Integrating Services Markets and Regulatory Cooperation

Transcription

1 2015/SRMM/002 Agenda Item: III Integrating Services Markets and Regulatory Cooperation Purpose: Information Submitted by: World Bank 2 nd Structural Reform Ministerial Meeting Cebu, Philippines 7-8 September 2015

2 Integrating Services Markets and Regulatory Cooperation Aaditya Mattoo World Bank 2 nd APEC Structural Reform Ministerial Meeting September 2015, Cebu Main points Despite significant unilateral liberalization, protection persists in services International trade negotiations have not delivered real liberalization Because services cannot be fully globalized when regulation remains strictly national Shifting emphasis towards regulatory cooperation will also lead to more conventional liberalization But we will need to watch out for the excluded 1

3 Despite significant unilateral liberalization, services protection persists - including in some of the most dynamic countries World Bank Database covers 18 services sectors of 103 countries (of which 79 are developing) Source: Borchert, Gootiiz and Mattoo (2013) 3 Protection also persists in some of the most vital sectors - particularly transport and professional services STRI by sector and region: Services trade restrictiveness index GCC SAR MENA EAP AFR LAC OECD ECA Financial Telecom Retailing Transportation Prof.Services Note: 103 countries included. Borchert/Gootiiz/Mattoo (2013) -- Services Trade Restrictions Database 4 2

4 Protection often takes a subtle form: Licenses are almost always required and almost never automatic Transparency, accountability and predictability Criteria are usually public, reasons for denial are often provided, but fulfilment of publicly stated criteria does not automatically lead to a license being issued Banking Telecom yes no n/a miss yes no n/a miss 0 Transparency Accountability Predictability 0 Transparency Accountability Predictability Source: World Bank Services Trade Restrictions Database Multilateral market access-based negotiations have struggled to eliminate explicit protection Uruguay Round Commitments, Doha Offers and Actual Policy Services trade restrictiveness index IND CRI GTM URY HND LKA GTM TUN TUN KEN THA PAK ID N EGY COL NGA IND NIC PHL IDMAR LKA PRY N COL MYS CHL BOL THA MUS PAN MUS PAN NGA IND DOM PAKMAR DOM BRA TUR PE R TUR PHL ID N THA MEX EGY BRA PAN MYS MEX CHN BGR ARG JOR ZAF LKA TUN ZAF PE R JOR ZAF KEN CRI URY MEX NGA CHL PAKMAR ALB TUR HND GTM PRY PECOL RBRA ARG BOL DOM NIC MUS BGR POL POL HUN HUN LTU LTUHUN POL LTU BH R TTO TTO BH R PRT KOR BHITA R OMN OMNKOR PRT ITA GRC ESP CZE GRCITA PRT ESP CZE KOR NZL GRC ESP NZL TTO FRA DNK BEL FIN FRA SWE DEU BEL DNK JPN FIN GBR AUT CAN NLD FRAUS AUT CAN JPNDEU FINSWE BEL GBRDNK NLD AUS DEU AUT CAN JPN AUS GBR SWE NLD IRL USA IRL USA IRL GDP per capita,ppp Restrictiveness of GATS co mmitment Restrictiveness of DOHA Offers Restrictiveness of actual policy Fitted values Fitted values Fitted values STRI for 61 countries, excluding Qatar and 31 countries that did not submit offers Source: Borchert,Gootiiz, Mattoo 2011 and failed to discipline implicit protection 3

5 Regional negotiations too have so far had limited impact on actual policies AFAS commitments, applied policy and Blueprint goals for each country Services trade restrictiveness index MMR BRN THA PHL IDN LAO MYS SGP VNM KHM AFAS commitment Applied policy Blueprint goals Note 1: Applied policy information for Brunei is missing. Note 2: MMR =Myanmar, BRN =Brunei, THA =Thailand, PHL =Philippines, IDN =Indonesia, LAO =LAO PDR, MYS = Malaysia, SGP =Singapore, VNM =Vietnam, KHM =Cambodia. Source: Gootiiz and Mattoo (2013) Security is a growing concern in an insecure world and affects multiple services markets Financial internationalization and financial security Digital trade and informational security Labor mobility and security Demographic change and health and old age security The problem A. Regulators differ in their response to market failure B. The actions (or inaction) of regulators in exporting jurisdictions affect consumers in importing jurisdictions C. Regulators tend to limit their concerns to consumers in their own jurisdictions and importing jurisdictions cannot acting on their own efficiently prevent adverse spillovers 4

6 In services markets today, regulatory cooperation is not just an add-on but a precondition for further liberalization In goods, a country could liberalize trade policy and still apply its own technical regulation at the border. The intangibility of services and the simultaneity of production and consumption makes pre consumption inspection and post production regulation difficult. Regulators respond to national market failure in services by regulating services providers; but regulating foreign services providers poses a jurisdictional challenge An inability to ensure compliance with desired regulations ex ante translates into a reluctance to liberalize. Trade restrictions thus become a second best response when the first best is regulatory cooperation. While conventional trade negotiations focus only on importer-disciplines, we need a framework also for exporter commitments Conventional trade negotiations Rule making primarily to discipline importers: tariffs are bound; quotas are prohibited or restricted; discrimination is prohibited or restricted; product standards must be necessary Limited scope for exporter disciplines or commitments (except on export subsidies and quotas) Regulatory cooperation Policy coordination between exporters and importers Commitments not just by importers but also by exporters Can happen multilaterally, regionally, bilaterally 5

7 What does regulatory cooperation mean in practice? Two examples: Cooperation to ensure liberal trade in digital services and free data flows by addressing divergent standards of privacy. E.g. EU-US Safe Harbor Agreement; commitments by US firms to adhere to EU standards policed by US FTC; evolving and renegotiated; APEC cross-border privacy rules Cooperation between host and source countries on mode 4 (as in bilateral labor agreements). E.g. Spain-Ecuador; Korea-Philippines; commitments by source countries to certify, facilitate repatriation, combat illegal migration; APEC Business Travel Card What does regulatory cooperation mean in practice? Two more examples: Cooperation to address heterogeneity in prudential regulation in finance, financial nationalism, etc. E.g. threat to the EU internal financial market and the EU-US markets by the erosion of regulatory cooperation (e.g. Icesave dispute; implications of Dodd-Frank); APEC initiatives on regulatory reform Cooperation on pro-competitive regulation (e.g. in financial, transport and communication services) E.g. EU-US cooperation on price rigging by financial institutions, EU-US action on collusive arrangements in air and maritime transport; but less so far in developing countries; APEC initiatives on competition policy 6

8 Regulatory cooperation creates a risk of exclusion Regulatory cooperation will inevitably be among a sub set of countries at least initially New emphasis on regulatory convergence in mega regionals Risk of trade based on mutual trust rather than comparative advantage Both harmonization and mutual recognition can benefit and hurt third countries Trade diversion through harmonization? Benefit: Harmonization creates a common standard which is the same for firms all over the world who can all reap economies of scale (analogous to a customs union) Downside: If the harmonized standard is more stringent than some of the original standards, then since costs of compliance vary, those less equipped to meet the higher standard could suffer. For example, when the EU decided in the late 1990s to harmonize standards for aflatoxins, eight member states (including Italy, the Netherlands and Spain) drastically tightened national standards. As a result, African exports of cereals, dried fruits and nuts to Europe may have declined by as much as US$ 670 million (Wilson et al. 2001) 7

9 Trade diversion through MRAs? Benefit: mutual recognition grants firms the opportunity to fulfill the least stringent requirement even more liberalizing than harmonization (analogous to an FTA) Downside: imposition of restrictive rules of origin. If benefits of MRAs not available to firms in other countries, they must continue to fulfill separate requirements and are disadvantaged. Example: EU s MRAs on professional services standards. Chen and Mattoo (2008) finds that, when MRAs include restrictive rules of origin, intra regional trade increases at the expense of imports from other countries and developing countries tend to suffer most. Watching out for the excluded GATS Article VII on Mutual Recognition Agreements balances permissiveness with conditions to ensure open recognition (VII:2) and non discrimination (VII:3) The ability to leveraging MRAs via MFN principle could be diluted by treating MRAs as covered by (and notified under) Article V on regional agreements Ideally: First, participants should generally favor mutual recognition and agree not to impose restrictive rules of origin. Second, where participants consider harmonization, there should be a stronger presumption in favor of international standards where they exist; if they don t, countries should favor the less stringent of the original standards unless there is credible evidence that it would not help meet the relevant regulatory objective. Third, there could be WTO mechanisms for multilateralizing MRAs to reduce the costs of relying on individual third country initiatives. 8

10 Watching out for the tyranny of harmonization A potential tension between access to foreign markets and access to services at home? Because adhering to prematurely stringent international standards could jeopardize access to services at home. E.g. in: Professional services Privacy and data flows Financial regulation Standards could be designed to be separable, i.e. jurisdiction specific, e.g. India, Philippines and privacy law In some situations, dual standards could be a solution 17 Three concluding suggestions Strengthening National regulation Identify services sectors where weak national regulation can undermine the benefits of liberalization. Establish mechanisms for diagnosing and remedying regulatory inadequacies. Develop country and sector specific recommendations on the appropriate sequence of regulatory reform and liberalization, as well as credibly commit to assistance. Advancing International regulatory cooperation Identify the services sectors where the absence of adequate international regulatory cooperation can undermine the benefits of liberalization. Facilitate regulatory cooperation, ensure greater coherence between international regulatory forums and trade negotiations, and support developing country participation n both. Develop country and sector specific recommendations on the appropriate sequence of international regulatory cooperation and liberalization. Addressing the risk of exclusion Reaffirm relevant WTO provisions (GATS Article VII). Restrain use of exclusionary rules of origin Technical support to develop appropriate standards in developing countries. 9