Setting the Scene for the SADC Trade in Services Negotiations

National Seminar on Trade in Services Negotiations under SADC

31 July – 1 August 2012 Lilongwe, Malawi

Overview of the presentation

1. Why are countries negotiating trade in services?

2. Approaches and strategies of Trade in Services Negotiations

3. Linkages between Negotiations in SADC and COMESA

1. Why are countries negotiating on trade in services?

• Political motivations:– Recognition of importance of services as an

increasingly important aspect of the economy and trade (?)

– Expression of commitment to regional integration agenda (?)

– …everyone is negotiating services regionally…(?)

Welfare effects of trade preferences in goods/services

Goods Trade Services TradePossible negative effects

-loss of fiscal revenue-loss of quota rents- consumer losses if efficient third country suppliers are supplanted as a result of the preference

- Higher risk of “first mover advantages” due to location-specific sunk costs

Possible positive effects

A larger regional/bilateral market should result in lower prices/economy of scale effects/more choice = consumer gains

No loss of fiscal revenue (no tariffs)Dynamic gains from liberalization are likely to be significant --input nature of key service industries -FDI (commercial presence) is the main mode of supplying services; -returns to scale, -QR nature of impediments, -trade facilitation properties of regulatory convergence

Why then negotiate regionally?• Because politics often trumps economics ….• For reasons of greater bargaining efficiency

– Negotiations may be less complex with fewer players around the table

– PTAs constrain the scope for free riding that is inherent to MFN-based market opening

• Because geography often shapes key trade patterns • Because many forms of regulatory cooperation are more feasible

and desirable within a smaller group of countries (e.g. regulatory cooperation, mutual recognition, harmonization).

• Because of learning-by-doing externalities (gradualism/infant industry rationale to focus first on neighborhood arrangements before exposing local suppliers to the full force of MFN-induced competition; PTAs also offer prospects for upgrading negotiating skills)

5

The SADC Trade in Services Agenda – Overview and State of Play

7

Services Sector in SADC Economies (% of GDP, 2007)

Source: WDI, World Bank; Eurostat

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Other

Services

Sub-sectors No. of Members(LDCs in

brackets)

List of WTO Members

20 or less 44(21) Angola, Bahrain, Barbados, Benin, Botswana, Burkina Faso, Cameroon, Central African Republic, Chad, Congo, Democratic Republic of Congo, Costa Rica, Cyprus, Fiji, Gabon, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Madagascar, Maldives, Mali, Malta, Mauritania, Mauritius, Mozambique, Myanmar, Namibia, Niger, Paraguay, Rwanda, St. Kitts and Nevis, St. Lucia, St. Vincent and Grenadines, Solomon Islands, Sri Lanka, Suriname, Swaziland, Tanzania, Togo, Uganda, Zambia

21-40 23(6) Bangladesh, Bolivia, Brunei Darussalam, Burundi, Cote D’Ivoire, Djibouti, Dominica, El Salvador, Ghana, Grenada, Guatemala, Kenya, Malawi, Macao, Mongolia, Nigeria, Papua New Guinea, Peru, Qatar, Senegal, Sierra Leone, Tunisia, Uruguay, Zimbabwe

41-60 10 Antigua and Barbuda, Belize, Cuba, India, Morocco, Netherlands Antilles, Nicaragua, Pakistan, Trinidad and Tobago, UAE

61-80 14 Brazil, Bulgaria, Ecuador, Egypt, Hong Kong (China), Israel, Jamaica, Kuwait, Liechtenstein, Panama, Poland, Romania, Singapore, Venezuela

81-100 14(1) Argentina, Chile, China, Czech Republic, Dominican Republic, Indonesia, Lesotho, New Zealand, Oman, Panama, Slovak Republic, Slovenia, South Africa, Turkey

101-120 12(1) Albania, Australia, Bulgaria, Canada, Estonia, Gambia, Jordan, Latvia, Lithuania, Philippines, Switzerland, Thailand

121 and more

29 Colombia, Croatia, EC (15), Georgia, Hungary, Iceland, Japan, Korea, Kyrgyz Republic, Latvia, Malaysia, Mexico, Moldova, Norway, USA

WTO GATS Commitments of SADC Member States

SADC Member States

Malawi’s commitments by sector*

*Denotes incidence of commitments, by sub-sector, without assessment of depth/quality

Liberalization of Trade in Services in SADC

• Work on Trade in Services started in 2000 with the development of a framework agreement (initially foreseen as an Annex to the Trade Protocol)

• The “Protocol on Trade in Services” was adopted by Ministers of Trade in July 2009

• Protocol to be approved by the Summit on the recommendation of the Council-> August 2012

• Note: Several other SADC Protocols address issues related to trade in Services – Finance and Investment (M3)– Draft Protocol on Movement of Persons (M4)– Sector-specific Protocols (e.g. covering transport, communications,

finance etc.)

SADC - First Round of negotiations

1. Objective for first round of negotiations: – Each Member State will provide better treatment

to SADC MS in each priority sector than is provided in their GATS schedule

– No new restrictions to be introduced during the negotiations (“standstill”)

• Plus: GATS Article V • Substantial sectoral coverage (~ 6 sectors)• And elimination of substantially all discrimination (~better

than GATS commitments sufficient(?))

Timelines for first round of Negotiations

end August 2012

First phase: requests and offers

April 2012

Requests in at least 2 sectors

Requests in at least 2 sectors

end November

2012

Offers in at least 2 sectors

end March 2013

Requests in at least 2 sectors

Requests in at least 2 sectors

end June 2013

Offers in at least 2 sectors

Begi

nnin

g of

Neg

otiati

ons

Sector focus in the first phase:1)Communication Services

2)Financial Services3)Transport Services4)Tourism Services

Sector focus in the first phase:1)Communication Services

2)Financial Services3)Transport Services4)Tourism Services

Timelines for first round of negotiations (ctd)

-> Thereafter: Energy-related and Construction Services

Requests: end August 2013Offers: End November 2013

Additional Elements:-Sector Studies (market analysis in all MS)-Sector Fora (bringing regional stakeholders together)

- Transport ~ 11-13 September 2012- Communication ~ November 2012

Negotiations under SADC –main principles

• Conducted through request - offer method • Requests exchanged before offers• Requests to one or more trading partner• To be circulated through the SADC Secretariat• Full transparency: requests to any trading

partner shared with all trading partners

Making requests to trading partners

1. Evaluate trading opportunities in the relevant sectors

Where are you trading already now? what sectors? what markets? What modes?

Potential to expand services trade ? what sectors? what markets? What modes?

Making requests to trading partners

2. Examine current market situation Are the sectors of interest listed in commitments of

trading partners? What is the level of commitments?

• Have relevant Modes been bound?• Are they subject to quotas or equity restrictions? Etc.• Are your suppliers facing discrimination?

Are certain regulatory measures of concern? Are there MFN exemptions that affect your interests?

Making requests to trading partners

3. Strategic Considerations Evaluate the requests in accordance with their

economic, and strategic importance Requests also to non-key markets? Horizontal requests? ->covering all sectors, MS, equally Compare the value of your requests with the value of

your offers – are they roughly commensurate? …take into account current level of openness, LDC

status etc.

Formulating offers1 Assess the REQUESTS received2 Evaluate trade & development interests

Promotion of FDI? Improvements in business and/or social

infrastructures? Promotion of knowledge transfer? Reduction/elimination of domestic supply gaps? Other social/economic/regional policy objectives?

3 Draft proposed offer

Consult with relevant ministries & stakeholders

Use existing schedule/or list of MFN exemptions as a basis, then clearly mark changes (use agreed editorial conventions)

Consider technical corrections and clarifications

Consult SADC Secretariat for advice if needed

3. Linkages between negotiations in SADC and COMESA

• Strong substantive similarities between the COMESA Regulations and the SADC Services Protocol– Same core provisions: MFN, Market Access,

National Treatment– Positive list approach to negotiations

Priority Sectors in the COMESA/SADC negotiations

Sector COMESA SADC

Business Services X

Communication X X

Construction X (incl. engineering) X

Distribution

Education

Energy-related X X

Environmental

Financial X X

Health and Social

Tourism and Travel X X

Recreational, Cultural, Sporting

Transport X* X#

# =excludes air traffic rights# =excludes air traffic rights

Main Differences Between COMESA and SADC frameworks

• Fundamental principles:– Comesa excludes “basic services” from scope of application– SADC (like GATS) excludes “air traffic rights” from scope of application

• Definition of Mode 4: – SADC covers also movement of employees from non-SADC Member

States (as long as service supplier is from SADC)• Additional commitments

– SADC: only repeat WTO commitments

• Transparency:– SADC: “shall” publish information about international agreements

(COMESA :”should”)

Main Differences between COMESA and SADC frameworks (ii)

• Enquiry Points:– Comesa requires enquiry points to inform service supplier of other MS (“gateway

function”)– SADC (like GATS) deals only with minimal requirements to respond upon request to other

SADC MS.

• Rules of Origin: – COMESA: “Juridical person” means a legal person set up in accordance with the laws of a

Member State of the COMESA respectively, and having its registered office, central administration, or principal place of business in the territory of the Member State -> if operations possess a real and continuous link with the economy of the member State

– SADC: Defines “juridical person” (to which benefits of the Agreement are conferred) as a legal entity set up in accordance with the laws of a State Party, and engaged in “substantial business operations” in the territory of that Member or any other State Party.

Main Differences Between COMESA and SADC frameworks (iii)• Domestic Regulation:

– Both are aiming at domestic regulation disciplines– SADC criteria slightly different (to ensure that meet

national policy objectives)• Simplification of procedures and electronic procedures:

– COMESA to work on simplification, MS to endeavor electronic procedures

• Movement of Natural Persons:– COMESA Annex contains definitions for main categories– Target for reduction of quantitative restrictions and ENTs for

IP’s (2015), CSS (elimination 2012), ICTs.

Main Differences Between COMESA and SADC frameworks (iv)

• Negotiating Guidelines:– COMESA aims at removal of all restrictions– SADC aims at better than GATS commitments.

– COMESA : MS that do not make commitments in the priority sectors shall not received the preferential treatment under the Regulations

– SADC: no such clause…but possibility for some MS to advance faster