[author: Joseph A. Laroski Jr.]
With Congress preoccupied with the debate over whether to renew Trade Promotion Authority (TPA) (so-called "fast track" authority) and the merits of the Trans-Pacific Partnership (TPP), the negotiation of the Trade in Services Agreement (TiSA), which is also covered by TPA, has drawn scant attention over the past few months. Fifty-two World Trade Organization (WTO) members (with the European Union (EU) representing its 28 member states) concluded the twelfth round of TiSA negotiations in July with a stocktaking exercise to determine next steps.
Background
A broad update to international disciplines on trade in services has been long overdue. The WTO General Agreement on Trade in Services (GATS) entered into force in 1995. Consequently, the GATS does not fully take into account the ways that more recent developments in technology, business practices, and global integration have affected global trade in services. By way of example, to the extent electronic commerce existed in 1995, such trade traveled at 56 Kbps.
The GATS itself recognized the need for updating and further liberalization of trade in services. In GATS Article XIX, WTO members committed to successive rounds of negotiations beginning within five years of the entry into force of GATS. Unfortunately, services negotiations became linked to the much more contentious agriculture negotiations as part of the Doha Development Agenda. As a result, services negotiations effectively have been held hostage in the WTO for over 15 years with little hope for any major update on a multilateral scale. While improvements and updates to the disciplines on trade in services have taken place since GATS, those improvements have been isolated to the patchwork of bilateral and regional agreements that arose while the Doha Agenda stalled.
In order to side-step the impasse within the WTO, the so-called "Really Good Friends of Services" group of WTO members formed in 2012 to discuss the possibility of negotiating a services liberalization agreement on a plurilateral basis outside of the WTO framework. The group began formal negotiations of the TiSA in April 2013. With Mauritius joining the group in round twelve, the TiSA countries now number 52 and collectively account for around 75 percent of global trade in services.
Mauritius likely will be the last country to join before the TiSA text is completed. This means that China, which had expressed interest in joining the negotiations, will be excluded from the negotiations. Brazil and India also are absent. By negotiating the text outside the context of the WTO, the TiSA countries are able to maintain a high level of ambition. The TiSA countries hope that ultimately the agreement can be brought into the WTO framework, after a critical mass of WTO members have adopted the agreement. While this approach helps ensure a high-standard agreement that can form the basis for future agreements, it puts off the inevitable need to negotiate with China, India, and Brazil on services. There are no guarantees that these three countries will agree to the TiSA framework once it is completed.
The current TISA countries are Australia, Canada, Chile, Colombia, Costa Rica, the 28 European Union members, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mauritius, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Taiwan, Turkey, the United States, and Uruguay.
Architecture of the TiSA
TiSA will be designed to complement and expand on existing disciplines contained in the GATS. The goal of the TiSA countries is to update trade rules aimed at promoting fair and open trade across all service sectors—from telecommunications and technology to distribution and delivery services. TiSA takes on new issues confronting the global marketplace, like restrictions on cross-border data flows. TiSA also will aim to enhance support for rule of law through increased commitments on transparency and regulatory due process.
Although the negotiations are confidential, numerous leaks of the purported texts have been released. Based on official statements and the leaked texts, we understand that TiSA consists of a core text, several sector-specific or issue-specific annexes, and each individual country's schedule of commitments on market access and national treatment.
The core text sets the framework for the agreement, incorporates some of the core concepts of the GATS, and enumerates public policy and security exceptions to the disciplines. Disciplines specific to particular sectors or issues are included in annexes to the core text. Under negotiation are annexes on Electronic Commerce, Financial Services, Telecommunications Services, Professional Services, Air and Maritime Transport Services, Competitive Delivery Services, Transparency, Domestic Regulation, Government Procurement, and the Movement of Natural Persons.
The final component of TiSA is the individual countries' schedules of commitments on market access and national treatment. Market access commitments will be scheduled on a "positive list" basis, as in the GATS. This means that only those sectors listed are covered by TiSA's market access disciplines. National treatment commitments will be scheduled against a horizontal national treatment obligation contained in the core text on a "negative list" basis. That is, the national treatment obligations will apply to all sectors, unless an exception or limitation is set out in the schedule. Negative list commitments are preferable from a business perspective, because they are more transparent and tend to be more trade liberalizing (e.g., as new services develop, they also would be subject to TiSA disciplines).
What the Services Industry Wants
For U.S. services industries, TiSA offers an opportunity to further open markets to U.S. services and to address barriers to trade that have arisen since GATS entered into force in 1995. Key issues that U.S. industry has sought to address though TiSA include restrictions on cross-border data flows, measures requiring companies to process and store data locally, unfair competition from state-owned enterprises, discrimination in obtaining licenses and business permits, lack of transparency and due process in regulatory matters, forced local ownership requirements, and foreign direct investment restrictions.
Why The Goods Sector Should Take Note
Benefits from liberalizing the trade in services are not confined to the services sector. Over the past 20 years, the global supply chain has developed such that producers of agricultural and manufactured goods increasingly rely on services in their daily operations. Moreover, producers of goods increasingly are also now services providers.
The Swedish National Board of Trade conducted a study of a company with operations in tools and tooling systems for metalworking, mining and construction, and material technology. The Board found that the company needed 40 different categories of services to deliver products to its customers worldwide. The Board also found that the company itself supplied 15 categories of services to its customers. Similarly, the U.S. International Trade Commission reported that the value of services as intermediate inputs represents more than 30 percent of the value added in manufactured goods.
Thus, the further liberalization of services trade benefits the U.S. goods sector by facilitating the services on which it relies to deliver goods to the customer. It also facilitates U.S. agricultural and manufacturing competitiveness by allowing U.S. companies to better serve and deepen their relationships with their foreign customers by providing a greater array of services related to their products.
Next Steps
Despite twelve rounds of negotiations, the text of the new agreement remains heavily bracketed (reflecting that significant disagreements remain), and several parties' market access offers have yet to reflect the level of ambition sought at the initiation of these negotiations.
Last month, negotiators met in Geneva for three days of negotiations and a full-day stocktaking session. The stocktaking session addressed the status of the core text, all annexes, and market access offers. It then sought to plot out the pace of negotiations for this and next year. Early readouts from this round indicate uneven progress, with the most movement on Financial Services and Telecommunications Services and little to no movement on Maritime Transport, Forced Localization, and a proposal on Healthcare Mobility.
In order to speed the process in plenary sessions, the TiSA countries set a July 31 deadline for new textual proposals. Any proposals made going forward will need to have the support of a critical mass of countries before being tabled.
The next two rounds of discussions are set for early October and late November 2015. Intersessional meetings will be encouraged in the meantime to accelerate progress at the formal rounds.
No target date has been set for the conclusion of the agreement. Negotiators are operating on an assumption that the agreement could be concluded by the end of 2016. This timetable, however, could be complicated by the presidential election cycle in the United States.
