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Slash services trade red tape. At the WTO

From Nigeria to Costa Rica, to the United States, Turkey, China and beyond, 65 economies are getting ready to adopt a set of good regulatory practices to streamline domestic regulations and facilitate commerce in services. They account for over 90 percent of global services trade. They are ready to cut red tape. They aim to reduce trade costs. Their joint endeavor goes under the rather unexciting name of ‘Joint Statement Initiative on Services Domestic Regulation’. It is happening under the umbrella of the World Trade Organization (WTO).

Initial discussions under an innovative format were launched in December 2017 at the WTO’s 11th Ministerial Conference. While the talks on services domestic regulation (SDR) are open to all 164 WTO members, negotiations took place among those wanting to engage on the topic. Alongside investment facilitation and e-commerce, they are one of the plurilateral negotiations paving the way for more flexible approaches to advance trade cooperation. Not all WTO members think this is a good idea, but many do, including the US and China. They see the WTO could become a ‘club of clubs’: everyone is a member, but only those interested in soccer, tennis or yoga would join the respective group.

The disciplines on SDR address the practical challenges that affect the ability of businesses and suppliers to provide a service. They aim at ensuring that licensing requirements and procedures, qualification requirements and procedures, and technical standards to not constitute unnecessary barriers to services trade. The disciplines are focused on three areas. First, transparency to promote prompt publication and availability of information relevant to services suppliers and their engagement in regulatory decision-making processes. Second, legal certainty and predictability to ensure that competent authorities follow regulatory and procedural guarantees when dealing with applications for authorization to supply services, such as processing applications in a timely manner. And third, regulatory quality and facilitation with measures aimed at disseminating good regulatory practices to facilitate services suppliers’ ability to trade, such as requiring applicants to approach only one competent authority to obtain authorization. In a first of its kind for a WTO negotiated outcome, the SDR text contains a provision to ensure that authorization measures for service suppliers do not discriminate between women and men.

The impact of SDR is not trivial. Services is the fastest-growing sector of today’s global economy and trade in services is the most dynamic segment of world trade. A recent WTO study finds that there is a positive correlation between the application of the SDR rules and countries’ economic performance. Greater implementation of regulatory measures in line with the SDR disciplines is associated with larger services sectors, which in turn creates jobs, produces an efficient allocation of resources, promotes firms’ competitiveness and productivity, and helps to diversify economies. It also fosters more international trade in services and inclusivity in commerce, as reducing regulatory hurdles benefits micro, small and medium sized enterprises (MSMEs) which have less resources to deal with opaque and costly requirements and procedures. Streamlining regulatory barriers is key to effective and efficient operation of global value chains, opening the door for firms to participate in cross-border trade. A more business-friendly environment can also unleash innovation and entrepreneurship.

The price tag on the WTO’s negotiations on SDR is quite significant. The Organization for Economic Cooperation and Development (OECD) estimates that negotiations in this area could result in total trade cost savings of about US$ 140 billion annually for the G20 countries. In a deep dive of the implications for the Asia Pacific region, the OECD estimates that streamlining domestic services regulations could result in trade cost savings in the range of US$ 75 billion for countries in the region. Benefits from lower trade costs would impact highly regulated sectors where licensing, registration processes and recognition of qualifications are prominent, such as commercial banking, telecom and insurance services, all of which are the backbone of any modern economy. Importantly, the biggest productivity gains would accrue to MSMES.

WTO members ready to improve the business environment for services suppliers are preparing to jointly cross the finish line in the next WTO Ministerial Conference in end-November. The pathway for incorporating this plurilateral outcome into the WTO legal framework is straightforward. By agreeing to slash services trade costs, participating economies will benefit their own firms, workers and consumers. In doing so, they will also confirm the importance of trade cooperation in flexible formats at the WTO.