Services trade, WTO and the role of international standards

Aik Hoe LIMTrade 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

11 3344

Cross-border Cross-border

Consumption Consumption abroadabroad

Movement of Movement of naturalnatural persons persons 22

Commercial Commercial presencepresence

4 ways by which services trade occurs

4

Cross border supply - Mode 1

Service Supplier

Service Consumer

Service Supplier supplies servicefrom territory of

one Member State

Service Consumer receives service

in territory of anyother Member State

Consumption abroad - Mode 2

Service Supplier

Service Consumer

Service Consumer

Service Consumer receivesservice 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 territoryof 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

1995 2013

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”

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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– Objectivity, – Transparency, and – Necessity

• Account shall be taken of international standards of relevant international organizations.

Pending the entry into force of the disciplines (Article VI:5)

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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 sufficientDevelopment of new services challenges fragmented regulatory frameworksRecognition and role of international standardsTransparent, reasonable, objective and impartial rule-making and supervisionReducing regulatory burden

If you want more on domestic regulation and services…

WTO Domestic Regulation and Services Tradehttp://www.wto.org/english/res_e/publications_e/dom_reg14_e.htm

Thank you

Aik Hoe Limhoe.lim@wto.org