Getting the most out of a services agreement

Getting the most out of a services agreement with the USA Matthew Stern US-SACU FTA Conference 31 October 2006

Outline of Presentation Economic trends and theory GATS concepts and coverage The gains from services liberalization Barriers to trade in services The potential contribution of a USASA FTA 1. 2. 3. 4. 5. 1 2 3 4 5

Economic trends and theory

Key trends n 25% of global trade ¡ ¡ Dominated by OECD (80%) Increasingly important for developing countries n Fastest growing sector (trade & FDI) Critical determinant of competitiveness Labour intensive Highly regulated 2 3 n n n 1 1 4 5

World service exports ($ millions) 1 2 3 4 5

Theory n n 1 1 2 Trade in services, in general, displays the same characteristics as trade in goods The theory of comparative advantage does apply to services trade Given high levels of regulation (protection) in the service sector, economic factors alone cannot explain the pattern of trade in services The removal or reduction of barriers to trade in services would contribute to major increases in global welfare 3 4 5

Service/merch. Exports 1 1 2 3 4 5 Service/merch. imports

GATS concepts and coverage

What is GATS? Implemented January 1995 140 member countries All sectors (except government and air traffic rights) Positive list approach All modes of supply n n n 1 2 2 3 4 5

GATS: Coverage Infrastructure services, capital intensive, scale economies Communication Transport Traditionally “liberal” services Distribution Tourism Source: Adlung (2000) 1 2 2 3 4 5 Strong institutional & regulatory difference between jurisdictions Financial services Business services Health services Education Other Environmental services Recreation Culture Sport Construction

GATS: Modes of supply n Mode 1: Cross border supply ¡ n Mode 2: Consumption abroad ¡ n 2 2 market access restrictions prevail Mode 4: Movement of natural persons ¡ 1 relatively open Mode 3: Commercial presence ¡ n relatively few bound commitments 3 most restrictive 4 5

GATS: Commitments 1 2 2 3 4 5 Source: GATT Secretariat (1994)

GATS: South Africa n n n 1 2 2 Scheduled 9 out of 12 major sectors (education, health and recreational services excluded) Relatively liberal commitments in retail, computer, construction, tourism and business services Relatively few commitments in transport, life insurance, communications and education services 3 4 5

The gains from services liberalisation

The gains from exports n n n 1 2 Employment Complementary exports Foreign exchange Knowledge and skills Economies of scale 3 3 4 5

The gains from exports – ‘Shopmight’ Employment Compl. exports Forex Knowledge and skills Economies of scale Cross-border trade n/a n/a n/a Consumption abroad Medium Low Medium Commercial presence Low High Medium Low Temporary movement of people Low Low Medium Low 1 2 3 3 4 5

The gains from imports n n Knowledge and skills Product Price ¡ Quality ¡ n 1 2 Capital and infrastructure 3 3 4 5

The gains from imports – ‘Newtel’ Product Knowledge & skills Price Quality Capital & infrastructure Cross-border trade n/a n/a Consumption abroad n/a n/a Commercial presence Medium High Medium Temporary movement of people n/a n/a 1 2 3 3 4 5

Barriers to trade in services

Types of barriers n Quantitative restrictions ¡ n Price-based instruments ¡ n 2 Tertiary education Access to networks ¡ 1 Electricity price controls Licensing and certification ¡ n Air service agreements 3 National payment’s system 4 4 5

Measures of protection - Hoekman 1 2 3 4 4 5

Measures of protection - APC Sector RSA Score No of countries RSA Rank Accountancy 0. 4444 34 7 Architecture 0. 1105 34 27 Banking 0. 1897 38 14 Distribution 0. 0680 38 35 Engineering 0. 0955 34 28 Telecomm. 0. 5867 136 77 a 1 1 2 = most restrictive 3 4 4 5 a

The potential contribution of a SACU-US FTA

Pre-conditions Meaningful Comprehensive Multilateral n n n 1 2 3 4 5 5

Making it meaningful R million Service imports from SA (Bilateral BOP) Share of total SA service exports (SA BOP) Service exports to SA (Bilateral BOP) Share of total SA service imports (SA BOP) USA 5 545 16. 4% 9 355 23. 6% UK 5 182 15. 3% 9 629 24. 3% Germany 3 891 11. 5% 3 059 7. 7% Japan 2 070 6. 1% 1 749 4. 4% Total 16 688 49. 2% 23 792 60. 0% n US is South Africa’s most important service export destination 1 2 3 4 5 5

Making it meaningful But trade largely restricted to travel n 1 2 3 4 5 5

Making it meaningful And investment surprisingly low n 1 2 3 4 5 5

Making it comprehensive Positive list approach n Excludes sensitive sectors Maintains regulatory flexibility ¡ ¡ Negative list approach n No sectors excluded Prevents arbitrary discrimination ¡ ¡ 1 2 3 4 5 5

Making it work n Enabling access to global imports and competition Providing a template and signal for domestic reform Facilitating deeper regional integration 1 2 n n 3 4 5 5

Conclusion

Conclusion n The gains from trade and competition in services are big Barriers to trade in services are complex and high A SACU-US FTA could have multiple benefits ¡ ¡ ¡ n 1 Lock-in existing reforms Help determine a longer-term and regional reform agenda Open up new opportunities for trade and investment at home and abroad Make it meaningful, make it comprehensive, and make it work 2 3 4 5