Services in bilateral, regional and plurilateral negotiations: implications for LDCs

Bilateral, regional and plurilateral negotiations on services trade, and their implications for least developed countries were the subject of a seminar that brought together international experts, private sector representatives and Geneva-based LDC delegates at World Trade Organization headquarters last week.

The seminar, the fifth in a series on international services trade rules and negotiations organized by ITC in collaboration with the LDC Group, and sponsored the Australian government, looked at negotiations on bilateral free trade agreements (FTAs), regional trade agreements (RTAs) and the recently initiated plurilateral Trade in Services Agreement (TiSA).

Reviewing trends in how trade agreements deal with services, Andréa Spear, a former Australian services negotiator, led participants through the basic foundations of services chapters in FTAs and RTAs, for instance, how they deal with different modes of supply, or whether they identify sectors in which to make market-opening commitments (a so-called ‘positive list’ approach) or whether they designate sectors to shelter from international competition (a ‘negative list’). Participants noted that while a negative list approach may suit well-regulated services sectors, a positive list approach such as that in the WTO General Agreement in Trade in Services (GATS) could be more appropriate for countries with under-regulated sectors and subsectors.

Recognising the challenges that LDCs encounter in services negotiations at all levels, Rudolph Adlung, a former Counsellor in the WTO’s Trade in Services Division, highlighted the complex interaction between GATS ‘mode 3’ (covering commercial presence in a country related to services provision) and the investment chapters in FTAs or Bilateral Investment Treaties (BITs). Over 60% of world stock of foreign direct investment (FDI) is in the services sector, and countries have signed around 2,900 BITs, under which signatories accord protections to foreign investors originating from partner countries. For LDCs, Adlung noted, sectoral coverage in BITs is much higher (covering an average of 130 of the roughly 160 sub-sectors designated in WTO rules) than multilateral mode 3 commitments under the GATS (for which the average is 17 sub-sectors). While liberal investment regimes are in a country’s economic self-interest, he suggested that important issues in BIT negotiations needed to be further clarified, such as the role and scope of Investor-State Dispute Settlement.

A key issue throughout the seminar was ‘mode 4’, temporary cross-border labour movement referred to in services jargon as the ‘movement of natural persons’, and one of relatively few services sectors in which LDCs have substantial export interests. Joy Kategekwa of the WTO’s Development Division discussed possibilities for broadening the scope and categories of mode 4 to better reflect LDCs’ priorities and interests, drawing on examples from Africa and the Caribbean.

Adrian Njau, a trade economist at the East African Business Council (EABC), shared with delegates the example of how business people had successfully joined forces to advocate for freer movement of services suppliers across the East African Community (EAC).

When the discussion turned to opportunities that services negotiations present specifically for LDCs, Pascal Kerneis, Managing Director of the European Services Forum (ESF), argued that LDCs need more liberal services trade regimes to attract foreign investment so as to better integrate into Global Value Chains (GVCs). Contrasting the Trade in TiSA talks with the GATS, he pointed to growth in the share of services in Gross Domestic Product as well as in value addition through global supply chains. These changes had forced a rethink on how development considerations figure into services negotiations in the years since 1995, when the WTO agreements entered into force, he suggested. Kerneis said that while a WTO waiver allowing Members to discriminate in favour of LDC services providers could help give LDCs better access to markets, it would best be complemented by more open, competitive services markets in the LDCs themselves.

Key lessons for LDCs emerging from the seminar:

• Services negotiations are evolving, and LDCs should be actively involved in order to capture emerging opportunities.
• Private sector input is valuable at all stages of services negotiations.
• Sound data and research on services trade, internal and external market barriers, and market potential are needed to underpin negotiating positions and strategies.
• Governments need to prioritise services sector development by instituting and enforcing the appropriate regulatory environment and improve transparency to help attract investment.
• Regional regulatory cooperation can stimulate trade and growth.

The sixth and final seminar is titled ‘Whence the Multilateral Services Agenda?’, and is scheduled for late May.