1. Getting the most out of a services agreement with the USA
Matthew Stern
US-SACU FTA Conference
31 October 2006

2. Outline of Presentation
Economic trends and theory
GATS concepts and coverage
The gains from services liberalization
Barriers to trade in services
The potential contribution of a USA-SA FTA

3. Economic trends and theory

4. Key trends 25% of global trade Fastest growing sector (trade & FDI)
Dominated by OECD (80%)
Increasingly important for developing countries
Fastest growing sector (trade & FDI)
Critical determinant of competitiveness
Labour intensive
Highly regulated 1

5. World service exports ($ millions)

6. Theory
Trade in services, in general, displays the same characteristics as trade in goods
The theory of comparative advantage does apply to services trade
Given high levels of regulation (protection) in the service sector, economic factors alone cannot explain the pattern of trade in services
The removal or reduction of barriers to trade in services would contribute to major increases in global welfare 1

7. Service/merch. Exports
Service/merch. imports
Service/merch. Exports 1

8. GATS concepts and coverage

9. What is GATS? Implemented January 1995 140 member countries
All sectors (except government and air traffic rights)
Positive list approach
All modes of supply 2

10. GATS: Coverage
Strong institutional & regulatory difference between jurisdictions
Financial services
Business services
Health services
Education
Infrastructure services, capital intensive, scale economies
Communication
Transport
Traditionally “liberal” services
Distribution
Tourism
Other
Environmental services
Recreation
Culture
Sport
Construction
Source: Adlung (2000) 2

11. GATS: Modes of supply Mode 1: Cross border supply
relatively few bound commitments
Mode 2: Consumption abroad
relatively open
Mode 3: Commercial presence
market access restrictions prevail
Mode 4: Movement of natural persons
most restrictive 2

12. GATS: Commitments 2
Source: GATT Secretariat (1994)

13. GATS: South Africa
Scheduled 9 out of 12 major sectors (education, health and recreational services excluded)
Relatively liberal commitments in retail, computer, construction, tourism and business services
Relatively few commitments in transport, life insurance, communications and education services 2

14. The gains from services liberalisation

15. The gains from exports Employment Complementary exports
Foreign exchange
Knowledge and skills
Economies of scale 3

16. The gains from exports – ‘Shopmight’
Employment
Compl. exports
Forex
Knowledge and skills
Economies of scale
Cross-border trade
n/a
Consumption abroad
Medium
Low
Commercial presence
High
Temporary movement of people 3

17. The gains from imports Knowledge and skills Product
Price
Quality
Capital and infrastructure 3

18. The gains from imports – ‘Newtel’
Knowledge & skills
Product
Capital & infrastructure
Price
Quality
Cross-border trade
n/a
Consumption abroad
Commercial presence
Medium
High
Temporary movement of people 3

19. Barriers to trade in services

20. Types of barriers Quantitative restrictions Price-based instruments
Air service agreements
Price-based instruments
Electricity price controls
Licensing and certification
Tertiary education
Access to networks
National payment’s system 4

21. Measures of protection - Hoekman4

22. Measures of protection - APC
Sector
RSA Score
No of countries
RSA Rank a
Accountancy
0.4444 34 7
Architecture
0.1105 27
Banking
0.1897 38 14
Distribution
0.0680 35
Engineering
0.0955 28
Telecomm.
0.5867
136 77
a 1 = most restrictive 4

23. The potential contribution of a SACU-US FTA

24. Pre-conditions
Meaningful
Comprehensive
Multilateral 5

25. Making it meaningful
R million
Service imports from SA
(Bilateral BOP)
Share of total SA service exports
(SA BOP)
Service exports to SA
Share of total SA service imports
USA
5 545
16.4%
9 355
23.6% UK
5 182
15.3%
9 629
24.3%
Germany
3 891
11.5%
3 059
7.7%
Japan
2 070
6.1%
1 749
4.4%
Total
16 688
49.2%
23 792
60.0%
US is South Africa’s most important service export destination 5

26. Making it meaningful
But trade largely restricted to travel 5

27. Making it meaningful
And investment surprisingly low 5

28. Making it comprehensive
Positive list approach
Excludes sensitive sectors
Maintains regulatory flexibility
Negative list approach
No sectors excluded
Prevents arbitrary discrimination 5

29. Making it work Enabling access to global imports and competition
Providing a template and signal for domestic reform
Facilitating deeper regional integration 5

30. Conclusion

31. Conclusion The gains from trade and competition in services are big
Barriers to trade in services are complex and high
A SACU-US FTA could have multiple benefits
Lock-in existing reforms
Help determine a longer-term and regional reform agenda
Open up new opportunities for trade and investment at home and abroad
Make it meaningful, make it comprehensive, and make it work