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Trade in Services and Regional Agreements: Research Priorities

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Title: Trade in Services and Regional Agreements: Research Priorities


1
Trade in Services and Regional Agreements
Research Priorities
Aaditya Mattoo and Carsten Fink
  • Development Research GroupThe World Bank

2
Regional agreements in services a conjecture
  • Weak case for agreements that grant explicit
    preferences
  • Strong case for regulatory cooperation
  • - but not necessarily in a narrow regional
    context

3
Will there be trade preferences?
Protection
PGATS
PFTAA
PMERC
MERCOSUL
FTAA
GATS
Time
2000
T1
T2
T3
4
Measures affecting services trade
5
Examples of preferences in services trade
  • Preferential allocation of quotas in transport
    and audiovisual services
  • Preferential relaxation of foreign ownership
    restrictions in financial services
  • Preferential tax and subsidy treatment in health
    and education
  • Preferential treatment through domestic
    regulation recognition of qualifications in
    professional services

6
There are gains from preferential agreements
  • Gains from trade creation, but few costs of trade
    diversion because many restrictions increase
    costs of foreign providers without generating any
    benefits for the importing country
  • Variable cost affecting measures (e.g.,
    cumbersome border formalities for multimodal
    transport operators)
  • Fixed costs affecting measures (e.g., unnecessary
    requalification, licensing and local
    establishment requirements in professional and
    financial services)

7
but from a purely efficiency point of view, a
multilateral approach is preferable
  • Non-preferential liberalization offers access to
    the most competitive service providers
  • Non-preferential liberalization avoids complexity
    for negotiators, administrators and business.
  • If Brazil initially takes the regional route, the
    benefits of eventual multilateral liberalization
    may be lowerdue to the importance of location
    specific sunk costs in services.

8
A case can, nevertheless, be made for
preferential agreements
  • Political imperative
  • Because more effective bargaining may be possible
    in a plurilateral setting than in the
    multilateral context
  • Learning-by-doing in the regional context
  • Regulatory cooperation

9
Example Mexicos financial services policy under
NAFTA
Major Investors in Mexican Financial Services
(1994-2000)
25,000
US
Includes investments of U.S. based European banks
Spain
20,000
Holland
Canada
15,000
10,000
5,000
0
1994
1995
1996
1997
1998
1999
2000
Source Central Bank of Mexico
10
Example Mexicos financial services policy under
NAFTA
Foreign Participation in the Mexican Banking
Sector
Source Salomon Smith Barney (2000)
11
There is greater scope for regulatory cooperation
at the regional level
  • Strengthening regulation pro-competitive and
    prudential
  • Dealing with regulatory impediments

12
Compartmentalized regulatory cooperation?
13
Generic FTAA rules on services trade beyond GATS?
  • Coherent architecture and comprehensive coverage
  • Greater transparency for negotiators and business
  • Greater security through comprehensive bindings
  • Post-establishment national treatment as a
    general obligation
  • Transparent and non-discriminatory government
    procurement
  • Rules to challenge unnecessarily burdensome
    regulations

14
Bargaining vs Efficiency the Role of Rules of
Origin in Services
  • Local incorporation
  • Local incorporation plus substantial business
    interest
  • Ownership and control
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