Discussions

Trade in services and the AfCFTA: No service is an island

Trade in services and the AfCFTA: No service is an island

15 Mar 2018

Ashly Hope, tralac Research Coordinator (trade in services and regulation), discusses services trade under the African Continental Free Trade Area

The contribution of the services economy continues to increase globally and in Africa. The value of trade in services also continues to increase, but African countries remain responsible for only about 2% of global services trade exports. This means there is enormous opportunity to expand and improve the competitiveness of trade in services on the continent.

Covering both goods and services under Phase 1, the AfCFTA will have an important impact on this trade. To make the most of the opportunity presented by the AfCFTA, member states should ensure that an integrated approach to services trade is taken – both internally in member states, and intra-regionally.

Besides their contribution as tradeables, services also contribute to all other trade – in both goods and services – whether it is through transport and logistics, design, finance and insurance or education and healthcare. The AfCFTA and member state policies need to recognise and build on these interlinkages.

Despite some excellent work encouraging a new approach to services commitments under the AfCFTA,[1] the speed at which the services annex has been concluded suggests that the GATS positive listing approach – the one that negotiators are most at ease with – will be the likely approach. Under this approach, each country will nominate the specific services sectors in which they intend to liberalise trade, as well as any restrictions in that sector.

This means that the hard work on services still needs to be done. It is now incumbent on member states to make bold commitments – to commit not only those sectors that they have already opened under the GATS, but to conduct a positive audit of their own sectors – identifying which sectors specifically need ‘protection’ – particularly in the context of the African CFTA.

Member states should also commit to commit – by scheduling timelines for future commitments, or limitations on conditions. They should schedule specific exceptions, rather than not listing a sector at all. Businesses in member states should be asking their Governments ‘if not, why not’, and encouraging their Governments to ask the same question of other member state Governments.

To support the commitments to commit, member states need robust sector development strategies – covering those sectors where they currently consider they are not ready for other African providers to offer services, and make plans for how they can be.

The interconnections between services need to be recognised. As just a couple of examples, financial services are underpinned by data, health services are affected by insurance services. While one sector may be open, it may well be in another sector that the real barriers to trade exist.

Beyond services, member states need to create goods and services commitments together – if one wants to encourage trade in construction services, perhaps building goods also need to have tariff barriers removed. If e-commerce is a focus, computing hardware may also be a focus. As phase two of the AfCFTA is negotiated, services commitments and priorities also need to be considered in the context of competition, investment and intellectual property

Regulation can be a critical barrier to services trade – whether it is too much, too little, discriminatory or otherwise trade-unfriendly. While the AfCFTA Agreement will no doubt reiterate a right to regulate, member countries should focus less on this right, and more on the ability and capacity to implement and enforce regulation that enables safe and efficient services sectors to develop on the continent.

The creation of the Continental Free Trade Area is an opportunity to shift the mindset that a liberalised sector takes away the right to regulate, and rather appreciate that well-regulated integrated services sectors on the continent can improve services for consumers, and contribute to development.

Pro-competitive services market regulation will always be a worthwhile goal for member states – regardless of levels of liberalisation. Regulation ensures that consumers are adequately protected, and that social, environmental and labour standards are upheld. This kind of regulation can almost always be undertaken in a way that is compatible with open services trade. A good regulatory framework will not only ensure that adequate protection is in place, but also can create the foundation for services exports.

Member states could start by making stronger commitments under the AfCFTA where they can – for example when it comes to regulatory approvals – concrete commitments to time periods, rather than vague commitments to ‘reasonable time’, or best endeavour language. Going further, members could commit not just to enabling mutual recognition of regulatory arrangements, but encouraging it.

The movement of people is also essential to services trade. For example, travel and tourism are essential service industries for many economies on the continent, yet for African travellers, even travelling to a neighbouring country can be mired in red-tape. According to UNCTAD, between 1995 and 2014, only 4 in 10 visitors to Africa were from Africa. Along with the opening up of air-traffic, a reduction in visa requirements could dramatically increase internal tourism. While issues such as visas and air services are beyond the scope of AfCFTA, officials need to think holistically in order to achieve the benefits of the agreement.

Another important area where the movement of people affects trade in services is in relation to the movement of people to provide services. Recognition of qualifications is an important step to trade in services via the movement of people in Africa – doctors, accountants, architects – enabling professionals to move across the continent will improve medical, accounting and design services.

A great deal of emphasis has been put on the industrialisation agenda in Africa, and manufacturing in particular, but as recent OECD analysis on the role of services in multi-national enterprises reminds us, services make a significant contribution to value creation in manufacturing value chains.

Backbone services – electricity, telecommunications, transport, financial services – contribute to all sectors within manufacturing, agriculture and services.

Trade is no longer a simple, transactional undertaking with goods exchanged for money and shipped across an ocean or trucked across a border.

Trade in the 21st century involves a web of services – each complementary, and in turn, each with the potential to undermine the other goods or services they connect to.

To make the most from the AfCFTA, these connections must be recognised and built upon.

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[1] See, for example, E Mburu-Ndoria, 2016. African Continental Free Trade Area: Some Issues in Liberalizing Trade in Services. UNCTAD/WEB/DITC/2016/6.