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Financial Services Trade, Capital Flows, and Financial Stability
This study argues that trade policies regarding financial services are an important—but often neglected—determinant of capital flows and financial sector stability. Financial services trade liberalisation which promotes the use of a broad spectrum of financial instruments and allows the presence of foreign financial institutions whilst not unduly restricting their business practices results in less distorted and less volatile capital flows and promotes financial sector stability. The study finds significant evidence in favour of this claim through an empirical analysis of GATS commitments in 27 emerging markets. For example countries which experienced financial crisis during 1991-97 show a combined indicator of financial services trade restrictiveness three times as high (= less favourable for financial stability) as countries without a crisis. The study' s findings have two important policy implications. Firstly liberalising international trade in financial services can be a market-based means to improve the "quality" of capital flows and to strengthen financial systems. This would complement other policies including financial regulation. Secondly even in countries where the financial system is weak and where immediate full-fledged financial sector liberalisation is not advisable certain types of financial services trade could be liberalised as such trade strengthens the financial system without provoking destabilising capital flows.
Services Liberalization from a WTO/GATS Perspective: In Search of Volunteers
There has been virtually no liberalization under the General Agreement on Trade in Services (GATS) to date. Most existing commitments are confined to guaranteeing the levels of access that existed in the mid-1990s when the Agreement entered into force in a limited number of sectors. The only significant exceptions are the accession schedules of recent WTO Members and the negotiating results in two sectors (financial services and in particular basic telecommunications) that were achieved after the Uruguay Round. The offers tabled so far in the ongoing Round would not add a lot of substance either. Apparently negotiators are 'caught between a rock and a hard place'. For one thing the traditional mercantilist paradigm relying on reciprocal exchanges of concessions seems to be provide less momentum than in the goods area. For another there are additional - technical economic and political - frictions that tend to render services negotiations more complicated timeconsuming and resource-intensive. The novelty of the Agreement adds an additional element of legal uncertainty from a negotiator's perspective. This paper discusses various options that might help to overcome the ensuing reticence to engage. Few appear within reach at present however. The bare minimum that would need to be achieved is to revive work on scheduling and classification issues with a view to putting both existing commitments and new offers on a safer footing and to improve compliance with long-existing information/notification obligations.
Applied Services Trade Policy
Better information on how services policies vary across economies and sectors over time would improve the empirical analysis of their impact. This paper describes the Services Trade Policy Database (STPD) a joint initiative by the World Bank and the WTO Secretariat which builds on a database developed by the World Bank nearly ten years ago and draws on a recent OECD database.
Services Trade Liberalization at the Regional Level
This paper discusses the opportunities and challenges for Southern and Eastern African ACP countries of services negotiations in the context of European Partnership Agreements. The paper provides an overview of existing flows in services from and to Southern and Eastern Africa an overview that suffers from the paucity of relevant data. Given the significant differences among services sectors the paper provides a separate discussion for several of them including financial services tourism and business services. The latest developments in each sector are described and the issues that are at stake in trade negotiations. In this context the competitive position of Southern and Eastern African countries is compared with the position of the European Union and other global players. The paper attempts to identify possible export opportunities for Southern and Eastern African ACP countries and discusses the advantages and disadvantages of giving preferential access to EU suppliers in those services sectors where African countries are likely to import. Particular attention is paid to the role of mode 4 in the discussed services sectors.
How to Design Trade Agreements in Services
This paper deals with claims recently raised in various circles that structural faults in the General Agreement on Trade in Services (GATS) have prevented WTO Members from advancing services liberalization under the Agreement. The GATS is generally associated in this context with a bottom-up (positive-list) scheduling approach where the sectors on which trade commitments are undertaken are selected individually. This is claimed to be less efficient in terms of liberalization effects than alternative approaches under which everything is considered to be fully committed unless specifically excluded (top-down or negative listing). However a closer look at services negotiations conducted in various settings including the Doha-Round process WTO accession cases and different types of regional trade agreements suggests that such structural issues have limited if any impact on the results achieved. What ultimately matters are not negotiating or scheduling techniques but the political impetus that the governments concerned are ready to generate.
Charting the Evolving Landscape of Services Trade Policies
While greater focus has been cast on analysis of policy changes affecting trade in goods in the aftermath of the financial crisis little is known about the direction of policies affecting trade in services. On the basis of information contained in the I-TIP Services database this paper provides an overview of the evolution of services trade policies since 2000 where policy changes – whether towards more liberalization or more protection – tend to be less easily reversible and to have a greater impact. Has protectionism increased in the aftermath of the crisis? Which countries sectors and modes of supply have been associated with most trade facilitating and trade-restrictive measures? The evidence gathered contradicts in many respects basic political economy expectations. Indeed the countries sectors and modes of supply where liberalizing and protectionist measures have been implemented are not necessarily those one would have assumed. Most importantly trade-facilitating measures have clearly outweighed trade-restrictive ones over the recent period including after the onset of the crisis. This strong push towards autonomous liberalization bodes well for trade negotiations on trade in services. The undertaking of greater commitments would bring benefits by consolidating this recent liberalization and by helping to reduce non-negligible outbursts of protectionism that have been witnessed over the last years. However bilateral and plurilateral agreements because of their limited country coverage would only capture a fraction of the recent autonomous liberalization and similarly only help prevent part of the protectionist measures springing up.
The GATS Turns Ten: A Preliminary Stocktaking
The paper discusses the experience to date with the implementation and application of the General Agreement on Trade in Services (GATS) some ten years after its entry into force. One striking observation is the smooth functioning of the Agreement which has created far less tensions and frictions including at Ministerial Meetings than its difficult negotiating history might have suggested. This is due in large part to a high degree of flexibility at several levels: Members have more scope than under the GATT to depart from common horizontal obligations in particular the MFN principle; they are able to adjust the breadth and depth of their trade commitments (market access and national treatment) to particular sector conditions; and they face less constraints if any in the use of trade-related policies such as subsidies export restrictions or domestic regulatory interventions. An additional source of flexibility is the uncertainty still surrounding a few core concepts of the Agreement and their sometimes daring application in individual schedules. While the ongoing negotiations also provide an opportunity for technical corrections of scheduling problems the basic (built-in) flexibility elements of the Agreement - including the bottom-up approach of undertaking sector commitments and the possibility of inscribing limitations under individual modes - will of course persist. (Their actual relevance may nevertheless differ significantly between 'old' Members and countries negotiating their accession to the WTO.) Given the broad reach of of the Agreement in terms of membership sector application and modal coverage flexibility may be considered a conditio sine qua non. There is little reason to believe that a more rigid structure would have been acceptable to Uruguay Round participants and even if so that it would have proven stable and resilient over time. However flexibility may come at a cost: lack of meaningful obligations across a reasonably broad range of service sectors. Vested interests may find it far easier than under the GATT to defend their privileges and defy more rational and harmonized trading conditions. While the paper discusses formula-based approaches that have been proposed to improve the quantity and/or quality of sector commitments within the existing framework of GATS there should be no illusion about the scope for technical solutions to what constitutes a political and institutional challenge.
Services and Global Value Chains
This paper analyses the role of services in international trade through the lens of global value chains (GVCs). Services account for more than 70% of world GDP but only for around 20% of world trade in balance of payments terms. In value added terms accounting for services embodied in exported goods services account for 40% of world trade. Services industries increasingly produce in networked or "fragmented" arrangements. The paper lays out conceptual and measurement issues related to services networks and provides evidence based on trade in value added statistics and on a case study on the film industry. In contrast to goods value chains services networks appear less fragmented internationally based on trade in value added statistics and survey evidence. However to better capture the international services fragmentation advances in statistics by enterprise characteristics and by mode of supply i.e. taking into account the movement of labour and capital are required.
Public Services and the GATS
The status of public services is one of the most hotly debated issues surrounding the GATS. There are two approaches to distinguish such services from any other services: an institutional approach that focuses on the legal and institutional conditions governing supply (e.g. ownership status market organisation) and a functional approach based on the policy objectives that may be involved (e.g. distributional and quality-related considerations concepts of universal access). Given the wide range of institutional arrangements that exist in different jurisdictions with significant variations over time the former approach does not appear appropriate. The services provided by government-owned facilities whose costs are covered directly by the State may well be indistinguishable for all practical purposes from the services provided by private commercial operators whose users (students patients passengers etc.) are reimbursed. This paper discusses the relevance of the GATS for different organisational settings - from government monopolies to regulated and/or subsidized private provision - that may be used by WTO Members to meet typical public service objectives. It turns out that virtually all forms of organisation can be accommodated within the framework of the Agreement. To fully exploit its opportunities and avoid unpleasant surprises however governments would need to thoroughly analyse the relevant provisions in the light of their own policy objectives.
The Contribution of Services Liberalization to Poverty Reduction
There are various conceivable links between services liberalization and poverty reduction including the efficiency effects associated with increased competition in intermediate (infrastructural) services income transfers generated by workers moving abroad or the mobilization of private investment for social policy purposes. Arguably the most promising option for interested governments regardless of complementary moves by trading partners is the opening of and creation of favourable investment conditions in core infrastructural services. However apart from basic telecommunications both the Uruguay Round schedules and the offers submitted in the Doha Round to date have remained disappointing in this respect. Effective services liberalization as measured by the share of phase-in commitments in total commitments has occurred mainly in the context of WTO accessions and Preferential Trade Agreements. Given the apparent lack of political impetus in broader-based trade rounds this article discusses options how the submission of more meaningful offers could be encouraged.
International Trade in Travel and Tourism Services
In this paper we investigate tourism-related policy approaches that WTO member countries adopted in the early weeks of the COVID-19 crisis. We highlight the need for stakeholders to coordinate their responses in order to mitigate the negative crisis effects and better prepare the sector for the future. In doing so we explore the economic impact of potential tourism scenarios underlining both the demand and supply side effects of the crisis.
The Relationship between Services Trade and Government Procurement Commitments
To date government procurement has been effectively carved out of the main multilateral rules of the WTO system. This paper examines the systemic and other ramifications of this exclusion from both an economic and a legal point of view. In addition to relevant elements of the WTO Agreements particularly the Agreement on Government Procurement (GPA) and the General Agreement on Trade in Services (GATS) it derives insights from a large number of Regional Trade Agreements (RTAs) that embody substantive provisions on both government procurement and services trade. An important finding is that from an economic perspective general market access commitments with respect to services trade and commitments regarding government procurement of services are complementary and mutually reinforcing. In contrast from a legal point of view and at the multilateral level disciplines in the two areas have been "divided up" into two Agreements with different (but complementary) spheres of application: the key provisions regarding the scope of application of the GATS and the GPA make clear that each serves purposes that the other does not. Analysis of corresponding provisions of RTAs broadly supports and extends this finding. In light of the foregoing a question arises as to possible ways of deepening disciplines in this area. Part 5 sets out for reflection several related options: (i) the built-in mandate in the GATS for negotiations on services procurement (Article XIII:2); (ii) "multilateralization" of the GPA; (iii) the eactivation of work in the (currently inactive) WTO Working Group on Transparency in Government Procurement; and (iv) the taking up of relevant issues in the context of bilateral or regional negotiations. Overall we find that each of these possibilities has potential merits though none is without related challenges.
Services Liberalization in the New Generation of Preferential Trade Agreements (PTAs)
This paper attempts to fill a gap in the trade literature by providing a comprehensive overview of services liberalization commitments in the new generation of preferential trade agreements (PTAs) as compared to prevailing GATS commitments and Doha Round offers. By developing a new database the paper reviews the commitments undertaken by 29 WTO Members (counting the EC as one) under mode 1 (cross-border supply) and mode 3 (commercial presence) in 28 PTAs negotiated since 2000. The paper presents a general analysis from both a cross-country and cross-sector perspectives and also examines in more detail the GATS+ commitments undertaken in a number of key sectors (audiovisual distribution education financial professional and telecommunication services). The paper also discusses the potential economic costs arising from these preferential agreements as well as the potential implications for the multilateral trading system and for the Doha round of negotiations in particular. The paper concludes by discussing possible approaches to overcome the potential downsides of PTAs including proposals for a more pro-active role for the WTO in the surveillance of these agreements.
Services Trade Policy, WTO Commitments, and their Role in Economic Development and Trade Integration
Services have long been perceived as playing a secondary role in world trade. In particular the role of services trade policies and multilateral services commitments often tends to be downplayed. However in value added terms services account for about 50% of world trade and are significant in exports of countries of all levels of development.
The TISA Initiative
The plurilateral negotiations on a Trade in Services Agreement (TISA) have attracted much attention in trade policy circles. Policy and economic implications are intensely debated given the number and economic importance of participants. This paper aims to provide insights into the market access issues arising in such negotiations. Should TISA negotiations result in participants exchanging the best commitments they have so far undertaken in their preferential trade agreements (PTAs) – a reasonable starting point — TISA market access commitments would go well beyond GATS commitments and services offers tabled in the Doha Round. While this would be in itself a significant outcome (especially in terms of predictability and stability) we also highlight however that the real economic benefits would be reduced by the fact that a number of participants have already exchanged significant concessions amongst themselves through bilateral PTAs. Further and more importantly exchanging 'best PTA' commitments would not meet the participants' most important export interests. These have often remained unaddressed in many of the previous bilateral negotiations or involve countries not currently participating in TISA. Addressing better these export interests would require going beyond an exchange of 'best PTA' commitments among TISA participants — with the more difficult policy and negotiating decisions that this implies — and/or seeking to expand the group of participants. We also discuss the different forms that such a plurilateral agreement may take vis-à-vis the WTO framework.
Turning Hills into Mountains?
Over the past months it has become increasingly clear that the services negotiations under the Doha Development Agenda will not produce significant improvements on current commitments unless major new impetus is provided. In an introductory section this paper discusses various impediments from the perspective of participating governments that may explain the lack of negotiating momentum to date. It then provides an overview of existing commitments under the GATS (by sector mode of supply and level of development) and of the initial offers that had been tabled by early 2005. Despite the substantial benefits that may be associated with the liberalization of services trade the GATS has obviously not yet lived up to ambitious expectations. For example on average across all WTO Members only one-third of all services sectors have been included in current schedules of commitments; and many entries have been combined with significant limitations on market access and national treatment or with the complete exclusion of particular types of transactions (modes of supply) from coverage. While the ongoing services negotiations provide an opportunity to complement the rule-making efforts of the Uruguay Round with genuine market opening many governments apparently have found it difficult despite generally more restrictive access regimes and thus potentially higher gains from liberalization than in merchandise trade to undertake or envisage economically significant bindings across a broad range of services. Five years after the inception of the services round current negotiating arrangements based mainly on (bilateral) exchanges of requests and offers may need to be complemented by common points of reference to provide greater focus and guidance.
Measuring GATS Mode 4 Trade Flows
The paper discusses the research work which has taken place over recent years with respect to the measurement of GATS mode 4 – presence of natural persons in the context of the revision of the Manual on Statistics of International Trade in Services. Realistic estimates of mode 4 trade are virtually non-existent. Based on the GATS legal definition the paper introduces the statistical conceptualization of mode 4. While showing that balance of payments labour related flows indicators such as worker's remittances and compensation of employees cannot be used as substitutes the paper discusses relevant balance of payments transactions in individual services sectors for estimating the value of this trade. Given the complexity of many services contracts (one service contract may involve the use of more than one mode to supply services to consumers) it provides simplifying assumptions that help build these measures of mode 4 trade in services. The paper recognizes that the proposed simplified statistical approach to modes of supply does not strictly adhere to GATS provisions and explains that it has been designed as a first guidance to provide relevant information for GATS while ensuring feasibility and consistency with statistical frameworks. Examples are given showing the interest of some economies to estimate the size of mode 4 trade. The paper also presents how existing migration and tourism statistics could be used to assess the physical mode 4 movement (flows) and presence (stocks) in terms of number of persons. It introduces necessary extensions (separate identification of relevant mode 4 categories of persons breakdowns by origin/destination occupations length of stay etc.) of these statistical frameworks in order to conduct a proper assessment of mode 4.
Services Commitments in Preferential Trade Agreements
Preferential trade agreements (PTAs) on services have proliferated since 2000. This working paper briefly presents the expansion of the dataset initially developed in Marchetti and Roy (2008). The data permits to assess the extent to which market access commitments undertaken by WTO Members in PTAs go beyond GATS commitments and offers made in the context of the Doha Development Agenda. The dataset which covers PTA commitments of 53 WTO Members (counting EU Members States as one) is available at: http://www.wto.org/english/tratop_e/serv_e/dataset_e/dataset_e.htm
Trade in Healthcare and Health Insurance Services
The General Agreement on Trade in Services (GATS) is broader in policy coverage than conventional trade agreements for goods and at the same time offers governments more flexibility in various dimensions to tailor their obligations to sector- or country-specific needs. An overview of existing commitments on healthcare and health insurance services shows that WTO Members have made abundant use of these possibilities. While most participants elected not to undertake bindings on healthcare services at the end of the Uruguay Round nor to make offers in the ongoing negotiations insurance services have been among the most frequently committed sectors. If there is a common denominator regardless of the Members concerned (except for recently acceded countries) it is the existence of a lot of 'water' between existing commitments and more open conditions of actual access in many sectors. This may also explain in part why there have been very few trade disputes under the GATS to date - far fewer than under the GATT in merchandise trade. Also governments appear to be generally hesitant in politically and socially sensitive areas to take action in the WTO. There are indications however that the same 'players' have acted differently in other policy contexts. For example it appears that under recent preferential trade agreements (PTAs) the European Communities has been even more cautious in committing on hospital services and protecting scope for (discriminatory) subsidies than under the GATS. Yet this is not necessarily true for the obligations assumed by many countries including individual EC Member States under bilateral investment treaties (BITs). These treaties overlap with the GATS as far as commercial presence is concerned and may be used by aggrieved investors to challenge policy restrictions in host countries. However though frequently invoked BITs do not meet the same standards in terms of transparency open (consensual) rulemaking and legal certainty as commitments under the GATS.
The Impact of Mode 4 Liberalization on Bilateral Trade Flows
This paper gives insights into the possible trade creating effects of service trade liberalization via Mode 4. In particular we expect that temporary movements of persons like permanent movements have the potential to reduce transaction costs for merchandise trade between home and host country. Exploiting data on H-1B beneficiaries from different origins in the United States and using a gravity model of trade we find significantly positive effects of temporary movements of persons on bilateral merchandise trade. In addition to this the paper provides insights into the determinants of temporary movements of persons.