Preferential and Regional Service Agreements: The way forward for developing countries, HH Gursahani

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Content: Preferential and Regional Service Agreements: The way forward for developing countries? Harsh Hiroo Gursahani (LLB MILE)
Introduction Liberalization in the services sector began before the negotiations in the Uruguay Round. European Community and North American Free Trade Agreement (NAFTA) were the first concrete examples of liberalization of trade in services. The negotiation of General Agreement on Trade in Services (GATS) was one of the major highlights of the Uruguay round and the first comprehensive multilateral agreement on trade in services. A number of prominent academicians have noted that GATS did not generate any further liberalization in the services sector than what already existed.1 Recent data on Regional and Preferential Trading agreements shows a steady rise in the number of the agreements beginning from 1993-94 (Uruguay Round). There were 5 Services PTA notified under GATS Article V till 2000. Since then, 85 agreements have been notified under the said article, with numerous agreements still under negotiations (or have not been notified).2 The increase in the number of preferential agreements in services can be attributed to GATS. On the other hand, GATS can be said to be the result of the preferential agreements in services. Both GATS and regional/preferential agreements in services share a unique nexus. GATS is the policy framework according to which countries reform their services sectors. The countries use GATS as guidelines to regulate their sectors and mode of services and domestic
1 Matsushita Mitsuo, et. al., The World trade Organization: Law, Practice and Policy (2nd ed.) Oxford University Press, 2005 at pg 674. See also, Lawrence White (2005) "International Trade in Services: More than Meets The Eye. Measuring Impediments to Trade in Services" in E. Kwan Choi and James C. Hartigan (eds.) Handbook of International Trade (Volume II): Economic and Legal Analyses of Trade Policy and Institutions Blackwell Publishing pp. 472-498.
2 Martin Roy (2011) "Services Commitments in Preferential Trade Agreements: An Expanded Dataset" World Trade
Organization
Staff
Working
Paper
ERSD-2011-18
available
at
http://www.wto.org/english/res_e/reser_e/ersd201118_e.pdf.
regulations.3 With the help of the uniformities in their services rules and regulations, it gives the countries the basis to negotiate further market access and areas not covered by GATS. Similarly, GATS drew its inspiration from the existing agreement on services and was aimed at removing the asymmetries in domestic legislations. It has been said that GATS has never created any new liberalization for trade in services. The current Doha offers made by countries fall far below their actual applied levels.4 Trade in services is playing an important role in development and growth. Countries in Africa are still to explore the full potential of trade in services. These countries have not made significant commitments under GATS (with an exception of tourism) nor in their regional agreements. The recent past has shown improvement in the African capitals' outlook towards liberalization of trade in services mainly through unilateral measures and some through intraregional trade negotiations. Greatest gains from liberalization are achieved through allowing access at MFN basis to all service providers and with liberal rules of origin. The initial service provider collects the mover rents and the location specific sunk costs, through which even an inferior supplier can secure an advantage. Preferential liberalization has numerous other advantages, especially for developing countries that still have not explored the full potential of trade in services. This paper will highlight the advantages for liberalizing trade in services regionally/preferentially in the first part. The second part will discuss some of the advantages of the multilateral liberalization and compare them to their counterpart in the preferential settings. The third part of the paper will focus on Africa as a continent, pointing out its reluctance for liberalization of trade in services and the potential benefits it may have chosen to liberalize trade in services preferentially. The essay will show effectively that the advantages of the preferential agreements outweigh the advantages of the multilateral agreement, from a developing country's point of view with focus on Africa. 3 Trebilcock and Robert Howse, The Regulation of International Trade, (2nd ed.) Routledge, 1999. Print. 4 Rudolf Adlung and Martin Roy (2005) "Turning Hills into Mountains? Current Commitments under the General Agreement on Trade in Services and Prospects for Change" Journal of World Trade (Vol 39), pp 1161-1194.
1. Why go preferential in liberalization of services Liberalization in trade is associated with greater efficiency and faster growth.5 Liberalization of trade in services, multilaterally or regional/preferentially, has taken a backseat mainly because countries do not see its advantages as perceptible as the advantages of trade in goods and due to the complexities of services negotiations. With the increase in GDP share of trade in services, developing countries are exploring options to increase trade in services, and are liberalizing unilaterally, without securing any benefit for their service providers to compete abroad. GATS commitments are more than a decade old and the Doha round of negotiations still are a long way from completion. Moreover, the Doha offers made by the countries do not offer substantial increase in liberalization of trade in services. The preferential trade agreements (PTAs), regional trade agreements (RTAs) and economic partnership agreements (EPAs) offer a better way out. Countries are going beyond GATS and using variations in modalities for opening of service markets through PTAs, RTAs and EPAs. The advantages of going in for the preferential or regional liberalization are humongous. Some of them have been discussed below: Limited scope The negotiations of preferential agreements are limited in the number of core areas/sectors being discussed. These negotiations are normally restricted to a fewer sectors of mutual interest of the parties. In preferential agreement negotiations, the negotiations would revolve around the areas where the countries have a comparative advantage, ensuring better bargains. The restrictions to negotiate only certain sectors help maintain the bargaining power of the country, and allow the country the option of refusing. In case of the multilateral agreements and single undertaking, the scope of the agreement may be widened beyond the wishes of the participating country. Preferential agreements offer lesser complexities due to fewer sectors being discussed during the negotiations. Dealing in smaller groups, preferential agreement negotiations reduces 5 Bernard Hoekman and Aaditya Mattoo (2008) "Services trade and growth" Policy Research Working Paper 4461, The World Bank.
the number of unwilling participants around the table, which helps the participants to reach efficient and speedier agreements. With 157 members and the consensus rule in the WTO, it is nearly impossible to formulate an agreement that will result in a win-win situation for all. Free-rider problem Preferential agreements offer a solution to the free-rider problem. Having a PTA among a small group of interested countries helps defeat the inherent problem of a MFN-induced market opening of free-riding and thus prevents third parties from free-riding to enjoy the benefits of reciprocal commitments.6 This often helps the negotiators to predict the extent of trade opening and the number of service providers that will benefit from these market openings. Speed One of the basic motivations to choose preferential agreements is that PTA's offer speedier results. The speedier results may be in number of forms including reduced negotiation time, quicker lowering of protection levels and speedier support from the politicians leading to faster implementation of the agreements. As mentioned above, it is easier to negotiate and reach a consensus between a fewer number of stakeholders than a large number. An example of lowered protection for services is evident from the levels of bound commitments in GATS as compared to other existing service PTAs.7 (Attach time protection graph: Sauve) 6 See also, Aaditya Mattoo and Carsten Fink (2002) "Regional Agreements and Trade in Services: Policy Issues" World Bank Policy Research Working Paper 2852, The World Bank. 7 Martin Roy "Services Commitments in Preferential Trade Agreements: Surveying the Empirical Landscape" NCCR Trade Working Paper Working Paper No 2012/02.
Source: Pierre Sauvй 'Regionalism and Servicesґ World Trade Institute, Bern Switzerland 3 March 2010 (Power Point Presentation) Slide 13 Politics often trumps economics. Politicians that are involved in negotiations or are supporting negotiations of trade agreements are normally pressed on time. The terms of the politicians is restricted to the tenure of their respective governments and it benefits them to express support to the agreements that aid in job creation, higher investments and development (considering that liberalization helps in attaining these goals). Increased investments and job creations are normally potent campaign topics and politicians want the agreements they support to show effects during their tenure. Achieving these results offers support to their re-election campaign. It certainly helps the politicians to expedite the completion of negotiations to make news. Lesser static costs and dynamic gains Similar to trade in goods, opening of markets leads to the formations of bigger markets and efficient firms. Firms that are operating in one country get an opportunity to expand in other countries. The less efficient firms lose out to the competition and their market share is taken over by a more efficient firm.
Preferential liberalization in services offer lesser static and adjustment costs of trade diversion since the measures do not generate fiscal receipts for importing country government.8 The static gains9 with more efficient service providers increase the net welfare of the society. PTAs also offer higher dynamic gains. Trade in services induces FDI flows and increases the economy of scales. The prerequisite for a number of services is commercial presence and requires the service providers to invest in the host country. These services will be produced locally with increasing the return to scale. The preferential agreements will also provide a de facto trade facilitation with convergence of regulatory policies.10 Deeper integration Regional trade in services is more likely to result in deeper integration than global trade. Countries that are in close proximity often share similar cultural and social beliefs and more often than not, share a similar taste in services. Harmonization of standards and qualifications, an important aspect to initiate trade in professional services, is more likely to take place between neighbouring countries than between the countries that are not in close proximity. Regulatory cooperation is more likely to be present between a subset of countries with close proximity, sharing similar cultural background and also results in increased trade in services. These countries choose the sectors to liberalize and have deeper integration than compared to opening the market to the whole world.11 Countries tend to experiment locally (regionally) before going global. Countries are more willing to open new sectors and subsectors regionally rather than subjecting them directly to MFN induced competition. PTAs/RTAs also encompass the argument of protecting the nascent industry and allowing it to gradually grow in similar markets before they are exposed to 8 Pierre Sauvй 'Regionalism and Servicesґ World Trade Institute, Bern Switzerland 3 March 2010 (Power Point Presentation) Slide 15. See also Aaditya Mattoo and Pierre Sauvй (2010) "The Preferential Liberalization of Services Trade" NCCR Trade Working Paper Working Paper No 2010/13. pp 15. 9 Static gains are gains from the reallocation of resources in sectors where the country has a comparative advantage. 10 11 Aaditya Mattoo and Carsten Fink (2002) "Regional Agreements and Trade in Services: Policy Issues" World Bank Policy Research Working Paper 2852, The World Bank. pp. 5.
competition from bigger firms across the world. This also allows them to learn-by-doing in order to develop the industry further before they are exposed to high competition.12 The architectural structures of PTAs/RTAs are better suited for broader and deeper integration. PTAs/RTAs predominantly follow the NAFTA model, where they use the negative list approach, unlike the positive list approach of GATS. The negative list approach restricts the market access and other preferences in sectors that are listed in the countries commitments. A positive list approach allows for liberalization only in the sectors enlisted in the schedule, limiting the liberalization only to those specific sectors. It is more than evident that negative list approach helps open a broader range of services than the positive list approach and in a more transparent way. An example of such an agreement is the US- Morocco PTA. PTAs and RTAs also tend to include a number of unique features that are absent in the GATS framework that help in providing for broader integration. NAFTA model based agreements normally include separate chapters dealing with cross border trade of services, on investments and temporary movement of people. While the chapter on services broadly encompasses Mode 1 and 2 under GATS, but the chapters on investments are not restricted to investments only for services. Similarly, the chapters on temporary movement of people are not restricted only to the movement of services providers but workers and business people across sectors. These elements tend to provide deeper harmonization of rules for investment and temporary movement of people. Coverage of the investment chapters is not restricted to establishment of commercial presence for service providers, but form rules for all inward and outward investments. These chapters also include provisions for state investor arbitration, expropriation and promotion of investment. Another such feature is the right of non establishment which allows firms to provide services across the borders without actually having commercial presence. This particular feature aids in cross border supply of services, including e-transactions and IT services that can be supplied without having actual commercial presence. 12 Pierre Sauve, Trade and Investment in Services: An ADB-ITD Training Module for the Greater Mekong Subregion Asian Development Bank, Philippines, 2009. Print. pp. 53.
Policy Space Policy space refers to the difference between committed policy level and the actual applied policy level. It is often referred as "water level" in trade talking terms. The policy space allows the countries to reverse any of its policy provisions without violating its international obligations provided the reversal falls within the range of committed policy level. It must be noted that excessive policy space does not always benefit the host country. It could act as a deterrent to long term investments as the investors are not sure of the country's policy stand. For instance, an investor in the telecommunication sector would want an assurance towards the predictability of the host country's policies. This will allow the investor a chance to ascertain the risks involved before investing large amounts of money in the host country that will reap benefits for many years to come. Extra policy space will allow the government to change its policy stance without any consequences leaving the investor at bay. Countries may feel the need to ensure that policies achieve the desired outcomes. Rules and regulations may need to be re-evaluated after implementation of these policies to ensure such objectives. Policy space allows the countries to take stock of their policies and change them for the betterment of the society without violating its international commitments. Protection of policy space is essential for certain sensitive sectors. In multilateral negotiations, such policy space may be hard to come considering the interests of all the involved states. Preferential or bilateral negotiations allow small developing countries the option of not negotiating on certain sectors, and therefore, safeguarding the interest. The policy space also allows the host country to try out new and innovative measures for liberalizing the sector with an option to revert if it fails to achieve the objectives it aimed for. These new techniques can also play a useful role in later negotiations. 2. What is the catch? Advantages of multilateralism in services One of the biggest achievements of Uruguay Round was the General Agreement on Trade in Services (GATS). GATS rules apply to all services depending on the commitments of each country through its schedules, except for the governmental services. GATS has not caused any further liberalization in services and the current negotiations under the Doha round are far
from complete. Even if the service negotiations made progress in the Doha round, the single undertaking will ensure that nothing is accepted until everything is accepted. Services could also be the key to achieve consensus, considering that the developed countries and a few developing countries have considerable interest to see the further openings in services. Services can be the quid pro quo for access in Agriculture, a sector very dear to the developed countries and very important for developing countries, primarily Africa. Liberalization of services at the multilateral level has many advantages. Some of these advantages (at least on paper) have been discussed below. Better case on efficiency grounds Economic Theory suggests that non-preferential liberalization would be more efficient than preferential liberalization. It suggests that non preferential (multilateral MFN type or unilateral) liberalization will further increase welfare to the society, both nationally and globally. It will do so by ensuring the most efficient and competitive service provider provides the services at the lowest possible cost and that a non efficient service provider does not get the first mover advantage.13 Non preferential liberalization would be ideal from the developed country whose service industry is already well established. Indeed, non preferential liberalization would ensure maximum cost benefit to the consumers but it would also eradicate the nascent industry present in the country. Moreover, economic theory also suggests that in the long run, the efficient service provider will survive while the non efficient provider would get out of the business. It is also said that multilateral liberalization reduces negotiating complexities and administrative burden. Since the liberalization in services mainly deals with eradication or reduction of domestic regulations, it would be easier and cost effective for nations to have one single policy for all the service providers. Having preferential liberalization would entitle the host country to administer differential treatment to members and non member of the PTA. This will substantially increase the costs and burden on the administration.14 13 Aaditya Mattoo and Pierre Sauvй (2010) "The Preferential Liberalization of Services Trade" NCCR Trade Working Paper Working Paper No 2010/13., pp 12-13 14 Aaditya Mattoo and Pierre Sauvй (2010) "The Preferential Liberalization of Services Trade" NCCR Trade Working Paper Working Paper No 2010/13.pp 20.
Retaliation Agreements One of the biggest advantages of the multilateral liberalization is the absence of the retaliation agreements. Since all the countries in the multilateral system get the same privileges, market access and are subject to the same domestic regulations the need for a country to enter into preferential agreements does not arise. This prevents the other countries from executing preferential agreements and thus preventing an agreement war to get maximum benefits. It also ensures that no country looses out and everyone enjoys the MFN status. Enforcement and compensation GATS as the multilateral agreement on services comes with the backing of rules based trading of the WTO. Liberalization on the multilateral level under the WTO gives access to the DSU and ensures compliance of commitments by the members. Breach of commitments can lead to compensation, if challenged under the system by the service provider country. The current PTAs that seclude investments within a separate chapter include Dispute Resolution such as the state investor arbitrations. There are two main advantages of such dispute resolution, one, the investor can directly sue the government and enforce its rights and second, the service provider would directly receive the compensation (if any). These dispute resolutions are restricted only to investments and preclude all other forms of services. In the WTO, Member States are allowed to bring a complaint through the DSU mechanism, if there is a violation of any privilege granted to the member state through the multilateral agreement. Considering that regulation of services is administered through rules and laws made by the host government, these rules may be better addressed through government intervention at a higher level for instance, at the WTO through the DSU mechanism. The compensation received through the WTO is given in preferences to the country, i.e. the country can impose higher tariffs on other products of the defaulting country to the tune of the damage caused, ensuring compliance with the agreement. 3. Africa and trade in services Africa has shied away from committing its liberalization of trade in services in internationally bound agreements even when some African countries rank as "open" for
international trade in services.15 While African country commitments for trade in services in WTO are rather restrictive, in PTAs and RTAs African countries have generally, either reinforced their GATS commitments or have assured to liberalize trade in services at a future point. Only a few agreements in Africa include deeper and broader commitments on trade in services. Professor Sauve justifies that African countries have not liberalized on the multilateral level service negotiations because of the reduced pressure that African countries face from the other end of the negotiation table. He characterizes this approach as the tendency for "round for free" where LDCs do not have to make a further reduction in their present commitments. He also states that this approach has resulted in the increased gap between applied regulations and the internationally bound policies.16 One of the primary reasons for not committing to reforms under internationally bound agreements is the concern of losing the policy space available to the governments to regulate the service industries. The governments currently enjoy a lot of room between their international bound commitments and the applied policy (water level). Government officials believe that binding their commitments will reduce this water level, leaving them with little or no room to regulate the domestic market and protect the local nascent industry. Other reasons for not committing further liberalization include the administrative insufficiencies and the lack of framework for the implementation of a pro-competitive setting for the sector. With the predominance of agricultural and industrial sectors in the African economies, the government officials do not see the urgent need to deal with liberalization of trade in services. 33 of 48 LDCs are found on the African continent. It would not be wrong to say that a number of countries in Africa face considerable difficulties or do not have the infrastructure to impose and maintain a fairly complicated regime of service trade policies when their share in 15 Ingo Borchert, Batshur Gootiiz and Aaditya Mattoo "Policy Barriers to International Trade in Services: Evidence from a New Database" Policy Research Working Paper 6109, The World Bank, Available at http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2012/06/28/000158349_20120628132350/Rendered/PDF /WPS6109.pdf 16 Pierre Sauvй and Natasha Ward (2012) "The Preferential Liberalization of Trade in Services: African Perspectives And Challenges" NCCR Trade Working Paper Working Paper No 2012/01.
service trade is negligible. Some of these countries do not even have to expertise or the political will to formulate and implement a pro-competitive setting for trade in services. These countries fear that in a pro-competitive setting, their embryonic service industry may be wiped out. Stages of development include the shift of focus from the primary sector to secondary and finally to tertiary sector. This includes the initial dominance of agricultural sector, which is later replaced by the industrial sector. The final stage of development includes the domination of the service sector in the economy. The developed countries have passed through the initial phases and have entered the phase where services are the central focus of the economy. Developing countries' economy, in Africa and other parts of the world, still revolve around agriculture and industrial sectors. The share of service sector in Africa, though growing, is still not very significant and therefore, the governmental authorities do not see the need to introduce and maintain reforms in this sector. The industry is still nascent considering Africa only contributes to 2.3% of the total world exports in commercial services.17 The sector lacks knowledge of the benefits of a procompetitive market and better market access. It also lacks the intra-sector association the help formulate a community will to provide inputs for negotiations or to lobby the government into reforms, whether domestic or international. Current situation in Africa As stated earlier, countries in Africa have been reluctant to commit their liberalization in internationally bound commitments. The current trends of trade in services in Africa are changing, but not as dramatically as one would expect. Progressively since GATS, African countries have been making commitments on trade in service issues. Evaluating the regional trade agreements in Africa gives a clearer picture as to the services commitments made by the countries of the continent. While some agreements such as EAC, ECOWAS and US ­ Morocco have made considerable progress on further liberalization of trade in services, other agreements such as Morocco ­ Turkey have just reaffirmed their GATS Commitments. It is pertinent to note that Agreements such as SADC and COMESA, while 17 As stated by the WTO in its international trade statistics 2011 available at http://www.wto.org/english/res_e/statis_e/its2011_e/its11_highlights3_e.pdf
reaffirming their GATS commitments have also committed to further liberalize trade in services in the future. The progress of these agreements is seen in the salient novel features that go beyond GATS. COMESA for instance includes forgoing restrictions in certain sectors at the end of transition period, making licensing procedures electronic for service sectors and liberalization of their air transport sector. EAC has included separate parts to deal with trade in services (Part D), capital (Part E) and temporary movement of people (Part G) while making commitments in GATS style schedules, using a combination of GATS and NAFTA models.18 Another commendable progress by Sub Saharan African Nations was made by signing the tripartite agreement. The three regional blocs, EAC, SADC and COMESA, comprising of 26 countries, have agreed to discuss among other issues, the possibility of an agreement to liberalize trade in services. The regional blocs have agreed to discuss important service related issues like the temporary movement of business people and diver immigration issues in the first round of talks. It should be noted that such an agreement would not come easy considering the different levels of development and the diverse policy on services across the countries. If the agreement does come through, it will aid the competition in services and increase the welfare considerably. Benefits of Regional Trade in Services for Africa. Liberalization of services has a higher impact in regional integration. Services play a very important role to provide for better trading conditions and easier movement of people and capital. For instance, liberalization in transport sector will provide for better, easier and hassle free transportation of the traded goods. Liberalized legal and accounting services will ensure transparency and enforceability of contracts entered and better tele-communication services will aid in faster and better electronic access making the world a smaller place. Gravity model in economics suggests that the amount of trade is inversely proportional to the distance between two countries, i.e. the closer the proximity between two countries, the higher volume trade between them. It is obvious that neighbouring countries will trade more with each other with countries away from them (keeping all other variables constant). With 18 EAC Protocol on the Establishment of the East African Community Market, 2009 Available at www.eac.int (Last visited 16th October 2012).
better services such as transportation, accounting and legal, the trade in goods will be aided to bring more welfare benefits to society. These services are of more importance for the African continent than any other place in world. Currently, African consumers pay upto one fifth of the cost of the food product for transportation. It costs 3 times less to transport the food in Brazil and 5 times less in Pakistan. As Teravaninthorn states, these costs are high not because the tolls or road tax, but are an indication towards high profit transportation companies charge.19 This cost can be drastically reduced by competition. The cost of internet is best explained by the graph below:
Cost of using the internet Fixed Broadband Tariff, per month (PPP $) 1200
1000
800
600
400
200
0 USA
UK China Botswana Mauri;us Ghana Kenya Uganda Nigeria
Source: Global information technology Report 2009-2010
Reform in services will also help African countries to tap into the vast sea of new opportunities that have resulted due to liberalization of trade in goods. The current cost of transportation for exporters from sub-Saharan Africa are approximately five times greater than 19 Supee Teravaninthorn and Gaлl Raballand (2008) "Transport Prices and Costs in Africa: A Review of the Main International Corridors" The International Bank for Reconstruction and Development Africa Infrastructure Country Diagnostic Working Paper Number 14, The World Bank.
the tariffs the goods are subject to in the markets of developed countries. Moreover, liberalization of international transportation services including air and marine, are not on WTO's priority list for negotiations.20 One of the biggest advantages for regional integration in Africa will be allowing firms to harness the economies of scale. With easier trade in services between smaller markets in Africa, the service providers can use these economies of scale in production and increase their efficiency and competitiveness. This competitiveness will also ensure that these firms will stand a better chance to compete with the other international firms when further liberalization takes place at the multinational level. Moreover, better efficiency and economies of scale will enable these service providers to reduce the cost of their services, passing the benefit to the consumers. Regional integration will also facilitate better development. A bigger market will attract more foreign investments into services. 15 of the 31 land-locked developing countries (LLDC) are found in Africa. These LLDCs depend on infrastructure to connect with the world. Regional integration will aid in building the essential infrastructure for trade in goods and services within and around these LLDCs. Better road networks, transportation services and communication services will not only link these LLDCs to the world, but will also enable them to develop at a faster pace. Another important aspect for development is the relationship between goods and services. Liberalization of goods without liberalization of services will increase the cost of goods in the market. Services also form an input (raw material) for trade in goods. Assume that trade in goods is completely liberalized and services are not. The cost of goods will increase as the services are costly and not efficient. With RTAs where trade in goods as well as trade in services are liberalized, the producers of goods will benefit from better services. For instance, as stated above, better transportation will reduce the final cost of goods and better legal and accounting services will ensure transparency and better enforcement of contracts. 20 Bernard Hoekman and Aaditya Mattoo (2007) "Regulatory Cooperation, Aid for Trade and the General Agreement on Trade in Services" Policy Research Working Paper 4451, World Bank Washington, DC, Available at: http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2007/12/18/000158349_20071218091355/Rendered/PDF /wps4451.pdf.
Liberalization of certain services is likely to be more beneficial at regional level than at a global level. Integration is easier when the countries are at similar development levels and their population have similar income levels. For instance, it is easier for countries with similar service requirements to allow harmonization of legal and accounting qualifications or technical qualifications for professional service providers, especially when countries have similar education or legal systems. Countries in a region normally have similar education, beliefs and cultural backgrounds, aiding to the cause of harmonization of standards and rules. Such harmonization of standards will also provide for increased regional trade. Another incentive for regional cooperation is to address the shortfall of technical, qualified and experienced policymakers in the field of services. Smaller countries may not have the requisite expertise to formulate service liberalization policies. With regional cooperation leading to regional integration, the countries can combine their expertise to regulate services and formulate trade policy for services. Regional integration will also result in policy convergence. Currently, the applied policies differ from one country to another and coming together will help these countries harmonize their policy for trade in service. With combined expertise from all the regional countries, all the countries in the RTA will be on the same page regarding policy framework and implementation. At par regional policies for trade in services will greatly aid in future negotiations and liberalization at multinational level. The regulatory convergence policy harmonization is being explored through the establishment of various land transport corridors in Africa. Concluding Remarks: Preferential liberalization ensures a host of benefits. These include better bargains considering that there are only a few willing parties around the table, focusing mainly on sectors where their competitive advantage lies. It also solves the problem of free riders. Besides, it helps the countries reach deeper integration by employing better structures for the agreement, covering a host of sectors that are essential for development.
It also ensures protection of policy space while offering speedier results, for negotiations and implementations of the liberalizing reforms with the support of the politicians. It also results in lesser static costs and higher dynamic gains. Multilateral liberalization of services does have a number of advantages. It is better to liberalize on multilateral level to ensure greater efficiency for the society and reduced administrative burden on the national government. At the same time, it prevents retaliatory agreements to gain maximum benefits. These advantages though have to be valued against the threat to the embryonic industry and the effects of premature liberalization being thrust on the market. Africa is still to realize the potential of trade in services. Agriculture and industry sectors currently support the economy, forcing the policy makers to focus more on these sectors. The policy makers do not see any significant gains to divert their limited resources towards liberalization for trade in services. The situation is changing. The African governments are making commitments towards liberalization for trade in services. Regional integration with focus on services will allow firms to explore economies of scale as well as new opportunities that accompany with liberalization of goods and services. Bigger markets will attract more foreign investors and will result in lower costs and more efficient services. The regional integration will also help in policy convergence aiding in further liberalization at the multilateral level.
List of References Aaditya Mattoo and Carsten Fink (2002) "Regional Agreements and Trade in Services: Policy Issues" World Bank Policy Research Working Paper 2852, The World Bank.
Aaditya Mattoo and Pierre Sauvй (2010) "The Preferential Liberalization of Services Trade" NCCR Trade Working Paper Working Paper No 2010/13.
Bernard Hoekman and Aaditya Mattoo (2007) "Regulatory Cooperation, Aid for Trade and the
General Agreement on Trade in Services" Policy Research Working Paper 4451, World
Bank
Washington,
DC,
Available
at:
http://www-
wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2007/12/18/000158349_20071
218091355/Rendered/PDF/wps4451.pdf.
Bernard Hoekman and Aaditya Mattoo (2008) "Services trade and growth" Policy Research Working Paper 4461, The World Bank.
Bernard Hoekman, and Patrick Messerlin (2000), "Liberalizing Trade in Services: Reciprocal Negotiations and Regulatory Reform", in Sauvй P. and R. M. Stern, eds., GATS 2000: New Directions in Services Trade Liberalization, Washington, DC: Brookings Institution, pp. 487--508.
Ingo Borchert, Batshur Gootiiz and Aaditya Mattoo "Policy Barriers to International Trade in
Services: Evidence from a New Database" Policy Research Working Paper 6109, World
Bank
Washington,
DC,
Available
at
http://www-
wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2012/06/28/000158349_20120
628132350/Rendered/PDF/WPS6109.pdf.
Lawrence White (2005) "International Trade in Services: More than Meets The Eye. Measuring Impediments to Trade in Services" in E. Kwan Choi andJames C. Hartigan (eds.) Handbook of International Trade (Volume II): Economic and Legal Analyses of Trade Policy and Institutions Blackwell Publishing pp. 472-498.
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HH Gursahani

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