Call for policy transparency in the services sector and why it matters in the WTO
The big gains in services are from reforming the non-discriminatory restrictions on competition that affect both foreigners and domestic new entrants.
This reform is best designed domestically, where the debate can be held about how any losses to incumbents can be managed politically. The important political economy considerations are about incumbents versus new entrants, not domestic versus foreign.
Trade negotiators have a different focus. They are fundamentally concerned about the impact of rapid foreign entry into their markets. And we agree with that concern, if it occurs as a result of the removal of impediments to foreign entry while domestic incumbents remain constrained.
What should happen with services is transparency in the first instance, followed by review and evaluation, and then domestic reform.
This work can be undertaken whether or not the current round of WTO negotiations proceeds. It’s more effective if the work is embedded in the negotiations.
Given the complex nature of the policy barriers, transparency (that is, documenting existing policy) is an important first step. In some developing economies, even this task will be prohibitively complex and costly in terms of bureaucratic resources. So there will be gains from international cooperation through capacity building to provide support for this activity.
While WTO members can contribute to capacity building for policy transparency and policy review, the WTO through the structure of the GATS provides valuable guidance on the information that should be collected and reported in these stages. The relevant policy information is not simply the treatment of foreigners, but the policy applied to all potential entrants into a market. The GATS’ references to market access, national treatment and domestic regulation issues provide a structure for this information.
Having documented their policies, countries can evaluate the option and choose priorities for reform, and commit those changes in the WTO.
This is more valuable than undertaking negotiations with foreigners on the terms of their particular entry into markets.
While additional pressure from foreign demandeurs can help countries to overcome the domestic political constraints to reform, there is the risk that foreign demandeurs in the services area may make demands that are not in the reforming country’s best interests. And that evaluation is best done domestically, away from a negotiating arena.
Given the relatively high resource cost of making and implementing good policy, it is unlikely that all countries can or should move immediately to ‘world’s best practice’ in all regulatory areas.
The scope to make a transition to that practice is important. The WTO through the GATS provides options for scheduling policy changes, and thereby creating expectations about the direction of policy reform.
So the things to be done are
- cooperation on transparency and review,
- efforts to bind current policy,
- a focus on market access and domestic regulation in further liberalisation, and
- specification of paths of evolution of regulatory reform
These are primarily matters of the design of domestic reform. They are not primarily matters of international negotiation on the exchange of commitments to provide foreigners with options for market entry.
The WTO’s contribution is through its principles, not its traditional processes.
Edited extract from
Philippa Dee and Christopher Findlay, ‘Monitoring Trade Policy: A New Agenda for Reviving the Doha Round’:
www.ifw-kiel.de/konfer/2007/trade-policy-monitoring-center/mon_trade_pol.pdf
Philippa Dee and Christopher Findlay have correctly identified the issues facing the WTO in dealing with ‘behind-the-border’ barriers, the major impediments to trade in services. Their approach recognizes that reform of these barriers requires a domestic transparency process operating in (and by) individual WTO countries.
The approach they advocate is of major importance in enhancing the domestic benefits for countries participating in multilateral trade negotiations, and for the future of the WTO system. ‘Behind-the-border’ barriers often apply at a regional or provincial level, and are therefore quite unlikely to reach the negotiating table unless the national ‘offers’ governments take to negotiations in Geneva are consciously structured to include these non-transparent barriers to trade.
The WTO has no authority to deal with these barriers. Its charter recognises that the sovereignty of individual member countries is absolute and inviolate. Given the limitations to the authority of the WTO, a major challenge for participating countries is to find a way to include ‘behind-the-borders’ barriers in the market opening offers they take to the negotiation table. If multilateral trade negotiations continue to reduce protection without bringing these into account, there will be little scope for the WTO to open world markets for services.
Any response to the problem facing the WTO in dealing with services must therefore satisfy two conditions:
• it must encourage and enable individual governments participating in multilateral trade negotiations to identify, and bring to the negotiating table, their own ‘behind-the-border’ barriers to trade; and
• it must leave them in full control of domestic policy.
An initiative that meets these conditions has been proposed by Australia and New Zealand business and industry organizations – The Tasman Transparency Group (TTG). The relevance of the TTG initiative, however, is not limited to tackling ‘behind-the-border’ barriers. It recognises that all the national gains available from liberalising in a multilateral context depend on what each country takes to the negotiating table, not what they hope to take away from it.
The domestic transparency initiative they propose is on TTG’s website: http://www.tasmantransparencygroup.com
[…] their analysis of the difficulties facing the WTO in opening markets for services, Philippa Dee and Christopher […]
This a good contribution to the debate.
It would be helpful to draw attention to the PECC-inspired APEC Competition Principles. They provide a useful point of reference for the reform of all markets, including domestic as well as international services markets.