Trade Agreements, Regulatory Institutions and Services Liberalization
| Date | 01 November 2018 |
| Published date | 01 November 2018 |
| DOI | http://doi.org/10.1111/1758-5899.12583 |
Trade Agreements, Regulatory Institutions and
Services Liberalization
Matteo Fiorini and Bernard Hoekman
European University Institute
Abstract
Many agreements to liberalize trade in services tend to be limited in scope. This is a puzzle considering the high share of ser-
vices in total employment and value added and relatively high barriers to trade in services in many countries. In this paper
we argue that neglected complementarities between services trade policies and domestic regulation may help to understand
the limited ambition on services observed in many trade agreements. We show that the productivity effects of services trade
liberalization are conditional on regulatory quality. Our findings suggest that greater effort to design trade agreements with a
view to improving regulatory quality may be a necessary condition for deepening the services coverage of trade agreements
and will enhance the welfare gains from services trade liberalization.
Policy Implications
•As countries become ever more services-intensive, more attention should be given to inclusion of services activities in
trade agreements.
•Trade agreements can be mechanisms to improve the operation of domestic services sectors.
•More efficient services are important for economy-wide productivity and the competitiveness of manufacturing.
•Improving the quality of economic regulation is a precondition for realizing the potential gains from services trade liberal-
ization.
•Bolstering the quality of economic regulation should become more of a focus of trade agreements.
1. Services trade policies and economic
performance
Modern economies are service economies. Different types of
services account for both a significant share of final demand
(e.g. health and recreational services) and intermediate con-
sumption. Many services are inputs into production,
accounting for a significant share of total costs of produc-
tion (e.g. design, R&D, finance, transport, distribution, etc.).
The efficiency of services sectors is determinant of the pro-
ductivity and thus the competitiveness of the ‘downstream’
industries that purchase services inputs, as well as the
aggregate productivity of economies (Barone and Cingano,
2011).
Trade barriers to trade in services are often high in many
countries (Jafari and Tarr, 2017), suggesting a presumption
that liberalization will enhance economic welfare by lower-
ing average prices and expanding the variety of services
available on the market. It is therefore not surprising that
services increasingly have figured on the agenda of trade
negotiations. However, while most trade agreements con-
cluded since the mid-1990s reference trade in services and
many include substantive provisions,
1
Analysts have found
that frequently these do little to liberalize trade (Miroudot
et al., 2010; Roy, 2011). Negotiations to expand the General
Agreement on Trade in Services (GATS) as part of the WTO
Doha round (launched in 2001) failed. A subsequent initia-
tive by a group of WTO members to conclude a plurilateral
Trade in Services Agreement (TiSA) in 2012 is in limbo at
the time of writing, following the election of President
Trump. The 2016 Trans-Pacific Partnership (TPP) agreement
included services but did relatively little in going beyond
the GATS commitments of participating countries (Gootiiz
and Mattoo, 2017).
2
Limited services liberalization is not
restricted to trade agreements involving developing nations.
Services have also been controversial in negotiations
between high-income countries: in the context of the
Transatlantic Trade and Investment Partnership (TTIP), civil
society groups expressed strong concerns about opening
public services sectors to greater foreign competition
(Young, 2016).
Overall, trade agreements that include services are lar-
gely limited to commitments that ‘lock-in’prevailing poli-
cies as opposed to liberalization (Hoekman, 2008). This is
not without value as it reduces policy uncertainty. The eco-
nomics literature has stressed the role that international
agreements can play as a policy commitment device
(Maggi and Rodriguez-Clare, 1998) and the associated wel-
fare benefits that are generated through curbing uncer-
tainty, which supports investment by firms in greater trade.
The salience of this function of trade agreements increases
in periods of economic distress and trade policy tensions
Global Policy (2018) 9:4 doi: 10.1111/1758-5899.12583 ©2018 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 9 . Issue 4 . November 2018 441
Research Article
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