Services facilitation in regional trade agreements and opportunities for convergence

October 9, 2018

Services facilitation refers to the simplification, modernisation, and harmonisation of services regulations with a view to reducing transaction costs. It is a key component of the Facilitation 2.0 framework.

So far the most significant advances in rule-making on services facilitation have taken place at the regional level.

Transparency and the streamlining of administrative procedures, including those related to the temporary entry of services suppliers, have the greatest potential for multilateralisation.

The architecture of the WTO’s General Agreement on Trade in Services offers valid and solid alternatives to a self-standing agreement for the multilateralisation of disciplines on services facilitation.

 

In the digital era, services are becoming increasingly complementary or embedded in goods, electronic commerce is growing and expanding, foreign direct investment (FDI) is shifting in geography and volume, and production processes are extending beyond national borders.

This transformation calls for a coherent, integrated and multidimensional approach to trade policy across areas – goods, services, investment, intellectual property, e-commerce – and negotiating fora both at the regional and multilateral levels. From a facilitation perspective, this entails shifting from the traditional strictly goods approach to a Facilitation 2.0 framework, which encompasses services together with investment and e-commerce.

The concept of facilitation as applied to the realm of services is still relatively novel. An extensive literature exists on goods-related trade facilitation and its objective of reducing transaction costs by expediting the movement and clearance of goods as well as promoting cooperation on customs compliance issues, especially since the conclusion of the World Trade Organization Trade Facilitation Agreement (TFA). Yet studies specifically dedicated to services facilitation are rather limited and no universally recognised definition is available.

Defining services facilitation

How can facilitation of trade in services be defined? What does it entail? Mimicking the TFA approach, services facilitation can be described as the simplification, modernisation, and harmonisation of services regulation with a view to reducing transaction costs.

Intended to complement and work in tandem with market access, services facilitation aims at removing all administrative and regulatory barriers that limit the ability of firms and consumers to fully benefit from market liberalisation.

While a potential affinity exists between measures aimed at facilitating trade in services and measures related to market access, it is best to consider the latter as excluded from the services facilitation agenda since a vehicle already exists to remove market access restrictions – i.e. successive rounds of WTO negotiations aimed at binding commitments towards further liberalisation. Still, it is worth pointing out that measures aimed at increasing transparency and removing procedural barriers may still facilitate trade in services even in the absence of binding market access commitments.

Just as the TFA can be a powerful tool to address the needs of developing countries in tackling poverty alleviation, so too can services facilitation contribute to fostering sustainable development. It does so in a twofold manner:

Indirectly, by supporting the contribution that services liberalisation makes to the three pillars of sustainable development – economic development, social development, and environmental protection – through growth and non-growth channels; and

Directly, by advancing the achievement of specific Sustainable Development Goals (SDGs), namely good health and well-being (SDG3); quality education (SDG4); gender equality (SDG5); industry, innovation, and infrastructure (SDG9); and reduction in inequalities (SDG10).

Understanding how best to facilitate trade in services is thus important from a sustainable development perspective.

Services facilitation: The RTA experience

While discussions on services facilitation in a multilateral setting are still quite germane, rule-making on this issue has become quite advanced at a regional level. A review of a representative group of regional trade agreements (RTAs) concluded or enacted within the last decade shows that it is common for RTAs to include provisions that directly or indirectly facilitate trade in services, with varying degrees of scope and depth. We also find that in most cases the parties undertook commitments beyond the WTO General Agreement on Trade in Services (GATS), especially regarding disciplines on domestic regulation.

Moreover, it emerges that, at the regional level, trade in services is facilitated primarily through increased transparency, improved administration of procedures (including fees and charges), and advanced disciplines on regulatory requirements. Other less recurring provisions include regulatory cooperation, mutual recognition of qualifications, and provisions facilitating the movement of natural persons.

As regards the scope of application of provisions facilitating trade in services, significant differences arise, with three possible (though not mutually exclusive) scenarios identified across and within RTAs: horizontal, sector-specific, and mode-specific.

Multilateralising services facilitation: Lessons from RTAs

What can we learn from RTA best practices on services facilitation from a multilateral perspective?

First of all, the greatest potential for multilateralisation can be found in transparency, primarily through the publication of measures affecting trade in services (including information on mode 4 and licensing requirements and procedures); the establishment of enquiry mechanisms and contact points; and the streamlining of administrative procedures (including those related to the temporary entry of service suppliers). They are the areas where the parties to the RTAs show the highest degree of convergence and may require less effort to be applied on a most-favoured nation basis because de facto they already do.

Secondly, with the exception of transparency-related provisions and commitments to keep applicants informed during the application process, the parties to RTAs show a preference for soft(er) commitments in all other disciplines related to the facilitation of trade in services. Thus, it is more likely for WTO members to agree on negotiating multilateral disciplines on services facilitation as soft (or best-endeavour) law rather than hard law.

Thirdly, as it is highly unlikely that a self-standing services facilitation agreement would be the optimal solution due to the difficulty in achieving a critical mass behind a range of topics larger and deeper than the limited areas of convergence identified above, the architecture of the GATS offers valid and solid alternatives for the multilateralisation of disciplines on services facilitation in the form of additional commitments under Article XVIII and disciplines on domestic regulation under Article VI:4.

Finally, whatever the procedure to negotiate new obligations on services facilitation at the multilateral level, WTO members must ensure coherence with any other provisions that have been discussed or adopted under the e-commerce and investment agendas. In the current digital era, all aspects of international trade are closely interrelated and, therefore, bound to influence and affect one another.

 

Marta Soprana is a Trade Consultant at TradePol Consulting in Lugano, Switzerland.

This post is derived from the paper Facilitation 2.0: Services and Trade in the Digital Age authored by Marta Soprana and commissioned by ICTSD under the RTA Exchange, jointly convened with the Inter-American Development Bank (IDB).

Topics: SERVICES TRADE FACILITATION DIGITAL ECONOMY RTA EXCHANGE

Authors: MARTA SOPRANA

RTA

In Other Blogs

Facilitating trade and building inclusive agricultural supply chains with blockchain

October 5, 2018

Distributed ledger technologies (DLTs) and smart contracts can be a key component of trade facilitation, bringing greater transparency, accountability, efficiency, and traceability to the excha... READ MORE

Industrial policy measures and sustainability in international investment agreements

September 21, 2018

States now face two competing – and strengthening – influences with respect to industrial policy: heightened scrutiny of industrial policy measures and heightened expectations for a... READ MORE