strategy

Evaluating effects of world trade agreements on services

Context:

As a result of the [Uruguay Round] negotiations, World Trade Organisation (WTO) members are committed by the [General Agreement on Services] (GATS) to modify domestic regulations, which will provide increased market access and equal treatment to service products and service providers. The GATS established a framework agreement for the modification of existing rules, rather than a system of rules for free market access for all forms of international services, and signatories have considerable freedom for at least ten years, in the nature and extent of the commitments they accept. The flexibility of developing countries to open fewer sectors and liberalise fewer types of transactions (GATS Article IV) is specifically recognised.

The main GATS principles are most favoured nation (MFN), market access and national treatment. Based on these basic principles, WTO members make commitments specific to the service sectors and sub-sectors listed in their country's schedule. Hence the extent and conditions under which the basic principles of GATS apply to individual service sectors in any country, can be assessed only by referring to that country's schedule, the character of the existing regulatory regime and the nature of the limitations, if any, to which the commitments are subject. The schedules cover 12 sectors (business, including professional and computer services; communication services; construction and engineering services; environmental services; financial services; health services; tourism and travel services; recreational, cultural and sporting services; transport services; and other services not included elsewhere), and 155 sub-sectors. The commitments are further listed according to the four modes in which service trade takes place: (1) cross-border movement of service products; (2) movement of consumers to the country of importation; (3) the establishment of a commercial presence in the country where the service is to be provided; (4) temporary movement of natural persons to another country in order to provide the service there.

By including a service sector or sub-sector in its national schedule, a country indicates that it will apply market access and national treatment obligations to trade in the sector. It is, however, open to a country to indicate the limitations under which it will grant market access or national treatment for each of the modes in which international trade in services takes place. Such restrictions could be horizontal, covering the entire range of services; or specific to the sector or activity in question.

Implementation:

Levels of market access commitments in 1999 indicate that in most service categories, many countries have reserved the right to place restrictions on mode 1 (cross border delivery of services), and mode 3 (commercial presence) with 'unbound' restrictions being particularly evident in construction, environmental and health services. Across all sectors, developed countries granted full cross border access in only 7 per cent of the country - sector possibilities and commercial presence access in 2 per cent of all sector possibilities. The equivalent figures for developing countries are 8 per cent and 5 per cent.

Assessed in terms of partial liberalisation of services there is evidence of developed countries accepting some cross-border access in more than two thirds of sectors, and some form of commercial presence in almost all sectors. Developing countries have allowed some form of cross-border market access in about 25 per cent of instances, allowing some foreign commercial presence and some dimensions of national treatment for foreign establishments in about one third of the tabulated instances. Barriers to trade in services are less transparent and measurable than those applied to goods trade. However, empirical work in 1999 indicates that trade barriers in services remain significant, and that the economic gains from further liberalisation of trade in services would be substantial.

The areas where the impacts of liberalization might be felt more quickly in developing countries is in services. On the one hand liberalisation in developing countries might facilitate improved market access in developing countries for financial institutions and telecommunications suppliers, with consequential economic gains in improved efficiency of lower prices. On the other hand, liberalisation of the industrial countries might allow better access for labour-intensive construction and transport services from the developing countries. Also, developing countries may be able to obtain 'more value for money' thereby releasing resources for other policy goals.

Claim:

Globally, the liberalisation of services trade should, in the long-run, increase economic welfare. This is confirmed by general equilibrium modelling studies which indicate that the global economic welfare gains from a substantial reduction in services trade restrictions could be as large as the gains from liberalisation in goods trade, with all groups of countries gaining in proportion to the size of GDP. It is important to note, however, that these impacts predicted are highly sensitive to the assumptions of the model and the specific details of the policy scenario used for simulation purposes. The global social and environmental impacts under the liberalisation scenario will vary in magnitude and nature between countries, but in certain countries, ill-equipped to handle these impacts, they could be substantially negative in the short and medium term.

Broader:

Liberalizing services sectors
Promoting open trade for sustainable development
Conducting sustainability impact assessments of world trade agreements

Facilitates:

Increasing international labour mobility
Abolishing unethical practices in the service sector
Providing fair trade practices in the service sector
Liberalizing shipping services in developing countries
Reducing discriminatory subsidies in the service sector
Developing services infrastructure in developing countries
Removing government barriers to international trade in services

Facilitated by:

Monitoring dumping in the service sector

Problems:

Government barriers to international trade in services
Monopoly consumer services
Protectionism in the services industries
Undue taxation of certain goods and services
Unethical practices in the service sector
Vulnerability of national economies to vagaries of external markets for goods and services

Subjects: