Salient Features of ASEAN FTA: Focus on Services 2 August 2010 MIDC Khon Kaen, Thailand Rajan Sudesh Ratna Economic Affairs Officer Trade Policy Section (TID) UNESCAP ratna@un.org rsratna@gmail.com

Presentation structure GATS in WTO ASEAN Services negotiations in ASEAN Opportunities and Challenges rajan ratna 31.7.2012

SERVICES rajan ratna 31.7.2012

HISTORY of GATS There was no international discipline on trade in services until adoption of the GATS. Like TRIPS, GATS was not part of the GATT system until the Uruguay Round negotiations. And like TRIPs, many developing countries resisted negotiations on trade in services. GATS negotiations were conducted “outside” the Uruguay Round negotiations until the end of the process when the countries reached consensus on a framework agreement. rajan ratna 31.7.2012

TRADE IN GOODS and SERVICES Trade in Services differs from Trade in Goods: Unlike in Goods, Positive listing of sectors and modes while undertaking commitments. In Goods - control is through Tariffs – border. Services - control through Regulations – No Tariffs Services are supplied through four modes - Modes 1, 2, 3 and 4. rajan ratna 31.7.2012 5

GATS: SECTORAL COVERAGE 12 Sectors and 161 Sub-Sectors 4 Modes of supply Business Services Communication Services Construction Services Distribution Services Education Services Environmental Services Health Related Services Financial Services Tourism Services Recreation, Culture, Sports Services Transport Services Other Services rajan ratna 31.7.2012

MODES OF SUPPLY UNDER GATS Mode 1: Cross-border supply – Service flows from the territory of one country into the territory of another country. Mode 2: Consumption abroad - consumer of a service moves into the territory of another Member country to obtain the service.   Mode 3: Commercial presence - service suppliers of a Member country establishes a territorial presence (a legal presence) in another Member country.  Mode 4: Presence or movement of natural persons - – the service supplier temporarily enters the territory of another Member country for supply of services. rajan ratna 31.7.2012 7

Perspective of GATS Negotiations Structure of negotiations differs from Agriculture/NAMA. Primarily Request-Offer on bilateral basis - decided in 2001. Doha Development Agenda reiterates the objective of trade negotiations i.e. to promote economic growth of all trading partners and development of developing and least developed countries. Doha Ministerial endorsed the NGP and fixed deadlines for submission of R/O - June 2002 and March 2003. July 2004 package recognized Services one of the three pillars of market access and mandated improved offers in sectors and modes of interest to Developing countries. rajan ratna 31.7.2012 8

Mandated Negotiations under GATS The mandated negotiations under GATS Article XIX of GATS commenced on 1.1.2000. Several proposals were tabled, the approach to be followed was decided as the Request Offer approach. Countries submitted Requests and Offers under this negotiations. rajan ratna 31.7.2012 9

WHAT WAS ACHIEVED AT HONG KONG Modal objectives inscribed in the text (para 1). Specifically, concerns in Modes 1 and 4 addressed. Modes 1 and 2: all Members to bind their existing commitments. Mode 4: New or improved commitments on the categories of Contractual Services Suppliers, Independent Professionals and Others, de-linked from commercial presence, to reflect inter alia: removal or substantial reduction of ENT’s; indication of prescribed duration of stay and possibility of renewal, if any. Removal or substantial reduction of MFN exemptions. The need for plurilateral approach recognised (para 7b). A time frame for developing disciplines in domestic regulations set-to conclude before the end of the current Round. rajan ratna 31.7.2012

DEADLINES AT THE HONG KONG MINISTERIAL Hong Kong Ministerial Declaration deadlines Plurilateral Requests – 28th February, 2006 Further Revised Offers - 31st July 2006 Schedules of commitments – 31st October 2006 Presently negotiations have been suspended Informal discussions in the various working groups has started Second Revised Offers will be submitted once negotiations resume Ministerial meeting of the WTO is the highest decision making body Held in Hong kong 13-18 December 2005. Adopted a Declaration where services negotiations also figured. Fixed various deadlines for the negotiations rajan ratna 31.7.2012

PLURILATERAL REQUEST/OFFER APPROACH Positive List approach followed. Request and Offer method. Multilateralisation of commitments. Predominant method of negotiations post Hong Kong Ministerial. A group of member countries of WTO place a collective request directly on a country. The recipient country to consider these request while submitting new Revised Offers. The offer shall be on MFN basis to all WTO members. rajan ratna 31.7.2012

What Developed Countries Want from developing countries Developed countries - primary interests are in Mode 3 Removal/increase of FDI caps Removal of restrictions on legal entity Removal of quantitative limits in banking, telecom etc. Removal of FIPB approval for prior collaboration Commitments at the autonomous level of liberalization Developed Countries have sectoral interests in: Financial Services Telecommunication Services Distribution Services Maritime Transportation Services Legal Services Postal/Courier and Express Delivery Services Environmental Services rajan ratna 31.7.2012

JULY 2006 ONWARDS Negotiations came to a standstill in July 2006. The negotiations resumed in February, 2007 and have intensified: Three rounds of plurilateral discussions held (May, Sept and Nov 2007). A draft document on domestic regulations for negotiations circulated (Jan 2008). Report on elements of breakthrough in services released (July 2008). “Signaling Conference” in July 2008. rajan ratna 31.7.2012

ASEAN The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei Darussalam then joined on 7 January 1984, Viet Nam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN. rajan ratna 31.7.2012

AEC Signed by the ASEAN Leaders at the 13th ASEAN Summit on November 20, 2007, the ASEAN Economic Community (AEC) Blueprint lays the foundation for realising the goal of ASEAN as an integrated economic region by 2015. The AEC is characterised by four pillars: (a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development, and (d) a region fully integrated into the global economy. In each of the four pillars are the various measures and initiatives that are being implemented to achieve the goals of the AEC. rajan ratna 31.7.2012

The services sector is a sizeable and continuously expanding component of GDP in ASEAN countries. On average, the services sector contributes 40-50% of GDP in ASEAN countries. rajan ratna 31.7.2012

ASEAN Initiatives in Trade in Services Recognising the growing importance of trade in services, ASEAN countries officially launched their joint effort to work towards free flow of trade in services within the region through the signing of ASEAN Framework Agreement on Services (AFAS) on 15 December 1995 by the ASEAN Economic Ministers (AEM) during the 5th ASEAN Summit in Bangkok, Thailand. AFAS is aimed at substantially eliminating restrictions to trade in services among ASEAN countries in order to improve the efficiency and competitiveness of ASEAN services suppliers. AFAS provides the broad guidelines for ASEAN Member States to progressively improve Market Access and ensure equal National Treatment for services suppliers among ASEAN countries. All AFAS rules are consistent with international rules for trade in services as provided by the General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO). In fact, liberalisation of services trade under AFAS shall be directed towards achieving commitments beyond Member Countries’ commitments under GATS, or known as the GATS-Plus principle. rajan ratna 31.7.2012

ASEAN: Trade in Services (2) With a desire to expedite liberalisation of trade in services within ASEAN, the AEM signed the Protocol to Amend the ASEAN Framework Agreement on Services on 2 September 2003 in Phnom Penh. The Protocol enables for the application of “ASEAN Minus X” formula in the implementation of Member States’ services commitments. Under this formula, countries that are ready to liberalise a certain service sector may proceed do so without having to extend the concessions to non-participating countries. rajan ratna 31.7.2012

ASEAN: Trade in Services (3) Following the signing of AFAS, officials of ASEAN Member States embarked on negotiations to achieve the objective of AFAS of creating a freer trade in services within the region. This was implemented through several rounds of negotiations, each round resulting in packages of commitments from each ASEAN Member State in each agreed economic sector/sub-sector and mode of supply. The services negotiations are undertaken under the purview of ASEAN Economic Ministers (AEM). Following the decision of AEM at their Informal Meeting held on 28 June 1999 in Auckland, New Zealand, ASEAN Finance Ministers and ASEAN Transport Ministers subsequently took the lead in the liberalisation of financial services and air transport services, respectively. rajan ratna 31.7.2012

Present Status At present, ASEAN has concluded 8 packages of commitments under the AFAS signed by the AEM through different rounds of negotiations since 1 January 1996. These packages provide for details of commitments from each ASEAN Member State in the various services sectors and subsectors. In addition, there has also been three additional packages of commitments in financial services signed by the ASEAN Finance Ministers (the second, third, and fourth Packages of Commitments of Financial Services under the AFAS) and two additional packages of commitments in air transport signed by the ASEAN Transport Ministers (the fourth and fifth Packages of Commitments on Air Transport Services under the AFAS). ASEAN Member States continue to work on further expanding the negotiations to cover all sectors and all modes of supply. The ASEAN Economic Community Blueprint adopted by the ASEAN Leaders at the 13th ASEAN Summit on 20 November 2007 in Singapore sets out concrete steps to be taken to achieve a free flow of services by 2015 with flexibility. rajan ratna 31.7.2012

Mutual Recognition Arrangements Mutual Recognition Arrangements (MRAs) is one of the more recent developments in ASEAN cooperation on trade in services. MRAs enable the qualifications of professional services suppliers to be mutually recognised by signatory Member States; hence, facilitating easier movement of professional services providers in the ASEAN region. At present, ASEAN has concluded seven MRAs: MRA on Engineering Services signed on 9 December 2005 in Kuala Lumpur, Malaysia; MRA on Nursing Services signed on 8 December 2006 in Cebu, the Philippines; MRA on Architectural Services and Framework Arrangement for the Mutual Recognition of Surveying Qualifications both signed on 19 November 2007 in Singapore. MRA on Medical Practitioners, MRA on Dental Practitioners, and MRA Framework on Accountancy Services all signed on 26 February 2009 in Cha-am Hua Hin, Thailand. rajan ratna 31.7.2012

Free Flow of Services and Skilled Labor Under the 7th Package of the ASEAN Framework Agreement in Services (AFAS), ASEAN has committed to at least 65 services sub-sectors for liberalisation. Services commitments for the 8th AFAS package - with more services subsectors and higher thresholds for liberalisation being targeted - are now in the final process of conclusion. To support greater mobility of qualified professionals in the region, the MRAs for engineers and architects have been implemented, while work is underway to effectively operationalise the other professional MRAs (nursing, medical, dental, accountancy, and surveying). To facilitate the movement of persons engaged in trade and investment, the ASEAN Agreement on Movement of Natural Persons (MNP) has been drafted and is expected to be finalised in 2012. rajan ratna 31.7.2012

So far much of the emphasis in the services area has been on meeting the targets of liberalisation as outlined in the AEC Blueprint. However, in order to move the services sector to the next level and to enhance its economic and sectoral integration and for this sector to remain competitive, a more strategic perspective on the approach to the services sector in ASEAN may need to be taken. Based on these, ASEAN is currently reviewing the ASEAN Framework Agreement on Services (AFAS) which was signed in 1995 with the objective of enhancing its provisions and transforming this into a comprehensive services agreement to achieve free flow of services by 2015. rajan ratna 31.7.2012

Under the ASEAN Framework Agreement on Services, ASEAN continues to progressively liberalize trade in services and achieve free flow of services by 2015. rajan ratna 31.7.2012

Opportunities and Challenges Brings opportunities for exploring new markets Within ASEAN: Domestic regulations? Beyond ASEAN: WTO negotiations FTAs under negotiation rajan ratna 31.7.2012

THANK YOU rajan ratna 31.7.2012