The new kid on the block: The Trade in Services Agreement

Juan A. Marchetti, Martin Roy, 21 December 2013

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 The dynamism and importance of trade in services contrast sharply with the slow pace of recent WTO negotiations in this area, where the latest serious attempt to move things forward dates back to mid-2008 – on the occasion of the so-called services 'signalling conference'. Faced with that state of affairs, and against the background of a proliferation of preferential trade agreements (PTAs) covering services, in mid-2012 a group of WTO Members launched separate negotiations on a new Trade in Services Agreement (TISA).

Twenty-three WTO Members are currently participating in these negotiations. At present, it covers almost 70% of world services trade, and includes major trading partners such as Australia, Canada, the EU, Japan, Korea and the US.1 The group does not include some prominent trading nations, such as Brazil, ASEAN countries, India, and China, though the latter has recently communicated its intention to join the discussions.

It has been estimated that the agreement would offer the EU a potential €15.6 billion and the US €10.4 billion (De Micco 2013). As far as services are concerned, the agreement is the single most significant development to have emerged in the trade negotiating arena over the last couple of years. As such, it may have wide – and unpredictable, at this stage – implications for the multilateral trading system.

New research: Analysis of market access issues

In a recent working paper (Marchetti and Roy 2013), we analyse the potential market access outcome of the TISA negotiations.2

A large majority of its participants have been involved in various services PTAs. The market access concessions exchanged through these agreements provide a general picture of what might, at a minimum, be achieved. Indeed, one might expect that in keeping with their proclaimed ambitions, most participants would exchange their 'best PTA' concessions.3  From that perspective, an analysis of PTA concessions provides useful insights on the possible contours of market access commitments that might emerge from the TISA. As suggested by Figure 1, its market access commitments might go well beyond GATS commitments and services offers tabled in the Doha Round.4  The extension of best PTA commitments among all participants in the agreement can, therefore, be expected to yield significant benefits, especially in terms of stability and predictability (provided, of course, the services agreement contains an adequate dispute settlement mechanism).

Figure 1 GATS+ commitments in PTAs: Index values per Member (modes 1 and 3)

Source: Roy (2011).
Note: See
http://www.wto.org/english/tratop_e/serv_e/dataset_e/dataset_e.htm for methodology and acronyms. The index score is brought within a scale of 0 to 100 for each sector, with 100 representing full commitments (i.e., without limitations) across all relevant sub-sectors. "GATS" covers both GATS commitments and services offer in the ongoing Doha Development Agenda. "PTA" reflects the index value for a Member's 'best' PTA commitments across all its PTAs. The score for EU commitments is for the EC-15.

However, for a number of TISA participants the ‘true’ value-added of such commitments would be reduced because they have already exchanged significant concessions amongst themselves through bilateral PTAs. Indeed, as shown in Table 1, several participants are already linked by a dense network of preferential agreements, and many more PTAs are currently under negotiation.

Table 1 Preferential trade agreements among TISA participants

Source: Marchetti and Roy (2013).
Note: 'x' signals the agreements in force; 'o' signals on-going PTA negotiations (e.g. TPP, EU-US). Indication of on-going negotiations does not pretend to be exhaustive, as it is done on the basis of available public information.

In an attempt to further assess the market access potential of the TISA, we also considered best PTA commitments in light of the participants' stated 'offensive' interests in different sectors and markets. To do that, we relied on the ‘plurilateral’ requests and offers exchanged by WTO Members in the context of the Doha Round.5  Starting in 2006, Members engaged actively in a ’plurilateral’ negotiating process by formulating collective requests in almost all sectors and modes of supply. The process meant that members with the same export interest would coalesce – collectively agree on a level of commitment that should be achieved in the Round – and, on that basis, select the recipients of the resulting collective/plurilateral request. These requests, therefore, provide a good indication of the markets, sectors, and modes of supply of major interest of the participants in the agreement.

Using the dataset on services commitments in PTAs from Marchetti and Roy (2008) and Roy (2011), we find that exchanging best PTA commitments amongst trade in services participants would not go a long way towards meeting these countries' key export interests for two basic reasons:

  • In areas of interest, limited progress has been made by these countries in PTAs.
  • More importantly, many of the markets of most export interest in relevant service sectors are not currently involved in the TISA (e.g. Brazil, China, India, and ASEAN).

As shown in Table 2, in almost every sector, more markets of interest are outside, rather than inside the agreement.

Table 2 Number of WTO Members receiving plurilateral requests

Source: Marchetti and Roy (2013).

Conclusion

If the Trade in Services Agreement is to address participants' key areas of export interest, two scenarios – broadly speaking – pan out.

  • A first scenario is that its participants go beyond what they have committed to do in their pre-existing PTAs. In various cases, this would involve difficult political and trade policy choices. Whether a 'services-only' agreement would provide sufficient trade-off options to facilitate such decisions remains to be seen.
  • A second scenario involves expanding the number of participants in the negotiations. While this increases the likelihood that key export interests will be addressed, it may also have an impact on the negotiating dynamic, as new entrants (some of which may have comparative advantage in certain services) bring their own negotiating interests. And should the number of participants expand significantly, this may further raise questions regarding the link to, and impact on, the WTO services negotiations. The recent expression of interest by China to join the negotiations – which may also incite others – can change this nuanced picture and instil a different dynamic to this endeavour.

The full impact of the TISA negotiations on trade flows and on the multilateral trading system will crucially depend on how it relates to the WTO framework. As detailed in our paper, different options exist for such a relationship, ranging from a fully MFN-based agreement within the WTO, to a (preferential) plurilateral agreement inside the WTO, to a preferential agreement outside the WTO. The choice is not inconsequential. As is well known, preferential agreements may introduce significant trade distortions, which are more significant the more discriminatory such agreements are. Only time will tell what path is chosen, and what the full effects might be.

References

De Micco, P (2013), "The Plurilateral Agreement on Services: at the starting gate", Policy Briefing, EU Directorate-General for External Policies, Policy Department, DG EXPO/B/PolDep/Note/2013_57 February 2013. 

Marchetti, J and M Roy (2008), "Services Liberalization in the WTO and in PTAs", in J. Marchetti and M. Roy (eds) , Opening Markets for Trade in Services; Countries and Sectors in Bilateral and WTO Negotiations, Cambridge: Cambridge University Press and WTO.

Marchetti, J and M Roy (2013), "The TISA Initiative: an Overview of Market Access Issues", WTO Staff Working Paper ERSD-2013-11, 27 November.

Roy, M (2011), "Services Commitments in Preferential Trade Agreements: An Expanded Dataset", WTO Staff Working Paper, ERSD-11-18, November.


1 The group is currently composed of Australia; Canada; Chile; Colombia; Costa Rica; the EU; Hong Kong, China; Iceland; Israel; Japan; Korea; Liechtenstein; Mexico; New Zealand; Norway; Pakistan; Panama; Paraguay; Peru; Switzerland; Chinese Taipei; Turkey; and the United States.

2 While there has been much speculation among observers and negotiators about the TISA’s liberalisation modalities (e.g., negative vs. positive list approach to scheduling commitments, or a combination of both) and the possible framework of rules (e.g. on data flows, state-owned enterprises), we have focused here on market access issues. This is not to say that modalities and rules are unimportant.

3 In some cases, one might expect that they would go beyond best PTA commitments, in particular for those participants that have few or less ambitious preferential agreements.

4 The analysis was performed on the basis of the methodology and dataset on services commitments in PTAs that was initially developed in Marchetti and Roy (2008) and subsequently expanded in Roy (2011). The dataset covers 53 Members (counting the EU and its member states as one) and 67 services PTAs.

5 The Hong Kong Ministerial Declaration of 2005, in an attempt to move the WTO services negotiations forward, provided that the request-offer negotiations should be pursed on a plurilateral basis, in additional to the traditional bilateral request-offer process. This meant that any group of Members could present a joint request to a group of other Members in any specific sector or mode of supply, identifying the type of commitments sought. See paragraph 7 of Annex C to the Hong Kong Ministerial Declaration. While the negotiating process was plurilateral in that requests were made by groups of Members to other groups of Members, the resulting commitments would be extended on a MFN basis to all Members.

Topics: International trade
Tags: preferential trade agreements, TISA, Trade in Services Agreement

Counsellor at the Trade in Services Division of the WTO

Counsellor in the Trade in Services Division, WTO