsNurses

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Foreign nurses registered in UK

Country 1998/99 1999/2000 2000/01 2001/02

Philippines 52 1 052 3 396 7 235

South Africa 599 1 460 1 086 2 114

Australia 1 335 1 209 1 046 1 342

India 30 96 289 994

Zimbabwe 52 221 382 473

New Zealand 527 461 393 443

Nigeria 179 208 347 432

West Indies 221 425 261 248

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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)Source: Bhagwati (1995)

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GATS: CommitmentsCountries Commitments As share of

possiblecommitments

Industrialised 2 423 54%

Developing 2 159 17%

Latin America 738 15%

Africa 396 10%

Middle East 106 17%

Asia 796 26%

Source: GATT Secretariat (1994)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 countriesCompared to GATS:

More transparentMore stableMore ambitiousGreater disciplineDeeper 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

StructurallyWhat would they look like?

EconomicallyWhat could they achieve?

ConstraintsIs Africa ready?

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Structure of EPAs?NAFTA-type approach

Investment + cross-border servicesTop down / negative list

• No schedules of commitments• Lists of exceptions

Stable & transparentExamples

• Chile-US/Canada/Mexico• Aus-NZ CERA• US-Aus• CARICOM• Andean

GATS-type approachFramework agreement

Positive list • General rules/disciplines• Negotiated commitments

Flexible & non-transparent

Examples• MERCOSUR• ASEAN

Stephenson 2003

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The EU experienceEU - 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 coveragethe absence or elimination of all discrimination among its parties in the sectors it coversmust be designed to facilitate trade between partiesit should not lead to a ‘fortress effect’

In practice…26 notifications, 2 concludedno guidelines, precedents or challengesqualitative approach

Stevens 2004

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GATS sectoral coverage(% of African countries)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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Economic impact – according to the EU

Development dimensionTrade = instrument for development

Address supply-side constraints

Regional integrationSupport 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 interestsMovements 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

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

UKexports

UKimports

0

20000

40000

60000

80000

100000

120000

140000

160000

Germanexports

Germanimports

33

Skewed trade (UK – 2000)

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

RC

A

World

South Africa

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Skewed trade? (Germany - 2000)

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

RC

A

Africa

Developing Countries

Industrialised Countries

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Concluding thoughts

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