Transport services

Presentation outline First part Second part Links between transport capacity, growth and development The impact of trade policy reform in transport Second part Transport in GATS How international trade negotiations can contribute to successful outcomes Moving forward

First part

Transport and growth Transport costs and growth Higher shipping costs slows growth Transport costs and the concentration of economic activity China example Links between policy and transport costs Eg port performance

Gains from market opening Gains from trade Attracting foreign investment Economies of scale and scope Competition and choice Transfer of skills and technologies

Port reform in Argentina Before reform Declining cargo volumes for domestic freight – which switched to other modes Big rise in stevedoring fees in real terms 250% from 1980 to 1991 Cross subsidies between ports Not enough investment ‘In the ports of Rosario, Buenos Aires and La Plata, for example, docks collapsed into the water’ [Trujillo and Serebrisky] Private sector built its own grain handling facilities

Port reform in Argentina In early 1990s, devolution of most port responsibilities to the provinces, plus private sector participation and promotion of service competition. Provinces were given the freedom to operate, concession or close ports With implications for competition Independent autonomous companies for some large ports Six terminals were competitively concessioned to the private sector in Buenos Aires payment of a leasing fee to the government for use of infrastructure assets for 18-25 years now they compete against each other, plus free entry into the sector by allowing any operator to build, manage and operate a port for public or private use. a new regulatory agency was created under the Ministry of the Economy Not allowed to be an operator Plus general anti trust laws, eg on mergers of operators

Effects of reform Average stay:   Indicator 1991 1997 Cargo (thousand tons) 4,000 8,500 Containers (thousand TEUs) 300 1,023 Capacity (thousand TEUs) 500 2500 Cranes 3 13 Productivity (ton per employee) 900 4850 [2001] Charges per container ($/TEU) 450 220 Note: Big drop in employment Average stay: Fallen from 72 hours (1991) to 15 (2002) These are at global benchmark levels 180 in 2002

Remaining challenges the risk of collusion, due to horizontal mergers Also some debate about vertical mergers ie ports and shipping companies Improved monitoring and benchmarking mechanisms (across ports) So that services continue to be provided on a cost-efficient basis. Inefficient customs operations pose a key constraint towards further productivity gains Restraints on intermodal integration, eg quality of land transport access Maintaining credibility of regulation eg allowing mergers, introducing new competitors [Trujillo and Serebrisky/GEP]

Other examples of impact Competition Eg railways - in the market and for the market Specialisation and trade Eg shipping or air transport Variety of services Eg air transport

Establishment compared to cross border supply How would firms choose? Set up costs offshore is a negative - offsets are locational advantages and requirements of the business model (multi-modal, protecting value of assets) Effects: these can vary between modes…. Competition Effects on incumbents Local employment and investment Spillovers

Competition drives many of these effects Competition AND trade Competition drives many of these effects Trade (and investment) also matters Adds to the competition effect But has additional benefits The focus here is trade policy reform

Second part

Transport in the GATS Coverage of the sector All transport modes and complementary services

GATS: General Principles Set of general principles and rules Set of specific commitments Applies to the 4 ‘modes of supply’ Cross borer, consumption abroad, establishment and movement of natural persons Does not apply to ‘services supplied in the exercise of government functions’

GATS and MFN The most-favoured nation principle is the core general principle “Each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than it accords to like services and service suppliers of any other country” GATS allows for one-time exemptions Significant in transport, eg maritime services Also special case of air transport But with a time limit, subject to negotiation

GATS and Specific Commitments National treatment obligation Market access

GATS and National Treatment “In the sectors inscribed in its Schedule, and subject to any conditions and qualifications therein, each Member shjall accord to services and service suppliers of any Member, in respect of all measures affecting the supply of services, treatment no less favorable than it accords to its own services and service suppliers”

GATS and Market Access Items except (e) refer to quantitative measures Based on a list of measures which cannot be used unless specified in the schedule Restrictions on The number of suppliers The value of transactions or assets Total quantity of services output Number of natural persons that may be employed Type of legal entity through which services can be supplied eg branch vs subsidiary Share or value of foreign equity Market access commitments apply to both discriminatory and non-discriminatory measures

GATS: Horizontal and additional commitments Members also make horizontal commitments relevant to modes of supply Eg rules applying to mode 4 Members can make additional commitments that do not fall under Market Access or National Treatment Eg commitment to move to international standards on professional services

Role of international negotiations Policy credibility Export market access Value of concessions and cross sectoral bargains? Guide to change GATS has flexibility built in!

Progress in GATS Commitments documented the status quo So GATS has not been a useful vehicle so far for market opening Limited success in regulatory cooperation Accession commitments are significant Regional commitments have limited contributions

Moving forward Competition, regulation and sequencing Capacity Building Impact on the poor Aspects of negotiating strategy

Competition, sequencing and regulation Economies of scale and scope Problem of regulating access Trade policy issue is lack of regulation, Eg railways Externalities and congestion Problem of policy being no more restrictive than necessary Eg noise congestion at airports Sequencing challenges Risks of loss if the sequence is wrong Competition is the priority: if necessary, competition for the market New issue: security in int’l transport

Capacity Building Regulatory reform demands substantial resources for design and implementation Value of cooperation with trading partners Trade policy strategy Depends on access to information, and analysis of impediments

Impact on the poor Reform can add to efficiency and create opportunities to meet social targets Reform and openness can also undermine existing policy mechanisms for supporting services to isolated and poor areas Responses include Setting investment targets Flexibility with respect to price/quality Liberal entry of providers Involving communities Subsidies, including competitive processes

Negotiating strategy Maintain focus on market access for best results Identify export interests and seek gains from bargaining across sectors Develop coordination between ministries Mobilising business interests