Trade in services liberalisation in SADC: Vehicle without a driver, or just getting into gear?

13 August 2012

Member States of the Southern African Development Community (SADC) have been developing their trade in services integration agenda since 2000, but have produced little of tangible value to date.  The launch of liberalisation negotiations in six priority sectors may change that, but it remains to be seen if the negotiating process can be effectively used to improve the conditions for trade in services in the region.

Whereas EAC and COMESA Members target the elimination of trade discrimination among their Members in their negotiations, SADC employs a more incremental approach of “progressive liberalisation,” whereby a first round of negotiations focuses on improving upon 1995 GATS commitments in six priority sectors (communication, construction, energy-related, financial, tourism, and transport services).  The process appears to be gaining moderate momentum. The Trade in Services Protocol will be put before the SADC Council at the upcoming Summit in August 2012, while liberalisation negotiations on the six priority sectors, launched in April 2012, could be completed within three years.  The formal commencement of the negotiations is a step forward from the decade-long state of preparation, and will, for the first time, involve the preparation of requests and offers and should help create a sense of priority among Member States’ negotiators.

As these necessary elements fall into place, however, a number of challenges persist:

The negotiating mandate contains an acute lack of ambition:  the formal objective of the first round of negotiations – better than the GATS commitments in the six priority sectors for each Member State, can readily be achieved without changes to existing laws and regulations, since most Member States (with the exception of Lesotho and South Africa) have few GATS commitments and have partially liberalised many sectors. Settling for an outcome that reflects the mandate’s lack of ambition would not remove any of the region’s trade-crippling barriers or create new opportunities for business.

The potential champions of SADC services integration have been reluctant leaders of the process. South Africa, the prime candidate for such leadership, may simply be too big for the SADC process. Its services suppliers dominate key services sectors in the region, including banking, telecommunications, and distribution, and they have gained this foothold without preferential regional liberalisation. Another candidate, Mauritius, is shifting its strategic orientation increasingly towards Africa – which receives more than 60 percent of its FDI outflows – but the country still trades predominantly outside of the region and focuses its services industries on European and Asian customers.  Other Member States are struggling to identify more than token export capacity for many of the six priority sectors, which bears the risk that they will take a more defensive stance in the request-offer negotiations.

Another challenge rests in the fragmentation of services negotiations among stakeholders.  Negotiations are conducted by trade ministries, but commitments offered will have to be signed off by line ministries and sector regulators, the latter of whom do not benefit from liberalisation commitments and have often been reluctant to cooperate.  Further, inter-ministerial consultation mechanisms at working level are not well established in all Member States, making joint ownership of the services liberalisation agenda even more problematic.

Finally, a general acceptance in most SADC countries that services openness is indispensable to economic development fails to translate into policy making. Many regulators tend to see their sector in isolation, often choosing direct intervention to achieve policy objectives.

In addition to the challenges noted above, it is important to put expectations of the negotiations in context.  Negotiated bindings will provide a degree of legal certainty for foreign services operators, and any new liberalisation is likely to enhance performance of domestic services markets.  However, weak legal frameworks, competition-restricting domestic policies, and lack of access to finance are all factors that have created an unfavorable business environment in many SADC Member States, which require much more comprehensive approaches.

If SADC services negotiations are intended to have an impact on its Member States’ economies, Member States must address the following elements:

· Status quo commitments across all sectors should be bound as the floor of liberalisation.  Member States can convey such negotiating intentions conveniently through the request-offer process, by requesting Member States to bind applied regimes and following suit with offers that match this ambition.

· A focus should be to address the most egregious, economically unjustifiable barriers, such as monopolies, entry quotas, nationality requirements, and discretionary licensing in a horizontal manner.  The economic evidence of the cost of such measures is overwhelming, but it is unlikely that the request-offer process alone will create the necessary dynamics in this regard.

· Negotiators should pay particular attention to areas in which regional integration promises genuine benefits. For example, regions with limited supply capacity, or preferential liberalisation in infrastructural services such as banking or telecommunications, would be counterintuitive. Where foreign investment in these sectors is desired, regulators are rightly focusing on the quality of the investment proposals, rather than the origin of the suppliers. In many areas, closer regional integration can bear fruit, cases in point being the removal of regional road transport restrictions and the movement of persons. Services negotiations can be used to re-animate dialogue within SADC on the movement of persons. Efforts to facilitate the freedom of movement within SADC have thus far not been successful, and a Protocol which seeks to allow SADC citizens to travel visa-free, seek residence, and work across Member States must at this point, for all practical purposes, be regarded as defunct.   The SADC services negotiations offer a good opportunity for Member States to narrow their view and look at the gradual improvement of conditions for temporary work related movement. Most SADC Member States have highly restrictive WTO commitments on the movement of persons. The flexibility of the services scheduling approach is a distinct benefit in this case, as it allows gradual and country-specific relaxation of barriers on the temporary movement for natural persons crossing borders in the supply of services.  Such an approach can be complementary with any initiative on the movement of business persons undertaken in the tripartite context.

· Greater synergies must be developed between the services liberalisation agenda and other sectoral agendas within SADC.  Work on a wide range of sector issues, much complementary to the services agenda, takes place in various other SADC fora.  Unfortunately, exchanges have been sporadic at best. The trade in services agenda can assist in removing barriers to openness, while work on convergence of sector regulation can provide the groundwork for deeper regional integration.

Author: Markus Jelitto, GIZ trade in services advisor to the SADC Secretariat.  The views expressed in this article are personal and do not reflect position of the SADC Secretariat or GIZ.

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