Vi Digital Library - Text Preview
Handbook on Negotiating Preferential Trade Agreements: Services Liberalization
Manual by Pierre Sauvé, Simon Lacey, 2013
Download original document (English)
A hAndbook on negotiAting
preferentiAl trAde Agreements
pierre sAuvé // simon lAcey
Printed in Bangkok
July 2013 - 150
the secretariat of the escAp is the regional development arm of the united nations and serves as the
main economic and social development centre of the United Nations in Asia and the Pacific. Its mandate
is to foster cooperation between its 53 members and 9 associate members. It provides the strategic link
between global and country-level programmes and issues. It supports governments of countries in the
region in consolidating regional positions and advocates regional approaches to meeting the region’s unique
socio-economic challenges in a globalizing world. The ESCAP secretariat is located in Bangkok, Thailand.
Please visit the ESCAP website at www.unescap.org for further information.
The shaded areas of the map are ESCAP Members and Associate members.
united nations economic and social commission for
Asia and the Pacific
trade and investment division
United Nations Building, Rajadamnern Nok Avenue
Bangkok 10200, Thailand
Tel: +66 2 288 1902, Fax: +66 2 288 1027, 288 3066
Emails: firstname.lastname@example.org, email@example.com
united nations publication
Copyright © United Nations 2013
Asia-Pacific Research and Training Network on Trade (ARTNeT) is an open regional network
of research and academic institutions specializing in international trade policy and facilitation
issues. IDRC, UNCTAD, UNDP, and WTO, as core network partners, provide substantive and/
or financial support to the network. The Trade and Investment Division of ESCAP, the regional
branch of the United Nations for Asia and the Pacific, provides the Secretariat of the network and a direct
regional link to trade policymakers and other international organizations. For more information, please contact
ARTNeT Secretariat at firstname.lastname@example.org or visit www.artntontrade.org
cover illustration: teemu puutio
A Handbook on Negotiating
Preferential Trade Agreements
Pierre Sauvé // Simon Lacey
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtionii
A Handbook on Negotiating Preferential Trade Agreements: Services Liberalization
United Nations publication
Copyright © United Nations 2013
All rights reserved
Manufactured in Thailand
The designations employed and the presentation of the material in this publication do not imply the expression of any opinion
whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area,
or of its authorities, or concerning the delimitation of the frontiers or boundaries.
The opinions, figures and estimates set forth in this publication are the responsibility of the authors, and should not necessarily
be considered as reflecting the views or carrying the endorsement of the United Nations, ARTNeT members, partners or authors’
Mention of firm names and commercial products and services does not imply the endorsement of the United Nations.
All material in this publication may be freely quoted or reprinted, but acknowledgement is required, together with a copy of the
publication containing the quotation or reprint.
The use of the publication for any commercial purposes, including resale, is prohibited, unless permission is first obtained from
the Secretary of the Publication Board, United Nations, New York. Request for permission should state the purpose and the
extent of reproduction.
This publication has been issued without formal editing.
Services play an important role in the development of many economies of the Asia-Pacific region. It is not only service sectors that are
large employers in many countries; many services are critical inputs in local production and trade. Therefore the efficiency of service
sectors contributes significantly to the productivity of other economic activities across all major sectors of agriculture, industry and the
service sector itself. Policies that have an impact on the efficiency of the service sector in developing countries are among of the most
important policies determining the competitiveness of traded products and services, and the economy in general.
Although the share of Asia-Pacific as a whole in global exports and imports of commercial services rose to almost 30 per cent
in 2012, trade in services is still relatively less important than exports of merchandise. Compared to global figure where the
services account for slightly more than 25 per cent of total exports, this share for Asia-Pacific only amounted to 20 per cent
in 2012. As demonstrated by the effects of the persistent global economic downturn since 2008, merchandise trade is much
more susceptible to contraction of growth and demand than services trade. Thus, creating larger services trade potential is an
important developmental goal of developing economies in the Asian and Pacific region.
Services entered multilateral trade rules through the negotiation of the Uruguay Round of GATT, and were supposed to be
deepened and enhanced with the establishment of the World Trade Organization and the continued evolution of the General
Agreement on Trade in Services. However the stalled Doha Development Agenda negotiations affected services in the same way
as other areas under the multilateral regime (in fact, no progress has been made since 1995). However, given the importance of
services for production and trade, the policymakers then changed tracks and started to place the services trade liberalization into
the preferential trade agreements. As a result, building capacity to conduct the preferential services trade negotiations became an
urgent priority for many developing economies in the region. Building this capacity is even more complex than in case of general
trade policy formulation and negotiations due to the high heterogeneity of services activities and the many actors involved in
provision and consumption of services.
ESCAP has developed a reputed evidence-based trade policymaking capacity development programme, and since 2000 more
than 3,000 government officials have undergone the training in different trade-related areas. Thus, the ESCAP secretariat in
partnership with the secretariat and members of Asia-Pacific Research and Training Network on Trade (ARTNeT) was able to put
in place a series of workshops covering different components of the preferential negotiations for services trade. What resulted
from those training sessions and work with government officials, the private sector, analysts and other stakeholders, was that the
success of negotiations, the implementation of the modalities and development impacts depended crucially on the preparation of
negotiations as well as the process of continuous consultation and coordination prior, during and after conducting negotiations.
The importance of this fact impressed governments so much that they demanded a guidebook to lead them through that
complex process; this handbook has been prepared in response to that request.
This handbook was prepared by Pierre Sauvé (ARTNeT advisor on trade in services and investment) and Simon Lacey, both of
whom have designed and delivered workshops and worked closely with selected governments to provide tailored advice on
The handbook is a practical introduction to preparing to negotiate preferential trade agreements. It is aimed particularly at those
who may not have extensive negotiating experience, and it seeks to explain the main steps needed to arrive at an agreement,
make it enter into force and monitor its implementation. One special value of this handbook is in its coverage of the preparatory
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtioniv
stages for negotiations. Moreover, given the lack of resources and capacity in most developing (and especially least developed)
countries to address these concerns, this handbook offers ideas and presents the experiences of other countries (often those
that are well versed and successful in this area) as well as opportunities arising from utilization of Aid for Trade in this context.
The handbook is one of a series of publications that have been issued by ESCAP to be used as guides and manuals in
policymaking. It is hoped that this latest handbook, as the other similar publications, will become a lasting reference and
inspiration-builder for policymakers in the region.
Trade and Investment Division
About the authors.......................................................................................................................................................... ix
Abbreviations and Acronyms........................................................................................................................................ x
Chapter I. Preparing for negotiations......................................................................................................................... 1
A. Establishing the mandate – political endorsement from the highest levels............................................................. 1
B. Identifying and mobilizing actors within government ............................................................................................ 2
1. Executive agencies........................................................................................................................................... 2
2. Parliament........................................................................................................................................................ 5
C. Consulting with stakeholders outside of government............................................................................................ 7
1. Private sector.................................................................................................................................................... 8
2. Civil society....................................................................................................................................................... 12
3. Some process-related comments on stakeholder consultations....................................................................... 14
D. Conducting research on the trade policy regime of future PTA partners................................................................ 15
1. Market access reports...................................................................................................................................... 15
2. Reports prepared by international organizations............................................................................................... 16
3. Other sources................................................................................................................................................... 19
4. Requests made by PTA partners and stakeholder consultations....................................................................... 20
E. Determining desired development outcomes........................................................................................................ 20
1. National development plans.............................................................................................................................. 21
2. Formulating negotiating outcomes for development.......................................................................................... 23
F. Performing a trade-related regulatory audit........................................................................................................... 24
1. Promoting understanding between trade negotiators and regulators................................................................ 25
2. Benchmarking the domestic regulatory regime................................................................................................. 25
3. Anticipating and preparing for requests............................................................................................................ 26
G. Some final considerations on preparing for service negotiations........................................................................... 26
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtionvi
Chapter II. Conducting services negotiations............................................................................................................ 29
A. Organizational and procedural issues................................................................................................................... 29
1. Placing responsibility for the negotiations to the right hands............................................................................. 29
2. Delegating responsibilities and process issues................................................................................................. 30
3. Setting the right tone at the start...................................................................................................................... 31
B. Negotiating rules and market access................................................................................................................... 32
1. Rules............................................................................................................................................................... 32
2. Market access in general................................................................................................................................. 34
3. Market access: Positive or negative list............................................................................................................. 34
C. Red lines and negotiating impasses..................................................................................................................... 36
1. Boundaries of consensus................................................................................................................................. 36
2. Overcoming negotiating impasses................................................................................................................... 38
Chapter III. Aid for Trade in services and increasing the capacity for exporting services...................................... 43
A. Aid for Trade to improve negotiating capacity....................................................................................................... 43
1. Aid for Trade and institutional negotiating capacity............................................................................................ 44
2. Aid for Trade and process-related aspects of improving negotiating capacity.................................................... 47
3. Other considerations on improving negotiating capacity and Aid for Trade....................................................... 48
B. Aid for Trade to improve the management of market opening.............................................................................. 49
1. Sequencing of market opening and Aid for Trade............................................................................................. 49
2. Aid for Trade, market opening and adjustment assistance................................................................................ 51
3. Aid for Trade and sound regulatory practices................................................................................................... 53
C. Aid for Trade to boost export capacity................................................................................................................. 55
1. Aid for Trade and market access...................................................................................................................... 55
2. Policy frameworks for foreign direct investment and promoting services exports.............................................. 57
3. Commitments on the movement of natural persons......................................................................................... 60
Chapter IV. Implementation, monitoring and enforcement........................................................................................ 61
A. Implementing preferential trade agreements......................................................................................................... 61
1. Domestic consensus and implementation of preferential trade agreements...................................................... 61
2. Legal verification and parliamentary ratification................................................................................................. 62
3. Services trade-related aspects of implementation in particular sectors............................................................. 64
B. Monitoring and enforcing implementation of preferential trade agreements.......................................................... 65
1. Monitoring mechanism for preferential trade agreements................................................................................. 66
2. Dispute settlement and preferential trade agreements...................................................................................... 69
Summary and conclusion............................................................................................................................................. 72
List of boxes
I.1. Note on terminology................................................................................................................................................. 1
I.2. Organizational structure of the Government of Japan............................................................................................... 3
I.3. Services negotiations and executive branch stakeholders in Japan.......................................................................... 4
I.4. Canadian parliamentary scuffles and the ratification of the United States-Canada FTA in 1988................................ 6
I.5. Parliamentary opposition to ratifying international trade agreements: The case of the Republic of Korea-
United States FTA.................................................................................................................................................... 7
I.6 Website screenshot of CSI “Members” section......................................................................................................... 9
I.7. United States Trade Advisor Committee structure..................................................................................................... 10
I.8. Public consultations in the context of planned Pacific Agreement on Closer Economic Relations (PACER)
Plus negotiations...................................................................................................................................................... 11
I.9. Civil society concerns regarding PTA negotiations.................................................................................................... 12
I.10. American Nurses Association efforts to influence the focus and outcome of trade negotiations
on nursing services in the late 1990s........................................................................................................................ 13
I.11. Barriers to trade in services confronting United States exporters in the Japanese market......................................... 15
I.12. Regulatory requirements in Chinese banking services.............................................................................................. 16
I.13. Trade Policy Review 2010 of China: Excerpt from the statement by the representative of Japan.............................. 17
I.14. Trade and investment restrictions: October 2011 WTO-OECD-UNCTAD G-20 report.............................................. 17
I.15. OECD Services Trade Restrictiveness Index (STRI) in telecommunications services................................................. 18
I.16. Dismantling retail distribution restrictions in the Republic of Korea............................................................................ 20
I.17. Afghanistan National Development Strategy, 2008-2013......................................................................................... 21
I.18. Millennium Development Goals................................................................................................................................ 22
I.19. Mainstreaming trade into development strategies–National Trade Policy of the Federated States of Micronesia........ 23
I.20. Trade-related regulatory audit: Key questions.......................................................................................................... 25
I.21. Conducting a trade-related regulatory audit: Canadian approach in NAFTA............................................................. 26
II.1. Lessons from negotiating the ASEAN-Australia-New Zealand Free Trade Agreement............................................... 30
II.2. Organizational and process-related issues in FTA negotiations................................................................................. 30
II.3. Article 82 of the Japan-Philippines EPA – ‘Restrictions to safeguard the balance of payments’................................ 33
II.4. Specific commitments by the Philippines in its EPA with Japan................................................................................ 35
II.5. Reservation of Mexico in its 2005 FTA with Japan.................................................................................................... 36
II.6. Media coverage of the United States-Malaysia FTA.................................................................................................. 37
II.7. Getting to yes: Reaching a mutually acceptable agreement...................................................................................... 39
II.8. Financial services and capital controls in the USSFTA............................................................................................... 40
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtionviii
III.1. Building trade policy capacity: Hub and Spokes Project.......................................................................................... 44
III.2. Jamaica: Aid for Trade case study........................................................................................................................... 45
III.3. Australia-India Joint Free Trade Agreement feasibility study...................................................................................... 47
III.4. Funding participation in FTA negotiations................................................................................................................. 49
III.5. Australia-Thailand FTA – Chapter 8 and Side Letter on Services.............................................................................. 50
III.6. Adjustment assistance in Chile, Costa Rica and Mauritius....................................................................................... 52
III.7. Development cooperation provisions in the Japan-Philippines EPA......................................................................... 54
III.8. Market access-related Aid for Trade requirements for services................................................................................ 56
III.9. Software Technology Parks of India......................................................................................................................... 58
IV.1. Australian opposition to the United States FTA........................................................................................................ 62
IV.2. Australia’s treaty approval process under domestic law........................................................................................... 63
IV.3. Competition provisions of the 2005 New Zealand-Thailand CEPA........................................................................... 65
IV.4. General institutional provisions of the 2007 Japan-Indonesia EPA............................................................................ 67
IV.5. Specific institutional provision of the 2007 Japan-Indonesia EPA............................................................................. 68
IV.6. Dispute settlement in Pacific Agreement on Closer Economic Relations.................................................................. 70
IV.7. Institutional and dispute settlement provisions in the 2000 Mexico-Israel FTA.......................................................... 71
About the authors
Pierre Sauvé is Director of External Programs and Academic Partnerships at the World Trade Institute (WTI), University of Bern, in
Switzerland. He has been an advisor of ARTNeT in the area of services and investment regulation and negotiations since 2006.
Mr Sauvé holds Visiting Professor Appointments at the College of Europe in Bruges, Belgium, and at the University of Barcelona.
He serves on the Editorial Board of the Journal of International Economic Law and the Journal of World Trade as well as a
Member of the Review Committee of UNCTAD’s Series on International Investment and Development. He serves on the Advisory
Board of the World Trade Organization’s Academic Chairs Program. E-mail: email@example.com
Simon Lacey is Academic Director for the Masters Program on Trade, Investment and Competition Law and Policy (MTIC)
at Universitas Pelita Harapan, in Jakarta, Indonesia, where he is also a visiting lecturer. He previously served as Director of
Studies and Director of Capacity Building Programs at the WTI. He has worked as a trade policy and legal advisor in close to
thirty countries on issues of WTO accession and FTA negotiations, working for a myriad of donors including the Swiss SECO,
the Singaporean MFA, USAID, EuropeAid, Italian and French aid agencies, the World Bank, and most recently for the Asian
Development Bank. E-mail: firstname.lastname@example.org
ABOUt tHE AUtHORs
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtionx
Abbreviations and acronyms
ACP African, Caribbean and Pacific Group of States
ANA American Nurses Association
ASEAN Association of Southeast Asian Nations
AusAid Australian Government Overseas Aid Programme
CARIFORUM Caribbean Forum
CECA Comprehensive Economic Cooperation Agreement (Australia and India)
ComSec Commonwealth Secretariat
CSI Coalition of Services Industries (United States of America)
CSME Caribbean Single Market and Economy
DFAT Australian Department of Foreign Affairs and Trade
DSU Dispute Settlement Understanding of the World Trade Organization (WTO)
EPA Economic Partnership Agreement
EOUs export oriented units
EPZs Export Processing Zones
ESF European Services Forum
ESCAP United Nations Economic and Social Commission for Asia and the Pacific
EuropeAid Development and Cooperation Directorate General of the European Commission
FSM Federated States of Micronesia
FTA free trade agreement
GATS General Agreement on Trade in Services (WTO)
GATT General Agreement on Tariffs and Trade (WTO)
GTA Global Trade Alert
JICA Japan International Cooperation Agency
JSG Joint Study Group (Australia and India)
KORUS Free Trade Agreement between Republic of Korea and the United States of America
MAS Monetary Authority of Singapore
MOT Ministry of Trade (Indonesia)
NAFTA North American Free Trade Agreement
NGO non-governmental organization
NTE National Trade Estimate Report on Foreign Trade Barriers
NTP National Trade Policy
ODI Overseas Development Institute (United Kingdom)
OECD Organisation for Economic Co-operation and Development
OIF Organisation Internationale de la Francophonie
PACER Pacific Agreement on Closer Economic Relations
PBS Pharmaceutical Benefits Scheme (Australia)
PTA preferential trade agreement
SEZs Special Economic Zones
STPs Software Technology Parks
STPI Software Technology Parks of India
STRI Services Trade Restrictions Index
TPA trade policy analyst
TPP Trans-Pacific Partnership
TPR trade policy review
TRIMs Trade-Related Investment Measures
TRTA Trade-Related Technical Assistance
UNCTAD United Nations Conference on Trade and Development
USSFT United States-Singapore Free Trade Agreement
USAID United States Agency for International Development
USTR United States Trade Representative
WTO World Trade Organization
ABBREviAtiOns AnD ACROnyms
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtionxii
This training manual has been prepared under the evidence-based trade policymaking capacity- building programme of the
United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). It is intended to serve as a reference manual
for government officials tasked with the difficult job of preparing for, and conducting, negotiations on services liberalization in the
context of an upcoming preferential trade agreement (PTA). It assumes that services negotiations will inevitably be part of a wider
liberalization agenda being contemplated in the context of negotiations towards either a free trade agreement (FTA) or some
other form of economic integration initiative. Therefore, readers are likely to be part of a much larger negotiating team, some of
whom will negotiate on issues such as trade in goods, investment or government procurement while others will concentrate more
narrowly on services negotiations.
Although this manual holds lessons for all trade negotiators and trade negotiations (including those at the multilateral level), it
has been written with particular focus on services trade. It has also been drafted with a view to serving policymakers and trade
negotiators in developing and transition economies. The authors have endeavoured, to the greatest extent possible, to rely on
sources and reference materials already in the public domain. Readers can thus download most of the cited materials themselves
without having to pay expensive subscriptions or other fees for access to content.
Use of this training manual is predicated on readers’ having at least a basic understanding of the rules governing international
trade in services, including those of the World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS).
Because this training manual focuses on preparing negotiators for services negotiations in the context of a PTA or regional
economic integration initiative, the authors have refrained from providing an explanation of GATS rules and principles; readers
seeking more information on these aspects are referred to the many good (and mostly free) sources that exist, including the
WTO Introduction to GATS1 or UNCTAD’s Dispute Settlement Training Manual on GATS.2 Some familiarity with GATS rules can
be considered a necessary starting point to using this publication.
In preparing this training manual, the authors have drawn on several decades of combined experience, either as trade negotiators
or as advisors to trade negotiators in and/or from more than 40 countries, developed and developing. The authors have therefore
endeavoured to tailor this work to the specific needs of, and challenges faced by, negotiators in developing countries and
transition economies. A comprehensive treatment of the subject matter work would likely comprise several hundred pages,
1 Available at www.wto.org/english/tratop_e/serv_e/gsintr_e.doc (accessed 31 May 2012).
2 Available at http://unctad.org/en/docs/edmmisc232add31_en.pdf (accessed 31 May 2012).
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtionxiv
but the authors have tried to keep this manual to a more easily accessible length. In doing so, it was assumed that readers will
familiarize themselves with the contents of the manual in one or several sittings, and then use it as a reference for future work as
particular needs arise. It is also for this reason that most of the sources used are open-access, allowing readers to delve more
deeply into many of the sources cited.
Because it is primarily directed at policymakers and trade negotiators in developing countries and transition economies, this
training manual also contains a lengthy section on Aid for Trade in services (chapter 3) which is intended: (a) to provide readers
with some insight into the type of assistance that is available to stakeholders; (b) to stimulate readers to think about what type of
assistance would best suit the specific needs of their economies: and (c) how to craft provisions in a PTA that will ensure such
assistance is provided in a timely and effective manner as part of the quid pro quo inherent in any PTA’s request-offer and mutual
exchange of concessions dynamic.
This manual is based on the belief by both authors that developing countries and emerging economies are the ultimate masters
of their own policy destinies. It is, accordingly, up to political leaders, policymakers and negotiators of such countries to approach
trade negotiations with the proper preparations, a clear set of objectives and a well-conceived strategy for attaining these
objectives. This manual is intended to be an aid in the pursuit of that task, no more and no less.
The authors hope they have provided a useful resource for policymakers and negotiators who have been tasked with the
preparation and conduct of services negotiations in the context of an upcoming or pending PTA. It is also hoped that in doing so,
a contribution has been made to closer economic integration and development cooperation between developed and developing
countries, in the spirit of open regionalism.
Preparing for negotiations on services is largely about doing one’s homework and preparing, to the greatest extent possible,
for the challenges that negotiators can be expected to face, both in the negotiating room and outside. This chapter deals
with the various aspects of this preparatory phase, focusing first on establishing the right working structures and relationships
within government, before discussing the need to consult broadly outside government circles, i.e., with the private sector and
any civil society stakeholders that are likely to take in interest in one or more aspects of the negotiations. The findings and
recommendations from this chapter are derived largely, albeit not exclusively, from recent reference works by Marconini and
Sauvé (2010) and Feketekuty (2008). Box I.1 gives a brief outline the terminology used in this publication.
preparIng for negotIatIons
Box I.1. Note on terminology
At this point, a brief note is probably required on terminology. the authors use the abbreviations FtA, PtA and EPA largely
interchangeably, despite the substantive differences that may, in reality, exist between the terms that they stand for in any given
instance (free trade agreement, preferential trade agreement and economic partnership agreement, respectively). the term “free trade
agreement” is normally used in the context of an international trade agreement to liberalize trade among two economies (although
the Free trade Agreement of the Americas [FtAA] was intended to encompass many nations from north, south and Central America).
A “preferential trade agreement” can be an FtA, but it might also be an “arrangement” under which two or more countries agree to
accord preferential market access, with or without this being done on a reciprocal basis. the term Economic Partnership Agreement is
a more recent addition to the trade policy lexicon, and is typically used when an international treaty is concluded between a developed
and developing country on economic cooperation and trade. Unless otherwise indicated, when the term PtA or FtA is used in this
publication, it means an international trade agreement that has been concluded between two or more economies and which entails
some degree of reciprocal exchange of trade liberalization commitments on substantially all trade (i.e., with no sector excluded).
Source: Authors’ notes.
A. Establishing the mandate – political endorsement from the highest levels
Marconini and Sauvé (2010) pointed out that trade negotiations on services inevitably focused on behind-the-border measures
that fall within the ambit of regulatory agencies who may have little understanding of, or even much interest in international trade
policy. Officials in such agencies generally tend to be concerned with a different set of regulatory objectives, such as monetary
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion2
stability or managing inflation (in the case of financial regulators), or overseeing the viability and integrity of communications
networks (in the case of the telecoms regulator) than about ensuring non-discriminatory market access or national treatment
that are the essential tenants of a trade official’s policy portfolio. For this reason, and because of the inherently complex and
sometimes conflicting policy nexus that negotiating on behind-the-border regulatory frameworks touches upon (its cross-cutting
nature), it is important that the negotiating mandate be rooted in some degree of inter-agency consensus. Even more importantly,
it must have the backing, support and endorsement of the highest level of political leadership.
It is thus recommended locating overall responsibility for negotiations on trade and services “at the highest levels of government”3
and this advice is certainly very sound. The decision to embark on negotiations towards an FTA or PTA should ideally come
from the president or prime minister and should be the result of an understanding to do so between the Heads of State of the
B. Identifying and mobilizing actors within government
Once the decision to launch PTA negotiations has been taken and announced, the agency that will take the lead in services
negotiations must begin a wide-ranging process of consultations with the many sectoral ministries and regulatory agencies
likely to be affected by the type of commitments the country is sure to be asked to make. This consultation process should also
include those lawmakers who are likely to play an instrumental role in getting the results of the negotiations ratified so they can
become law. The consultation process serves to inform all stakeholders and helps to achieve “buy-in” from them for when their
help is needed at a later stage (Feketekuty, 2008). Many domestic political and commercial stakeholders need to be included
in the consultation phase in order to determine what the country’s national economic interests are in upcoming negotiations on
services liberalization. The discussion here focuses first on those agencies within the executive branch of government before
discussing the (often overlooked) legislative branch.
1. Executive agencies
Many governments have, in recent years, become cognizant of the cross-cutting and inter-departmental nature of trade in
services, and have taken commensurate organizational steps to establish working groups and consultative mechanisms within
existing institutional structures.5 Similarly, most countries that have recently acceded to the World Trade Organization (WTO)
(including many transition economies), have gained valuable experience in establishing an inter-agency or inter-ministerial
committee to coordinate the acceding country’s decision-making processes and policy commitments during the accession
3 Namely, in the office of the presidency or the prime minister. See Marconini and Sauvé (2010) for additional explanations.
4 In this context, reference is made to the now famous anecdote that the decision to launch an FTA between Singapore and the United States
was taken during a midnight round of golf between then United States President Bill Clinton and then Singapore Prime Minister Goh Chok Tong
(see Koh and Lin, 2004, pp. 6-7).
5 Both authors were involved with the Indonesian Trade Assistance Project in 2007, one element of which was the establishment in 2007 of
a team within the Ministry of Trade to deal specifically with services negotiations, at WTO, within the Association of Southeast Asian Nations
(ASEAN) and in PTAs (United States Agency for International Development, 2009).
6 See, for example, the case study by Pan (2011) of Cambodia’s accession to WTO.
7 Even this statement must be qualified by the fact that many PTAs with developing countries specifically exclude or restrict from services or
investment liberalization any market access or national treatment concessions for commercial farming, forestry or fishing activities.
Ministry of Health, Labour and Welfare
Ministry of Foreign Affairs
Ministry of Land, Infrastructure, Transport and Tourism
Ministry of Internal Affairs and Communications
Ministry of Agriculture, Forest and Fisheries
Ministry of Finance
Ministry of the Environment
Ministry of Justice
Ministry of Economy, Trade and Industry
Ministry of Education,Culture, Sports, Science and Technology
Ministry of Defense
Box I.2. Organizational structure of the Government of Japan
Source: Authors’ adaptation from www.kantei.go.jp/foreign/constitution_and_government_of_japan/charts_e.html (accessed 20 may 2012).
Box I.2 shows a simplified organizational chart of the Government of Japan, with the 12 main ministries across which the
executive’s numerous policy portfolios are spread. Of the 12 listed, arguably only the Ministry of Agriculture, Forestry and Fisheries
would not have to be part of government-wide consultations to determine the various agencies’ specific interests in upcoming
negotiations on services.7 Each and every one of the other ministries will have various interests requiring consultation, and which
should be incorporated as appropriate into the country’s negotiating strategy.
As mentioned above, with the exception of the Ministry of Agriculture, Forestry and Fisheries, each ministry is likely to have
responsibilities and regulatory objectives that could be affected by, or even conflict with the concessions to be made in negotiations
on services liberalization. It bears recalling here that the scope of services agreements, whether the General Agreement on Trade
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion4
Box I.3. Services negotiations and executive branch stakeholders in Japan
• The Cabinet Officewill need to be informed at regular intervals on the progress of both consensus building and the actual
negotiations, once they start, since it is the Cabinet that sets the Government’s policy objectives at the highest level.
heavily before and during negotiations, including the Global iCt strategy Bureau, the information and Communications Bureau, and
the telecommunications Bureau.
as regularly once negotiations have begun. its interests in services negotiations stem from the fact that it represents the Government
immigration policies (which could be affected by commitments on the movement of natural persons). Finally, it is most likely to be
treaty texts once negotiations have been concluded.
to be taken into consideration, for obvious reasons. it might also be a useful source of information for trade negotiators trying to gain
a more detailed understanding of their PtA negotiating partners.
consumer credit amongothers. Finance officials can be expected to exercise a somewhat cautious, conservative and restraining
than any need to extend concessions to trading partners. However, the minister of Finance is a powerful voice in Cabinet and securing
• TheMinistry of Education, Culture, Sports, Science andTechnologywill also need to be consulted and kept informed during
• TheMinistryofHealth, LabourandWelfarewill have sectoral interests that are relativelynarrowlydefinedandwill shape its
views on upcoming negotiations, but which should equally ensure that it will demand to have these views heard. Health services
are increasingly traded internationally through all modes of supply, and commitments on the natural movement of persons will have
• Asthe leadagencyprimarily responsible for thenegotiations, the interestsof theMinistryofEconomy,Tradeand Industryare
services negotiations, particularly those on transport services, but also with regard to any concessions that may affect market access
in Services (GATS) or PTAs, is typically very broad, extending to all measures affecting services. As WTO case law has shown
on numerous occasions, such scope is often broader than policymakers have typically assumed, such that trade law in services
and goods may often be closely linked and provide context for purposes of dispute mediation. Box I.3 contains a more detailed
discussion, based on the example of the Japanese executive structures indicated above, of the type of interests each of the
ministries shown is likely to have with regard to services negotiations.
Of course, each country is different and each government parcels out and allocates responsibilities for different regulatory
sectors in the manner that most befits its own internal political and policy realities and needs. Nevertheless, the description of the
various ministries provided in the Japanese examples in boxes I.2 and II.2 should be sufficient to inform readers as to what type
of inter-agency structures and mechanisms are likely to be necessary in their own domestic institutional context.
An equally important but often overlooked stakeholder within government, the legislative branch or Parliament is considered in
the section below.
Some constitutional systems have a particularly well-established and robust separation of powers, in which the legislative branch
is given considerable influence in both the formulation of trade policy – and thus the framing of a given negotiating mandate – as
well as the more traditional power to give trade agreements the binding force of law by means of ratification. The United States is
perhaps the best known example, where Congress to a very large extent sets the limits on what concessions the United States
Trade Representative (USTR) and, by extension, the President may offer. In other constitutional systems, the Parliament plays a
very important role in being the ultimate arbitrator of whether or not a given trade agreement will be allowed to enter into force,
with lawmakers (particularly opposition Parties) playing the role of “the Sword of Damocles”, threatening to make a negotiated
trade agreement mute by refusing to ratify it. Republic of Korea is perhaps the best known and most recent example of this,
where opposition politicians repeatedly threatened to block any hope of ratifying the United States-Republic of Korea FTA over
various concerns, none of which were specifically related to trade in services. In yet other systems, the Parliament appears to
play little more than a “rubber stamp role”, either because its powers have largely been curtailed in favour of the executive, or
because it is firmly in the hands of the ruling Party. However, other countries also have such processes in place, such as Thailand,
where policymakers and negotiators in the executive branch may not proceed with FTA talks before being given a specific
mandate to do so by Parliament (see Marconini and Sauvé, 2010).
Box I.3. Services negotiations and executive branch stakeholders in Japan (continued)
• TheMinistry of the Environment is likely to have somewhat narrowly defined sectoral interests focused primarily, albeit not
exclusively, on environmental services, and will need to be part of the broader consultation process before negotiations start.
may open strategically import sectors in terms of national defence, such as telecommunications, aviation and shipping to name just a
Source: Authors’ notes.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion6
Either way, there are many reasons why it is good practice to actively consult with, and inform the legislative branch in the
context of future or ongoing trade negotiations on services, the main reason being that doing so increases the legitimacy of the
negotiated outcome once it has been achieved. This is all the more so in the case of services, given the regulatory (and hence
legislative) intensity of the subject matter. Moreover, there have been numerous instances of the lack of parliamentary support
derailing or delaying the ratification of a trade agreement. One prominent recent example was the refusal of Vanuatu’s Parliament
to ratify its WTO accession package due, among other things, to the detrimental effect that the envisaged tariff liberalization
was foreseen as having on the country’s public finances.8 Box I.4 summarizes the parliamentary scuffles that accompanied
the ratification of the United States-Canada FTA in 1988. It also refers to a number of other constituents outside the central
Government; these are mentioned following box I.4.
The United States-Republic of Korea FTA also saw its fair share of high political drama before it was finally ratified by both the
United States Congress and the Korean National Assembly. Box I.5 contains an excerpt from a newspaper article published on
18 September 2011, which documented some of the difficulties that the ruling Party in the Republic of Korea had in obtaining
passage of the bill to ratify the FTA.
In summary, although in many countries consultations with Parliament may not always generate a full consensus between
negotiators and policymakers over the Government’s negotiating mandate (this may be because parliamentarians lack sufficient
technical knowledge of the issues to enable them to provide much actionable guidance), it is equally true that failing to consult
with, and inform Parliament can result in unpleasant surprises for the executive branch and trade negotiators who wish to see
the results of their hard-fought efforts ratified swiftly.
Box I.4. Canadian parliamentary scuffles and ratification of the United States-Canada FTA in 1988
atreatywassigned in1987betweentheAmericanandCanadianGovernments.Before itcouldtakeeffect, thetreatyhadtobe
Party and the new Democratic Party accused the Conservative Party of basically selling Canada to the United states and reducing its
sovereignty. there was also a debate between the provinces and Ottawa. While some provinces supported the treaty, such as Quebec,
While some business sectors were in favour of the agreement, union groups were not. the FtA was also scrutinized from the point
8 There was also an issue involving liberalization of telecoms services (Grynberg and Joy, 2000).
Box I.5. Parliamentary opposition to ratifying international trade agreements: The case of the Republic of Korea-
United States FTA
Opposition parties hang onto hard line position on ratification bill
Ruling and opposition parties are preparing to lock horns once again over the free trade agreement between Republic of Korea and
the United states (KORUs).
main opposition Democratic Party lawmakers on the Parliamentary Committee on Foreign Affairs and trade left the meeting room as
Grand national Party promised to seek approval from opposition parties in passing the bill at the parliamentary session.
released a United States diplomatic cable that Kim Jong-hoon,Minister forTrade, on 29August 2007, told thenUnited States
Ambassador to Republic of Korea, Alexander Vershbow, and then-congressman Earl Pomeroy, that after the FTA signing the
this date is when the suspension of the application of tariffs to rice by the World trade Organization is to expire. the allegation
contradicts the Government’s stance that rice tariffs and FtA would be dealt with separately.
behind the FtA deals.
Kim and other opposition lawmakers were also expected to pitch their voices against the Grand national Party’s unilateral reference
of the FtA bill passage and its effect after the reference.
Source: Excerpt from an article in the Korea Herald, dated 18 September 2011, titled “Parties to clash over US FTA again”, available at http://view.koreaherald.
com/kh/view.php?ud=20110918000239&cpv=0 (accessed 31 May 2012).
The following section discusses the case of other stakeholders whom policymakers should ideally consult when preparing for
negotiations on trade in services if they wish to have the best possible handle on their negotiating objectives. The private sector
is considered first, followed by civil society.
C. Consulting with stakeholders outside of government
Apart from the various stakeholders within the executive and legislative branches of government that are discussed above,
some of the most crucial inputs towards formulating negotiating objectives and determining the likely limits of domestic support
for future commitments in services trade negotiations can, and do, come from the private sector. Another important set of
stakeholders can be found within civil society; this is particularly the case with organized labour and environmental groups, many
of which tend to view trade liberalization with a certain degree of scepticism. Each of these two broad stakeholder communities
is discussed separately below.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion8
1. Private sector
The depth and sophistication of the private sector’s engagement in consultations prior to trade in services negotiations varies
immensely from one economy to another; even in some advanced developed countries, policymakers may be at a loss on how
to obtain sufficient input from private sector stakeholders. This was notably the case in Singapore when its negotiators were
preparing to begin trade talks with the United States. Despite its best efforts, the Government of Singapore was unable to garner
much active participation from the private sector in formulating an inventory of negotiating requests to present to the United
Some countries, such as the United States and Canada, have long had formal and effective mechanisms for garnering and
harnessing the support of the private sector in the lead-up to services trade negotiations. In the United States, one of the
most important bodies in this process is the Coalition of Services Industries (CSI),9 which regularly lobbies both the legislative
(Congress) and executive (USTR and other agencies) branches of government in order to achieve the desired outcomes of its
members, who include some of United States (and the world’s) largest and most influential service sector multinationals. Box
I.6 contains a website screenshot of the CSI “Members” section. Readers will notice that some of these companies have a
global footprint in industries as diverse as financial services, logistics and distribution, telecommunications or IT services. Other
countries such as Australia, Hong Kong, China, and Malaysia also have trade associations which unite their leading service
exporting companies and aim to influence trade policy (and other regulatory developments) in favor of their members. Other such
industry bodies that regularly engage with policymakers in the United States with a view to shaping the substance and outcome
of services trade negotiations include:
• American Insurance Association;
• National Retail Federation;
• National Foreign Trade Council;
• Securities Industry and Financial Markets Association;
• Telecommunications Industry Association;
• United States Chamber of Commerce;
• United States Council for International Business.
In the United States, these industry bodies are afforded various means by policymakers to have their views heard, such as
submitting written comments to the USTR directly, providing testimony at Congressional hearings on upcoming negotiations, or
(more significantly) participating in the so-called Trade Advisory Committee process. Established in 1974, and modified several
times since then, such committees are formally constituted bodies comprising representatives from a broad swath of industries
and economic sectors, and are convened by the USTR. Box I.7 contains a diagram of the Trade Advisory Committee structure
as it was in 2009 (it has since been slightly modified).
9 See http://uscsi.org/ (accessed 31 May 2012).
Box I.6. Website screenshot of CSI “Members” section
10 See www.esf.be/.(accessed 17 July 2012).
In Europe, the equivalent body is the European Services Forum (ESF), which has a membership of more than 30 major European
companies, more than 30 European and National Business Federations, spanning 20-plus different sectors and represented in
all 27 European Union member States.10 In the context of WTO and preferential trade negotiations, ESF takes positions and tries
to influence decision makers in Europe (particularly the European Commission and the Council of Ministers and, increasingly, the
European Parliament). The CSI and ESF websites both serve as uniquely informative sources of information for market access
and other issues of the greatest concern to services exporters in these two large trading partners.
For many countries, the establishment of a formal and permanent structure such as the policy advisory committees discussed
above would not be practical, not least due to cost reasons. Nevertheless, there are other ways for governments to solicit input
from the private sector with a view to upcoming negotiations on trade in services. Several countries publish their intentions to
enter into trade negotiations in the near future and solicit input from any stakeholder with an interest. Examples of this include
Australia and New Zealand, which regularly invite citizens, corporations, or any other bodies to share their concerns regarding
future FTA negotiations. Box I.8 contains an excerpt from the Australian Department of Foreign Affairs and Trade (DFAT) website
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion10
Box I.7. United States Trade Advisor Committee structure
summarizing the results of such public consultations in the context of a planned trade agreement with Pacific Island nations
Because it is not governments that engage in trade but rather businesses, it is crucial for governments to seek and obtain inputs
from the private sector as policymakers start to formulate negotiating objectives in anticipation of launching negotiations on
trade in services. This is equally true in terms of offensive as well as defensive interests, with exporting service providers able to
provide input on the first set of interests, and import-competing service providers able to do so for the second. Consulting with
and actively affording the private sector a chance to participate in this process can do more than merely provide key insights to
policymakers. Doing so can also help strengthen the business case for – and resulting democratic legitimacy of – any ultimate
Box I.8. Public consultations in the context of planned Pacific Agreement on Closer Economic Relations (PACER) Plus
Summary of views expressed in consultations on PACER Plus
and economic integration agreement, which is referred to as PACER Plus.
Thefirst roundofnegotiations,whichwilldiscuss thescopeandtimetable fornegotiations, isexpectedtobeheldno later than
in line with the Government’s commitment to ensuring Australia’s trade objectives are pursued on the basis of community consultation,
The Department of ForeignAffairs andTrade, via newspaper advertisements, e-mails to stakeholders and its website, called for
cultural, regulatory and environmental impacts expected to arise from Australia’s participation. Reflecting the development aims of
from a variety of stakeholders.
on the Department’s website.
the Australian Government welcomes all the submissions received and the views expressed during the initial consultations. these
submissions and views will be considered in the formulation of our future approach to PACER Plus negotiations. the Australian
Government will continue to provide an opportunity for domestic stakeholders to express their views throughout the course of the
PACER Plus negotiations.
Priorities and objectives
A proportion of stakeholder views expressed indicate that there is clear support for the Australian Government’s overall priorities and
the Australia and new Zealand Banking Group’s submission also indicated it was “strongly supportive of Australian Government
efforts to work with Forum island Countries to build the capacity and infrastructure they require to take greater advantage of trade
pact to deliver meaningful outcomes for Forum island Countries, both Australia and new Zealand will need to ensure [that] the Forum
and technical assistance.”
the national institute of Accountants written submission was another instance of support for the negotiation of a “new trade and
economic agreement between Australia, new Zealand and Forum island Countries, known as PACER Plus, and believes it will provide
further assistance to the region to promote sustainable economic development.”
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion12
2. Civil society
Like the private sector, civil society also contains various other stakeholders who hold strong views on the perceived impact of
future negotiations on trade in services. As stated above, this is particularly true for organized labour and environmental groups.
It can also be the case with organizations that pursue social, developmental or sector-specific objectives in the home country
or the country with which negotiations are being contemplated. The latter groups often tend to approach trade and investment
negotiations with a greater degree of scepticism than many private sector actors. They also often tend to be concerned with
broader economic and social policy objectives than just improving market access to, or the conditions of competition, in foreign
services markets. Despite any opposition such groups may have, and regardless of how well-founded such opposition may
or may not be, it is important from the perspective of the legitimacy of negotiated outcomes to include these groups in the
consultation process early on. A failure to do so could prove costly at the ratification stage.
Box I.9. Civil society concerns regarding PTA negotiations
6. Uniting Church position on (PACER) Plus
these agreements will curtail their governments’ ability to develop policies which are tailored to their particular development needs.
in particular, they are concerned that the agreements will:
trade negotiations and attempting to push them into trade liberalization on unacceptable terms.”
views.html (accessed 31 may 2012).
Box I.8. Public consultations in the context of planned Pacific Agreement on Closer Economic Relations (PACER) Plus
the Australian industry Group supported the “Government’s proposal to commence negotiations on PACER Plus, and its objective to
ability to trade.”
As explained by the excerpt shown in box I.9, a submission by the Uniting Church of Australia appears to be advocating an
approach that is wider than just merely promoting a narrowly-defined set of export-orientated economic interests in favour of one
that takes the economic and social development needs of Australia’s trading partners into consideration. Whereas it is probably
fair to say that the Uniting Church does not represent a large or influential constituency in Australia, similar groups may wield
much greater influence in many other countries, making it imperative that policymakers consult them throughout the preparatory
and negotiating process.
Organized labour is often one of the most vocal voices among civil society stakeholders, and often comes down on the defensive
side of the various economic interests in contention. Whereas organized labour is typically more focused on shaping negotiating
outcomes in negotiations involving the liberalization of goods trade, it is not uncommon that various potentially adversely affected
Box I.10. American Nurses Association efforts to influence the focus and outcome of trade negotiations on nursing
services in the late 1990s
Impact of global trade on nursing
US nurses face increased competition
AnA has been working on many fronts to ensure fair play for Us nurses; they successfully advocated for a delay of Congressional
“fast-track” trade legislation, inpart because the legislation’s extensionproposals focusedon trade ingoods,not services.Asa
result, nursing’s concerns were not addressed. AnA is “committed to international trade agreements that protect and enhance all
participating countries’ public health systems and promote rising wage standards and working conditions for nurses,” says Peterson
[Cheryl A. Peterson, msn, Rn, senior policy fellow, international affairs, AnA’s Department of Health and Economic Policy].
Barriers to working abroad
According to Peterson […] Us nurses wishing to work abroad […] face hurdles. Among them is an inequity under current nAFtA
treaty provisions toward Us nurses who seek to work in Ontario or Quebec. Currently, Us nurses wanting a licence to practice in these
two provinces must [either] be permanent residents or obtain Canadian citizenship. this is a direct contradiction to the basic principles
upon which nAFtA was negotiated. no similar barrier faces Canadian nurses wishing to work in the Us.
[A]though it’s difficult forAmericannurses towork in England,Australia andCanada, it is relatively easy for nurses from those
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion14
groups will also weigh in with regard to upcoming services negotiations. Box I.10 sets out efforts by the American Nursing
Association (ANA) to influence the focus and outcome of these negotiations, both during and after the North American Free
Trade Agreement (NAFTA).
The scope of such concerns has heightened in recent years with the IT-induced possibility of offshoring many services
transactions. Labour concerns over services negotiations also typically extend to the treatment of labour mobility in services
agreements. This is a consequence of the labour market effects arising from the benefits of temporary entry commitments agreed
in trade agreements.
As box I.9 indicates, ANA argued its case on the basis of various considerations, including the integrity of public health systems
as well as the objectives of improving wage standards and working conditions for their members. However, ANA also couched its
arguments in terms that were more easily incorporated into the existing cultural and intellectual dynamics of trade negotiations,
i.e., non-discriminatory and reciprocal market access.
Because services negotiations inevitably have an impact on regulatory frameworks that operate far behind a country’s borders,
and because so many different services are traded internationally through the various modes of supply, policymakers can and
should expect the commitments they seek and grant in the context of services negotiations to have an impact on a wide range of
stakeholders, both market participants and other constituencies. They must therefore ensure that they consult as widely and as
comprehensively as resources and time allow. Failing to do so may have two main implications: (a) negotiators will be less well-
informed than they should be about their immediate offensive and defensive interests going into negotiations; and (b) the eventual
negotiated outcome could run seriously afoul of potentially powerful and well-organized opposition, either making ratification
uncertain or subjecting such ratification to unwanted delays.
3. Some process-related comments on stakeholder consultations
Consultations need to be designed to satisfy multiple objectives as sectoral consultations tend to involve vertical discussions
with industry and the relevant regulatory agencies. The latter are often hostile to externally-induced change and resistant to
liberalization. Horizontal consultations aim to compare issues that arise across several sectors and involve both users and
providers, domestic and foreign economic actors, so that in these consultations the views expressed may differ considerably.
By way of an example, telecommunications suppliers operating in oligopolistic markets may wish to slow down the pace of
liberalization, whereas banks and IT companies may push for more rapid market opening with a view to reducing their input costs
and improving their bottom lines
The key is to design the consultation process in such a way that it can provide government with a clear sense of the pros and
cons of market opening as well as a sense of how the costs and benefits of liberalization are likely to be distributed spatially within
a country, between small and larger firms and across various worker categories. This sort of analysis will allow a government
to compare and contrast the views of users and providers, as well as those of domestic versus foreign actors, and those of
established firms relative to those of potential market entrants.
It will ultimately be up to the coordinating ministry, i.e., the ministry that sets the domestic agenda for the negotiations (trade,
foreign affairs, and the office of the prime minister or the president) that must arbitrate between the differences that inevitably
arise when competing and conflicting interests vie with one another to influence the decision-making process in the context of a
policy dynamic as inherently distributional as trade negotiations. It will fall on the coordinating ministry to arbitrate on distributional
matters in clashes between government ministries and agencies over regulatory turf (and thus potential sources of licensing
revenue and regulatory power) as well as clashes between import-competing and exporting interests, and between oligopolistic
rent seekers and those seeking to benefit from greater competition.
D. Conducting research on the trade policy regime of future PTA partners
At the start of this chapter it is noted that preparing for services negotiations is largely about doing one’s homework. This section
focuses on a very important part of that homework, i.e., research on the trade policy regime of negotiating partners. Thanks
to the Internet, this task is now vastly simpler than it was just a few years ago. The discussion here is limited to two sets of
publications, i.e., those that address market access barriers specifically from the perspective of a given country’s exporters, and
those prepared by international organizations.
1. Market access reports
Several countries now produce and regularly update inventories of the market access barriers faced by their exporters, including
the United States, the European Union and Japan. By far the most comprehensive of these inventories is produced by the United
States. The United States inventory of trade and investment barriers is called the “National Trade Estimate Report on Foreign
Trade Barriers (NTE)” and is updated on an annual basis, usually appearing in April of any given year.
Box I.11. Barriers to trade in services confronting United States exporters in the Japanese market
to formulate an Authorized Economic Operator (AEO) system, which allows exporters with good compliance records to process goods
level. the customs clearance process and clearance times could also be further facilitated by, for example, allowing all users of nippon
would also improve transparency and predictability for United states exporters.
Japanimposesrestrictionsontheabilityofforeignlawyerstoprovideinternational legalservices inJapaninanefficientmanner.
accelerating the registration process for new foreign legal consultants.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion16
Box I.11 contains an excerpt from the 2012 NTE concerning barriers to trade in services being experienced by United States
exporters in the Japanese market. If United States service suppliers are experiencing certain difficulties in a given market, the
chances are relatively good that this involves a practice or measure that affects most or all foreign services suppliers in the market
in question. Thus, the NTE can be a valuable source of business intelligence for negotiators seeking to identify what possible
offensive interests they may wish to assert in upcoming services negotiations.
Any of the concerns expressed by the United States in box I.11 could form the basis for a request by another country in the
context of its services negotiations. Reports such as the one cited here are thus a potentially very useful source of freely available
intelligence on the regulatory regimes and policies affecting market access and conditions of competition in foreign services
2. Reports prepared by international organizations
(a) WTO trade policy review process
Another informative source of intelligence on the trade policy regime of a future PTA negotiating partner is the WTO website,
provided that said partner is a WTO member. The WTO Trade Policy Review (TPR) is one of several monitoring instruments that
WTO operates, whereby each WTO member is, in principle, subject to a regular and relatively comprehensive review of its trade
policy regime at intervals of differing frequency, depending upon the respective member’s importance to world trade and level
of development. The reports prepared by the WTO Secretariat itself and the minutes of the meetings during which a given TPR
is adopted are likely to be the most informative sources of any policies or measures affecting trade in services in the member
11 More information on the WTO Trade Policy Review Mechanism, and the various reports and documents that have been produced by it, can
be viewed at https://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm.
Box I.12 Regulatory requirements in Chinese banking services
and which have total assets of not less than Us$ 10 billion at the end of the year preceding the application, may apply to establishment
bank. A foreign bank wishing to establish a branch must have total assets of not less than Us$ 20 billion at the end of the year
havepersistentprofit-earning capacityandagood reputation;haveexperience in internationalfinancial activities;have inplace
(b) WTO-OECD-UNCTAD report for the G-20 on trade and investment restrictions
Another, more recent, tool that seeks to monitor any changes to the openness of selected country’s trade policy regime is the
bi-annual WTO-OECD-UNCTAD report for the G-20 on trade and investment restrictions. Initially adopted as a mechanism to
report on an incremental increase in protectionist measures in the wake of the 2008 financial crisis, this instrument continues to
be a valuable resource, despite the limited number of countries it covers.
Box I.13. Trade Policy Review 2010 of China: Excerpt from the statement by the representative of Japan
Japan is particularly interested in the improvement of commitments, in the financial services, telecommunications services and
relevant legislations being operated consistent with the WtO rules.
Box I.12, for example, demonstrates the existence of specific conditions applied to foreign banks in China, which were identified
and described in the TPR of China (2012). Any of the restrictions mentioned in this box might be the subject of a request in the
context of services negotiations.
The issues raised by Japan in the context of adopting the TPR Report of China (box I.13) might also prove insightful for other
negotiators preparing for or engaged in negotiations with China on the liberalization of trade in services. Thus any official charged
with helping to prepare for negotiations on trade in services with a WTO Member is well advised to familiarize him or herself with
the respective country’s most recent TPR report.
Box I.14. Trade and investment restrictions: October 2011 WTO-OECD-UNCTAD G-20 report
to cabotage to indonesian vessels only. As of may 2011, only indonesian vessels have the right to transport passengers and cargo
within the country. However, a recently enacted regulation (Government Regulation 22 of 2011) postponed the entry into force of the
attempt to charter an indonesian vessel.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion18
The measure listed in box I.14 and the trend that it appears to indicate, could form the basis of a request to be formulated and
made in upcoming services negotiations. The WTO Report on G-20 Trade Measures has many such examples, from many
countries, and is thus well worth consulting in the preparatory phase.
(c) World Bank and OECD Services Trade Restrictions Indices
These relatively new sources are still very much in their early stages of development but will almost certainly become two of
the best sources of intelligence on barriers to trade in services in developed and developing countries. Work on Services Trade
Restrictions Indices (STRI) indices essentially comprises two different but complementary tools: (a) a database of regulatory
measures affecting trade in services on a country-by-country, sector-by-sector basis and mode of supply basis; and (b) an
index that provides a quantitative measure of services trade restrictiveness. The World Bank dataset has just been released for
public use. The data cover five key sectors: (a) finance (banking and insurance); (b) telecommunications (both fixed and mobile);
(c) retail distribution; (d) transportation (air and maritime (both domestic and international), road and rail); and (e) professional
services (accountancy, auditing and legal services). The data set, which covers 114 developed and developing countries, can be
accessed at http://iresearch.worldbank.org/servicestrade.
The OECD dataset is still under development and has yet to be made public (box I.15). From limited information publicly
available, it can be stated that the OECD STRI aims to cover a number of significant sectors, including computer services,
telecommunications, construction, professional services (engineering, architecture, legal and accounting), transport (air, maritime,
rail, road, courier), distribution and audio-visuals in some 34 member countries. As work on the Index continues, the ultimate goal
is to have all commercially significant services sectors covered.
Meanwhile, work recently commenced at WTO on mapping existing sectoral and modal restrictions to market access and
national treatment in member countries, thus complementing the efforts of the World Bank and OECD. The WTO work aims to
pursue an already completed analysis in the field of air transport services through its Quantitative Air Service Agreement Reviews
dataset, which can be accessed at.www.wto.org/english/news_e/news10_e/serv_14jun10_e.htm.
Box I.15. OECD Services Trade Restrictiveness Index (STRI) in telecommunications services
3. Other sources
For the sake of brevity, only two of the most informative sources, i.e., the Global Trade Alert (GTA), a private initiative of the Centre
for Economic Policy Research, and the media (newspapers in particular) are discussed here.
(a) Global Trade Alert
Set up shortly after the onset of global financial crisis of 2008, GTA is a predominantly private effort that brings together donors
from the public sector and civil society. It seeks to offer real-time intelligence on any measures enacted by governments that
impose additional restrictions on trade in goods or services. Although not limited to trade in services, GTA is nevertheless a
unique and timely tool for policymakers preparing for services negotiations, and provides a significantly more up-to-date resource
than the USTR’s NTE report or the WTO’s TPR reports.
Arguably the most informative GTA outputs are its reports on protectionism published by the Centre for Economic Policy Research
and freely downloadable from www.globaltradealert.org/. The eleventh GTA report, which was published on 14 June 2012,
documents in great detail how many governments have imposed protectionist measures that either contravene the spirit or letter
of their stated commitments to keeping global trade open as many countries struggle to recover completely from the 2008 crisis.
A part of any diligent policymaker’s preparation for trade negotiations will inevitably involve consulting the GTA website and
reports for updated information on any harmful trade measures in place between his or her home country and the country with
which negotiations are intended to be launched. Such measures will invariably have to be part of the negotiating objectives to be
formulated, particularly if the economic and political economy impact of the measures in question are significant.
Finding newspaper reports on matters that relate to international trade in services these days is as easy as typing a few key terms
into the search box at Google News or a similar search engine. Some subscriber-only access news organizations, such as World
Trade Online and the Washington Trade Daily offer updated coverage of the most important current developments affecting trade
policy and trade negotiations in general, but might not always be the best source of information on the enactment of a specific
measure affecting trade in services in any country. Other media groups, such as the Financial Times, the Wall Street Journal and
Bloomberg represent global news organizations that can and do follow regulatory and business developments governing various
areas of economic activity, including important services sectors.
The measure complained about in box I.16 by Tesco could easily form the basis for a request by any Party negotiating or planning
to negotiate services negotiations with the Republic of Korea.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion20
4. Requests made by PTA partners and stakeholder consultations
The old adage that there is nothing new under the Sun applies to trade negotiations generally and to services trade negotiations
specifically. The type of market access commitments previously requested and/or obtained by the PTA partner in earlier
negotiations with other countries and economies need to be reviewed, as doing so will easily be the best indication of the PTA
partner’s offensive interests, in terms of service sectors and modes of supply. These commitments can also provide context and
insights into the political economy and trade policy formulation dynamics at play in the PTA partner, which shrewd negotiators
will be able to utilize to their own advantage when preparing their countries’ own offers and requests.
Similarly, consulting domestic stakeholders is important in terms of both determining defensive lines in the sand (for offers) as well
as for developing an offensive strategy (for requests) that is truly in line with an economy’s existing or potential export interests.
Although this process is discussed in some detail in section C above, it needs to be reiterated here since this step should
also be contemplated once negotiators have a tentative but clearly emerging idea of what requests can typically be expected
from the PTA partner. Again, the rationale behind this type of process should be clear – inter-agency and external stakeholder
consultations serve the purpose of assessing trading partner requests. In fact, in many developing countries, where offensive
interests are weak or weakly articulated, the main task of consultations will be to consider whether, and at what pace, to heed
the market opening requests formulated by offensive-minded partners in the domestic market. For developing countries, where
Mode 1 and Mode 4 interests tend to predominate in the offensive side of the equation, consultations carried across a broad
range of domestic stakeholders will ensure that negotiators are ready to assert their own national economic interests.
E. Determining desired development outcomes
Advanced economies arguably engage in trade liberalization in order to maintain and increase competitiveness and national
welfare. While such aims also motivate developing country efforts, trade liberalization in such countries often also aims to
serve a broader set of economic development objectives. Thus, when preparing for services negotiations, policymakers must
understand what these economic development objectives are as well as how trade liberalization in general (and liberalization
Box I.16. Dismantling retail distribution restrictions in the Republic of Korea
Tesco attacks Seoul’s ‘red’ retail policy
By Christian Oliver in seoul
“Tesco’s chairman in SouthKorea– its biggestmarketoutside theUnitedKingdom–has launchedanunusually caustic attack
on Seoul’s policymakers, accusing them of being“red” for attempting to protect small family-run shops from the expansion of
stores generally cannot compete”.
of trade and investment in services in particular) may be harnessed to further these objectives. Subsection 1 below discusses
national development plans and how to formulate negotiating objectives that align with the over-arching goals contained in such
1. National development plans
Most developing countries have prepared individual national development strategies in cooperation with either the World Bank
and/or one of the regional development banks, such as the Asian Development Bank, or with one of the various United Nations
agencies that work on development issues, such as the United Nations Development Programme. Most national development
plans tend to group their various objectives under the familiar headings of economic growth, social equality (or harmony),
improved governance and environmental protection. Trade liberalization in general and liberalization of trade in services in
particular can be made to serve a number of these outcomes.
Most development plans share a number of common objectives, such as alleviating poverty for those still living in its grip as well
as achieving economic growth that benefits both rural and urban areas, and generates better employment opportunities for both
men and women. Improving transparency, accountability and governance standards more generally in the public sector are also
often reiterated objectives of national development plans, as is realizing the benefits of economic progress with minimal impact
Box I.17. Afghanistan National Development Strategy, 2008-2013
• AstableIslamicconstitutionaldemocracyatpeacewithitselfanditsneighbours,standingwithfulldignity intheinternational
justice and equal rights for all;
• A society of hope and prosperity based on a strong, private-sector led market economy, social equity and environmental
the Afghanistan national Development strategy serves as Afghanistan’s Poverty Reduction strategy Paper and uses the pillars,
principles and benchmarks of the Afghanistan Compact as a foundation. the pillars and goals of the strategy are:
1. security: Achieve nationwide stabilization, strengthen law enforcement and improve personal security for every Afghan;
2. Governance, rule of law and human rights: strengthen democratic processes and institutions, human rights, the rule of law, delivery
of public services and government accountability;
and state of Afghanistan, the region and beyond.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion22
12 In 2015, the Millennium Development Goals are to be replaced by the Sustainable Development Goals.
Box I.18. Millennium Development Goals
TheMillenniumDevelopment Goals are eight international development goals that all 193 United Nationsmember States and
1. Eradicating extreme poverty and hunger;
2. Achieving universal primary education;
3. Promoting gender equality and empowering women;
on the environment, or in a manner that is environmentally sustainable. Most national development plans also set out the general
objective of improving the investment climate and the business environment more broadly.
Of the development goals listed in box I.17, many of those under goals (2) and (3) could be directly or indirectly affected by the
outcome of trade negotiations. Before formulating negotiating objectives in anticipation of services negotiations, it is important
that policymakers familiarize themselves with their respective national development plans, so that they do not find themselves
ultimately working at cross-purposes with these plans. Moreover, a well-written national development plan will also discuss some
of the constraints or bottlenecks (physical, infrastructural, human-resource related or policy-related) that have hitherto held back
economic growth; policymakers preparing for services negotiations must also have an understanding of these constraints, both
when formulating offensive objectives as well as defensive needs.
Even in the absence of a national development plan, the Millennium Development Goals (referred to in the Afghanistan National
Development Strategy cited above) adopted by the United Nations in 2000, or the Poverty Reduction Strategy Papers many
countries have developed with World Bank and other sources of donor assistance, can provide policymakers with useful overall
guidance on the type of development objectives their trade policy in general and their strategy in services negotiations in particular
should ultimately be serving. Box I.18 sets out the Millennium Development Goals.12
Although these goals do not in and of themselves contain much specific guidance to policymakers trying to determine a given
set of objectives in anticipation of trade in services negotiations, they should provide help in contextualizing where a country’s
development efforts should be focused. Eradicating poverty through private sector growth, increasing education levels across
the board and promoting the participation of women in economic life are all goals that trade policy tools such as services
liberalization can be harnessed to help achieve.
Box I.19. Mainstreaming trade into development strategies – National Trade Policy of the Federated States of
Theultimateobjectiveof theNationalTradePolicy is topromoteexport-led sustainableeconomicgrowthandself-reliance,with
the ultimate objective of creating employment, alleviating hardship and raising the living standards of citizens of the Federated
states of micronesia. the trade Policy provides clear recommendations on what needs to be done in order to promote private sector
assistance is needed to upgrade the training institutions to develop skills that are needed to turn around the economy and export
the surplus skills.
TheFederatedStatesofMicronesiawill liberalizeandupgrade thekey service sectors suchas telecommunications,financialand
to be undertaken prior to liberalization and some regulations need to be put in place to protect public interests.
Sectors Trade policy
Tourism Liberalizationof the tourismsector toallowforeign investmentand improve thequalityofservices
offered to tourists.
2. Formulating negotiating outcomes for development
In addition to national development plans, many countries have also formulated a national trade policy as part of a broad range of
policy instruments aimed at furthering the objectives set forth in the national development plan. Known as “mainstreaming trade”,
this has been part of the so-called Enhanced Integrated Framework approach, whereby trade policy is to be treated as one of
the central tools for achieving economic development goals. Policymakers preparing for upcoming services trade negotiations
should take the time to determine whether such a national trade policy was ever drafted and, if so, to what extent it remains
Box I.19 refers to the National Trade Policy (NTP) of the Federated States of Micronesia, as formulated in January 2011. Although
still pending adoption by the nation’s Parliament, the NTP contains a set of relatively clearly defined objectives, although it
admittedly falls short of defining detailed strategies for using services trade liberalization to achieve these objectives. Nevertheless,
it should be relatively easy for policymakers from Micronesia to formulate negotiating objectives and strategies for achieving the
objectives, based on the guidance contained in the NTP.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion24
With or without a national trade policy, the strategic negotiating implications of many of the specific objectives set out in a
given country’s national development plan will be relatively obvious to most policymakers as they start to prepare for services
negotiations. Thus, the objective of encouraging foreign direct investment (FDI) in a number of strategic sectors (such as tourism)
can be achieved by making relatively liberal market access and national treatment offers in the sectors concerned, and by
removing any regulatory constraints that might currently be preventing potential FDI in this sector.
This last point leads to the discussion, in the next section of this chapter, of the need by policymakers preparing for services
negotiations to: (a) obtain a detailed understanding of their own regulatory regime as it governs different service sectors; and (b)
learn to appreciate how existing regulations may be having an impact on foreign service supplier, for better or worse.
F. Performing a trade-related regulatory audit
The benefits of conducting a trade-related regulatory audit are broadly recognized.13 Suffice to say here that, for most transition
economies, performing a comprehensive trade-related regulatory audit is something that is likely to have been done to a
relatively far-reaching extent during the WTO accession process. Such an audit may furthermore have been updated during any
subsequent WTO Trade Policy Review. Nevertheless, such an audit can still be performed with a view to helping to prepare for
upcoming negotiations and enhancing the quality of needed dialogue between trade negotiators, sectoral regulators and private
Furthermore, an audit may prove particularly helpful when PTA negotiations in services (and investment) proceed on the basis
of a negative list approach typical to the majority of PTAs in existence today. In this context, drawing up a list of non-conforming
measures might be particularly useful for:
(a) Promoting understanding among trade negotiators and regulators of the implications of making commitments in upcoming
(b) Benchmarking the national regulatory regime in terms of its effectiveness and compliance with international best practices;
13 See, for example, Marconini and Sauvé, 2010.
Box I.19. Mainstreaming trade into development strategies – National Trade Policy of the Federated States of
Sectors Trade policy
Education and human strengthening and upgrading the education system/programmes to improve the quality of education
14 Ibid, p. 36.
(c) Anticipating and preparing for requests that are likely to ensue from negotiating partners once services trade negotiations
1. Promoting understanding between trade negotiators and regulators
As discussed at the beginning of this chapter, regulators will generally have a solid handle on the sectors over which they have
been given regulatory oversight. Such regulators are most likely to view these powers through the lens of domestic policy
considerations. Trade negotiators on the other hand, may have less of a solid handle on the legal intricacies and regulatory
rationales and minutiae governing these various economic sectors and the policy measures governing them; however, they
must gain an understanding of them that is sufficient to allow them to sensibly conduct negotiations with trading partners on
their eventual liberalization. Enter the trade-related regulatory audit. As some commentators have noted: “[This] internal exercise
strengthens interagency coordination and promotes a healthy dialogue among the officials involved in domestic and external
policy matters, while also favouring a culture of regulatory reform and regulatory impact assessment.”14
2. Benchmarking the domestic regulatory regime
The trade-related regulatory audit also allows policymakers to perform a limited cost-benefit analysis of existing regulations in the
light of their stated regulatory objectives, and may also allow for a comparison to be made with similar regulations in a country’s
main trading partners. It should also allow policymakers to address the series of important questions that are summarized in
Box I.20. Trade-related regulatory audit: Key questions
of the regulatory regime?
• Canthepolicymeasurebeachievedthroughothermeansor inamanner thatmight lessentherestrictive impactontradeor
Source: marconini and sauvé, 2010.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion26
Box I.21. Conducting a trade-related regulatory audit: Canadian approach in NAFTA
member of the service negotiating team. the supervisor provided the group with a methodology to produce comparable reserva-
tions across all service sectors. Once the inventory was completed in draft form, the trade negotiating team met with ministries and
sectoral regulatory agencies. the team asked them to verify the accuracy of the information that had been collated.
negotiations on the north American Free trade Agreement. A similar dialogue was held with private sector representatives, who
were asked about the scope for modifying or eliminating the restrictive measures maintained at the domestic level.
Source: marconini and sauvé, 2010.
3. Anticipating and preparing for requests
There are obvious benefits that a trade-related regulatory audit can have in terms of preparing negotiators directly to anticipate
likely requests for regulatory change and liberalization of the regime governing the supply of services under existing laws,
regulations and administrative practices. This is particularly the case where the audit involves drawing up a negative list of non-
conforming measures, or measures that would have to be specifically tabled in order to be exempt from market access and
national treatment commitments in a PTA that took a negative list approach towards services trade liberalization (which, as noted
above, is increasingly likely to be the case). Box I.21 describes the mechanics of how the trade-related regulatory audit was
conducted by Canadian policymakers in the lead-up to the NAFTA negotiations, and the interaction that this inevitably entailed
between trade negotiators on the one hand, and regulators on the other hand.
To be sure, the approach followed by Canada (box I.20) may not be perfectly suited to all countries. However, it does show
the kind of inter-agency and cross-cutting cooperation that policymakers in a country preparing to embark on services trade
negotiations must be prepared to engage in if they wish to maximize the opportunity with regard to the forward looking and pro-
competitive regulatory reform that such negotiations represent.
Policymakers in developing countries should be aware of the fact that when negotiating with developed countries, the latter will
typically have an existing template, on the basis of which it will expect to negotiate. In addition, their willingness or ability to deviate
from this template may be limited by domestic political imperatives and the inherent path dependency of the trade negotiating
process itself. Policymakers in developing countries who are preparing for services negotiations must therefore carefully study
any previous PTAs that their future developed-country negotiating partners have already entered into, and consider the degree
to which specific trade disciplines and commitments entered under these agreements are compatible with the development
objectives of the negotiating developing country.
As mentioned at the outset of this chapter, preparing for services negotiations is essentially about doing one’s homework on a
broad range of domestic and foreign economic/trade policy issues. As explained in section C of this chapter, it is also a matter
of consulting widely both within and outside of government to better understand the prevailing domestic regulatory frameworks
and politico-economic realities. We turn now to some important considerations that should ideally govern policymakers conduct
during the course of services negotiations once these have started.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion28
A. Organizational and procedural issues
This section discusses a number of important considerations of a predominantly structural and process-related nature, starting
with who conducts negotiations and then how the negotiations are conducted.
1. Placing responsibility for the negotiations in the right hands
Whereas it is true that in the context of PTA negotiations, services are only one of several sectors on which negotiations take
place concurrently, it is equally true that the officials charged with negotiating on the various services sectors and other related
issues will typically be led by a relatively senior member of the government, someone with both policy expertise and political
access/influence. The commitments that will be requested (and, in many cases, made) in services negotiations are bound to
be some of the most far-reaching, controversial and institutionally difficult to implement; for this reason, the person ultimately
responsible for the negotiations (the chief services negotiator) must be up to the task of conducting them responsibly and
subsequently “selling” them to the broader political, regulatory and other domestic stakeholder constituencies.
Some countries appoint a chief trade negotiator for the negotiations as a whole, and then appoint heads of sectoral negotiating
groups. This approach can work if the chief trade negotiator is sufficiently experienced and adept at trade in goods, trade in
services, trade-related intellectual property rights and the various other issues that increasingly find their way into such agreements,
such as investment, government procurement, competition policy, trade facilitation etc. For most transition economies that
are relatively new to the business of negotiating trade agreements, it is probably wiser to appoint an official to have ultimate
responsibility over all services issues and several sectoral negotiators for the biggest services sectors, and then make another
(or several) official responsible negotiations on various clusters of related services sectors. This will ultimately be a question of
human resources, since it will depend on how many experienced officials a country is able to field in any given negotiation. Box
II.1 contains an excerpt from a case study on the PTA concluded in 2009 between Australia-New Zealand and ASEAN
There is an interesting point worth noting concerning the example involving Australia/New Zealand and ASEAN. Whereas most
of the negotiating groups were established at the very start of negotiations, others were only set up once there was sufficient
consensus on even negotiating the issues concerned as well as the parameters and objectives to which these negotiations
would be subject. This is more likely to happen in a North-South context, where the developed country may typically be looking
for a very ambitious outcome, whereas the developing country might be seeking to temper some of that ambition. This aspect is
discussed in more detail in subsection 3 of this chapter.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion30
2. Delegating responsibilities and process issues
The size of a negotiating team and how it is structured will first and foremost be a function of the resources that the negotiating
country can muster and bring to bear on the negotiations, which, in turn, will be subject to various capacity constraints. Another
influential factor determining the potential size of the negotiating team to be fielded is the complexity of the envisaged negotiations
themselves and the level of ambition pursued. A country that is content to limit itself to status quo commitments may take a
different approach to a country that is keen to advanced, clear offensive interests where a rollback of partner restrictions is the
Box II.1. Lessons from negotiating the ASEAN-Australia-New Zealand Free Trade Agreement
covered in other negotiating groups. From the early stages, detailed negotiations on a range of issues were conducted in working
and conformity assessment procedures, sanitary and phytosanitary measures, and Customs) that reflected the structure and coverage
of the FtA.
some issues, such as intellectual property and economic cooperation, were controversial and required considerable exploratory work
before their coverage could be settled. this meant that the Working Group on Economic Cooperation and the Expert Group on
Box II.2. Organizational and process-related issues in FTA negotiations
USSFTA: A personal perspective
By tommy t.B. Koh
[the] UssFtA has 21 chapters. Ralph ives and i agreed to create 21 negotiating groups, one for each chapter. in each negotiating
group, we appointed a lead negotiator. several of the more experienced negotiators were asked to be the lead negotiator in more than
one group. my deputy chief negotiator, Ong ye Kung, and i supervised the work of all the negotiating groups. During the negotiating
sessions, we would ask each lead negotiator to report on the work in his or her negotiating work at our daily delegation meeting. ye
Kung and i would, whenever necessary, suggest solutions to problems encountered. in between sessions, we would meet with our
colleagues in the different negotiating groups in order to take stock of their progress and to assist them in preparing for the next
Box II.2 contains an excerpt from a case study carried at on the United States-Singapore FTA (USSFT) written by Ambassador
Tommy Koh. It discusses a number of the organizational and process-related issues that he and his counterpart (United States
Chief Negotiator Ralph Ives) were confronted with during the negotiations as well as how they dealt with them.
This interesting excerpt highlights a number of relevant issues, i.e., the need to delegate effectively and to have several senior
negotiators involved. It also highlights the importance of having the negotiating team leaders meet regularly to discuss progress
and identify bottlenecks and negotiating red lines within and across specific issue areas. This is particularly important if
commitments in one sector are to be traded off against commitments in other sectors.
Also worth noting in the context of USSFTA was that separate lead negotiators were appointed for telecommunications/information
technology and financial services. Some developing countries may not have the resources to conduct negotiations in this way.
However, the dynamic nature of the markets involved in these two sectors, and the complex rules and structures established
to regulate them, make it imperative that the lead negotiators appointed for these two sectors not only have both technical and
substantive mastery of their respective briefs, but also the trust and confidence of the different regulatory bureaucracies on
whose behalf they are essentially negotiating.
3. Setting the right tone at the start
Various steps will usually need to be taken at the very outset of the negotiations (Feketekuty, 2008). These include deciding on
some logistical and purely procedural issues, such as:
(a) Deciding where negotiations will take place;
(b) Setting the negotiating agenda (an important exercise that involves framing the topics to be discussed and, thus, to a certain
extent the potential sectors of substantive coverage that negotiations will cover); and
(c) The rules of conduct that will govern a negotiation, which may also extend to issues such as confidentiality, contacts with the
media and even whether interpretation and translation services will be provided.
The start of negotiations could also be used to exchange as information, so that each of the negotiating sides can learn as much
about their respective partners’ expectations and constraints as possible. This can help avoid unpleasant surprises later on in
the negotiations, and may also help to manage expectations on each side.
It is also worth mentioning that typically during the opening stages of negotiations the groundwork is laid for the personal
relationships that play a centrally important part in the negotiations and can have a significant impact on outcomes. During the
course of the negotiations, which can often take a year or more, it is the quality of the working relationships of the negotiators
that drives progress as much as any other factor. This is even more so when discussing complex regulatory issues, where one
side is trying to induce the other to make changes to its regulatory regime, and the other side is seeking ways to accommodate
the requests while staying true to its own regulatory realities and constituents. Negotiations on behind-the-border measures often
require some “out-of-the box” thinking, which can only be achieved in a negotiating environment where each side has confidence
in the good faith of the other.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion32
B. Negotiating rules and market access
Marconini and Sauvé (2010) distinguished between two distinct set of substantive negotiating issues when they discussed
“Conducting services negotiations”, i.e., negotiating rules and market access. They pointed out that when services negotiations
took place in a North-South context, the developed country would typically approach the negotiations with a specific and pre-
established template, which would normally constitute its point of departure. Any explicit deviations from these rules, to the
extent they are less trade liberalizing, will generally tend to be hard fought and paid for with the appropriate negotiating coin.15
The example of the 2006 Economic Partnership Agreement (EPA) between Japan and the Philippines16 is used here to discuss
its constituent rules, before turning to the specific market access commitments that it embodies.
Under any North-South PTA, negotiations on rules are likely to be extensive and to go well beyond the relatively loose framework
that GATS achieved; they may try to create “conditions on the ground” that could potentially pre-judge the outcome of still
pending rules negotiations in the WTO context, such as on disciplines on mutual recognition, domestic regulation or emergency
safeguards. Discussions currently underway on the negotiation of a Trans-Pacific Partnership (TPP) offer a good illustration of
how PTAs can be rule-making trail blazers, creating new rules that can subsequently be taken up in other PTAs or ultimately at
the WTO level. Examples from the TPP in the services realm involve possible new disciplines on digital trade, data privacy as
well as state-owned enterprises. Here, developing and transition economies need to have a solid working understanding of the
limitations of their own regulatory environments as well as to what extent they wish to harness rules negotiations to address
Because most developed country negotiating partners will typically be negotiating on the basis of an established and proven
template, the onus is on the developing country to do its due diligence and identify possible inconsistencies in its own regulatory
regime. The choice then is whether to negotiate to keep such an inconsistency or to agree to remove it, preferably in exchange for
some kind of concession and – where conducive to the development needs of the developing country – subject to a time-frame
that allows regulatory authorities and market participants to adapt to the impending changes (through proper sequencing). This
is particularly the case where rules negotiations focus on the adoption and implementation of pro-competitive regulatory policies,
notably in network industries.
Box II.3 refers to the Japan-Philippines EPA and its Article 82, which addresses each country’s right to enact measures to restrict
trade in services in order to safeguard their respective balance of payments situations. Following the 1998 Asian financial crisis,
this issue was very much front-and-centre in the minds of policymakers and central bankers. As explained below, it was also
a final sticking point in the USSFTA that was ultimately only resolved at the highest level of the respective Governments. Article
82 of the Japan-Philippines EPA is examined here in order to gain a sense of the trade-offs made, and how the language that
ultimately found its way into this Article likely reflects the concerns of either or both PTA partners.
15 The term “negotiating coin” is used here to mean those concessions that must be conceded in order to “pay for” what is being requested.
16 See www.mofa.go.jp/policy/economy/fta/philippines.html (accessed 2 July 2012).
Box II.3. Article 82 of the Japan-Philippines EPA – ‘Restrictions to safeguard the balance of payments’
restrictions on trade in services, including on payments or transfers for transactions.
2. the restrictions referred to in paragraph 1 above:
(b) shall be consistent with the Articles of Agreement of the international monetary Fund;
(d) shall not exceed those necessary to deal with the circumstances described in paragraph 1 above; and
3. in determining the incidence of such restrictions, a Party may give priority to the supply of services which are more essential to their
economic or development programmes. However, such restrictions shall not be adopted or maintained for the purposes of protecting
a particular service sector.
Note that the possible scenarios that can justify enacting such restrictions are formulated in broader terms than simply a run-of-
the-mill balance-of-payments crisis. They include: (a) “serious BOP difficulties” as well as “external financial difficulties” (brought
on by, for example, a rapid currency devaluation or a collapse in confidence in the country’s financial stability); or (b) the threat
of one of these scenarios (triggered say, by a downgrade in the country’s credit rating by one or more ratings agencies, or the
nationalization of a major industrial or business entity and the ensuing capital flight that this might provoke). In short, the way that
paragraph 1 is formulated is likely to have been at the insistence of policymakers in the Philippines, where short-term financial
stability and BOP difficulties are considerably more likely than is the case in Japan.
It should also be noted that the constraints to which such restrictive measures would be subject are relatively “soft”, particularly
the requirements that they “shall avoid unnecessary damage to the commercial, economic and financial interests of the other
Party” and that they “shall not exceed those necessary to deal with the circumstances described in paragraph 1 above”. What
is “necessary” in the context of both these provisions is likely to be largely at the discretion of the country imposing such
restrictions, and it will be up to the other Party to effectively challenge the necessity or proportionality of those measures, based
predominantly on counterfactual arguments. These provisions were thus generally formulated in terms that were favourable to the
country seeking to have the required policy space to impose them, with relatively weak disciplines constraining their eventual use.
Finally, paragraph 3 of Article 82 confirms the suspicions expressed above as to whose interests it was predominantly adopted
for, i.e., the developing country PTA partner. Thus, the Party imposing such measures can vary the incidence or intensity of those
measures in line with what it perceives to be its own economic development needs, provided the restrictions in question are
not imposed for purely protectionist purposes. Again, this last constraint will place the initial evidential burden (in the event of a
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion34
dispute) on the country challenging such restrictions, and it would likely have to prove protectionist intent, which may be difficult,
depending on the circumstances under which such restrictions are imposed.
A final remark to be made on rules, and which will be taken up in more detail in chapter III (“Aid for Trade”) is the inherently
development-friendly aspects of negotiating better rules for both regulators and market participants. Although these may be
negotiated under a more mercantilist quid pro quo dynamic, it is important for negotiators to realize that better rules for foreign
service suppliers will invariably translate into better rules and enhanced governance for domestic economic operators as well,
improving the quality of the business environment more generally.17 This is particularly the case when it comes to negotiating
rules on transparency and domestic regulation. Here, the “quid” asked in exchange for the “quo”, may simply consist of firm,
quantifiable and actionable commitments from the developed country PTA partner on technical assistance, capacity-building or
other aid to help the developing country overcome regulatory and institutional shortcomings and adopt (as well as effectively
implement) international best regulatory practices in the services sectors concerned.
2. Market access in general
Market access negotiations in services are typically based on a so-called positive list approach – such as that found in GATS – or
a negative list approach, which is more common among many (albeit not all) PTAs, where the level of ambition for liberalization
arguably tends to be greater than when a GATS approach is pursued. Regardless of the approach taken, developing country
negotiators need to have done their homework and be able to walk into negotiations with a clear idea of what their offensive and
defensive interests are. Even where they may not currently be exporting services to their respective PTA partners, the fact that
they might potentially do so, and the possible market access and national treatment impediments their services suppliers would
then be likely to encounter, is something services negotiators need to understand in order to properly undertake their tasks and
responsibilities. This is true across all modes of supply and all key exportable service sectors. An understanding of their own
economy, the strength and weaknesses of their own services sectors is as important as detailed knowledge of the regulatory and
other barriers that the PTA partner has in place.
3. Market access: Positive or negative list
Whether or not commitments are scheduled on a positive or negative list basis is one of the threshold issues that will need to
be addressed even before negotiations begin. Developing countries tend to instinctively favour the policy flexibility inherent to
the GATS-like positive (or hybrid-like) list approach (which is the reason why GATS is often referred to as the most “development
friendly” of the Uruguay Round Agreements); however, this is not always a choice they will have, given that they may have opted
to enter into preferential trade negotiations where the objective is intrinsically to achieve greater liberalization than has been
agreed at the multilateral (WTO) level. Developing countries engaging in a North-South PTA negotiation should thus assume
that services negotiations will be conducted on a negative list basis, especially if they are negotiating with a PTA partner that is
a major exporter of services.18
17 For example, Article 82 of the Japan-Philippines EPA gives a great degree of discretion to monetary policy officials, but it does not achieve
much in the way of legal certainty for foreign (Japanese) investors.
18 Despite the bias in favour of the negative-list approach, one still finds many examples of North-South PTAs that followed a positive list
approach, such as the one between Japan and the Philippines. See also Fink and Molinuevo, 2007, for a discussion of this issue.
Commitments made under a positive list approach are typically scheduled in the format that many will already be familiar with
under the GATS framework. Box II.4 contains an example of such commitments as entered into by the Philippines under its EPA
(3) Corporate practice is not allowed.
(4)As indicated in the horizontal
section for Professional services.
Box II.4. Specific commitments by the Philippines in its EPA with Japan
ss (1) Unbound
from the following provided that a previous authority has
been granted by the Board of Dentistry:
A. Commissioneddentalofficersof foreignarmy/navy/
air force whose operations in the Philippines are
permitted by the Government.
B. Foreign dentists/oral surgeons invited for consul-
(4)As indicated in the horizontal section for Professional
Market access negotiations on a negative list basis are inevitably an exercise in determining what the existing non-conforming
measures are on a sector-by-sector and mode-by-mode basis as well as deciding whether these measures must be maintained
or can be negotiated away. This only increases the need for the so-called trade-related regulatory audit (discussed above) as
well as the burden on lead negotiators to understand the ins and outs of their respective regulatory regimes, and the “whys”
and “what for” of any non-conforming measures. Only when negotiators understand the inherent policy rationales behind non-
conforming measures can they hope to have an understanding of the importance of maintaining them or the value (in terms of
negotiating coin) at which they can be traded.
The commitments made under a negative list approach are inevitably scheduled in the form of reservations lists to the respective
PTA chapters on services and investment. Box II.5 provides an example of one of the reservations scheduled by Mexico in the
context of its 2005 PTA with Japan.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion36
Box II.5. Reservation of Mexico in its 2005 FTA with Japan
and stations for buses and trucks)
A concession is required for the establishment of passengers and freight bus terminals and stations,
to exploit public transportation services. Concessions may be granted only to mexican nationals by
C. Red lines and negotiating impasses
In many cases, the internal consultation phase – particularly with other government agencies – will reveal what the limits of a
negotiating mandate are likely to be. In other cases, the sheer immovability of an entrenched domestic political economy interest
group is likely to make itself known long before any of its interests make their way to the negotiating table. Good preparation in the
pre-negotiation and fact-finding stages will thus allow most negotiators to realize what their red lines are and to steer negotiations
well away from them.
However, even with thorough preparation and an approximation in the level of ambition that both Parties bring to negotiations on
trade in services, the request/offer process of market access negotiations as well as those on rules can run up against red lines;
this will, more often than not, will lead to a negotiating impasse, depending on how important the issue is to the requesting Party.
The issue of red lines is discussed below before considering how to overcome a negotiating impasse.
1. Boundaries of consensus
Red lines are typically concessions that a Party is unwilling or unable to make, and these should be fairly well understood by
lead negotiators before they embark upon negotiations. By the same token, well-prepared negotiators will have a sound enough
knowledge of the politico-economic or institutional constraints under which their counterpart is operating in order to be able to
steer negotiations away from issues where compromise seems unlikely. One well-known example of this was experienced during
the now abandoned FTA negotiations that took place between the United States and Malaysia from 2006 until their suspension
in 2008. The major stumbling block appears to have been a core policy of the Government of Malaysia that favours ethnic
Malays over other ethnic groups when awarding government contracts. The United States insisted that this market be opened
so that its companies could compete against local firms on the public procurement market, but this was a red-line for Malaysian
negotiators, who could not be seen domestically to be compromising on this issue with the United States.
At the same time, this was a red line for the United States, i.e., a request that country was not willing to walk away from. The result
was the suspension of the talks, which were subsequently subsumed under the plurilateral TPP negotiations currently underway.
It is interesting to note that under the TPP, Malaysia has gone on record as saying that it is willing to revise its public procurement
policies as part of any final package that results from these talks. This begs the question as to what has changed, and a number
of answers suggest themselves, including one that policymakers have become aware how costly these government procurement
policies have become (in terms of negotiating coin as well as on economic efficiency grounds) as well as a greater willingness by
Malaysian negotiators to make such a commitment in the very different dynamics of the TPP negotiations as opposed to those
Malaysia felt subjected to while negotiating bilaterally with the United States.
Box II.6 contains various excerpts from the media documenting the troubles experienced by both countries in dealing with this
red-line issue during the course of their PTA negotiations, and how it was last addressed under the TPP.
Box II.6. Media coverage of the United States-Malaysia FTA
Malaysia won’t budge on procurement policy as fifth round of trade talks with US ends
the end of march, but said several hurdles remain.
Washington wants more clarity and transparency in the bidding process.
“We will not move (on government procurement),” she said. “if that’s a deal breaker, so be it, but fortunately now, it’s not.”
Other sticking points in the negotiations are differences over liberalizing malaysia’s services sector and highly protected car industry,
its ban on majority foreign ownership of banks, poor intellectual property rights, labour and environmental issues.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion38
Box II.6. Media coverage of the United States-Malaysia FTA (continued)
Malaysia says US will abandon trade pact negotiations
“it was made very clear to us that bilateral FtAs are not a priority for the Us,” trade minister mustapa mohamed told reporters. “their
focus is now on a regional approach.”
in particular, the Us had sought access to lucrative malaysian state contracts that favour malays and indigenous groups, or
“bumiputras” as they are known.
Mustapa said USTrade Representative Ron Kirk informed him of the US thinking on the sidelines of theAsia-Pacific Economic
Cooperation (APEC) forum in singapore last week.
Agreement with the US by November possible, says Muhyiddin
By Paul Gabriel, The Star Online,1July2011
Prime minister tan sri muhyiddin yassin said much progress had been achieved and the target of reaching a broad outline by
november was possible. He said the latest round of talks held in viet nam had shown promise. “there has been marked progress
achievedand it isnowamatterof the timeline (set). Labour,environmentand intellectualproperty issuesarebeingnegotiated,
access to markets for industrial goods, agriculture, textiles, services, investment and government procurement, adding that the next
round of talks would be held here in september.
2. Overcoming negotiating impasses
Issues on which consensus is reached in trade negotiations relatively rapidly and with a minimum of effort are referred to as
“low-hanging fruit” (because it is the first to be picked). Sooner or later, however, most trade negotiations run into difficulties in
achieving consensus over issues to which no quick or easy solution appears to suggest itself, at least not within the negotiating
mandates originally foreseen. In order to maintain momentum and not let negotiations as a whole falter or become unduly
bogged down, these issues are often set aside in order to be dealt at a later stage, perhaps even being put off until the very last
round of meetings – “kicked upstairs” to higher-level political leaders who have the authority to decide issues that are likely to be
perceived as more contentious politically or to come at a greater cost in terms of their domestic political economy implications.
Box II.7 Getting to yes: Reaching a mutually acceptable agreement
the business of owning and running commercial enterprises.
had to compete in the market place. there is nothing wrong with government ownership.
if we had persisted with negotiations along the two different ideologies, never the twain would have met. Fortunately, both sides
were able to set aside the ideological differences and focus on our interests. the Us’s real interest is not to advance their ideology,
accordance with commercial considerations; do not discriminate against Us goods, services and investments; and do not engage in
drafting format and choice of words.”
Ultimately, such issues may also be addressed as part of the built-in agenda of future negotiations between the Parties.
Other times, depending on the strength of the relationship that negotiators from both sides have been able to form over the
course of negotiations, they may feel comfortable working together to brainstorm solutions to these issues that allow both
sides to achieve their core negotiating objectives. Two case-studies are presented below, each drawn from different issue areas
of the United States-Singapore PTA negotiations discussed earlier. The first issue revolved around the desire of the United
States to introduce language in the agreement that would heavily curtail the activities of state-owned enterprises (SOEs) in the
economy. This was anathema to Singapore, which has a long history of relying on SOEs to implement the city-State’s economic
development plans. Box II.7 refers to the case-study on SOEs, or “Government-Linked Companies” (GLCs) as Singapore refers
The second case study, drawn from the United States-Singapore FTA negotiations, involved the contentious issue of using trade
agreements to discipline capital controls, where the Government of Singapore affirmed a clear desire to maintain the policy space
it felt it needed in order to intervene in the unexpected event of massive, sudden and destabilizing capital outflows. As discussed
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion40
Box II.8. Financial services and capital controls in USSFTA
Impasse over capital controls
years of negotiations, but never attracted much attention. Each side assumed that the other would agree when the rest of the FtA fell
was not tactical but fundamental.
the Us wanted clauses in the FtA requiring both countries to freely allow payments and transfers of capital into and out of their
territories. the “free transfer” clause was a feature of all bilateral trade and investment agreements that the Us had concluded to
date. making an exception for singapore would set a bad precedent for all of the Us’s future agreements. the free flow of capital was
a central tenet of Us international economic policy and strongly subscribed to by the Us treasury in particular.
[…] it was only natural that the Us would want to protect the ability of its investors to freely move their assets out of the jurisdictions
in which they are held.
singapore shared the Us’s strong commitment to the free and unfettered flow of capital. An open capital account regime had been
and remained a critical factor underpinning singapore’s economic growth. We had consistently eschewed capital controls of any
economy, singapore needed the flexibility to take all appropriate measures, including, as a last resort, restrictions on capital flows
when conventional monetary policy tools might be inadequate. We were not opposed to a “free transfer” clause but wanted to include
an exception similar to that in multilateral trade agreements, such as GAts, which provided flexibility to impose restrictions on capital
Breaking the deadlock
entirely through a series of telephone conversations and video-conferences, punctuated by exchanges of letters formalizing the
evolution of our respective positions. Our embassy in Washington played a key role m building support for our position
the breakthrough came when both sides agreed to set aside the contentious issue of whether capital controls were a legitimate
macroeconomic policy tool, and focus on the extent to which singapore should be subject to claims for damages by affected investors
in the event that singapore imposed capital controls. this meant that there would be a “free transfers” clause without exception
(largely meeting singapore’s need for flexibility of action in a crisis).
above in the case of the Japan-Philippines FTA, the legacy of the 1998 Asian financial crisis provided a context for Singapore’s
insistence on this issue, even though it had experienced net financial inflows during the crisis (as it was widely perceived as a
stable economic and monetary haven within an otherwise destabilized region).
The case study is interesting since it shows how despite interventions from officials at the very highest echelons of the Government
of Singapore (the Minister referred to in the case study is Lee Hsien Loong, who would shortly thereafter become Prime Minister),
it was only possible for both sides to overcome the impasse once they moved away from their hitherto entrenched ideological
positions and delved into the finer and more technical details of how to achieve the outcome that both Parties ultimately sought.
Box II.8 describes this in the words of Singapore’s then lead negotiator for financial services.
The two sides ended up solving this impasse by ultimately giving USSFTA the clause it needed, while at the same time defining
the ability of Singapore to impose controls on what it considered the most potentially destabilizing monetary flows, i.e., short-
term capital flows (so-called “hot money”) driven more by speculation impulses than by a desire to finance productive activity.
The United States, for its part, agreed to limits on Singapore’s liability towards investors on whom any controls that Singapore
decided to impose would have a negative impact.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion42
Aid for Trade and services has become a focus for increased attention by policymakers and development organizations only
recently.19 The three most operationally urgent needs for either developing or transition economies in the context of trade in
services negotiations are: (a) the ability to negotiate from a more informed position; (b) the capacity to better manage the process
of market opening; and (c) the ability to supply newly opened foreign markets (Sauvé, 2007). However, the scope for extracting
commensurate binding commitments from negotiating partners (particularly developed country partners) in the context of any
given PTA negotiation may be limited. In practice, such commitments – if they are at all forthcoming – will almost inevitably break
down into: (a) financial and institutional support to build domestic regulatory capacity; and/or (b) commitments to aid or facilitate
in the development of export capacity in a few hand-picked service sectors. This chapter discusses these and other options that
have been raised by development experts as part of the Aid for Trade debate.20 In addition, some case studies are highlighted
from existing PTAs that have attempted to explicitly incorporate pro-development commitments.
A. Aid for Trade to improve negotiating capacity
Negotiating capacity has both an institutional and a process-oriented side to it, meaning that the institutions that conduct and
provide input into services trade negotiations can and should be the direct recipients of any Aid for Trade commitments extracted
from a developed country negotiating partner (particularly when such aid is intended to improve a country’s negotiating capacity).
These areas are discussed in more detail in subsection 1. In addition to the institutional aspects, however, processes can also
be improved in manners that can have a perceivable effect on outcomes. Securing operational Aid for Trade commitments that
can improve these processes is almost as important at commitments directed towards improving institutional capacity. These
are discussed in subsection 2.
aId for trade In servICes and
InCreasIng the CapaCIty for
19 See, for example, the materials produced in the context of a WTO workshop on Aid for Trade in Services, which took place on 11 July 2012
(available at www.wto.org/english/tratop_e/devel_e/a4t_e/wkshop_july12_e/ wkshop_july12_e.htm; accessed 6 August 2012).
20 The term “Aid for Trade” is used here to encompass not just development assistance aimed at addressing supply-side constraints to
boosting export capacity in developing countries but also donor initiatives that provide trade-related technical assistance and capacity-building
as have long been provided under various programmes and frameworks. The authors posit that this broader definition is not inconsistent with
those used by various international organizations. See for example, www.imf.org/external/pubs/ft/survey/so/2007/POL0523A.htm (accessed
6 July 2012), which states “Aid for Trade refers both to a subset of development assistance that is seen as promoting international trade and
a number of international initiatives to promote trade-related development assistance. As generally defined, Aid for Trade comprises aid that
finances trade-related technical assistance, trade-related infrastructure and aid to develop productive capacity”.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion44
1. Aid for Trade and institutional negotiating capacity
The first two chapters of this training manual address the various aspects of preparing for negotiations resolutely and conducting
them with the proper focus. The reader should by now have an understanding of the scope of institutional backstopping that
these two activities require. Put simply, negotiating on trade in services requires well-educated and professionally skilled human
resources, who themselves have access to the type of basic infrastructure required to conduct targeted policy research. The
actual physical task of conducting negotiations also comes with a price-tag attached, since negotiating teams need to travel (and
subsist) and afford available adequate facilities in which to conduct negotiations.
The type of Aid for Trade commitments that can be imagined here might include some upfront capacity-building aimed at building
and supporting national or regional negotiating capacity. This could be extracted from developed country partners at the time
that official announcements are made that PTA negotiations are to be launched, but some months prior to actual negotiations
starting. A good example of this was the European Union-funded Hub-and-Spokes Programme, which was implemented by the
Commonwealth Secretariat (ComSec) and the Organisation Internationale de la Francophonie (OIF) in the run up to, and during
the Economic Partnership Agreement (EPA) negotiations between the European Union and the Asia-Caribbean-Pacific (ACP)
countries that were intended to usher in a new generation of trading arrangements to replace the Cotonou Agreement as its WTO
waiver was set to expire on 31 December 2007. Boxes III.1 and III.2 document the Hub and Spokes Programme as an example
of Aid for Trade targeted specifically to building institutional negotiating capacity.
Although the Hub and Spokes programme was admittedly a very large project, providing trade-related technical assistance (TRTA)
and capacity-building to more than two dozen developing countries in different regions, any developed country anticipating the
launch of PTA negotiations with a developing country might be convinced to either launch its own similar, albeit smaller and more
targeted, TRTA programme, or to contribute financially to existing TRTA efforts in order to avoid duplication. Many multilateral
donor agencies already have ongoing TRTA programmes in developing countries. There is no reason why an agreement to launch
Box III.1. Building trade policy capacity: Hub and Spokes Project
What is Hub and Spokes?
the Building the Capacity of ACP Countries in trade Policy Formulation, negotiations and implementation (“Hub and spokes”) Project
is a joint initiative concluded by the European Commission (EC), the Commonwealth secretariat (Comsec) and OiF with the support of
the ACP secretariat. the project, which forms part of the European Commission’s tradeCom Facility, will seek to promote the effective
participation of ACP countries in international trade negotiations and to strengthen their capacity to formulate and implement trade
the project has three main components:
trade policy formulation;
Box III.1. Building trade policy capacity: Hub and Spokes Project (continued)
to achieve these aims, the Project will place Regional trade Policy Advisers (RtAs) in the following regional bodies:
and the African Union (AU). AiF will be responsible for the implementation of the project in West and Central Africa.
Box III.2. Jamaica: Aid for Trade case study
Commonwealth Hubs and Spokes Project: Building the capacity of ACP countries in trade attachment of a trade
policy analyst in Jamaica
2. Appointment and activities of the Trade Policy Analyst
Thisproject involved counterpart trainingand thus ForeignServiceOfficers in theMinistrywereassigned toworkwith theTPA.
Equipment was also provided in the form of a laptop computer and printer/scanners.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion46
Box III.2. Jamaica: Aid for Trade case study (continued)
During the four- year assignment, theTPA,whowas found to have a keen interest in trade in services, assisted theMinistry in
and with the preparations for the negotiations for the Canada/CARiCOm trade and Development Agreement, which commenced in
single market and Economy (CsmE).
this work included organizing trade in services consultations with stakeholders utilizing the ministry’s existing consultative mechanism
which includes representatives of the public and private sectors and civil society. the tPA improved the working relationship with the
the tPA was actively engaged in organizing seminars and workshops on trade policy issues such as trade in services, rules of origin
and analysis of trade with trading partners. A major training activity was undertaken in collaboration with the University of the West
conducting sustainability impact assessments.
5. Assessment of the project
the legacy of this project is assessed, among other things, as the equipment received, the training provided, the strengthening of the
services outreach and network, and the contribution to services negotiations.
the ministry of Foreign Affairs and Foreign trade to continue to: (a) participate effectively in trade in services negotiations with the
involvement of all stakeholders; (b) undertake a number of training initiatives to further build capacity not only in the ministry, but also
in the wider public service; and (c) improve trade policy analysis. the Analyst tPA positively contributed to work on the CARiFORUm/
trade negotiations with a view to concluding a PTA between a developing and a developed country should not be accompanied
by financial commitments on the part of the latter to help the former prepare for and conduct these negotiations. Doing so could
well be interpreted as a sign of the developed country’s good faith in achieving a balanced and development friendly agreement.
The institutional capacity of a government to prepare for, and conduct negotiations on trade in services will also depend heavily
on the type of budgetary resources it is able and willing to allocate to this issue. This factor determines the quantity of human
resources that can be dedicated to such negotiations as well as the quality of physical infrastructure they have to work with. As
the Jamaican case study makes clear, assigning a foreign expert to assist in the building of domestic capacity may represent
a welcome starting point. However, it was only when the Ministry of Foreign Affairs and Foreign Trade started recruiting its own
trade policy experts who were themselves graduates of specialized programmes set up at a regional university (the University of
the West Indies), that the country was able to avail itself of effective in-house capacity and more fully appropriate the conduct of
its services negotiations.
Box III.3 Australia-India Joint Free Trade Agreement feasibility study
1.1 Background and objectives of study
the economic relationship between Australia and india has developed rapidly in recent years, particularly under the impetus of india’s
synergies between the two economies, and the commitment on both sides to further enhance the economic partnership, Australia and
the two Governments about whether to proceed to FtA negotiations. in doing so, the study is without prejudice to whether possible
future FtA negotiations between Australia and india would take up all issues in the forms considered in the study.
the terms of reference (tOR) for the study were developed and [….] key elements of the tOR were to:
intellectual property, sanitary and phytosanitary issues, technical barriers to trade, competition policy and government procurement;
encouragement of mutual recognition arrangements.
1.2. Approach of the study
2009. It conductedmuchof itswork through inter-sessional contactsandexchangesofmaterialbetween the twodepartments.
Both sides undertook consultations with business and other stakeholders. Written submissions were invited and received. Economic
modelling was conducted by both india and Australia, with details provided in Annexes B and C.
2. Aid for Trade and process-related aspects of improving negotiating capacity
The processes involved in preparing for, and conducting services negotiations have been discussed in some detail in previous
sections of this manual. The focus here is now on how Aid for Trade can be harnessed to help developing countries improve
these processes. An important aspect of preparing for negotiations is determining the potential benefits of a PTA as well as
examining in what sectors the negotiating partner economies share complementarities. Once identified, such complementarities
could be exploited as an outcome of the PTA under discussion. In this context, one Aid for Trade commitment that developing
countries could reasonably be expected to request, even before any announcement to launch negotiations has been formally
made (i.e., in the purely exploratory phase of talks), is that the developed country partner assist in performing a joint feasibility
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion48
study of a future PTA. Such studies can be of enormous benefit for developing countries in their efforts to assess the potential
costs and benefits of a future PTA as well as in helping them identify potential offensive and defensive interests. In short, such
studies can provide a jump-start to the extensive homework and research that is inevitably required in the run up to formally
starting trade negotiations.
Box III.3 provides excerpts from such a joint feasibility study performed in the context of Australia’s current ongoing negotiations
with India towards the conclusion of a Comprehensive Economic Cooperation Agreement (CECA).
Of course, there are various other ways in which Aid for Trade commitments may be harnessed to help the actual process
of preparing for, and conducting services trade negotiations. Recalling that an essential element to these dual processes is
stakeholder consultation, developed country negotiating partners could be prevailed upon to provide funding to assist and
support in various consultation activities since this is usually something that developing country governments often do not
have the experience, proper institutional architectures or the budgetary scope for carrying them out. Again, these are typically
commitments that will be obtained before negotiations actually start, so developing country negotiators should ideally have a
fairly well-defined concept of what type of specific assistance they are requesting as well as the specific activities for which such
assistance should be used.
3. Other considerations on improving negotiating capacity and Aid for Trade
As noted above, the act of engaging in negotiations not only imposes its own (non-negligible) costs in terms of the time and
energy it requires of negotiators, but also the financial costs of fielding a suitably sized and competent team, and paying their
travel and subsistence over the course of several negotiating rounds. Although it is probably not a good idea to request that
a future PTA partner contribute directly to bearing the burden of the above costs (since it may be perceived as reducing the
recipient country’s independence in negotiations), it is not unreasonable to seek such assistance from third-party or multilateral
development agencies. Although this may not result in any commitments from a potential PTA partner, it should nevertheless
be part of a developing country’s contingency planning in the lead up to negotiations. An example of such assistance has been
repeatedly seen in donor assistance to least developed countries to attend working party meetings and bilateral market access
negotiations in Geneva in the context of their WTO accession talks. For example, Cambodian negotiators were not in a position
to fully fund their own travel and accommodation costs during their relatively frequent accession-related missions to Geneva, so
third-party donors provided assistance in this regard. Such assistance from third-party donors has also been a common feature
at WTO accession negotiations for a number of small Pacific Island nations.
Box III.4 offers another excerpt from the case study produced by Professors T. Koh and C. L. Lin (2004) of the United States-
Singapore FTA. Although its rightful place is in the context of inter-ministerial cooperation, this excerpt also shows the type of
funding mechanisms that can and should be set up to pay for the actual cost of assigning negotiators as well as covering their
travel and accommodation expenses.
There is no reason why the establishment of a fund similar to the one the Government of Singapore set up for itself should not be
done with budgetary support from various regional or multilateral development agencies or specialized United Nations agencies
that are tasked with assisting developing and transition economies in their efforts to better integrate into the global economy.
Indeed, ESCAP’s commissioning of this manual offers a case in point. There is, similarly, no valid reason why a future PTA partner
that is a developed country should not be asked to contribute to such a fund as part of an initial commitment to launching
Box III.4. Funding participation in FTA negotiations
and administered by mti [ministry of trade and industry]. through this fund, mti paid for all the travelling and hotel expenses of all
21 Marconini and Sauvé, 2010 and Sauvé, Pasadilla and Mikic, 2012.
22 Discussing this in a related context, Mattoo and Subramanian (2008) referred to this dynamic as “[the] genius of the GATT”.
negotiations with a developing or transition economy partner. Such a contribution could even be considered a “down payment”
on the development-friendly outcomes of the future PTA.
B. Aid for Trade to improve the management of market opening
As several commentators have pointed out, the incremental, progressive liberalization often inherent to successful service sector
reforms is something that trade agreements are uniquely well-placed to promote.21 In addition, services liberalization in the
context of multilateral or preferential trade negotiations can form a political economy framework in which developing countries
are essentially “given something” in exchange for undertaking far-reaching economic reforms, which are more often than not in
their own interests.22 It is assumed here that coupling engagement in services trade negotiations with the opening of services
markets is not the primary challenge negotiators need to prepare for when facing the prospect of upcoming PTA negotiations.
Rather, opening domestic services markets in a way that is conducive to and supportive of pro-competitive reforms, and thus
development-friendly outcomes, is in fact the most difficult challenge. The increasingly accepted understanding in this context
appears to be that opening services markets, particularly by focusing attention on barriers to new entry, is most likely to lead to
greater competition, increased choice for consumers and, consequently, net welfare gains for the economy as a whole if such
liberalization is properly sequenced.
Another equally accepted perception in this context is that the key to effective competition is making sure that liberalization
is accompanied by effective regulation, and that the private sector should ideally be invited to play a leading role. However, in
order for this to occur requires that proper frameworks are in place to prevent negative externalities such as market capture or
information asymmetries from undermining the pro-competitive change that privatization and market liberalization can otherwise
induce. Therefore, the focus of the discussion here is on the issue of sequencing – i.e., liberalizing in accordance with an agreed
timetable, as well as the interplay between good regulation and pro-competitive market opening. The discussion also deals with
the role of adjustment assistance in services liberalization and how Aid for Trade commitments might be harnessed to facilitate
and promote such assistance.
1. Sequencing of market opening and Aid for Trade
Research directed to studying the policy implications of opening services markets in the context of a PTA rather than on an
MFN basis has indicated that the benefits of incumbency may result in inferior foreign service suppliers being able to entrench
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion50
Box III.5. Australia-Thailand FTA – Chapter 8 and Side Letter on Services
Part V. Progressive Liberalisation and Development of Rules
Art. 812 – Review of Commitments
1. in pursuance of the objectives of this Chapter, the Parties shall enter into further negotiations on trade in services within three years
from the date of entry into force of this Agreement with the aim of enhancing the overall commitments undertaken by the Parties
under this Agreement.
Side Letter on Services
ThailandandAustraliashallenter intonegotiationsonfinancialservicesandtelecommunicationservicesaspartof thereviewof
themselves in a given services market in a way that could ultimately prove self-defeating for policymakers if and when multilateral
liberalization is eventually undertaken (Mattoo and Fink, 2002). Thus, sequencing can be important, and the risks of preferential
liberalization of services markets needs to be weighed against its benefits. Ultimately, the “right” approach to this problem will
depend on the efficiency – in global terms – of the services providers of the PTA partner economy as well as the urgency of
increasing efficiency in domestic service markets.
In services markets that play an important supporting (or infrastructural) role for all other areas of economic activity, such as
financial services, telecommunications and logistics, the urgency to improve efficiency will likely be greater, depending on how
poor or inefficient the domestic markets currently are for these services. In other sectors that predominantly affect consumer
choice and utility, the urgency to improve the efficiency of these services markets might still be present, but not felt as strongly in
terms of policymakers’ desire to achieve relatively rapid and tangible improvements to national economic welfare.
In any event, the Aid for Trade dimension in sequencing the opening of services markets by developing country negotiating
partners generally does not manifest itself in the form of explicit and actionable commitments from the developed country
negotiating partner, but rather in the latter’s willingness to exercise restraint in pushing for too rapid or pervasive liberalization. The
Aid for Trade dimension in this context also manifests itself in the degree to which developed and developing country negotiating
partners are willing to work together to achieve an economically viable consensus on how quickly and extensively the developing
country partner should open its services markets in a manner that allows:
(a) Domestic service suppliers to gear up for the coming wave of competition; and
(b) Regulators to put domestic legal and institutional frameworks in place that will enhance, promote and enforce competition.
Box III.5 contains an excerpt from the PTA concluded between Australia and Thailand. The provision featured is Article 812,
which is found under Part V of the Agreement, “Progressive Liberalisation and Development of Rules”. Box III.5 also includes
language from a side-letter to the FTA in which the two Governments agreed to meet at a subsequent date in order to commence
negotiations on the liberalization of financial and telecommunications services.
23 See, for example, China’s commitments in the mobile telephony sector as contained in document WT/MIN(01)/3/Add.2, available at www.
mac.doc.gov/China/servicesschedule.pdf (accessed 11 July 2012).
The language cited in box III.5, in the context of the Australia-Thailand FTA, demonstrates that Australia showed itself to be a
willing development partner of Thailand, exercising restraint in demands for immediate liberalization in two key services sectors
and agreeing to postpone negotiations in these sensitive sectors to a specified future date. Many such examples abound. The
Bilateral Trade Agreement between the United States and Viet Nam, which preceded the latter’s entry into WTO by several years,
featured a detailed timetable for progressive liberalization of various service sectors. Some commentators from the Government
of Viet Nam have pointed out privately that it was the successful implementation of these preferential commitments that
emboldened the Vietnamese leadership to finally complete their WTO accession negotiations. Likewise, many WTO accession
schedules of specific commitments in services feature staggered liberalization of specific service sectors, opening them up
gradually and on a city-by-city or region-by-region basis.23
2. Aid for Trade, market opening and adjustment assistance
Aid for Trade commitments can also manifest themselves in a developed country’s willingness to provide commercially meaningful
market opening opportunities to service suppliers of the developing country partner, particularly in modes of supply of priority
interest to the latter. This may notably be the case of Mode 4 (temporary movement of natural persons). Because Mode 4
commitments brokered in trade agreements typically focus on high-skilled labor movement, this often entails a commensurate
willingness to negotiate mutual recognition agreements with regard to qualifications and licensing procedures for professionals
and other skilled worker categories. We revert to this particular development-friendly outcome in Section III below.
Yet another area where meaningful Aid for Trade commitments can be requested and offered relates to adjustment assistance.
Trade liberalization being inherently redistributive in nature, it is likely to create both winners and losers. The issue of adjustment
assistance addresses government initiatives to soften the potentially adverse impact of trade and investment liberalization
for workers and firms in import competing sectors. Despite the reservations expressed by some about the predominance of
status quo commitments in PTAs (and even less than status quo commitments when negotiations proceed on a GATS hybrid
list approach) in services trade (Sauvé, 2007), there can nevertheless still be a very clear services dimension to preferential
liberalization, as was discussed above in the context of NAFTA’s impact on the US nursing sector (see Box I.9), as well as for any
service sector that competes with service suppliers from the PTA partner economy.
A WTO study (Bacchetta and Jensen, 2003) discussed many of the options available to policymakers in the context of adjustment
assistance, including improving credit markets and social safety nets, labour market reform, improving access to education and
training, reducing transaction and information costs (particularly for firms), improving the quality and availability of information
on prices and market opportunities for individuals and firms, and coordinating domestic macroeconomic policy with trade
liberalization. There are many ways in which Aid for Trade commitments might conceivably be requested and offered in terms of
preparing domestic institutions and policies for the demands that are likely to place on an economy by adjusting to impending
Box 3.6 refers to the above-mentioned WTO study and provides a brief overview of three adjustment assistance schemes
in different developing countries, i.e., Chile, Costa Rica and Mauritius. It is not difficult to conceive of various Aid for Trade
commitments that might be requested and offered in the broad set of policy and institutional frameworks that governments
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion52
use to assist displaced workers and firms to move into more competitive sectors of the economy in the wake or in anticipation
of trade liberalization. Developing country and transition economy governments need to think very carefully about what type
of adjustment assistance policies they wish to adopt as well as how Aid for Trade commitments could best be harnessed to
respond to these needs. This is yet another aspect of “doing one’s homework” in the run-up to impending trade negotiations,
and using economic modelling to better understand the likely displacement effects of any possible liberalization outcomes on
various service sectors.
Once policymakers have a better grasp of the likely or possible displacement effects, and provided they have the political courage
to confront these effects pro-actively, they can start formulating adjustment strategies to soften the impact of these effects, and
tie these strategies into possible Aid for Trade requests. An interesting paradox of service sector reforms is the predominant
tendency for countries to enact them unilaterally rather than in the context of trade negotiations, which more often than not serve
as periodic harvesting chambers as the World Bank’s Aaditya Mattoo once remarked. Decoupling pro-competitive reforms from
the trade negotiating sphere arguably deprives developing countries of the technical assistance that is now routinely embedded
in services negotiations.
Box III.6. Adjustment assistance in Chile, Costa Rica and Mauritius
Chile’s national training and Employment service has implemented two programmes to support the movement of labour. One
programmebegan in1990 to assist displaced labour throughout the country and ismanagedby themunicipalities.The second
Credit programmes operated exclusively by state-owned banks provide loans with alleviated guarantee, documentation and
foodstuffs, beverages, chemicals, clothing, paper and leather articles, and the processing of wood, minerals and metals.
offset the initial costs to the private sector of acquiring technology support services to improve productivity, product quality, design or
manufacturing response time. Costs are to be shared equally by the Government and the private sector.
24 These were projects commissioned and funded by the following donors (in alphabetical order): AusAid; EuropeAid; Japanese International
Cooperation Agency (JICA), USAID and the World Bank.
3. Aid for Trade and sound regulatory practices
Much of the trade-related technical assistance and capacity-building that is offered by the multilateral development institutions,
specialized United Nations agencies and bilateral donor agencies is directed specifically towards improving institutional and
regulatory frameworks in developing and transition economies. In fact, because many of these countries receive so much TRTA
and capacity-building help from so many multilateral and bilateral donors the problem is often not getting it, but absorbing it in
a way that leads to genuine improvements in trade policy formulation and attendant organizational structures. To give just one
example, in the three years immediately preceding Viet Nam’s accession to WTO in 2006, there were reportedly more than 30
different donor organizations providing TRTA and capacity-building help to various parts of the Government of Viet Nam in Hanoi
as well as to various government agencies and private-sector groups throughout the country. Indonesia offers another prominent
example, as no less than five development agencies were maintaining permanent offices and full-time staff within the country’s
Ministry of Trade premises itself in 2006.24
Because of the ubiquitous nature of TRTA, the focus here is on (a) the potential for PTAs to specifically address the goal of
achieving improvements in the regulatory environment of the developing country partner and (b) discussing ways in which such
treaty commitments might be implemented by using Aid for Trade as a vehicle to improve underlying institutional and regulatory
Trade rules that address issues such as transparency, judicial review and due process, and which generally seek to enhance
predictability in the trading environment for foreign economic operators, are nothing new. Even GATT 1947 contained Article
X entitled “Publication and Administration of Trade Regulations”. GATS itself has provisions on transparency that require the
establishment of so-called enquiry points (Article III) as well as setting out detailed minimum standards of regulatory conduct
(Article VI). By the same token, many PTAs also feature GATS-plus provisions on important regulatory issues such as transparency,
reviews of laws and regulations, administrative procedures, and even measures against corruption and improvement of the
business environment. Supporting such commitments is generally a separate chapter or side-agreement setting out a loose
institutional framework for development cooperation between the developed and developing country negotiating partners.
Although some of these provisions relate to trade in general between the two partners (rather than just trade in services), others
are specifically tailored to address perceived regulatory shortcomings and to strengthening the competitive environment on
specific services markets.
Box III.7 contains a summary of the development cooperation provisions of the EPA between Japan and the Philippines, both
in general as well as those pertaining to financial services in particular. This PTA, signed in September 2006, contains a number
of the provisions referred to above that are intended to strengthen and improve the efficiency and predictability of the prevailing
legal and regulatory regimes. In particular, the EPA has a dedicated chapter, “Improvement of the Business Environment”, that
– together with the provisions contained in the Implementation Agreement to the EPA – sets out a detailed institutional structure
for the two Parties to consult extensively and in-depth on ways to improve the business climate in both countries. (However,
in this context, it was arguably the business environment in the Philippines that was intended to be addressed). The Japan-
Philippines EPA also contains numerous provisions on regulatory cooperation in various spheres, including – for the purposes
of this publication – financial services. Even the casual reader will notice that the commitments in this part of the agreement are
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion54
Box III.7. Development cooperation provisions in the Japan-Philippines EPA
Cooperation in general
(a) Human resource development;
(b) Financial services;
(c) information and communications technology;
(d) Energy and environment;
(e) science and technology;
(f) trade and investment promotion;
(j) Road development.
other work programmes set up under the Agreement (such as on “improvement of the Business Environment”), but also requires
Cooperation with regard to financial services
areas for cooperation, including regulatory cooperation, the development of financial markets and improving financial market
establishment of a Working Group on Financial services, which is to be a forum for exchanging views and information, identifying
ways to cooperate further, and to monitor, review and discuss issues concerning the implementation of the chapter on cooperation
Source: Authors’ notes on the text of the EPA and the implementing Agreement to the EPA.
loosely formulated and non-binding, and subjugate any provision of assistance to the availability of donor funds and existing
mechanisms on official development aid. Therefore these are the softest of soft commitments, but nevertheless represent a
suitable framework for the two Parties to begin to work together on improving regulatory frameworks, oversight, and enforcement
of institutions and rules in the financial services sector, the improvement of which will be central to the Philippines continuing
along its so-far modest but steady path of economic growth.
Many other examples of this type of Aid for Trade cooperation exist in other North-South PTAs and have been discussed in depth
elsewhere.25 Suffice it to say here that as was discussed above in the context of Aid for Trade and adjustment assistance, the
onus will again tend to be on a developing country government to have a fairly well-thought out and clearly formulated set of
objectives in terms of (a) the desired improvements to its domestic regulatory frameworks that it wishes to achieve, and (b) how
it intends to use both the upcoming PTA negotiations and commitments in the context of Aid for Trade to support it in achieving
C. Aid for Trade to boost export capacity
Exporters of services from developing countries face many impediments. These include: (a) lack of access to financing for export
or business development; (b) difficulty in establishing credibility with international suppliers; (c) lack of access to reliable and
inexpensive infrastructure; (d) lack of access to a range of formal and informal networks, and institutional facilities necessary for
trade; and (e) the financing constraints that flow from the lack of collateral that, typically, smaller service firms can put up given
the intangible nature of their output (Sauvé, 2007). Some specific proposals (discussed immediately below) have been made in
the context of Caribbean services exporters, which could improve market access to industrialized (OECD) economies (Chaitoo,
2008). Many of these proposals are likely to be equally applicable to developing countries as a whole.
Similarly, more recent research has been published by the World Bank summarizing several of the constraints that developing
countries face in exporting services as well as the policies needed to remedy such constraints and boost exports of services
(Goswani, Mattoo and Sáez, 2012).26 Each of these are discussed in turn as well as highlighting the extent to which Aid for Trade
commitments may be harnessed to address these issues. Also discussed here is the importance, for developing countries, of
securing Mode 4 access from their developed country PTA partners as a specific and tangible development-friendly outcome to
preferential services’ liberalization. Finally, how Aid for Trade has been, and might be used in future, to address specific supply-
side constraints to exporting services is discussed, particularly as such constraints relate to critical infrastructure and human
capital (education and training).
1. Aid for Trade and market access
Despite the fact that PTAs tend to be used by developing countries more to bind the status quo rather than to achieve genuine (i.e.,
de novo) additional liberalization of services markets, it is equally true that many developed-country PTA partners will be looking
for at least some improvements in market access for their service exporters, particularly in Mode 3 (Commercial Presence). This
is usually handled under the investment chapter of a PTA and is normally, albeit not exclusively, an issue that affects the defensive
interests of developing countries more than their offensive (export) interests. Nevertheless, there are always two sides to market
25 See, for example, Marconini and Sauvé (2010) and Chaitoo (2008), who discuss primarily the CARIFORUM-EU EPA and the Aid for Trade
initiatives taken in the context of trade in services under this agreement.
26 See subsection 2 below.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion56
Box III.8. Market access-related Aid for Trade requirements for services
the following are some key elements, in terms of tangible market access concessions, that are needed by Caribbean service suppliers
in order to take advantage of opportunities in developed country markets:
vulnerable economies and their services trade is so miniscule that it has a negligible impact on any OECD economy;
commercial presence. in other words, service suppliers should be granted entry as individuals. there should also be further
expansion of the scope of categories covered by horizontal commitments in developed WtO members’ schedules to include middle
Caribbean countries in sectors and modes of supply in which they have particular market access interests and are competitive.
some broad indicative areas are: culture and entertainment; professional services; health tourism; tour operators; building cleaning
access negotiations (that which is given and that which is obtained), and there is ample scope for trade-offs and the exchange
of mutual liberalization commitments across different modes of supply. Thus, commitments offered by developing countries in
Mode 3 can be paid for by the developed country PTA partner in that it grants commensurate improvements in Mode 4 market
access. Policymakers in developing countries need to be cognizant of the important contribution that FDI can make, not only in
promoting market contestability but also in terms of employment and other welfare gains in their domestic economies, and how
conditions can be improved to increase inbound FDI. Trade agreements are well placed to facilitate an increase in inbound FDI,
provided that they can be credibly linked with reform efforts in domestic labour and product markets.
Some of these policy constraints are addressed in subsection 2 while other constraints are dealt with in subsection 3. In focusing
on improving market access and, thus, the terms and conditions of entry of service suppliers in foreign (predominantly developed-
country) markets, a number of specific suggestions have been proposed on how to boost exports from Caribbean services
suppliers looking to enter or increase their presence in developed country markets. Box III.8 lists these proposals.
It is not hard to imagine how some of the proposals outlined above might be turned into specific commitments in the context
of bilateral PTA negotiations. As shown below in subsection 3, commitments very similar to those outlined above were part of
the EPA between Japan and the Philippines. Otherwise, it is essentially up to negotiators to do their homework and identify
what services they are already exporting and in what modes, as well as what barriers to market entry and other competitive
disadvantages foreign providers of these services face in the domestic market of their PTA negotiating partner. Once this analysis
is complete, negotiators must then make sure that this knowledge translates into actual market access, national treatment, or
other market entry or regulatory requests.
Another proposal put forward in this context but not listed above, is that developed countries go beyond the establishment of
mere enquiry points (already an obligation under GATS) to setting up formal institutional structures that are specifically tasked
28 Ibid, p.12.
with promoting and assisting service suppliers from the developing country PTA partners to identify and exploit commercial
opportunities in the services markets of the developed country partner (Chaitoo,2008). This is already something being done by
some countries for trade in goods, but such programmes could and should be extended to services trade, and should also figure
among tangible and actionable Aid for Trade commitments in North-South PTAs.
2. Policy frameworks for foreign direct investment and promoting services exports
Research published recently by the World Bank groups the determinants of services trade into three broad categories (Goswami,
Mattoo and Saez, 2012). The first of these – referred to as the “fundamentals” – is what would normally be expected to influence
trade flows under classic trade theory, including a given country’s” (a) factor endowments, particularly the quantity and quality of
its human capital (since services are primarily performed by humans); (b) natural resources and cultural endowments (important for
tourism services); (c) infrastructure; and (d) the quality of existing institutional structures (the regulatory environment). The second
category of determinants of services trade identified is “policies affecting trade, investment and labour mobility of services”. The
third category is referred to as “proactive policies in services”27. The other two categories are discussed in this subsection. The
first category is discussed to a limited extent in chapter I, (section D).
Many of the policies affecting trade, investment and labour mobility of services are more likely than not to be embedded in behind-
the-border legal and regulatory frameworks that are far removed from any immediate institutional link to those policymakers
directly concerned with a country’s trade performance. This is where the need for strategic and visionary leadership comes into
play, with the very upper echelons of government needing to lay out the preferred development course and subordinate all other
policy areas to this vision. Inbound FDI can be harnessed to act as the precursor to services exports, but first the investment
regime in the targeted service sectors has to be liberalized. The example of the business process outsourcing sector in the
Philippines can be cited here, in which more than 90 per cent of the initial total equity investment of US$ 2 billion consists of
foreign equity participations. Business process outsourcing is now one of the country’s biggest services exports and a source of
thousands of well-paid and safe jobs in the formal sector.28
Here the role of Aid for Trade is clear enough, and should comprise assistance to the developing country PTA partner in adopting
regulatory best practices for the concerned institutional and policy frameworks. This could manifest itself in terms of binding
commitments to dedicate commensurate monetary and other resources to this task as well as setting up institutional structures
for the exchange of information and the transfer of knowledge.
Proactive policies to promote services would necessarily include those that are intended to promote exports and/or investment.
Here, the age-old and well-used tool of Special Economic Zones (SEZs) or (in India) Software Technology Parks (STPs) serve as
examples of this type of industrial and development policy that favours services trade. Other policy examples in this category
include tax holidays or other preferential fiscal treatment as well as waiving otherwise prevalent restrictions on land use, zoning
regulations and labour laws. Such treatment can be linked to requirements to meet minimum export thresholds or employ
targeted quantities of local labour; however, governments might also find that such restrictions go a long way to curtailing
economic operators in terms of their discretion in making the necessary business decisions, and might thus be ultimately self-
defeating. Because they relate to services trade, such performance requirements are not constrained by the WTO Agreement
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion58
Box III.9. Software Technology Parks of India
Government of india, merged these three societies.
of 100 per cent Export Oriented Units (EOU) and Export Processing Zones (EPZs) of the Government of india within the concept of
technology parks. the main function of stPi is to provide an environment for developing and exporting computer software as well as
on Trade-Related Investment Measures (TRIMs), although the investment chapters of many PTAs do extend the reach of TRIMs
disciplines to services trade.
Box III.9 contains an excerpt from a case study of technology parks in India. It shows the kind of policies pursued in order to
ensure the success of the parks and how they became so successful that they were copied by literally dozens of countries across
the developing world.
Box III.9 provides some useful insights into the sweeping nature of the pro-active policy approach that a government must take
in the event that it is serious about starting or promoting a given services sector. It also gives some idea of the positive economic
spillover effects and virtuous development cycles that the successful implementation of such an approach can have. Interestingly,
the literature appears to point to two converging forces that made the take-off of this particular economic sector possible. One
was a boom in the software industry (including the dot-com boom) of the 1990s in the United States, which saw a massive
demand for software programmers. The other factor was the decision, starting in 1991 to privatize, deregulate and liberalize the
telecommunications sector in India, thereby addressing severe bandwidth bottlenecks that would otherwise have inhibited the
possibility of software programmers in India being able to trade across borders with their customers overseas. Finally, and equally
important, is the fact that India was well-placed to meet this demand, due to several long-standing endowments it enjoyed in
terms of a working population that was proficient in English as well as the fruits of a secondary and tertiary education system that
rightfully placed a heavy emphasis on mathematics and science. Because services are primarily human-intensive, it also tends
to be true that those countries with more rigorous education systems tend to be able to become competitive on many services
markets to the point that they are ready to export.
It is here that the Aid for Trade angle is immediately obvious, in that the developed country PTA partner could be asked to
make monetary or other material commitments to assist in the establishment of such SEZs or STPs, or to provide technical
assistance to policymakers on how to best go about conceptualizing and implementing such policies. By the same token, the
developing country PTA partner has to be prepared to undertake regulatory reforms that may not prove easy or even popular,
and which may require it to overcome entrenched bureaucratic or market-based opposition. However, more than simply being
a matter for finding the right configuration of assistance under the Aid for Trade banner, this is essentially a question of visionary
and strategically capable political leadership, supported by sufficient technical expertise at the policymaker level. If these two
fundamentals are not a given, or are in chronically short supply, no amount of Aid for Trade is likely to produce or promote a
services industry that is ready to export regionally or globally.
Box III.9. Software Technology Parks of India (continued)
the objectives of stPi are to:
stPi provides services that range from statutory assistance to incubation services for startups. the stPi website also lists the following
as the main highlights of the stPi scheme:
Incubation facilities, popularly known as“plug-and-play” facilities, aremade available inmany centres so that firms can begin
immediateoperations.The incubation facilitiesprovide ready-to-usemodules,back-uppower supply, telephoneand fax facilities,
conference rooms, training facilitiesand,most importantly,high-speedcommunication lines,and Internetandvideoconferencing
facilities. stPi has promoted FDi and software exports since its inception. the stPi model has been considered so successful that other
developing countries such as mauritius, myanmar, nepal, ivory Coast and Cyprus are using it to set up technology parks. For example,
stPi played a major role in the Ebene CyberCity Project in mauritius, and is providing consulting services for similar parks in Cyprus,
ivory Coast, myanmar (stPi) and nepal.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion60
3. Commitments on the movement of natural persons
This is clearly an important area for developing countries, which tend to favour Mode 4 exports over those achieved via Mode
3 (because presence abroad is capital-intensive), but which may lack the infrastructure or natural endowments to attract Mode
2 (consumption abroad) across certain sectors (e.g., education or health care). When it comes to scheduling commitments to
open services markets to Mode 4 in the context of preferential liberalization, the evidence appears to point relatively convincingly
towards a tendency for developed and developing countries to be slightly more forthcoming than was the case during the
Uruguay Round or as has so far been displayed in the offers and request process under the WTO Doha Development Agenda.
PTAs therefore appear to be the best way for developing countries to secure market access for their highly-skilled independent
professionals, contract-based suppliers and business visitors.
Securing GATS-plus market access commitments on Mode 4 in North-South PTAs with both the United States and the European
Union has so far proved elusive (and significantly more so in the case of the United States), but the Philippines and Thailand both
appear to have recorded a certain measure of success for certain categories of workers in their respective EPAs with Japan. Both
these EPAs include a separate chapter on the movement of natural persons, with the Philippines obtaining commitments from
Japan concerning Mode 4 access for “personal contract suppliers” who simultaneously meet the definition of being “specialists
in humanities/international services” as well as for nurses and caregivers – two categories under which the Philippines exports
thousands of natural persons annually and which are preceded in importance only by the category of household service workers.
Thailand obtained similar concessions except that rather than obtaining commitments with regard to nurses and caregivers,
these were given for “instructors” (of certain art forms unique to Thai culture, such as dancing, music, cuisine, martial arts,
language and spa services) as well as “personal contract suppliers” of Thai cuisine (Carzaniga, 2009). Likewise, the PTAs of
Australia, Canada and New Zealand have registered novel forward movement in the area of Mode 4 trade.
The Aid for Trade implications of this are once again fairly obvious, in that binding market access commitments under Mode
4 can reasonably be expected to have direct and tangible economic benefits on developing country beneficiaries of such
commitments, provided they are tailored to the specific export capacities of the developing country in question. These types of
commitments can be tabled in the normal request-offer process of PTA negotiations, with the Aid for Trade dynamic theoretically
obviating any need for direct and commensurate reciprocity.
To summarize, there are many and yet largely underexploited ways in which Aid for Trade commitments might be better harnessed
to support and promote the export interests of developing countries in order to make their service suppliers better able to contest
international markets and begin exporting or expand existing export flows. However, developing country policymakers must
focus on two key considerations: (a) the need for a certain amount of strategic thinking to go into the formulation of Aid for Trade
requests; and (b) Aid for Trade, like the decades of official development aid that has preceded it, is by no means a panacea. It is
also certainly no substitute for sound and informed policy-making by accountable governments genuinely interested in promoting
the economic welfare of the nation as a whole rather than the narrow interests of a privileged few.
Many policymakers make the mistake of thinking that the really hard part to concluding a PTA consists of being well-prepared
and bringing often long and wearisome negotiations to a successful conclusion. Although performing these tasks properly and
effectively is difficult, time- and resource-consuming, and obviously centrally important, most seasoned negotiators will agree
that the really hard part of any PTA negotiation comes after it has been signed. This is not only because there are a number of
legal steps that need to be completed before a negotiated PTA can enter into force (adoption or ratification), but also because
the actual task of implementing a PTA and “making good” on the commitments entered into can often be as problematic as the
negotiations themselves. This chapter provides a brief look at a number of steps required to implement a PTA per se, including
ratification and enacting implementing legislation as well as amending existing laws or passing new ones. Finally, a few of the
issues that inevitably arise in the context of monitoring implementation and enforcing the application of a PTA are examined,
such as asserting a country’s rights under a PTA. As in the previous chapters of this manual, the emphasis is very much, albeit
not exclusively, on trade in services and investment.
A. Implementing preferential trade agreements
The brief examination here of the more informal task of getting domestic consensus mobilized in favour of ratifying a recently
concluded PTA shows that negotiators cannot afford to be complacent once the signing ceremony is over. Indeed, getting a
signed FTA ratified without any deal-breaking hiccups can be a very challenging task. The formal and legal processes by which
ratification must take place, if a PTA is ever to become law, and the final diplomatic conventions to be observed prior to a treaty
entering into force are also considered.
1. Domestic consensus and implementation of preferential trade agreements
It is not uncommon for trade negotiators to conclude negotiations with their PTA partners and come home with a deal, only
to learn that what they have agreed upon in some way either exceeds their negotiating mandate or otherwise attracts political
opposition, forcing them to re-open negotiations and/or retract concessions they have already made. There are numerous
examples of this, dating back to the former International Trade Organization negotiations in 1947, when the Truman administration
decided not to press for ratification of the International Trade Organization treaty due to a lack of support in Congress. A similar
situation prevailed two decades later when United States negotiators came home from the Kennedy Round (1964-1967) with a
signed agreement on anti-dumping, only to be told by Congress that they had no mandate to negotiate on non-tariff measures.
More recently, both the Australia-United States FTA and the Republic of Korea-United States FTA ran into trouble when the time
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion62
came for the Australian Parliament and Korean Diet, respectively, to ratify the agreements. Box IV.1 documents the rickety course
the Australia-United States FTA had when it went before the Australian Parliament, which perceived a potential conflict with one
of Australia’s key health-care policies – the Pharmaceutical Benefits Scheme (PBS).
Although it is true that even the most carefully negotiated agreements can often come unstuck by what may only be fractious Party
politics, the best way for negotiators to minimize such risks is to consult as widely as possible before and during negotiations,
and to inform policymakers from different parts of the Government (who will ultimately be asked to implement any commitments
made) as well as stakeholders in civil society (including the private sector, both potential winners and losers) who will ultimately be
the beneficiaries or have to pay the price of any upcoming liberalization. This reiterates a point made in chapter 1 of this manual
on the need to consult as broadly as possible.
When it comes to consulting stakeholders during the course of ongoing negotiations, policymakers will have to weigh up the
benefits of doing so against the inevitable need for a certain degree of confidentiality. Trade negotiations must, by their very
nature, be subject to a certain degree of secrecy; however, if negotiators shroud their activities in too much secrecy, this is likely
to create a sense of unease on the part of those who fear they will have to bear the brunt of any liberalization and they are likely
to make their unease felt to their own parliamentary representatives.
The ease with which a PTA is ratified will be a function of the underlying political realities and the legal system of the implementing
State, i.e., whether its legal system is monist, dualist or a mix of the two. It may also depend on the scope that the State’s laws
Box IV.1. Australian opposition to the United States FTA
listed on the PBs as well as complex new intellectual property protection for patents.
forms of intellectual property, including patents.
grants to private actors to challenge the constitutionality of international treaties or implementing legislation. All of these factors
will influence the speed with which a PTA may enter into force. An election between the date on which a PTA is signed and the
date on which it is submitted to Parliament for ratification can also spell trouble for the agreement’s eventual passage into law.
Electoral politics and legal challenges are something that negotiators will not typically be able to take into account when preparing
for, and conducting, negotiations, although they must clearly have a sophisticated understanding of the prevailing domestic
political constraints and the constitutional framework that underlies their negotiating mandate.
Even before a PTA or enacting legislation is submitted to Parliament for ratification or adoption, the text of the agreement must
be submitted in full for review by government lawyers, usually at the Ministry of Justice or its equivalent, who are ultimately
charged with representing the country if it becomes liable under international law. This is a process commonly referred to as “legal
scrubbing” and can take several months if it is to be done properly. This timeframe can be shortened considerably if the lawyers
are constantly given updated negotiating texts as they are concluded, or if they are themselves embedded in the negotiating
team and attached to each negotiating group. In any event, once the lawyers have given the green light, it is up to legislative
affairs experts to draft the ratifying bill or enacting legislation for submission to parliament. This is again likely to be someone from
the Ministry of Justice, but the Office of the President or Prime Minister might have its own lawyers that produce drafts of this type
of legislation. Box IV.2 contains an excerpt, from a training manual produced by the Government of Australia on FTA negotiations,
where the process by which international treaties become law in Australia is discussed.
What is interesting to note in the example of the Australian procedures cited in box IV.2 is that even after the agreement has
been signed, there is still a large amount of analytical work to be done, i.e., an examination of whether the agreement is in the
national interest as well as a study of the agreement’s likely impact on various stakeholders and the community as a whole.
Some might argue that such an analysis essentially provides an opportunity for Parliament (for whose benefit these studies are
conducted) to second-guess the executive, which will have done its own analysis on the term of the PTA it ultimately signed.
Box IV.2. Australia’s treaty approval process under domestic law
the Australian treaty approvals process includes the following main steps for all treaty actions, i.e., creating a new treaty, amending
an existing one or abrogating a treaty:
• Preparationof aNational InterestAnalysis that setsout theadvantagesanddisadvantages toAustraliaofbecoming,ornot
treaty. Among several other points, the national interest Analysis must detail what consultations have taken place with the states
and territories, and with community and other interested partners;
• PreparationofaRegulatory ImpactStatementthat includesanassessmentofthe impactoftheproposedregulation(i.e., the
treaty) and alternatives on different groups and the community as a whole;
Committee on treaties. if Parliament is in recess, several weeks or even months may elapse before this criterion has been met;
timetable of parliamentary sittings and the demands of other business before Parliament.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion64
Nevertheless, conducting a subsequent analysis of the type mentioned allows policymakers and legislators to thoroughly assess
the implications of signing the proposed PTA; from this perspective, this is likely to prove beneficial and raises the legitimacy of
the negotiated agreement once it enters into force.
3. Services trade-related aspects of implementation in particular sectors
There are various services-specific aspects of implementing negotiated outcomes. Similar to several other agreements that
formed part of the Uruguay Round Single Undertaking, GATS imposed its own burden on countries in terms of amending existing
domestic laws or enacting new legislation as well as establishing the proper institutional structures required to implement the
agreement properly (Marconini and Sauvé, 2010). Particularly in some sectors such as telecommunications, some important
additional commitments contained in the Telecoms Reference Paper (not part of the Single Undertaking, but adopted nonetheless
in one form or another by almost all WTO accession countries since 1995) imposed a heavy burden. Because only a limited
number of developing countries participated in the so-called “overtime negotiations” – which culminated in 1997 in additional
market opening rules and commitments in the basic telecommunications sector (as well as financial services) – a number of
North-South PTAs have seen the developing country partner making commitments that are very close, or even identical, to those
set out in the Telecoms Reference Paper. This is by no means a worrisome development, since the Reference Paper contains
what are widely perceived as sound pro-competitive regulatory principles designed to effectively foster competition in the wake
of trade and investment liberalization. The only questionable angle to this trend (if any) is the extent to which developing countries
have truly implemented these additional commitments.29
Other examples abound in other sectors. In distribution services, for example, many countries have zoning or other regulations
that effective impede market access for global retailers, whose business model is often predicated on the establishment and
operation of large outlets close to residential areas. Any meaningful market access commitments to open up the retail distribution
sector would necessarily have to be accompanied by changes to restrictive zoning laws or any other laws that prevent or impede
the construction and operation of these stores, or the entry into retailing services by foreign suppliers.
Competition policy is another good example of a regulatory implementation issue that affects many sectors, but services more
acutely (due to the imbalances in market power and information asymmetries that are prevalent on many services markets).
Many developing countries have resisted multilateral trade rules on competition policy, but have then agreed to them in PTAs
with developed country partners. In fact, many developing countries entered into PTA commitments to enforce competition rules
before they had even set up commensurate legal frameworks (i.e., adopted a competition law) or established proper and effective
institutional structures (i.e., a competition regulator). An excerpt from the competition provisions of the 2005 Closer Economic
Partnership Agreement between New Zealand and Thailand is given in box IV.3.
Even a casual reading of the above provisions leads to the conclusion that the Parties to this PTA have entered into relatively
broad commitments on competition policy – although Article 11.10 carves these provisions out from the agreement’s dispute
29 To name just one example of this, under the 2011 Trade Promotion Agreement between Panama and the United States (which has
been signed but not yet implemented), Panama has agreed “to a pro-competitive regulatory framework that builds upon the WTO Basic
Telecommunications Reference Paper. This is a significant achievement given that Panama took no specific telecommunications commitments
at the WTO and therefore never adopted the Reference Paper”. See www.ustr.gov/about-us/press-office/fact-sheets/2011/may/
telecommunications-us-%E2%80%93-panama- trade-promotion-agreement (accessed 13 July 2012).
Box IV.3. Competition provisions of the 2005 New Zealand-Thailand CEPA
Chapter 11: Competition Policy
(a) Fair competition;
competition, such as:
(b) misuse of market power, including predatory pricing;
Article 11.3 Promotion of Competition
Each Party shall promote competition by:
(a) Addressing anti-competitive practices in its territory and by adopting and enforcing such means or measures as it deems
appropriate and effective to counter such practices;
(b) Using its best efforts to reduce transaction costs and compliance costs for business;
(c) Applying the APEC Principles to all forms of commercial activity in a manner that does not discriminate between or among
economic entities in like circumstances; and
(d) Promoting effective coordination on competition policy and law between the Parties.
Source: www.mfat.govt.nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/Thailand/ Closer-Economic-Partnership-Agreement-text/0-cep-
B. Monitoring and enforcing implementation of preferential trade agreements
Most PTAs establish some form of institutional mechanism, the job of which is to meet regularly and discuss implementation
issues. In addition to such official channels, private sector interests will normally alert policymakers relatively quickly if they think
their interests are being prejudiced in a manner that does not conform to the PTA partner’s treaty commitments. The task of any
negotiator is to ensure that these consultative mechanisms meet often enough and/or are easy enough to convene that any
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion66
30 See, for example, the 2002 FTA between Singapore and the European Free Trade Association, where the majority of the institutional
provisions are contained in Part VIII, in a single article (Article 55).
implementation issue may be brought to the PTA partner’s attention with sufficient timelines, and can be discussed and dealt with
by counterparts who have both sufficient technical knowledge as well as the requisite authority to be able to instigate change
where it is required. Subsection 1 below examines how some of these mechanisms relate to trade in services. Subsection 2
examines dispute settlement provisions in PTAs and how they relate to trade in services
Whether or not a PTA has genuinely effective provisions allowing for the resolution of trade disputes tends to be a variable of the
operability of these provisions, which is itself more a question of political will and legal drafting than any other factor. In general,
US PTAs tend to feature more detailed rules on enforcement than those with other developed country partners (Horn, Mavroidis
and Sapir, 2009). In terms of their procedural specifics and the language in which such provisions are couched, many PTAs rely
heavily on the acquis that has evolved over the course of more than 60 years of multilateral dispute settlement in the GATT and
the WTO, and thus follow the latter’s Dispute Settlement Understanding to various degrees (Porges, 2011).
1. Monitoring mechanism for preferential trade agreements
Some PTAs set out institutional provisions in a dedicated chapter, section or even a single article.30 Others establish different
monitoring mechanisms on a chapter-by-chapter basis or in the context of the relevant substantive provisions such mechanisms
are designed to oversee. The Japanese PTA template is one example of a set of agreements containing relatively detailed
institutional provisions, with articles governing their establishment and operation in both the main agreement text and the
implementation agreements that typically accompany Japanese PTAs.
Box IV.4 contains two general institutional provisions establishing bodies to monitor implementation of various substantive
aspects of the 2007 Economic Partnership Agreement between Japan and Indonesia. Box IV.5 contains the specific institutional
provisions of the same EPA as set out in the services chapter.
Comparing the texts from the two articles on the establishment of a sub-committee (the general institutional provision and that
from the services chapter), the latter seems to be, by and large, a restatement of the former. It is worth noting that although
the provisions in the Japanese FTA/EPA template seem to set out what appear to be quite detailed institutional and monitoring
provisions (as cited here), it is not immediately clear from the text of the agreement how easy it is to convene a meeting of the
various bodies. As noted above in chapter III, the Japan-Philippines EPA had quite detailed provisions setting out consultation
mechanisms for the implementation and exchange of information between various sectors singled out for heightened cooperation
between the two partners. These arrangements will certainly double as a form of implementation mechanism, but their utility is
limited to the substantive sectors that form their focus.
In practice, any perceived lack of implementation that harms the export interests of one Party will be brought to the attention
of the other Party by the usual diplomatic channels. The chances of obtaining the desired outcome when exchanges are being
handled by the Ministry of Foreign Affairs is usually limited, since that Ministry has little or no authority to coerce other regulatory
agencies to comply with international treaty obligations. More often than not, the only effective way to get the other Party to
respond with the desired vigour and urgency to any perceived failure to implement its obligations under a PTA is to initiate formal
dispute settlement proceedings, a topic dealt with in the next subsection.
Box IV.4. General institutional provisions of the 2007 Japan-Indonesia EPA
(a) Reviewing and monitoring the implementation and operation of this Agreement;
(b) Considering and recommending to the Parties any amendments to this Agreement;
(i) the Operational Procedures for trade in Goods and the Operational Procedures for Rules of Origin, referred to in
(ii) Any necessary decisions;
(e) Carrying out other functions as the Parties may agree.
(a) shall be composed of representatives of the Governments of the Parties; and
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion68
Box IV.4. General institutional provisions of the 2007 Japan-Indonesia EPA (continued)
(a) Be composed of representatives of the Governments of the Parties and may, by mutual consent of the Parties, invite
representatives of relevant entities other than the Governments of the Parties with the necessary expertise relevant to the
issues to be discussed;
Box IV.5. Specific institutional provisions of the 2007 Japan-Indonesia EPA
Economic Partnership Agreement
Chapter 6: Trade in Services
(a) Reviewing and monitoring the implementation and operation of this Chapter;
(b) Discussing any issues related to this Chapter;
2. Dispute settlement and preferential trade agreements
Dispute settlement provisions in PTAs generally tend to fall into one of three broad categories, i.e., “diplomatic dispute settlement;
systems based on a standing tribunal; and referral to an ad hoc arbitral panel, as in the WTO” (Porges, 2011). Although there
is still some preference for purely diplomatic resolution procedures (since these give the greatest degree of policy space and
flexibility to policymakers), most North-South PTAs will ideally seek to incorporate rules that allow for referral to an ad hoc arbitral
panel. This is due mainly to the naturally inherent economic power asymmetries and the fact that the use of this form of dispute
settlement is perceived to have overwhelmingly proven its effectiveness in the WTO context. In addition, most negotiators
will have at least passing familiarity with the WTO dispute settlement procedures, and will thus feel a certain degree of ease
in adopting rules in the context of a PTA that are based on those procedures. Some regional economic integration initiatives,
including the European Union, have opted for the establishment of permanent dispute resolution institutions; however, the cost
of doing so can be significant and – aside from the European Union experience – has not always proven to be a sound and
economically efficient use of scarce financial and other resources.
Negotiators must also be conscious of the fact that – regardless of the system that is chosen for resolving disputes (political/
diplomatic versus adjudication) – because trade disputes concern the actions of sovereign States (or at least separate customs
territories possessing full autonomy in conducting their external commercial relations), forcing the “losing” Party (or the Party
deemed to have committed a breach of its treaty obligations) to comply with a ruling is more often than not a negotiated outcome
rather than an act of explicit coercion.31 For this reason, there are other factors that are likely to affect just how binding and
rigorous a given PTA’s dispute settlement provisions are, and how effective a remedy they represent in any grievances that may
arise. These factors include how much control each Party to a PTA exercises over the different stages of an eventual dispute, and
the possibilities afforded either Party for blocking progress of the dispute resolution procedures.
Another important factor is the mechanism by which any findings of compliance or non-compliance are to be adopted, and
whether the adoption of such findings can effectively be vetoed by the losing Party. Finally, and perhaps most importantly,
negotiators much consider the possible remedies that dispute settlement rules under a PTA may afford an aggrieved Party who
has effectively “won” its case (i.e., obtained a ruling in its favour). A suspension of concessions or even payments of monetary
awards are two of several options to be considered.
Negotiators also need to be aware of the possibility of carving out certain PTA provisions from the scope of dispute settlement
rules as well of the costs and benefits of doing so. Some PTAs carve out contingency protection measures from the applicability
of dispute settlement rules – a questionable practice because it effectively denies exporters any remedy if they feel their goods
are being unfairly targeted by such measures. In other PTAs, Aid for Trade, competition policy and selected aspects of investment
disciplines may be expressly excluded from the chapter on dispute settlement. This may yet again have unfortunate consequence
of denying the developing country partner any remedy if it feels the developed country partner is not living up to its commitments.
Another issue that negotiators must consciously take a position on when developing dispute settlement rules is the scope
of possible complaints, i.e., the grounds for invoking these procedures. Will they also be applicable to disagreements on
interpretations of certain provisions? Will they be limited to allegations of a specific violation, or will dispute settlement also be
31 Whereas it may be true that overwhelming economic power asymmetries may make coercion a possibility for the more powerful PTA party,
exercising such power is likely to undermine the cooperative spirit that the PTA is intended to embody.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion70
Box IV.6. Dispute settlement in the Pacific Agreement on Closer Economic Relations
if a Party considers that:
(c) the achievement of any objective of this Agreement is being, or may be, frustrated;
(d) A change in circumstance necessitates, or might necessitate, an amendment to this Agreement;
it may notify any other Party, through the Forum secretariat, of its wish to enter into consultations. the Party so requested shall enter
into consultations in good faith and as soon as possible, with a view to seeking a mutually satisfactory solution.
In summary, there are many questions that negotiators need to consider when drafting dispute settlement rules, and these will
ultimately be influenced by the Parties’ ambitions, the intensity and nature of economic integration that the PTA aims to achieve
as well as the prevailing economic power asymmetries between PTA partners. There are no strictly right or wrong choices here
per se, merely those that best meet the mutual objectives of the Parties concerned.
available for so-called non-violation or even situational complaints? Most PTAs opt for some variation on the terms “nullification
or impairment of concessions” or “denial of benefits”. Another issue that negotiators must take into account in this context is
that of delimiting the application of dispute settlement procedures under a PTA and those of WTO. This involves the question of
when must Parties seek recourse under a PTA and when are they allowed to bring a dispute before WTO. This may be especially
relevant in the case of overlapping commitments, i.e., commitments made by a Party in a PTA that mirror or are identical to those
it has made under WTO. Such occurrences are far from uncommon in services trade. Therefore, negotiators need to be wary of
any commitment that would close off the option of initiating dispute settlement in one forum of another.
Box IV.6 contains text from the dispute settlement provisions of PACER. The attentive reader will notice that, in reality, these
provisions constitute little more than a consultative mechanism. This is strongly in keeping with the political/diplomatic route for
resolving disputes. In the PACER context, such a choice is probably more than adequate, given the very limited ambitions this
agreement represents. PACER is, in effect, little more than an agreement to conduct future negotiations towards closer economic
integration, and it merely aims to set some ground rules for such future negotiations.
Other agreements contain much more detailed rules and procedures, modelled on those developed for WTO during the Uruguay
Round. Box IV.7 summarizes the relevant institutional and dispute settlement provisions of the 2000 PTA between Mexico and
Box IV.7. Institutional and dispute settlement provisions in the 2000 Mexico-Israel FTA
Chapter 10 of the FtA contains the relevant institutional and dispute settlement provisions. A Free trade Commission is established
to administer implementation of the agreement, and assumes the roles played by the WtO’s ministerial Conference, General Council
Recourse to the agreement’s dispute settlement mechanisms is provided on several grounds, including with regard to the interpretation
the FtA contains some guiding principles for a situation in which a Party has the option of initiating a dispute settlement procedure
under both the WtO and the FtA. Although the agreement seems to have a bias towards settling disputes under its own rules, it does
not preclude doing so under the WtO where this option is available, and merely requires the Parties to notify and consult with each
Consultations and the initiation of procedures are set up largely in accordance with existing practice at the WtO, with the above
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion72
summary and ConClusIon
The range of issues that policymakers and negotiators must deal with in the run-up to, and during, services negotiations can
be overwhelming. As in all matters of such complexity, the onus should be on the proper delegation of responsibilities, equally
proper inter-agency coordination in order to create whole-of-government positions, wide-spread consultation of all pertinent
stakeholders and adequate preparation through studying the export and defensive interests of the PTA partner. Developing
countries and transition economies must have a clearly formulated vision of where they want to go in the future and how the
contemplated PTA negotiations may help to get them there. Equally important is the need to have a clearly formulated set
of objectives, both offensive and defensive, with regard to one’s own services markets as well as a strategic game plan for
achieving them, a sense of what should be assigned to the trade negotiating process and what is more properly in the domain of
(unilateral) domestic reform efforts. Negotiators must understand the uses and limits of Aid for Trade commitments, and approach
negotiations with a set of clearly formulated demands with well-developed arguments on why the demanded commitments are
necessary to achieving the country’s economic development or other goals.
Conducting thorough research on previous PTAs entered into with other Parties by a future PTA partner will give policymakers
valuable insights into what they can expect in terms of the scope and depth of market opening and rule-making demands.
Study of other PTAs entered into by third parties will give policymakers and negotiators an understanding of all the possibilities
available to them in negotiating and configuring rules under such treaty frameworks, both under North-South and South-South
agreements. Conducting a thorough cost-benefit analysis of the likely implications of the planned PTA, and sharing these results
as widely as possible with stakeholders, will also assist negotiators to better articulate offensive and defensive interests as well
as informing those interest groups most likely to be affected, thereby raising the legitimacy of the eventually negotiated outcome.
Finally, any agreement is only as good as the degree to which it is adhered to and implemented by the contracting Parties.
Preferential trade agreements must therefore be backed up with appropriate institutional structures for monitoring implementation
as well as operationally effective rules on enforcing compliance in the event of a perceived breach by one or both Parties.
Policymakers and negotiators must therefore familiarize themselves with the various options available to them for drafting such
institutional and dispute settlement provisions, and be wary of any attempts by their PTA partner to remove certain clauses from
Bacchetta, M. and M. Jansen, 2003. Adjusting to trade liberalization: the role of policy, institutions and WTO discipline,. Special
Studies (No. 7). Geneva, World Trade Organization.
Carzaniga, A., 2009. “A warmer welcome? Access for natural persons under PTAs”, in J. A. Marchetti and M. Roy, Opening
Markets for Trade in Services: Countries and Sectors in Bilateral and WTO Negotiations; pp., 475-502. Cambridge University
Chaitoo, R., 2008. “Aid for Trade for services in small economies: Some considerations from the Carribbean”, in D. Njinkeu and
H. Cameron, Aid for Trade and Development; pp. 300-313. Cambridge University Press.
Chauffour, J-P. and J-C. Maur, 2011. Preferential Trade Agreement Policies for Development: A Handbook. Washington, D.C.,
Feketekuty, G., 2008. “A guide to services negotiations”, in A. Mattoo, R. M. Stern and G. Zanini, A Handbook of International
Trade in Services; Appendix, pp. 542-592. Oxford University Press.
Fink, C. and M. Molinuevo, 2007. East Asia Free Trade Agreements in Services: Roaring Tigers or Timid Panders. Washington,
D.C., World Bank.
Goode, W., 2005. Negotiating free-trade agreements: A guide. Canberra, Aiustralian Department of Foreign Affairs and Trade.
Goswani, A. G., A. Mattoo and S. Sáez, 2012. Exporting Services: A Developing Country Perspective. Washington, D.C., World
Grynberg, R. and R. M. Joy, 2000. “The accession of Vanuatu to the WTO lessons for the multilateral trading system.” in Journal
of World Trade; pp. 159-173.
Horn, H., P. C. Mavroidis and A. Sapir, 2009. Beyond the WTO? An anatomy of EU and US preferential trade agreements.
Koh, T. and C. L. Lin, 2004. The United States Singapore Free Trade Agreement Highlights and Insights. Singapore, Institute of
Policy Studies and World Scientific Publishing.
Marchetti, J. A. and M. Roy, 2009. Opening Markets for Trade in Services: Countries and Sectors in Bilateral and WTO
Negotiations. Cambridge University Press.
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion74
Marconini, M. and P. Sauvé, 2010. “Negotiating trade in services: A practical guide for developing countries”, in S. Sáez, Trade
in Services Negotiations A Guide for Developing Countries; pp. 19-85. Washington, D.C., World Bank.
Mattoo, A. and A. Subramanian, 2008. “Currency undervaluation and sovereign wealth funds: A new role for the World Trade
Organization”, Working Paper No. 08-2. Washington, D.C., World Bank.
Mattoo, A. and C. Fink, 2002. “Regional agreements and trade in services: Policy issues”, Policy Research Working Paper Series
(Paper No. 2852), Washington D.C., World Bank.
Mugliston, M., 2009. “Negotiating the ASEAN-Australia-New Zealand Free Trade Agreement”, Asia Trade Task Force, Australian
Department of Foreign Affairs and Trade.
Pan, S., 2011. “The implementation of Cambodia’s ‘Work programme of legal reforms and commitments resulting from WTO
accession’ ”, OECD Aid-for-Trade Case Study. Paris.
Porges, A., 2011. “Chapter 22, Dispute Settlement”, in J-P. Chauffour and J-C. Maur, Preferential Trade Agreement Policies for
Development: A Handbook; pp. 467-501. Washington, D.C., World Bank.
Sauvé, P., 2007. “Services-related projects in Aid for Trade,” in D. Njinkeu and H. Cameron, Aid for Trade and Development; pp.
293-299. Cambridge University Press.
Sauvé, P., G. Pasadilla and M. Mikic (eds.), 2012. Service Sector Reforms: Asia Pacific Perspectives, Tokyo, Asian Development
Stewart, M., 1998. “Global trade’s impact on Nursing”, in The American Journal of Nursing; pp. 65-66 and p. 68.
United States Agency for International Development and Chemonics International, 2009. “Indonesia Trade Assistance Project –
2008 Annual Report.”
Vaidyanathan, G., 2008. “Technology parks in a developing country: The case of India”, in Journal of Technology Transfer; pp.
Websites relevant to research on trade in services
• OECD – www.oecd.org/trade/
• OAS – www.oas.org; www.sice.oas.org/
• INTAL – www.iadb.org/intal/
• IADB – www.iadb.org/ and www.iadb.org/en/topics/trade/trade,1264.html
• ADBI – www.adbi.org/
• World Bank – econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/ EXTPROGRAMS/EXTTRADERESEARCH/
• ITC – www.intracen.org
• UNCTAD – www.unctad.org
• Peterson Institute for International Economics – www.iie.com/
• Centre for Global Development – www.cgdev.org/
• Brookings Institution – www.brookings.edu/economics.aspx
• AEI Trade Programme – www.aei.org/ra/8
• Trade Law Centre for Southern Africa (TRALAC) – www.tralac.org/cgi-bin/giga.cgi?c=1694
• Centre for Trade Policy and Law at Ottawa/Carleton University (CTPL) – www.ctpl.ca
• Overseas Development Institute (ODI) – www.odi.org.uk/
• European Centre for International Political Economy (ECIPE) – www.ecipe.org/
• Sussex CARIS – www.sussex.ac.uk/Units/caris/
A hAndbook on negotiAting PreferentiAl trAde Agreements: services liberAlizAtion76
• WTI-NCCR-Trade – www.nccr-trade.org; www.wti.org
• International Centre for Trade and Sustainable Development (ICTSD) – www.ictsd.org
• Institute for Agricultural Trade and Policy – www.iatp.org
• ECDPM – www.ecdpm.org (Weekly Compass) and acp-eu-trade.org newsletter
• Australia – www.dfat.gov.au/trade/index.html
• Canada (DFAIT) – www.international.gc.ca/commerce/index.aspx
• European Union – www.trade.ec.europa.eu/ ; ec.europa.eu/trade/creating-opportunities/bilateral-relations/regions/africa-
• Japan - www.mofa.go.jp/policy/economy/fta/index.html; www.meti.go.jp/english/index.html
• New Zealand – www.mfat.govt.nz/Trade-and-Economic-Relations/index.php
• United States Trade Representative (USTR) – www.ustr.gov/
• United States National Trade Estimate – www.ustr.gov/about-us/press-office/reports-and-publications/2012-1
• Services coalitions – www.esf.org; www.uscsi.org
• DFID – www.dfid.gov.uk/Global-Issues/
• Inside US Trade – insidetrade.com/
• Bilaterals.org – www.bilaterals.org
• Global Trade Alert – www.Globaltradealert.org
• Office of Trade Negotiations (OTN) of Caricom (formerly Caribbean Regional Negotiating Machinery) – www.crnm.org
the secretariat of the escAp is the regional development arm of the united nations and serves as the
main economic and social development centre of the United Nations in Asia and the Pacific. Its mandate
is to foster cooperation between its 53 members and 9 associate members. It provides the strategic link
between global and country-level programmes and issues. It supports governments of countries in the
region in consolidating regional positions and advocates regional approaches to meeting the region’s unique
socio-economic challenges in a globalizing world. The ESCAP secretariat is located in Bangkok, Thailand.
Please visit the ESCAP website at www.unescap.org for further information.
The shaded areas of the map are ESCAP Members and Associate members.
united nations economic and social commission for
Asia and the Pacific
trade and investment division
United Nations Building, Rajadamnern Nok Avenue
Bangkok 10200, Thailand
Tel: +66 2 288 1902, Fax: +66 2 288 1027, 288 3066
Emails: email@example.com, firstname.lastname@example.org
united nations publication
Copyright © United Nations 2013
Asia-Pacific Research and Training Network on Trade (ARTNeT) is an open regional network
of research and academic institutions specializing in international trade policy and facilitation
issues. IDRC, UNCTAD, UNDP, and WTO, as core network partners, provide substantive and/
or financial support to the network. The Trade and Investment Division of ESCAP, the regional
branch of the United Nations for Asia and the Pacific, provides the Secretariat of the network and a direct
regional link to trade policymakers and other international organizations. For more information, please contact
ARTNeT Secretariat at email@example.com or visit www.artntontrade.org
cover illustration: teemu puutio
A hAndbook on negotiAting
preferentiAl trAde Agreements
pierre sAuvé // simon lAcey
Printed in Bangkok
July 2013 - 150