1

THE CURRENT SERVICES ROUND

2

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.

3

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

4

0%

20%

40%

60%

80%

100%

Services Industry Agriculture

Structure of GDP

5

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

6

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

7

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

8

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

(%)

9

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

11

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

12

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

13

Starting point of the negotiations

(‘progressive liberalization’ pursuant to Article XIX)

14

Pattern of Commitments: sectoral distribution

102

82 8068

57 5041

29 2634 32 25

3523

7

17

17 17

17

17

16

17 1714

16

24

24 24

24

24

23

22

23 24 20 16 20

4

1013

14

3

3

4

0

20

40

60

80

100

120

140

160

Developing & Least-Developed Transition economies Developed countries

15

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

16

Level of Treatment for Committed Sectors

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cross-border Consumption Abroad Commercial Presence

Mode

UnboundPartialFull

17

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

18

Services Negotiations: Process and State of Play(Specific Commitments)

19

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

20

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

21

Offers: Main features (I)

0

10

20

30

40

50

60

70

80

90

100

% S

ched

ules

Commitments for First Time in SectorExisting Commitments: ImprovedExisting Commitments: Unaffected

22

Offers: Main features (II)

01020304050

60708090

100

% S

ched

ules

Commitments for First Time in SectorExisting Commitments: ImprovedExisting Commitments: Unaffected

23

Sub-Sectors Committed: Before and After Offers (all Members)

0102030405060708090

100

All Developed Developing

Members

% o

f tot

al s

ub-s

ecto

rs

com

mitt

ed (a

vera

ge)

With OffersExisting Commitments

24

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)

25

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

26

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

27

• 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)

28

• 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...

29

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)

30

WHAT NOW?