2009-09-16 tralac Newsletter

2009-09-16 tralac

News > Newsletters

Hotseat Comment

Niki Cattaneo

Niki Cattaneo, a tralac Associate, comments on Services aspects of regional trade agreements.

To date, regional economic integration in SACU and SADC has largely been focused on trade in goods.  Services trade has increased dramatically in recent years, however, and it is increasingly recognised that a growing and efficient services sector is crucial to the development process.  This is because of the growing importance of the services sector as a direct contributor to GDP and employment, and also because of the sector’s critical importance in supporting and facilitating manufacturing production and trade.  The drafting of a Protocol on Trade in Services by SADC and the controversy surrounding the inclusion of services on the EPA negotiating agenda, as well as renewed attempts to resume the stalled Doha Round of multilateral negotiations suggest that there is a pressing need for the development of a coherent services agenda in the region.  To this end, in-depth analysis is necessary on a number of fronts.

There has been much debate about the pros and cons of services liberalisation in the developing country context.  In much of the services literature, the benefits of generalised services liberalisation seem simply to be assumed without question.  Analysts have cautioned, however, that there may be serious consequences for the services sector and the macroeconomy in general of hasty or poorly-sequenced services liberalisation.  Protection and “inappropriate” regulation are not the only reasons why services are underdeveloped in developing countries.  The existence of widespread coordination failure suggests that thoroughgoing liberalisation, even if it was politically feasible, would not necessarily result in investment flowing to where it is needed. The concern is that reliance on foreign supply of services (including FDI into domestic services industries) and over-commitment in GATS offers could also result in an erosion of development policy space.  There are ongoing concerns about open financial flows and about pressure from developed countries for services market opening on the part of developing countries to further domestic developed country commercial interests.  This has led to arguments for targeted sectoral liberalisation by developing countries in line with their strengths and development goals, as well as the formulation of holistic industrial policy to harness the services sector in support of development.

Important questions that follow are, firstly, whether services liberalisation in a regional integration context can address some of the concerns about developing country services liberalisation, or in some way contain the associated risks. The second important question is whether services aspects of RTAs can be used to support the role of the services sector in development.

There is a growing debate on the costs and benefits of services liberalisation at the regional versus multilateral level.  Analysis of this issue needs to take cognisance of Article V of the GATS governing the services provisions of RTAs. Article V appears to require economic integration agreements in services to be ‘more liberalizing’ than the GATS [Regional agreements should have ‘substantial sectoral coverage’ (this applies to number of sectors, amount of trade and modes of supply) and provide for the ‘absence or elimination of substantially all discrimination’ within a reasonable period of time (Stephenson 2002, 17)].  Fink and Jansen (2007) indicate that there are important ways in which services provisions of RTAs have less potential for discrimination than provisions covering goods. For example, they argue that GATS Article V.6 generally ties services provisions of RTAs to more liberal rules of origin than Article XXIV of the GATT.  Article V.6 provides that a service supplier should ‘be entitled to treatment granted under such agreement, provided that it engages in substantive business operations in the territory of the parties to such agreement” (cited in Fink and Jansen 2007, 15; emphasis added). This implies that service suppliers operating in an RTA member country need not be locally owned or domestically controlled in order to obtain RTA preferences.  Article V.3(b) of the GATS does allow RTAs among developing countries to restrict the granting of preferences to providers of services ‘owned or controlled by persons of the parties’ (Fink and Jansen 2007, 15). However, little use has apparently been made of this stricter origin rule by developing country RTAs with services provisions. Further research is needed on how services aspects of RTAs among developing countries can be used to support South-South cooperation.

Conditions under which countries may benefit more from regional as opposed to multilateral services co-operation have been considered. One aspect is that, depending on the provisions of the agreement, more efficient bargaining may be possible on the part of an RTA. Secondly, regulatory cooperation may be more feasible or desirable in a regional context, leading to economies of scale. A sector-by-sector approach is said to be most beneficial, in order to identify key service sectors (such as transport services) for deeper regional integration. Sequencing of preferential and non-preferential services liberalisation could be important, however, to prevent higher-cost suppliers from becoming entrenched.  However, learning-by-doing may offset this problem, and some costs may be justified by regulatory or regional development objectives.

It is too early for a detailed assessment of the impact of most RTAs which cover services, and the necessary data are in any case unavailable in many instances. However, Stephenson (2002) explores the achievements of Latin American RTAs that contain services provisions, noting the proliferation of agreements between developing countries, allegedly given impetus by Mexico’s participation in NAFTA. Many such RTAs have opted for a ‘negative list’ approach to regional services liberalisation (where restrictions affecting all services sectors are listed) as opposed to the ‘positive list’ approach of the GATS (where only information on commitments made in specific sectors is listed). This, it is argued, makes the approach to services liberalisation in the RTAs more transparent and stable. The participants in such developing country RTAs are also able to work towards deeper integration in areas in which a regional approach may be particularly beneficial, such as construction and engineering, professional services and regulatory harmonisation.

Part of the reason for RTAs going further than the GATS in terms of services provisions is doubtless due to the need for such groupings to comply with Article V of the GATS. However, developing country RTAs in Latin America and the Caribbean do not appear to have made use of special and differential treatment clauses such as Article V.3(b), and seem to be more comfortable with deeper commitments at the regional level, while remaining circumspect on services liberalisation at the multilateral level. A sector-by-sector approach is once again indicated, with further analysis needed of which services are more suitably supplied domestically, regionally or internationally.

Southern Africa needs to develop a coherent agenda for the services sector. In particular, the most effective framework for regional co-operation in services should be investigated. Neglect of the state of domestic and regional services will have serious consequences for development, given the importance of the services sector. Lessons should be drawn from other parts of the developing world on how services aspects of RTAs can be used in this regard.

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Special Features

Climate change news

tralac will be monitoring preparations for the United Nations Climate Change Conference taking place in Copenhagen, Denmark in December this year.

Trade and climate change is undeniably one of the most challenging items on the global development agenda.  As the body of scientific theory and evidence points unequivocally to the grave consequences of climate change, it is becoming clearer that ignorance is at our peril.  Global warming/climate change effects do not respect national boundaries, and hence national responses, although absolutely necessary, are woefully inadequate to deal with this global phenomenon. An effective multilateral response is simply not negotiable.  But of course multilateral initiatives in this area do not have a resounding record of success – as the Kyoto Protocol testifies - not all parties who signed the Protocol ratified it (including the US).  The implementation record is not great.

Mitigating global warming and adapting to the consequences of climate change requires not only massive economic investment, but also very brave decisions and concerted action by policymakers.  It is important to keep in mind, as countries are now preparing to participate in the Copenhagen Summit in December this year, that climate change is compounding the development challenges of poorer countries.  Their scope for addressing poverty very broadly, more specifically food security, access to water supplies will be severely circumscribed.  Agriculture is undeniably one of the most vulnerable sectors to climate change – given the high dependency ratios in many African countries on the agriculture sector, urgent responses are required – not simply requests for billions of dollars.  The tourism sector, again important in many countries in our region, will be one of the large losers – as extreme weather, coastal as well as wetland degradation erodes economic opportunities in this sector.  Trade infrastructure – ports, roads, rail – will also become victim to climate change (rising sea levels, extreme weather conditions) – we’re already seeing the adverse impact of poor infrastructure in east and southern Africa on trade transaction costs and competitiveness. 

tralac will be preparing short briefings on trade and climate change issues and providing perspectives on current debates in this area.  Go to the new area, Climate Change News, on the tralac website's homepage.  Follow this link to more articles…

tralac Media Library

Weekly Customs, Excise, Tariff and Trade Remedy Summary Notification

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News

SACU to meet this week to come up with workable communiqué
Swaziland’s Commerce, Trade and Industry Minister Jabulile Mashwama has expressed hope that a meeting of the Southern African Customs Union (SACU) to be held in the country on Thursday will result in workable solutions to the problems currently threatening the custom union’s existence.

‘Climate smart’ world within reach, says World Bank [Press release]
September 15, 2009 – Developing countries can shift to lower-carbon paths while promoting development and reducing poverty, but this depends on financial and technical assistance from high-income countries, says a new World Bank report released today [Tuesday].  High-income countries also need to act quickly to reduce their carbon footprints and boost development of alternative energy sources to help tackle the problem of climate change.

Restrictive trade elements could hinder global recovery
Governments across the globe should start planning a coordinated exit strategy that would eliminate actions and elements that have acted as “sand in the gears of international trade that may retard the global recovery”, top multilateral organisation leaders said in a joint report ahead of the G20 leaders meeting in Pittsburgh later this month.

SA-EU summit lifts hopes for EPA
Last week’s summit between South Africa and the European Union (EU) at Kleinmond in the Western Cape resulted in positive signs that the two parties could be closer to resolving their differences about an economic partnership agreement (EPA) between the EU and the Southern African Development Community (SADC).

SA, Brazil to intensify agricultural partnerships
South Africa and Brazil are set to deepen agricultural partnerships by sharing information on projects and regular exchange visits.

Africa paying most for a crisis not of its making
The global economic crisis has hit the African continent particularly hard despite not being involved in its making. This was highlighted at the fifth people’s summit of the Southern African Development Community (SADC) in Kinshasa, the capital of the Democratic Republic of Congo (DRC) last week.

Services trade back on the agenda in Geneva
Negotiations on opening up markets in the services industry, that had taken a backseat in the ongoing Doha round of World Trade Organisation (WTO) negotiations, are now back on the priority agenda.

Bananas, EPAs and the WTO
A successful conclusion to the World Trade Organisation’s (WTO) Doha round or an agreement to end the banana dispute at the WTO would significantly reduce the preferential margins that African, Caribbean and Pacific (ACP) banana exporters enjoy under their Economic Partnership Agreements (EPAs) with the European Union (EU).

World Bank Doing Business Report 2010 [Press release]
September 9, 2009 – In a year of fast-paced reform, 67 regulatory reforms were recorded in 29 of 46 countries in Sub-Saharan Africa, finds Doing Business 2010: Reforming through Difficult Times, the seventh in a series of annual reports published by IFC [International Finance Corporation] and the World Bank. And for the first time a Sub-Saharan African country – Rwanda – was the world’s top reformer, based on the number and impact of reforms implemented between June 2008 and May 2009.

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Events

tralac Annual Conference, 3-4 September 2009, Cape Town, South Africa
- Trade Policy Developments in Southern Africa

A succesfull conference was held in Cape Town recently.  A post conference report will be published soon.

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Publications

New working paper:  Protectionism, trade remedies and safeguards:  A quick guide for African countries by Willemien Denner, a tralac Researcher.  Since 1945 the world economy has experienced high growth rates associated with the liberalisation of goods and services and the increase of capital flows.  However, the global financial crisis which started in August 2007 has raised concerns for countries regarding the present and potential losses that can be experienced in employment and income. This rekindled the debate on protectionism and the restriction of foreign imports to protect domestic industries.  Since the start of the financial crisis a dramatic increase of trade restrictive measures has taken place.  After an initial slowdown in the utilisation of trade remedies, 2008 showed a marked increase in contingent protection measures.  It seems certain that this trend will continue through the rest of 2009 and possibly into 2010.  This can have a dramatic effect on the development, economic growth, employment and income of developing and least developed countries.  Read more here...

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AGOA.info


New data to July 2009

July 2009 AGOA data was released recently. Click here for aggregate totals, and here to view the latest AGOA release.

Updated bilateral US-Africa country trade profiles

Profiles of disaggregated bilateral US-Africa trade, by country, has been updated to reflect July 2009 data. This also includes various regional profiles - SACU, BLNS, COMESA, ECOWAS, and CEMAC.  Follow this link.

Other updated AGOA data sections include disaggregated bilateral trade profiles for each AGOA country individually (as well as within various regional configurations), aggregate bilateral trade, preferential trade under AGOA / GSP and sectoral data from AGOA-eligible countries by value and as a proportion of US imports, as well as sectoral new AGOA and GSP AGOA data. Textile data, is available by value and by volume. Data to June 2009 shows exports of clothing are down 8% year-on-year (clothing exports made up of third country fabrics are 5% lower).  Export data is available at this link.

The current quota period commenced in October 2008 and lasts up until September 2009. Current utilisation levels (to July 2009) are 14.7% overall, and 28.54% under the LDC sub-quota.

Follow these links to diagrams showing clothing exports under AGOA, and quota utilisation during the current quota period.

Trade acronyms and terminology

Visit AGOA.info's alphabetically-ordered database of trade-related acronyms and terminology

Latest AGOA news

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