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Services and Trade Agreements: Whither the GATS?

Services and Trade Agreements: Whither the GATS?. Bernard Hoekman* World Bank November 20, 2006 * Views expressed are personal and not to be attributed to the World Bank. Genesis of the GATS. Tradability of services increases Contestability of markets increase Deregulation, privatization

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Services and Trade Agreements: Whither the GATS?

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  1. Services and Trade Agreements:Whither the GATS? Bernard Hoekman* World Bank November 20, 2006 * Views expressed are personal and not to be attributed to the World Bank

  2. Genesis of the GATS • Tradability of services increases • Contestability of markets increase • Deregulation, privatization • Technological changes • Large gains from liberalization • Services often inputs • Protection generates not just deadweight losses • US: comparative advantage in services • AIG, American Express, ATT … • Confluence of forces supports creation of GATS

  3. The Basic Rules & Approach • 4 modes of supply – includes factor movement • MFN & transparency • 2 specific commitments (“positive list”) • National treatment • Market access (mostly QR type policy constraints) • Weak rules on regulation, but focus of much attention • Reference paper for telecom; talks on professional services • Uruguay Round: limited to partial scheduling of already implemented liberalization • Weighted average coverage < 50% for OECD; full commitment < 20%; less for most other countries

  4. Post-2000 Negotiations/Doha • Little progress to expand GATS (so far 6 years …) • Bit of a puzzle: • Services should matter to governments for themselves • Services should also matter for overall Doha Round progress: • (Developing) countries seeking agriculture & manufactures liberalization in North need to offer a quid pro quo • North tends to be demandeur in services – a main area of interest to EU, post-demise of new issues

  5. Why such limited traction? • Less “need” for trade agreements? • Lot of unilateral reform been implemented • Uncertainty re: costs/benefits of commitments? • E.g., spillover effects of Telmex and Gambling cases • Backlash of offshoring; Services Directive; anti-migration? • Complexity of services agenda? • Mix of regulation and discriminatory policies • Regulators worry about trade negotiators • A “reciprocity problem”? • Stylized fact: export lobbies are missing in action

  6. Harnessing reciprocity • MTNs are driven by reciprocity dynamics • Need export interests to push for national reforms • For many developing countries, services export interests nonexistent, not constrained, or confront non-negotiable barriers • Mode 1: few effective policy barriers • Mode 2 (tourism): own policies matter most • Mode 3: few export interests • Mode 4: very little prospect of market opening

  7. Scope for reciprocity limited • Mostly a large-firm agenda; intra-OECD and emerging market affair • Mostly a matter of mode 3 (FDI) and related complementary inputs • Given weak mode 3 interests of most developing countries, assuming mode 4 is too hard, cross-issue linkage needed: • Mode 3 access in South for merchandise access in North

  8. Further complications • In addition to standard political economy forces opposing reform (firms, unions, less-skilled workers), in services have: • Regulators • More skilled workers – “white collar” • NGOs, civil society • Regulators worry about autonomy and negative spillovers of a market access driven negotiation • Civil society worries about realization of social objectives, ownership, immigration, etc.

  9. What could be done? (1) • Remove regulatory opposition by removing generally applicable regulation from the table • How? Focus only on discriminatory policies, e.g., full national treatment on a sectoral basis • Implies likely opportunity cost if regulation id the problem, but recognition/harmonization not feasible in any event • Adopt a “formula approach” limited to critical mass of large players; allow free riding of rest

  10. What could be done? (2) • Engage poor countries differently: instead of request-offer reciprocity, shift to other instruments • Constructive engagement to satisfy preconditions to benefit from liberalization • Policy dialogue and monitoring –incl. linkages to IFIs • “Aid for trade” support from donor nations • Greater accountability via an enhanced TPRM-type mechanism • May alleviate problem of limited enforcement incentives re: commitments of poor countries

  11. What about regionalism? • Alternative explanation for limited GATS traction • Can you get what you want in a PTA? • Clearly revealed preferred by many governments • May well be only effective vehicle for mode 4 • May also be more feasible mechanism for regulatory harmonization/recognition • To date, more talk than action—have only limited commitments in most PTAs and little information on implementation

  12. Conclusions • GATS not doomed to fail • But do need a change in modus operandi: • Formula-based, limited group approach with the focus on discriminatory policies • A “development” approach towards poorer countries, combining dialogue/engagement, assistance, and monitoring/accountability • Open question remains whether services can help mobilize agricultural reform in North • But the services agenda dominates in any event

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