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Trade in Services and EPAs Some preliminary thoughts. Matthew Stern. Outline. Trade in services - facts and theory What about GATS? Plurilateral service agreements Services and EPA ’ s Concluding thoughts. Trade in services. 25% of global trade Fastest growing sector (trade & FDI) - PowerPoint PPT Presentation
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Trade in Servicesand EPAs Some preliminary thoughts
Matthew Stern
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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
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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!
