Services trade, WTO and the role of international standards Aik Hoe LIM Trade and Environment Division World Trade Organization PASC 38 Annual Meeting, 4-5 May 2015, New Delhi

Issues What makes services trade different from goods? What are the global trends in the services sector ? How can international standards facilitate services trade? What role for standards organizations?

Fundamental differences between goods and services GOODS Tangible and can be subjected to physical specifications Separation of production and consumption possible Product/laboratory testing feasible International trade involves only movement of the product SERVICES Intangible, physical specifications not feasible Production and consumption simultaneous Standards apply often to the services supplier and equipment used rather than the service itself International trade involves also movement of labour and capital

13 4 Cross-border Consumption abroad Movement of natural persons 2 Commercial presence 4 ways by which services trade occurs 4

Cross border supply - Mode 1 Service Supplier Service Consumer Service Supplier supplies service from territory of one Member State Service Consumer receives service in territory of any other Member State

Consumption abroad - Mode 2 Service Supplier Service Consumer Service Consumer Service Consumer receives service in territory of supplier

Commercial Presence - Mode 3 7 Service Supplier Service Consumer Service supplier establishes a commercial presence in the territory of another Member State

Natural Persons - Mode 4 8 Service supplied through presence of natural persons in the territory of another Member State Service Consumer

Services trade larger than previously understood…. Old estimates 20% of world trade (BOP) New estimates 42% of world trade (based on value added) Services value added content of exports is more than 40% for many economies

What’s behind these new figures? Manufacturing today relies heavily on global value chains/outsourcing Services embodied in the product is often hidden Technology driving services trade – blurring of product-based distinctions Value added gives better understanding of the overall importance of services

Services share of value added in manufacturing trade, all countries, 2009 Source: OECD, 2013, Trade Policy implications of global value chains

Breakdown of World Exports of Commercial Services

Structure of Other Commercial Services Exports, 2013

Goods and services in a value chain

Services restrictions remain significant… Services sectors tend to be highly regulated Intangibility raises many quality-competence related issues: safety; reliability; consistency; conformity to standards, etc. How to reduce the regulatory/adminstrative burden ? How to distinguish between legitimate requirements and trade protectionism?

How are services standards covered by WTO Agreements? TBT Agreement Applies to all goods (industrial and agricultural) General Agreement on Trade in Services (GATS) Covers measures affecting trade in services Disciplines on domestic regulation (including on technical standards to be developed)

To ensure that measures relating to qualification requirements and procedures, technical standards and licensing requirements and procedures do not constitute unnecessary barriers to trade, the Services Council shall develop any necessary disciplines” 17 Domestic regulation disciplines... To be developed (Article VI:4)

No application of licensing and qualifications requirements and technical standards that nullify or impair specific commitments and could have been reasonably expected. The criteria of Article VI:4 apply –O–Objectivity, –T–Transparency, and –N–Necessity Account shall be taken of international standards of relevant international organizations. Pending the entry into force of the disciplines (Article VI:5) 18

What might services standards entail ? No definition of the term 'technical standards' is provided in the GATS. Various parameters suggested: – criteria or rules specifying the characteristics of the service or terminology used to describe it (e.g. the format of financial reports) – manner in which the service should be performed (e.g. the way in which an audit must be performed including the checks that must be performed, the way work should be documented and so on) – requirements on the inputs to the supply of the service (eg. the equipment and facilities needed; qualifications of the service supplier; conditions under which service is performed) – conformity of the service to standards

How can international standards help facilitate services trade? Services face issues of information and service description, quality control, interoperability, reducing unnecessary variety, conformity assessment, etc. Many network or transaction/technology intensive services require common standards to work (eg. telecoms, transport, financial services) International standards can help set/communicate relevant benchmarks

Unresolved issues What are “technical standards” for services sectors? How are they being developed nationally or internationally, in which sectors and by whom? How are they implemented/enforced and what are the trade impacts? What is the relationship between goods and services standards? Is a TBT-equivalent for services required, and if yes, can a TBT Agreement model work?

Liberalization needs re- regulation Market access and national treatment commitments are not sufficient Development of new services challenges fragmented regulatory frameworks Recognition and role of international standards Transparent, reasonable, objective and impartial rule- making and supervision Reducing regulatory burden If you want more on domestic regulation and services… WTO Domestic Regulation and Services Trade reg14_e.htm

Thank you Aik Hoe Lim