Call for policy transparency in the services sector and why it matters in the WTO

The big gains in services are from reforming the non-discriminatory restrictions on competition that affect both foreigners and domestic new entrants.

This reform is best designed domestically, where the debate can be held about how any losses to incumbents can be managed politically. The important political economy considerations are about incumbents versus new entrants, not domestic versus foreign.

Trade negotiators have a different focus. They are fundamentally concerned about the impact of rapid foreign entry into their markets. And we agree with that concern, if it occurs as a result of the removal of impediments to foreign entry while domestic incumbents remain constrained.

What should happen with services is transparency in the first instance, followed by review and evaluation, and then domestic reform.

This work can be undertaken whether or not the current round of WTO negotiations proceeds. It’s more effective if the work is embedded in the negotiations.

Given the complex nature of the policy barriers, transparency (that is, documenting existing policy) is an important first step. In some developing economies, even this task will be prohibitively complex and costly in terms of bureaucratic resources. So there will be gains from international cooperation through capacity building to provide support for this activity.

While WTO members can contribute to capacity building for policy transparency and policy review, the WTO through the structure of the GATS provides valuable guidance on the information that should be collected and reported in these stages. The relevant policy information is not simply the treatment of foreigners, but the policy applied to all potential entrants into a market. The GATS’ references to market access, national treatment and domestic regulation issues provide a structure for this information.

Having documented their policies, countries can evaluate the option and choose priorities for reform, and commit those changes in the WTO.

This is more valuable than undertaking negotiations with foreigners on the terms of their particular entry into markets.

While additional pressure from foreign demandeurs can help countries to overcome the domestic political constraints to reform, there is the risk that foreign demandeurs in the services area may make demands that are not in the reforming country’s best interests. And that evaluation is best done domestically, away from a negotiating arena.

Given the relatively high resource cost of making and implementing good policy, it is unlikely that all countries can or should move immediately to ‘world’s best practice’ in all regulatory areas.

The scope to make a transition to that practice is important. The WTO through the GATS provides options for scheduling policy changes, and thereby creating expectations about the direction of policy reform.

So the things to be done are

• cooperation on transparency and review,
• efforts to bind current policy,
• a focus on market access and domestic regulation in further liberalisation, and
• specification of paths of evolution of regulatory reform

These are primarily matters of the design of domestic reform. They are not primarily matters of international negotiation on the exchange of commitments to provide foreigners with options for market entry.

The WTO’s contribution is through its principles, not its traditional processes.

Edited extract from

Philippa Dee and Christopher Findlay, ‘Monitoring Trade Policy: A New Agenda for Reviving the Doha Round’:
www.ifw-kiel.de/konfer/2007/trade-policy-monitoring-center/mon_trade_pol.pdf