AFRICA’S TRADE IN SERVICES AND ECONOMIC PARTNERSHIP AGREEMENTS

Paul BrentonAfrica Region, World BankBrussels, October 7, 2010

Overview2

The importance of services Trade in services Trade policy for services matters The challenge of coordinating regulatory

reform and trade liberalisation The opportunities and risks from an EPA

Context: Services in the modern economy3

Figure A1. Infrastructure, Business, Logistics and Personal Services

Infrastructure and Network Services

Telecomms and ICT

Water

Electricity

Finance

Production

Personal Services

Education

Health

Distribution

Households

Material Inputs

Logistics Services

Customs brokerage

Freight forwarding

Transportation services

Port services

Storage and warehousing

Business Services

Design services

Engineering services

R&D

Information

Accountancy

Legal services

Testing Services

Advertising

Packaging

Certification

Labour Inputs

Outputs of goods and services

Context: Services matter4

For growth Productivity growth can be higher than in

manufacturing Technological change important for services Significant learning and knowledge spillovers through

clustering. For employment

Services largest contributor to job creation High employment rates for women

For poverty reduction Poverty reduction more strongly correlated with

growth of services than with growth of manufacturingSee Ghani, E (ed) The Service Revolution in South Asia, World Bank-OUP, 2010

Trade in services plays key role

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Exports of services can drive diversification Potential 18 million new jobs in developing countries

from offshoring of services (each job generates a further 3 jobs)

Imports of services and FDI can lead to greater competition, lower prices, higher quality and more variety

Trade policy for services6

Competition is essential to increase efficiency Competition leads to lower prices+better quality services. Competition pushes service suppliers to reduce waste, improve

management and reduce operating costs forces suppliers to pass on cost savings to consumers in the

form of lower prices. Competition undermines costly rent-seeking activities

Trade liberalisation can increase competition + attract FDI Small national markets in Africa cannot generate level of

competition needed to drive efficiency and adoption of new technologies.

Small size means attracting investment from overseas is important for key infrastructure services.

Many services require regulation

Market failures in many services sectors can impact on both efficiency and equity. natural monopoly, systemic risks, asymmetric

information, and externalities require regulation. Effective regulation and capacity

Regulation can be complex Weak regulation leads to less competition and

higher costs Must avoid regulatory capture

Effective regulation and capacity In electricity need to monitor and consider:

Output and consumption (access levels, Consumption levels and growth, unsatisfied demand);

Efficiency (Productivity levels and growth, Cost levels and changes, Capacity and utilization, losses);

Quality of supply (Continuity, Quality, customer service) Financial performance (Financial surpluses and losses, rates of return,

indebtedness and interest burden); Capacity, investment, and maintenance (Capacity levels and margins ,

investment , maintenance expenditure); Prices (prices and full economic costs, efficiency of subsidies Tariff

design and technical and economic efficiency); Competition (Well-functioning bid auction markets , Well-functioning

and competitive generation and supply markets) Social indicators (Affordability especially for low-income consumers,

Impacts on development)

Coordination of trade and regulatory reform

a dynamic process – no strict sequencing Appropriate regulations may be necessary to

realize benefits of trade liberalization emphasis on competition, sound regulation and wider access Trade brings new technology which may require change to

regulatory approach Trade opening with inappropriate regulations can

result in adverse outcomes Need for capacity to design and implement

appropriate regulations and monitor impact

Strategy for trade in services

Improve data and initiate dialogue with stakeholders

Focus on priority services sectors Offensive export interests Domestic sectors where increase in FDI/competition essential

for competitiveness Assess current regulatory policies and

openness to trade and FDI Discuss appropriate forum for trade

liberalisation of services Unilateral, Regional, EPA or multilateral

Obtain technical assistance to increase capacity of regulator and improve regulations

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Services trade policies appear less restrictive in Africa

Source: Gootiz and Mattoo (2009)

18.9

19.9

20.7

29.6

39.3

39.4

41.6

48.2

WRestrictiveness of services trade policy

OECD

ECA

LAC

AFR

MENA

EAP

SAR

GCC

Note: W is average STRI of total 102 countries

But Africa has not bound openness at WTO

0

10

20

30

40

50

60

70

80

90

Eastern Europe

OECD Latin America

Africa World South Asia East Asia Middle East

Actual policy

Doha offers

UR commitments

Source: Gootiz and Mattoo (2009)

Reticence to make commitments on services at WTO

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Mercantilist bargaining approach not effective for services

GATS/WTO not adequately addressed the issue of regulatory reform and capacity building

Lack of clarity over technical assistance Need forums/platforms of best practices

and lessons for successful trade and regulatory reform

Regional integration and services

Risks from preferential liberalisation – MFN dominates – especially in network industries Regional integration can allow for learning effects But can give first-mover advantage to less efficient firm

But potential gains from mutual recognition Move faster at the regional level than in EPA or multilateral in

sectors with similar standards and regulatory approaches Opportunities from regional regulatory

cooperation Avoid regulatory capture Can allow for faster reform Pooling of technical capacities for regulation

Thick borders in Africa limit integration15

High trade costs create “thick” borders.

These are a key barrier to regional and global integration.

Opportunities from a services EPA

Provide credibility to reform process Improvement in access to EU?????

Especially mode 4 beyond skilled workers Provisions on regulatory issues of

particular importance to Africa Tourism - Shipping?

Financial and technical assistance Enhance regional integration

Risks of a services EPA?

Broad but shallow GATS type agreement

Too much focus on market access without coordinated regulatory reform and

capacity building Preferential liberalisation

A development-oriented services EPA for Africa

A coordinated sector-by-sector regulatory-reform/trade-opening process

Flexible approach to timing of reforms and a phased strategy towards implementation.

An emphasis on locking in non-discriminatory liberalization of services imports

EPA can be a part of process not an end-point!

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Africa Trade Policy Noteshttp://go.worldbank.org/M8SXRN80G0

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