1 THE CURRENT SERVICES ROUND

2 Services: General perception NOT TRADABLE AND NOT STORABLE –Simultaneity of production and consumption –Role of local establishment STRONG GOVERNMENT INVOLVEMENT –Existence of natural monopolies, public service obligations, etc. –Infrastructural importance of services (transport, telecom, etc.) –Role of non-economic objectives (social, cultural, safety) INTANGIBLE –Quality criteria for services providers rather than for products NO TARIFFS –Access conditions determined by regulation, quotas etc.

3 But... Certain services - international transport and communication - have been traded for centuries Services are supplied in conjunction with goods (finance, insurance, marketing, etc.) Services have become tradable as a result of: –technical progress (e-banking, tele-medicine, distance learning) –government retrenchment –market liberalization and regulatory reform

4 Structure of GDP

5 Importance of Services Trade Limited role of services in total world trade (~ 20 % on BOP basis) but... more rapid growth than goods trade GATS broader in coverage than BOP role of services in trade facilitation

6 Services trade has grown faster in developing than in high-income countries Source: World Bank

7 Services trade is becoming more important for upper middle income countries Source: World Bank

8 Increasing importance of CBT, including for developing countries

9 n MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS nALL SERVICES (except governmental services and measures affecting air traffic rights) nFOUR MODES OF SUPPLY -Cross-border supply -Consumption abroad -Commercial presence -Presence of natural persons GATS: Scope, coverage, definition

10 Modes of supply MODE 1. Cross-border Trade 2. Consumption Abroad 3. Commercial Presence 4. Movement of Natural Persons EXAMPLE (Health) Tele-diagnosis from Country B into A A’s resident obtains hospital treatment in B Hospital operator from B has subsidiary in A Physician from B practices in A

11 Purpose of the GATS Assists governments that want to reduce their trade barriers and/or consolidate reforms Contributes to coordination of economic policy-making Better access to foreign markets Transparency and predictability of trading conditions Efficient and impartial settlement of disputes

12 GATS: Key Obligations Most-Favoured Nation (Article II) –Applies to all sectors Obligations implying openness to international competition (Market Access and National Treatment) only apply in accordance with each Member’s schedule of commitments –Only in selected sectors –Subject to conditions and limitations inscribed

13 Starting point of the negotiations (‘progressive liberalization’ pursuant to Article XIX)

14 Pattern of Commitments: sectoral distribution

15 Pattern of commitments: sector coverage

16 Level of Treatment for Committed Sectors

17 Starting point: Applied Regimes Actual regimes tend to be far more liberal in many countries than commitments suggest. Widening gap between UR schedules and – schedules of recently acceded countries – access conditions negotiated under FTAs

18 Services Negotiations: Process and State of Play (Specific Commitments)

19 How Services Negotiations Work From the outset: –Essentially a bilateral process –Some key principles: No sector or mode excluded a priori Flexibility for developing countries Starting point: existing commitments No change in basic structure of the GATS

20 STATE OF PLAY (July 2006) INITIAL OFFERS: 71 Schedules (covering 95 Members*) REVISED OFFERS: 31 Schedules (covering 55 Members*) *Counting EC Members (EC 25) individually

21 Offers: Main features (I)

22 Offers: Main features (II)

23 Sub-Sectors Committed: Before and After Offers (all Members)

24 Offers: Main features (III) “Few, if any, new commercial opportunities would ensue for service suppliers. Most Members feel that the negotiations are not progressing as they should."[1][1] Chair of CTSS, July 2005 (TN/S/20)

25 Sobering Assessment: Long delays (initial target date: March 2003) Modest achievements (number of sectors and substance) Uneven participation of developing countries Little change in MFN Exemptions _____________________________________________________________________________ Little progress in rules negotiations

26 How Negotiations Work Since Hong Kong Ministerial: –Plurilateral request/offer process –LDCs not expected to undertake new commitments –No formula, but set of multilateral objectives per mode

27 No requirement of commercial presence (mode 1) Commitments at existing levels of access (modes 1 & 2) Removal or substantial reduction of ENTs (modes 2 & 3) Enhanced levels of foreign equity, more types of legal entity (mode 3) Negotiating Objectives (I) Modes 1 to 3 (examples)

28 Contamination from AG & NAMA Lack of political resolve Exaggerated expectations (access abroad as a substitute for own reform) Impact of regionalism in services Remaining Risks...

29 Reason for Hope, Nevertheless Experience with previous trade rounds Too much at stake No credible alternative to WTO Domestic liberalization pressure in (infrastructure-related) services (> competiveness of user industries, threat of industrial relocation)

30 WHAT NOW?