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The Review of International Organizations

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01.06.2014

The economics and political economy of going beyond the GATS

verfasst von: Erik van der Marel, Sébastien Miroudot

Erschienen in: The Review of International Organizations | Ausgabe 2/2014

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Abstract

This paper addresses the economic and political economy factors explaining why countries agree upon services commitments in regional trade agreements (RTAs) going beyond the General Agreement on Trade in Services (GATS), what we call the commitments gap. Using a unique dataset comprising of detailed schedules of services commitments disaggregated by sub-sectors and covering almost all countries that are members of a services RTA, we are able to quantify the extent to which geographical, systemic as well as economic and institutional factors correlate with a country’s pattern of RTA commitments that go further than commitments made at the WTO. Strong explanatory variables are asymmetries between negotiating partners and market size, together with endowments in mid-skilled labor and institutional governance. Whereas some of these forces are strongly positively associated with commitments made beyond GATS, others are significant determinants that correlate negatively with a country’s commitment patterns in RTAs. We also find strong differences between services industries providing evidence that not all economic and political economy factors are of equal importance for all services. For instance, financial and construction services often diverge significantly from our general pattern of explanations.

Vorheriger Artikel Multilateral determinants of regionalism revisited

Nächster Artikel Sustaining multilateral trade cooperation in a multipolar world economy

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There are also commitments that are ‘less than the GATS’ but this is beyond the scope of our study. See Adlung and Miroudot (2012) for a discussion of ‘GATS-minus’ commitments in RTAs and a quantitative assessment of their prevalence.

Post-Uruguay round negotiations on services took place between 1994 and 1997 with new commitments for financial services and basic telecommunication services but little was achieved in other areas.

Note, however, that services are important inputs for goods (Nordås and Kim 2013) and that services use goods inputs on which tariffs are levied. One cannot analyse trade in services in total isolation from trade in goods.

Roy (2011b) states that the impact of factor endowments or development on GATS commitments is dependent on the level of democracy, as often argued in the international political economy literature. However, he finds that factor endowments originating from domestic interest groups also have a direct significance on the level of commitments.

The authors also find that countries having already negotiated an RTA in an earlier stage do liberalize more under GATS and are more likely to do so when their ‘natural’ trading partners are involved.

The gravity model can also explain sales of foreign affiliates, thus also covering Mode 3 trade in services (see Bergstrand and Egger 2007).

Borchert et al. (2010) provide evidence that commitments made under GATS are on average more than twice as more restrictive than actual applied policy with large variations among developed and developing countries.

The fact that services tend to be highly regulated introduces a difference with the standard political economy of trade liberalisation for goods. Market failures such as asymmetric information, imperfect competition in network services or negative externalities, mean that governments need to strike a fine balance between removing policy barriers that discriminate between foreign and domestic service providers and barriers that are legitimate in terms of objectives such as social equity and universal service supply (Francois and Hoekman 2010).

One assumption implicit in such hypothesis is that factor owners of mid- and low-skilled labor are relatively scarce in such an environment which according to standard trade theory reveals their standard preference for trade policy, i.e., services commitments. The political economy literature also distinguishes between whether factor owners are mobile or not. If factors owners are mobile (Stolper-Samuelson) trade policy will be proportionate to specific factor of production. If, on the other hand, factors are immobile and hence specific (Ricardo-Viner) trade policy will likely be formed along industry lines. Since services require large up-front (fixed) investment costs in skills for specialisation (see Mattoo et al. 2007) it is likely to assume that to a great extent the specific factor model applies to such a setting.

There is also a WTO dataset covering commitments in 67 RTAs for 53 WTO Members (Roy 2011a). The dataset indicates the share of sub-sectors already committed under GATS, the share of sub-sectors where commitments have been improved and the share of sub-sectors that are newly committed. However, only Mode 1 and Mode 3 commitments are covered, and market access and national treatment commitments are not distinguished.

Note also that when commitments are GATS-minus, as identified in the literature, we do not create negative values since these commitments do not remove in practice the legal treatment guaranteed by GATS. There is no evidence that companies are treated less favorably in this case. Since GATS-minus commitments were until recently not even known from most trade practitioners, we assume that they do not play a role in the political economy forces described in Section 2.

Maurer and Magdeleine (2008) provide similar weights. There are generally very few barriers to Mode 2 since consumption is abroad and not subject to the regulations of the importing economy. Mode 4 trade in services is difficult to measure and barriers to the movement of people are mostly horizontal and part of migration and visa laws.

A more precise variable for ICT capital is not available for a larger set of countries in our dataset. The EU Klems database has calculated ICT-related capital next to physical capital for a substantial amount of services sectors, but unfortunately only covers a small subset of our sample of countries.

As noted earlier, Roy (2011b) finds a positive (direct) association between the level of democracy and GATS commitments, contrary to our results for the commitments gap.

See Hufbauer et al. (2012) for a discussion of this plurilateral services agreement.

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Titel: The economics and political economy of going beyond the GATS
verfasst von: Erik van der Marel
Sébastien Miroudot
Publikationsdatum: 01.06.2014
Verlag: Springer US
Erschienen in: The Review of International Organizations / Ausgabe 2/2014
Print ISSN: 1559-7431
Elektronische ISSN: 1559-744X
DOI: https://doi.org/10.1007/s11558-014-9189-1

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