1. Trade in Services and EPAs Some preliminary thoughts Matthew Stern

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

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

4. 4 World service exports ($ millions) EMU

5. 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. 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. 7 Service/merch. Exports WDI:2002 Service/merch. imports

8. 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. 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. 10 GATS: Coverage Infrastructure services, capital intensive, scale economies Communication Transport 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

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

12. 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. 13 Exports of Health Services Cross Border Call and claim centers

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

15. 15 www.medibroker.co.uk

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

17. 17 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

18. 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. 19 Foreign nurses registered in UK

20. 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. 21 GATS: Commitments Source: GATT Secretariat (1994)

22. 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. 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. 24 What can we say about EPAs Structurally What would they look like? Economically What could they achieve? Constraints Is Africa ready?

25. 25 Structure of EPAs? 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 GATS-type approach Framework agreement Positive list General rules/disciplines Negotiated commitments Flexible & non- transparent Examples MERCOSUR ASEAN Stephenson 2003

26. 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. 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. 28 GATS sectoral coverage (% of African countries)

29. 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. 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. 31 Possible constraints Geographic configuration Capacity Different interests Movements of people High levels of protection Low and skewed levels of trade

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

33. 33 Skewed trade (UK – 2000)

34. 34 Skewed trade? (Germany - 2000)

35. 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!