GATS + Liberalization in East Asian FTAs: Architectural Aspects and Achievements

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1 2007/SOM2/IEG-GOS/WKSP/016 Session 3 GATS + Liberalization in East Asian FTAs: Architectural Aspects and Achievements Submitted by: World Bank Workshop on the Relationship Between Investment and Trade in Services in Regional Trade Agreements and Other International Investment Agreements Adelaide, Australia 18 April 2007

2 Joint IEG/GOS Workshop on the Relationship Between Investment and Services in International Agreements Adelaide, 18 April 2007 GATS+ liberalization in East Asian FTAs: Architectural aspects and achievements Martín Molinuevo World Bank / World Trade Institute Carsten Fink World Bank 1 Overview Background Architecture of East Asian FTAs Services liberalization in East Asian FTAs Negative list agreements and services liberalization Rules on relation between services and investment Conclusion 2 1

3 FTAs in services in East Asia in figures 25 agreements 3 regional agreements (AFAS, AFAS-China, TransPacific SEP) 22 bilaterals 16 East Asian countries* 11 other countries 1 non-wto Member 40+ agreements currently under negotiations 3 4 2

4 Architecture of East Asian FTAs Background on bilateral / regional services agreements in East Asia Architecture of East Asian FTAs Services liberalization in East Asian FTAs Negative list agreements and services liberalization Rules on investment and services chapters Conclusion 5 Architecture of FTAs: liberalization approach Sectors subject to trade commitments Positive list Negative list Level of openness Level of openness Positive list Positive/negative list Negative list Pure positive list Hybrid list (GATS) Negative list 6 3

5 Negative list agreements Australia-Singapore Nicaragua-Taiwan (China) Chile-Korea Panama-Singapore Guatemala-Taiwan (China) Panama-Taiwan (China) Japan-Mexico Singapore-US Korea-Singapore Trans-Pacific Free Trade Agreements in Services in East Asia Positive list agreements Lao PDR-US BTA (only list of sectors) Pure positive list agreements Mainland-Hong Kong Mainland-Macao AFAS ASEAN-China Australia-Thailand EFTA-Korea EFTA-Singapore India-Singapore GATS-style hybrid list agreements Japan-Malaysia Japan-Philippines Japan-Singapore Jordan-Singapore New Zealand-Singapore Vietnam-US 7 Key features of hybrid list FTAs Four modes of supply (with separate investment chapter in some cases) Main obligations: Market access National treatment + additional commitments Generally, no mechanism to bind at actual levels of openness, except in Japan-Malaysia and Japan-Philippines ( SS entries) 8 4

6 Key features of negative list FTAs Three modes of supply (except Trans-Pacific and Australia-Singapore) Investment in services treated in separate chapter (except Trans-Pacific) Additional obligations (e.g. performance requirements), but sometimes no binding market access discipline (Japan Mexico, Chile Korea) Non-conforming measures versus future measures Varying approaches to financial services, partly/fully reverting to hybrid list 9 Positive vs. Negative: an architectural assessment Transparency: depends on level of openness Lots of restrictions: positive list Few restrictions: negative list But drafting is crucial! Liberalization Same outcome can be achieved with either model Status quo binding: in principle, negative lists but future measures de facto prevent status quo binding and positive lists also have this potential (Japan Malaysia, Japan - Philippines) From an architectural perspective, there seems to be nothing inherent to either approach in terms of transparency or liberalization ==> Empirical question. 10 5

7 Services liberalization in East Asian FTAs Background on bilateral / regional services agreements in East Asia Architecture of East Asian FTAs Services liberalization in East Asian FTAs Negative list agreements and services liberalization Rules on investment and services chapters Conclusion 11 GATS + liberalization in East Asian FTAs Evidence is mixed. Many agreements show few commitments beyond GATS level AFAS Thailand Australia Singapore Jordan Others entail broad / deep commitments: US Lao PDR Mainland Hong Kong CEPA Japan Singapore US Singapore 12 6

8 Who gives more at bilateral / regional level? those who have given more at multilateral level. 80% albeit other countries have greater potential for improvement. FTA commitment 60% 40% 20% 0% 0% 20% 40% 60% GATS commitment 13 In what sectors? GATS only FTA improvements FTA new subsectors Partial Full Partial Full Partial Full Unbound Business services Communication services Construction and related engineering services Distribution services Educational services Environmental services Financial services Health and related social services Recreational, cultural, and sporting services Tourism and travel related services Transport services Other services not included elsewhere 0% 20% 40% 60% 80% 100% 14 7

9 In what modes of supply? GATS only FTA improvements FTA new sectors Partial Full Partial Full Partial Full Unbound Mode 1 Mode 2 Mode 3 Mode 4 Total 0% 20% 40% 60% 80% 100% 15 Negative list FTAs and liberalization commitments Background on bilateral / regional services agreements in East Asia Architecture of East Asian FTAs Services liberalization in East Asian FTAs Negative list agreements and services liberalization Rules on investment and services chapters Conclusion 16 8

10 What kind of agreement provides more liberalization? GATS only FTA improvements FTA new sectors Partial Full Partial Full Partial Full Unbound Negative list agreements All positive list agreements Lao PDR-US BTA Pure positive list Hybrid list 0% 20% 40% 60% 80% 100% 17 Do negative list FTA ensure broader / deeper liberalization? Broader: negative list FTAs show a statistically significant effect on the amount of new scheduled sectors No deeper liberalization: no statistically significant effect of negative list FTA on the improvement of existent multilateral liberalization commitments (once GDP per capita is controlled for) Negative list commitment GDP per capita of scheduling country Improved FTA commitment 0.073* (5.82) New FTA commitment 0.294* (15.63) Total FTA contribution 0.367* (17.91) Improved FTA commitment (1.03) 0.036* (9.94) New FTA commitment 0.279* (13.07) (0.99) Total FTA contribution 0.293* (12.82) 0.042* (6.89) GDP per capita of partner country (or countries) Number of observations Adjusted R- squared (-1.24) (1.36) (0.52) 1,440 1,440 1,440 1,440 1,440 1,

11 The devil is the details Singapore reserves the right to [ ]to adopt or maintain any measure affecting the supply of services by foreign full banks or in relation to Qualifying Full Bank licenses. (Australia-Singapore) United States effectively exempts [a]ll existing non-conforming measures of all states of the United States, the District of Columbia, and Puerto Rico. (Singapore-US) United States [ ] reserves the right to adopt or maintain any measure that is not inconsistent with the United States obligations under Article XVI of the General Agreement on Trade in Services. (Singapore-US) Mexico [ ] reserves the right to adopt or maintain any measure relating to the supply of services in any mode of supply in which those services were not technically feasible at the time of entry of force of this Agreement. (Japan-Mexico) 19 Rules on investment and services chapters Background on bilateral / regional services agreements in East Asia Architecture of East Asian FTAs Rules in services FTAs Services liberalization in East Asian FTAs Negative list agreements and services liberalization Conclusion 20 10

12 Investment in services Services disciplines Complementary / overlapping coverage Investment disciplines 21 Rules addressing dual coverage: an informal ranking 1) Market access and domestic regulations provision of services chapter apply to investment in services 2) Services chapter prevails in case of inconsistencies 3) One single schedule of commitments, also covering investment in goods 4) Core liberalizing obligations in investment chapter do not apply to investment in services Nicaragua-Taiwan (China), Panama- Singapore, Singapore-US India-Singapore, Japan-Malaysia, Jordan- Singapore, US-Vietnam, Japan-Singapore (for Singapore) Australia-Singapore, Australia-Thailand EFTA-Singapore FTA, Japan-Philippines (for the Philippines) 5) Core liberalizing obligations (NT, MFN) in investment chapter do not apply to commercial presence 6) Relationship not defined New Zealand-Singapore, EFTA-Korea Japan-Singapore, Japan-Philippines (for Japan) 22 11

13 Concluding remarks Background on bilateral / regional services agreements in East Asia Architecture of East Asian FTAs Services liberalization in East Asian FTAs Negative list agreements and services liberalization Rules on investment and services chapters Conclusion 23 Conclusions Different architectural approaches have no inherent benefits of disadvantages in regard to transparency and liberalization Negative lists, however, provide incentives for broader but not deeper- commitments. East Asian FTAs present mixed liberalization achievements Developing countries in East Asia seem reluctant to services liberalization commitments both multilaterally and regionally/bilaterally East Asia richer countries (Japan, Korea, Singapore) have taken advantage of FTAs to expand on already significant multilateral commitments 24 12

14 Thank you for your attention. Martín Molinuevo 25 13