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THE CURRENT SERVICES ROUND
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Services: General perception
• NOT TRADABLE AND NOT STORABLE– Simultaneity of production and consumption– Role of local establishment
• STRONG GOVERNMENT INVOLVEMENT – Existence of natural monopolies, public service obligations,
etc.– Infrastructural importance of services (transport, telecom,
etc.)– Role of non-economic objectives (social, cultural, safety)
• INTANGIBLE– Quality criteria for services providers rather than for products
• NO TARIFFS– Access conditions determined by regulation, quotas etc.
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But... • Certain services - international transport and
communication - have been traded for centuries
• Services are supplied in conjunction with goods (finance, insurance, marketing, etc.)
• Services have become tradable as a result of:– technical progress (e-banking, tele-medicine,
distance learning)– government retrenchment– market liberalization and regulatory reform
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0%
20%
40%
60%
80%
100%
Services Industry Agriculture
Structure of GDP
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Importance of Services Trade
Limited role of services in total worldtrade (~ 20 % on BOP basis) but ... • more rapid growth than goods trade
• GATS broader in coverage than BOP
• role of services in trade facilitation
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Services trade has grown faster in developing than in high-income countries
Real Service Export Growth (%)
0.0
5.0
10.0
15.0
20.0
25.0
Low inc Lower mid inc Upper mid inc High inc
1995-99 2000-04 2005-06 2007 Source: World Bank
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Services trade is becoming more important for upper middle income countries
Service Export (% of GDP)
0.0
5.0
10.0
15.0
20.0
25.0
Low inc Lower mid inc Upper mid inc High inc
1995-99 2000-04 2005-06 2007
Source: World Bank
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Increasing importance of CBT, including for developing countries
Average Growth Rate of Business Service Exports for Selected Countries during 1995-2005
9.3
9.4
9.7
9.8
10.6
10.6
10.9
10.9
11.5
11.9
12.2
12.2
12.3
13.6
14.4
14.7
15.1
16.6
25.4
31.6
0 5 10 15 20 25 30 35
United States
Norway
Sweden
Mauritius
Malaysia
Morocco
New Zealand
Nigeria
Jamaica
United Kingdom
Spain
Finland
Malta
Israel
Argentina
Romania
Brazil
China
India
Ireland
(%)
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MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS
ALL SERVICES (except governmental services and measures affecting air traffic rights)
FOUR MODES OF SUPPLY- Cross-border supply- Consumption abroad- Commercial presence- Presence of natural persons
GATS: Scope, coverage, definition
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Modes of supply
MODE
1. Cross-border Trade
2. Consumption Abroad
3. Commercial Presence
4. Movement of Natural Persons
EXAMPLE (Health)
Tele-diagnosis from Country
B into A
A’s resident obtains hospital treatment in B
Hospital operator from B has subsidiary in A
Physician from B practices in A
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Purpose of the GATS
• Assists governments that want to reduce their trade barriers and/or consolidate reforms
• Contributes to coordination of economic policy-making
• Better access to foreign markets• Transparency and predictability of
trading conditions• Efficient and impartial settlement of
disputes
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GATS: Key Obligations
• Most-Favoured Nation (Article II)– Applies to all sectors
• Obligations implying openness to international competition (Market Access and National Treatment) only apply in accordance with each Member’s schedule of commitments– Only in selected sectors– Subject to conditions and limitations
inscribed
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Starting point of the negotiations
(‘progressive liberalization’ pursuant to Article XIX)
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Pattern of Commitments: sectoral distribution
102
82 8068
5750
4129 26
34 3225
3523
7
17
17 17
17
17
16
1717
1416
24
24 24
24
24
23
22
23 24 20 1620
4
10
1314
3
3
4
0
20
40
60
80
100
120
140
160
Developing & Least-Developed Transition economies Developed countries
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Pattern of commitments: sector coverage
WTO Members
Average number of commitments per
Member
Range (Lowest/highest number of
sectors per schedule)
Least-developed countries 24 1 – 111
Developing countries 41 1 – 123
Developed countries 105 86 – 115
Accessions since 1995a 102 37 – 147
ALL MEMBERS (147) 50 1 -147
a Transition economies (11) and developing countries (9). They are not included in other groups. Total number of sectors: ~160
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Level of Treatment for Committed Sectors
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cross-border Consumption Abroad Commercial Presence
Mode
Unbound
Partial
Full
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Starting point: Applied Regimes
• Actual regimes tend to be far more liberal in many countries than commitments suggest.
• Widening gap between UR schedules and – schedules of recently acceded countries– access conditions negotiated under FTAs
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Services Negotiations: Process and State of Play(Specific Commitments)
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How Services Negotiations Work
From the outset: – Essentially a bilateral process– Some key principles:
• No sector or mode excluded a priori• Flexibility for developing countries• Starting point: existing commitments• No change in basic structure of the GATS
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STATE OF PLAY (July 2006)
INITIAL OFFERS: 71 Schedules (covering 95 Members*)
REVISED OFFERS: 31 Schedules (covering 55 Members*)
*Counting EC Members (EC 25) individually
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Offers: Main features (I)
0
10
20
30
40
50
60
70
80
90
100
% S
ch
ed
ule
s
Commitments for First Time in Sector
Existing Commitments: Improved
Existing Commitments: Unaffected
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Offers: Main features (II)
0
10
20
30
40
50
60
70
80
90
100
% S
ch
ed
ule
s
Commitments for First Time in Sector
Existing Commitments: Improved
Existing Commitments: Unaffected
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Sub-Sectors Committed: Before and After Offers (all Members)
0
10
20
30
40
50
60
70
80
90
100
All Developed Developing
Members
% o
f to
tal s
ub
-sec
tors
co
mm
itte
d (
aver
age)
With Offers
Existing Commitments
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Offers: Main features (III)
“Few, if any, new commercial opportunities would ensue for service suppliers. Most Members feel that the negotiations are not progressing as they should."[1]
Chair of CTSS, July 2005 (TN/S/20)
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Sobering Assessment: • Long delays (initial target date: March 2003)
• Modest achievements (number of sectors and substance)
• Uneven participation of developing countries• Little change in MFN Exemptions _____________________________________________________________________________
• Little progress in rules negotiations
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How Negotiations Work
• Since Hong Kong Ministerial:– Plurilateral request/offer process
– LDCs not expected to undertake new commitments
– No formula, but set of multilateral objectives per mode
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• No requirement of commercial presence (mode 1)
• Commitments at existing levels of access (modes 1 & 2)
• Removal or substantial reduction of ENTs(modes 2 &
3)
• Enhanced levels of foreign equity, more types of legal entity (mode 3)
Negotiating Objectives (I) Modes 1 to 3 (examples)
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• Contamination from AG & NAMA
• Lack of political resolve• Exaggerated expectations
(access abroad as a substitute for own reform)
• Impact of regionalism in services
Remaining Risks...
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Reason for Hope, Nevertheless• Experience with previous trade rounds
• Too much at stake
• No credible alternative to WTO
• Domestic liberalization pressure in (infrastructure-related) services
(> competiveness of user industries, threat of industrial relocation)
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WHAT NOW?