The EPA, TISA and the LDC services waiver: How the regions are influencing Geneva

13 April 2015

Mauritius’ intent to join TISA and the EU’s position on the LDC Services Waiver suggest a rare instance where regional negotiations – in this case, the Economic Partnership Agreements – are directly influencing discussions at the multilateral level. But bringing EPA ambitions into Geneva means bringing its lessons as well.

On the 5th February 2015, at a High-Level Meeting of the WTO Services Council, WTO Members outlined how they intended to support the growth of services trade for Least Developed Countries (LDCs), through operationalising the LDC Services Waiver agreed in 2011 at the 8th Ministerial Conference in Geneva. One month later, Mauritius announced its intention to join the plurilateral Trade in Services Agreement (TISA) negotiations.

These two events, while seemingly only tangentially related, mark a watershed moment for both Africa and the multilateral trading system. They reverse the normal dynamic whereby the WTO sets the framework for discussions at the regional and bilateral level: in this instance, regional negotiations appear to have directly shaped negotiating ambitions in Geneva.

The EPA as a testing ground

The key link is the ACP-EU Economic Partnership Agreement (EPA) negotiations. At the High-Level Meeting on the Service Waiver, the EU has essentially offered to the LDCs the same treatment as that granted to CARIFORUM under the CARIFORUM-EU EPA. In the TISA context, Mauritius is planning to table a services offer that had been originally formulated in its own EPA negotiations with the European Union (EU).

This suggests, for the first time, that the EPA negotiations – despite having been strongly criticised over their much-delayed timespan – are having a significant (albeit perhaps unintentional) impact on global trade discussions. Both the EU’s position at the High-Level Meeting and the Mauritius TISA announcement suggest that the EPA is turning into a testing ground for discussions in Geneva.

One hand, some developing countries are using the EPA to test how far they were willing extend market access to their developed partners. On the other, developed countries can explore their own willingness to extend special and differential treatment to their developing country partners.

These developments are occurring in a highly sensitive area (i.e. services) where many African ACP countries are negotiating for the first time with a developed economy, and in a context where donors and beneficiaries are negotiating a new type of “trade and development” agreement: one where trade policy is not exclusively shaped by commercial and mercantilist considerations, but rather as an explicit complement to – and arguably a subsumed extension of – development policy.

Mauritius and TISA – The role of the EPA

For Mauritius, its stated intention to join the TISA negotiations are a clear extension of a wider policy vision. A series of targeted reforms have guided Mauritius from a mono-crop/preference-dependent economy, to light manufacturing based on export processing zones, to a tourism hotspot, to plans for a global services hub. Mauritius’ plans to join TISA appear to be a natural means of attracting investment from the other TISA parties, in part as an entry-point into the wider pan-African market.

The very fact that Mauritius even has an EPA services offer to table is interesting in itself. Mauritius is negotiating as part of the Eastern and Southern African (ESA) regional configuration. The EPA negotiations between the EU and ESA have however been largely dormant for several years. While some progress has been achieved on a draft services text, little substantive exchanges had occurred with respect to offers and requests. In the meantime, Mauritius has been implementing its goods-only interim EPA.

Despite the impasse, Mauritius had already seized the opportunity of the EPA to prepare “back pocket” services offer. In the relative comfort zone of a North-South agreement where the EU was not likely to be the Mauritius’ primary target (given its continental ambitions), Mauritian negotiators could expand on their relatively thin GATS offer and build on their reform agenda for the domestic services market, all with a view to eventually bringing the offer (as a whole, or in pieces) to a wider setting. In essence, Mauritius used a regionalopportunity to craft a multilateral offer.

The EU and the LDC Services Waiver: The promise (and perils) of the CARIFORUM EPA experience

For the European Union, there were clear rationales for extending the many negotiating “firsts” contained in the CARIFORUM-EU EPA services and investment chapter to the LDC Group in Geneva. There are also clear cautionary tales for the LDC Group in pursuing the opportunities therein.

In recognition of the fact that CARIFORUM’s small economies were unlikely to have significant Foreign Direct Investment (FDI) capacity into the EU, the EPA dispensed with the traditional FTA linkage between Modes 3 (commercial presence) and Mode 4 (temporary movement). The EPA instead expanded and deepened traditional categories of temporary movement outside of Mode 3 contexts, particularly those for contractual service suppliers and independent professionals. The CARIFORUM EPA focused on categories of service suppliers such as fashion models, entertainers and chefs de cuisine, where CARIFORUM’s small and developing service economies were likely to have a greater comparative advantage.

The architecture of the EPA services chapter drew from the particular hurdles facing CARIFORUM services suppliers: their small size, the complexity of (and high cost of meeting) necessary EU requirements and regulations, and the development potential of the services sector in the Caribbean. The CARIFORUM EPA implicitly recognised that overcoming these hurdles needed commercially meaningful preferences to spur ACP exports, rather than simple market opening or binding of the status quo. The approach was, in a sense, in the same spirit as the Lomé and Cotonou preferences in traditional commodities such as bananas, sugar, rice and rum.

As an extension of this “market access is not enough” approach, the EPA also explicitly linked the temporary movement provisions with critical enabling measures (e.g. encouraging regulatory bodies to negotiate the terms of mutual recognition agreements), as well a package of development cooperation funds aimed at the services sector.

Therein lies one probable rationale for the EU’s importing of the CARIFORUM EPA architecture to the LDC Services Waiver. Apart from the obvious fact that many LDCs are also ACP countries, many LDC service suppliers also share some of the structural barriers that the EPA sought to overcome. Many face a lack of knowledge of their own current and future export potential in services; a lack of understanding of market barriers in the EU (and where they were known, the existence of prohibitive barriers, such as the imposition of onerous taxes and fees); and severe supply-side constraints on small services firms.

Other, perhaps less altruistic, motivations may have prompted the EU to import its regional CARIFORUM commitments into the multilateral setting. Under political pressure to “operationalise” the Service Waiver as the LDC Group tabled its collective request, the European Commission had a ready-made package on offer – one which did not require significant additional analysis from the EU side, nor a new set of extensive and/or contentious negotiations with the EU Member States.

Yet the translation of the CARIFORUM EPA services package into the multilateral setting should also cause LDCs to pause and reflect carefully on the implementation of that very same package.

A recent EU-funded study reviewing the first five years (2008-2013) of the implementation of the CARIFORUM EPA[1] found, inter alia, that there was little visible evidence of EU Member States’ actually having implemented the provisions on temporary movement. Some key EU markets (e.g. Germany) had yet to even ratify the EPA.  Most efforts to craft mutual recognition agreements between relevant sector representatives had yet to materialise. Despite the Caribbean being a largely services-driven region, there was still a surprisingly small share of EU support dedicated to the services sector; many key projects had only recently (i.e. as of 2014) begun substantive operations.

Perhaps as a cause and consequence, the study team could not – after five years of implementation – identify a single Caribbean service supplier that had attempted to enter the EU services market using the EPA.

The CARIFORUM-EU struggle to operationalise its preferential services scheme over the (thus far) nearly seven-year life of the EPA should send clear signals to both LDCs and their potential preference-granting partners. It points to the significant practical and political difficulties in creating tangible, commercial valuable and development-oriented preferences in the services sector for small and developing economies. These difficulties in turn suggest the degree of realism over what can be achieved over the 15-year lifespan of the LDC Services Waiver.

Conclusions: The tail wagging the dog?

In a lecture in Riga in March 2015, the Director-General of the WTO seemed to downplay the importance of regional trade agreements, by stressing that “there are many big issues which can only be tackled in an efficient manner in the multilateral context through the WTO,” where the challenges facing global trade were “global problems demanding global solutions”.[2] This article suggests however that some global problems require (or can at least draw from) regional solutions.

In regional trade agreements, WTO Members may feel more comfortable in testing difficult and unchartered waters between a smaller and better-known set of negotiating partners. Sometimes, non-trade linkages and processes (e.g. aid relationships between donor and beneficiary) can provide a comforting counterpoint to the sometimes-fraught dynamics between trade negotiating partners.  This comfort zone is arguably most important for the WTO’s smallest and least-developed Members who form a majority of WTO Members, and have often argued that their small and underdeveloped markets are ill-prepared and unsuited to reap the traditional gains from multilateral trade liberalisation

Yet these lessons and impacts of these regional experiments must be, in the end, clearly understood before being brought into discussions in Geneva. After all, if a services package has yet to fully deliver in a regional setting between a smaller set of countries, what measures are in place to guarantee its success in the much larger multilateral setting?

 

Author: Sacha Silva - Senior Economist, WTI Advisors, Geneva
 
The author wishes to thank, without implication, Isabelle Ramdoo, Ramesh Chaitoo, Hadil Hijazi and Hannes
Schloemann for their comments.

[1] B&S Europe and LINPICO (2014), “Monitoring the Implementation & Results of the CARIFORUM-EU EPA Agreement”, accessed online at http://trade.ec.europa.eu/doclib/html/152824.htm.

[2] DG Roberto Azevedo, “Regional initiatives cannot substitute for the multilateral trading system”, speech to the Stockholm School of Economics in Riga, Latvia, 24 March 2015, accessed online at https://www.wto.org/english/news_e/spra_e/spra50_e.htm.

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