Africa's trade in services and economic partnership agreements

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Trade can play a crucial role in the development of services sectors in Africa. Services offer new dynamic opportunities for exports, especially for land-locked countries, while opening up to imports of services and foreign direct investment is a key mechanism to increase competition and drive greater efficiency in the provision of services in the domestic economy. Lower prices, higher quality and wider access to services raises productivity improves competitiveness and is critical for poverty reduction. But trade opening may need to be coordinated with regulatory reforms, to ensure efficient outcomes, while additional policies may be required to ensure that public policy objectives regarding equity are achieved. This places emphasis on the capacity to define and implement sound regulatory policies for services sectors, capacity that is limited in many African countries. Regulatory and trade reforms in Africa need to be supported with technical and financial assistance. Such assistance should be available to all African countries that wish to reform their services sectors, whether they negotiate and sign an Economic Partnership Agreement (EPA) or not. An independently managed fund for services trade reform in Africa, organized around common priority sectors, that would allocate resources to support implementation of reforms and consultants according to expertise, not nationality, will be the most appropriate vehicle for providing technical assistance and building capacity.
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Report No. 55747-AFR Africa's Trade in Services and Economic Partnership Agreements July 20, 2010 Poverty Reduction and Economic Management (PREM) Africa Region Document of the World Bank Document of the World Bank Currency Equivalents (May 10, 2010) US$1.00 = 0.791 1.00 = US$1.264 Abbreviations and Acronyms ACP African, Caribbean, and Pacific countries AGOA Africa Growth and Opportunity Act CARIFORUM Caribbean Forum of the African, Caribbean and Pacific Group of States CEMAC Communaut Economique et Montaire de l'Afrique Centrale (Central African Economic and Monetary Community) CET Common External Tariff COMESA Common Market for Eastern and Southern Africa EAC East African Community EBA Everything-But-Arms EC European Commission ECOWAS Economic Community of West African States EDP European Development Fund EPA Economic Partnership Agreement ESA Eastern and Southern Africa EU European Union FDI Foreign Direct Investment FTA Free Trade Area GDP Gross Domestic Product GSP Generalized System of Preferences HS Harmonized System IPR International Property Right LDC Least Developed Country MFN Most Favored Nation NTB Non-tariff barrier REC Regional Economic Community RoO Rules of Origin RTA Regional Trade Agreement (or Area) SACU Southern African Customs Union SADC Southern African Development Community SSA Sub-Saharan Africa UEMOA Union Economique et Montaire Ouest-africaine (West African Economic and Monetary Union) UNCTAD United Nations Conference on Trade and Development US United States WTO World Trade Organization Vice President : Obiageli K. Ezekwesili (AFRVP) Sector Director : Sudhir Shetty (AFTPM) Task Team Leader : Paul Brenton (AFTPM) Africa's Trade in Services and Economic Partnership Agreements Table of Contents ABSTRACT ........................................................................................................................................ I ACKNOWLEDGEMENTS .................................................................................................................. II EXECUTIVE SUMMARY ................................................................................................................. III 1. INTRODUCTION: THE IMPORTANCE OF TRADE IN SERVICES ............................................ 1 A Services in the Modern Economy ...................................................................................... 3 B Services and development in Africa .................................................................................. 4 C Services Trade Policy ........................................................................................................ 8 D Services and the Investment Climate ............................................................................... 13 2. AFRICA AND TRADE IN SERVICES ....................................................................................... 15 A The Services Sector in Africa .......................................................................................... 15 B Africa's Exports of Services ............................................................................................ 20 C Africa's Imports of Services and FDI .............................................................................. 27 D Africa's Participation in the Global Services Economy .................................................. 32 E Conclusions and Implications for Following Discussion ................................................ 34 3. TRADE LIBERALIZATION AND REGULATION OF SERVICES SECTORS ............................... 35 A Competition and Services Trade Liberalization .............................................................. 35 B Services Trade and Regulation ........................................................................................ 39 C Risks from Liberalizing Services Trade .......................................................................... 42 D Social Objectives and Regulatory Freedom..................................................................... 47 E Fiscal Effects of Removing Restrictions on Imports of Services .................................... 49 F Regulation and Exports of Services ................................................................................. 49 G Benefits of Coordinated Regulatory and Trade Reforms ................................................ 50 H Conclusions...................................................................................................................... 51 4. IMPLEMENTING LIBERALIZATION OF TRADE IN SERVICES ............................................. 54 A WTO/GATS Rules Governing Trade in Services ............................................................ 54 B Standard GATS Policies for Liberalizing Imports in the Services Sector ....................... 55 C GATS Rules Governing Preferential Trade in Services.................................................. 56 D Non-discriminatory (Multilateral) versus Preferential Liberalization of Imports of Services ........................................................................................................................... 57 E Restrictions on Trade in Services in Africa ..................................................................... 60 F Liberalization of Service Trade Policies and International Trade Agreements ............... 65 G Preparing for and Negotiating Services Trade Reform.................................................... 68 H Capacity Building for Services Trade Reform................................................................. 75 I Conclusions: Key Policy Implications ............................................................................ 76 5. REGIONAL INTEGRATION, REGULATORY COOPERATIONAND TRADE IN SERVICES ....... 83 A Regional Liberalization of Trade in Services .................................................................. 84 B Regional Cooperation and Coordination of Regulatory Policies and Agencies .............. 87 C Trade in Services and Regional Integration in Africa ..................................................... 89 D Conclusions...................................................................................................................... 95 6. LIBERALIZATION OF TRADE IN SERVICES AND INVESTMENT IN THE CARIFORUM EPA: IMPLICATIONS FOR AFRICA ................................................................................................ 97 A The EU's Approach to Liberalizing Investment and Trade in Services in Previous Bilateral Trade Agreements ............................................................................................ 97 B The Liberalization of Trade in Services and Foreign Investment in the CARIFORUM EPA ................................................................................................................................. 98 C Competition and General Regulatory Provisions in the CARIFORUM EPA ............... 112 D Sector Specific Commitments on Regulation of Services in the CARIFORUM EPA .. 117 E The CARIFORUM EPA and Regional Integration ....................................................... 124 F Development Cooperation and Technical Assistance.................................................... 126 G Conclusions: Main Insights from the CARIFORUM EPA........................................... 128 7. SERVICES TRADE LIBERALIZATION IN AFRICA AND THE EPA PROCESS ...................... 130 A Services Reform and an EPA......................................................................................... 130 B An Alternative Approach for Supporting Services Trade Reform in Africa ................. 135 C Conclusions.................................................................................................................... 138 D Recommendations.......................................................................................................... 139 REFERENCES .............................................................................................................................. 141 MAP ............................................................................................................................................. 151 List of Annexes Annex 3.1 : Examples of Restrictions on Trade in Services ....................................................... 52 Annex 4.1 : Scheduling GATS Commitments ............................................................................. 78 List of Boxes Box 1.1 : Key features of Interim or Framework EPA ................................................................. 11 Box 3.1 : The Efficient Regulation Principles of the OECD........................................................ 46 Box 4.1 : Prioritizing Service Sectors in Tanzania ....................................................................... 73 List of Figures Figure 1.1 : Growth in Services (left) and Manufacturing (right) Value Added vs. Real GDP ..... 4 Figure 1.2 : Shares of Employment in Agriculture, Industry and Services, 1997 and 2007 .......... 5 Figure 1.3 : Infrastructure, Business, Logistics and Personal Services ........................................ 14 Figure 2.1 : Value Added in Services as a Percentage of GDP in Selected African Countries and International Comparators Groups, 2007 .................................................................. 16 Figure 2.2 : Proportion of Population with Access to Improved Water and Sanitation, 2006 ..... 17 Figure 2.3 : Access to Drinking Water (left) and Sanitation (right), 2008 ................................... 18 Figure 2.4 : The High Cost of Using the Internet in Africa .......................................................... 19 Figure 2.5 : Interest Rate Spread in Africa and other Regions (2007) ......................................... 20 Figure 2.6 : Exports of Services as Percentages of Total Exports (Goods and Services) in African Countries and International Comparator Groups, 2007............................................. 21 Figure 2.7 : Imports of Services as Percentages of Total Imports (Goods and Services) in Selected African Countries and International Comparator Groups, 2007 ................. 28 Figure 2.8 : Share of World Services Exports and Imports: Africa and East Asia ....................... 33 Figure 2.9 : Shares of World Travel Services Exports: Africa and East Asia .............................. 33 Figure 2.10: Shares of World Financial Services Imports: Africa and East Asia ......................... 33 Figure 4.1 : Restrictiveness of Applied Services Trade Policies by Region ................................ 61 Figure 4.2 : Services Trade Restrictiveness Index for African Countries .................................... 62 Figure 4.3 : Restrictiveness of Applied Services Trade Policies by Region and Sector .............. 63 Figure 4.4 : Restrictiveness of Uruguay-Round Policy Commitments on Liberalizing Trade in Services, Doha-Round Commitment Offers, and Actual Policy by Region ............. 64 Figure 4.5 : Index of GATS Commitments .................................................................................. 65 Figure 5.1 : Costs of Regulation Heterogeneity ........................................................................... 88 Figure 5.2 : Availability of accounting and legal professionals in East Africa ............................ 91 Figure 5.3 : Aggregate regulatory indices in professional services in East Africa ....................... 92 List of Tables Table 2.1 : Composition of African Exports of Services, 2007 ................................................... 22 Table 2.2 : Average Annual Growth Rates of Exports of Services and Goods of Selected African Countries, 1998-2007 ................................................................................................ 23 Table 2.3 : Revealed Comparative Advantages in Services in Selected African Countries, 2007 24 Table 2.4 : Labor-Related Flows and Cross-Border Services Trade in Africa, 1996-2006 ......... 25 Table 2.5 : Africa's Exports of Services to the EU, 2007 ............................................................ 26 Table 2.6 : Composition of African Imports of Services, 2007 ................................................... 28 Table 2.7 : Average Annual Growth Rates of Imports of Services and Goods for Selected African Countries, 1998-2007 .................................................................................. 29 Table 2.8 : Ratio of Growth in Exports of Services to Growth in Imports of services ................ 30 Table 2.9 : Composition of African Imports of Services from the EU, 2007............................... 30 Table 2.10: Cross-Border Mergers and Acquisitions (M&As) in Africa, by Sector/Industry,...... 31 Table 3.1 : A Typology of Policies Affecting Trade in Services ................................................. 36 Table 4.1 : Trade Preferences Created by Different Types of Commitments in Regional or Bilateral Agreements on Trade in Services ............................................................... 59 Table 6.1 : Countries in Africa with Competition Laws and Competition Authorities .............. 114 AFRICA'S TRADE IN SERVICES AND ECONOMIC PARTNERSHIP AGREEMENTS Abstract T rade can play a crucial role in the development of services sectors in Africa. Services offer new dynamic opportunities for exports, especially for land-locked countries, while opening up to imports of services and foreign direct investment is a key mechanism to increase competition and drive greater efficiency in the provision of services in the domestic economy. Lower prices, higher quality and wider access to services raises productivity improves competitiveness and is critical for poverty reduction. But trade opening may need to be coordinated with regulatory reforms, to ensure efficient outcomes, while additional policies may be required to ensure that public policy objectives regarding equity are achieved. This places emphasis on the capacity to define and implement sound regulatory policies for services sectors, capacity that is limited in many African countries. Economic Partnership Agreements are one trade option that African countries can pursue to support coordinated trade and regulatory reform in services together with unilateral, regional and multilateral reforms. An EPA is unlikely to offer much in terms of improved access to EU services markets, especially for temporary movement of unskilled workers, a key issue for African countries. Hence, the rationale for signing an EPA will be driven by African countries own domestic reform strategies. The main impacts of a services EPA for African countries would come from locking in openness to trade, providing sound precedents for regulation in key sectors, cooperation on competition policy and support for regional integration. But many of these key provisions could be pursued in a more cooperative approach with interested African countries without necessarily negotiating and signing a broad EPA agreement. A phased program of in-depth prioritized sector-by-sector regulatory reform and MFN trade liberalization is likely to be more appropriate than the current, institutionally demanding, broad and comprehensive negotiating approach with preferential liberalization. Regulatory and trade reforms in Africa need to be supported with technical and financial assistance. Such assistance should be available to all African countries that wish to reform their services sectors, whether they negotiate and sign an EPA or not. An independently managed fund for services trade reform in Africa, organized around common priority sectors, that would allocate resources to support implementation of reforms and consultants according to expertise, not nationality, would be the most appropriate vehicle for providing technical assistance and building capacity. i Acknowledgements T his report on trade in services in Africa and Economic Partnership Agreements (EPAs) is the third in a series carried out under the World Bank's study of EPAs and related trade and development issues. A summary report titled Economic Partnership Agreements between Africa and the European Union: What to do Now? and the Full Report on the Implementation of Interim EPAs were issued in October 2008 and March 2009 respectively. This work has been funded by the Multi-Donor Trust Fund for Trade and Development supported by the governments of Finland, Norway, Sweden and the UK. The report was prepared by a team led by Paul Brenton comprising Nora Dihel, Larry Hinkle and Nicholas Strychacz. Additional inputs were provided by Ramesh Chaitoo, Ian Gillson, Mombert Hoppe and Sebastian Saez. The study benefitted from the comments and guidance of peer reviewers Ramesh Chaitoo, Bernard Hoekman, Sam Maimbo and Richard Newfarmer. Helpful comments were also provided by Soamiely Andriamananjara, Philip English, Ian Gillson, Peter Materu, Aaditya Mattoo and Sebastian Saez. Guggi Laryea's reporting on EPAs from Brussels has been invaluable for keeping up with events while the report was under preparation. The assistance of Hilda Emeruwa, Maude Jean-Baptiste and Paula Joachim White in preparing the final report is gratefully acknowledged. ii AFRICA'S TRADE IN SERVICES AND ECONOMIC PARTNERSHIP AGREEMENTS Executive Summary The Importance of Trade in Services Trade can play a crucial role in the development of services sectors in Africa. Services offer new dynamic opportunities for exports while opening up to imports of services and foreign direct investment is a key mechanism to increase competition and drive greater efficiency in the provision of services in the domestic economy. Lower prices, higher quality and wider access to services raises productivity improves competitiveness and is critical for poverty reduction. Trade in services offers new opportunities for export diversification. Too often services are overlooked as a source of export diversification and discussions and trade policies are inappropriately focused on manufactures. Considerable scope remains to expand t
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