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SERVICES, TRADE IN SERVICES

AND THE WTO

Hamid MamdouhDirector

Trade in Services Division, WTO

April 2011

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SERVICES IN THE ECONOMY

• Share in GDP

• Share in employment

• Growth rates

• Investment in Services

• Determinant of economic competitiveness

• Determinant of quality of life

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SERVICES PARADIGM SHIFT

• The old model: Public utility/government functions

• The new model: Private sector leads competitive market

• Fundamentally different role for governments

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• Higher quality, lower prices and wider variety of services

• Stimulating innovation in services

• Promoting investments in the sector

• Raising overall competitiveness of the economy

• Major contribution to social welfare

OPPORTUNITIES OF THE NEW PARADIGM

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• Policy vision and direction of reform

• The regulatory challenge– Rules– Institutions

• Flanking policies

• Political leadership (policy vision, institutions, infrastructure)

CHALLENGES OF THE NEW PARADIGM

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THE REGULATORY CHALLENGE

• Rules– Content (clarity, objectivity, coherence,

avoidance of discretionary decisions)– Design (legislation, regulation, decrees,

administrative guidelines)– Scope/jurisdiction (central/sub-central,

sectoral/cross-cutting)– Transparency (clarity of rationale,

accessibility, transparency of process)

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THE REGULATORY CHALLENGE (continued)

• Institutions– Mandate– Independence of regulator (commercially

and politically)– Interface (governmental, private sector,

think tanks, civil society)– Accountability– Human resources

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THE GATS

• Response to the Paradigm Shift

• Institutionalizing new realities

• Defines new trade concepts

• Provides the legal framework

• A forum for continuing negotiations

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Conceptual Basis• Liberalization as a means of growth and

development

• Liberalization, not deregulation– the meaning of liberalization (market access and

national treatment)– the right to regulate and need to regulate

• The role of liberalization in the process of development

• Progressivity of liberalization

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Structure of the GATS

• A set of Rules and Disciplines– Articles of the Agreement– General Obligations– Specific Commitments– Annexes

• Schedules of Specific Commitments– Market Access– National Treatment

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Scope and Definition ALL MEASURES AFFECTING TRADE IN SERVICES

(At all government levels, including non-governmental bodies exercising delegated authority)

DEFINITION OF TRADE IN SERVICES (1) Cross border supply (2) Consumption abroad (3) Commercial presence (4) Presence of natural persons

UNIVERSAL COVERAGE OF GATS

(All services, except those provided in the exercise of governmental authority and air transport )

Business and ProfessionalCommunicationsConstructionDistributionEducationEnvironment

Finance and InsuranceHealth and SocialTourismRecreation, Culture, SportsTransportOther

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General Obligations and Disciplines

• Unconditional obligations– Most-Favoured-Nation Treatment– Transparency*– Domestic Regulation*– Monopolies* and Business Practices– Increasing participation of developing

countries

(contact points)

• Conditional Obligations

(specific commitments)– Transparency*– Domestic Regulation*– Monopolies*– Payments and Transfers

• Permissive provisions– Economic integration

– Recognition

• Exceptions– Restrictions on Balance of

Payments grounds

– General and Security Exceptions

• To be negotiated– Emergency Safeguards

– Government Procurement

– Subsidies• Disciplines for domestic regulation

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Specific commitments

Article XVI (Market Access)

“… each Member shall accord services and service suppliers of any other Member treatment no less favourable than that .. Specified in its Schedule”

• no limitations on the number of service suppliers*• no limitations on the value of transactions and assets*• no limitations on number of operations or quantity of output*• no limitations on the total number of persons employed*• no restrictions on the types of legal entity or joint venture• no limitations on foreign capital participation

* or requirement of an economic needs test

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Specific commitments(contd.)

Article XVII (National Treatment)

“… each Member shall accord services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than it accords to its own like services and service suppliers”

Article XVIII (Additional Commitments)

Commitments with respect to measures not subject to scheduling under Articles XVI or XVII

Examples: Qualifications, standards, licensing.

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Country Schedules(specific commitments by service sector

and mode of supply)

Sector orsubsector

Limitations onmarket access

Limitations onnational treatment

Additionalcommitments

A 1)2)3)4)

1)2)3)4)

B 1)2)3)4)

1)2)3)4)

…

C 1)2)3)4)

1)2)3)4)

…

… … … …

Country X - Schedule of Specific Commitments

Modes of supply: 1) Cross-border supply2) Consumption abroad3) Commercial presence4) Presence of natural persons

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Annexes to the Agreement

Types of Annexes• On provisions

– Article II (MFN Exemptions)– Movement of Natural Persons

• On sectors– Air Transport– Telecommunications– Financial Services

• On negotiations– Basic Telecommunications– Second Annex on Financial Services– Maritime Transport

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Progressive Liberalization

Article XIX (Negotiation of Specific Commitments)

“…Members shall enter into successive Rounds of negotiation…with a view to achieving a progressively higher level of liberalization…”

• Due respect for national policy objectives and the level of development

• Flexibility for individual developing country Members (to open fewer sectors, liberalize fewer types of transactions)

• Negotiating guidelines and procedures based on an assessment of trade in services

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Progressive Liberalization(contd.)

Article XXI (Modification of Schedules)

“…A Member may modify or withdraw any commitment in its schedule, at any time after three years … (from entry into force)

– Negotiations on compensation with any Member whose benefits may be affected

– Compensation on a most-favoured-nation basis

“The Council for Trade in Services shall establish procedures for rectification or modification of Schedules”.

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Development-related ProvisionsArticle IV

Increasing participation of developing countries in world trade through negotiated specific commitments

Article V

Preferential trade agreements must have substantial sectoral coverage and eliminate substantially all discrimination

– Flexible interpretation in accordance with development level– Possibility of preferential treatment for companies owned or controlled by

nationals from participating developing countries

Article XII

Trade restrictions in reaction to serious balance-of-payments and external financial difficulties

– Recognition of the particular pressure on the balance-of-payments of developing countries and the need to ensure adequate levels of financial reserves, etc.

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Development-related Provisions(contd.)

Article XIX

successive Rounds of negotiation to achieve a progressively higher level of liberalization

– Due respect for national policy objectives and development levels. Appropriate flexibility for developing country Members.

Annex on Telecommunications

Developing countries may place reasonable restrictions on access to and use of public telecommunications transport networks and services.

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The Doha Round of Negotiations

• Built-in agenda rolled into the DDA

• The Guidelines:– Higher levels of liberalization– Choice of sectors to commit– Flexibility for developing countries– No a priori exclusion of sectors or modes– Request/offer process

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Hong Kong MinisterialDec. 2005

• Detailed objectives• Plurilateral request/offer negotiations

(as opposed to bilateral)• Rule-making

– Domestic regulation– GATS Rules

• LDCs not expected to undertake commitments

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Mini-MinisterialJuly 2008

• Signalling Conference

• New indications of significant commitments

• Clear expressions of linkages with agriculture and NAMA negotiations

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CURRENT STATE OF PLAY

• Negotiations are in low gear

• Process of liberalization continues - for good reasons

• Widening gap between WTO commitments and current regimes

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THE WAY AHEAD

• Focus on policy and regulatory reform• Distinguishing liberalization as defined

in the GATS (access and non-discrimination) from deregulation

• Mobilize capacity to face the “regulatory challenge”

• Conclude the DDA with satisfactory levels of binding commitments