Research & Analysis Archive
Tough times are expected in the year(s) to come, but focusing entirely on public and private budget cuts is not a politically sustainable policy. On top of its direct impoverishing impact, austerity has an indirect impact and is very corrosive in the long run for consumers. It induces producers of goods and services to retreat to their home markets, reducing the level of competition in the markets they left behind.
There is thus an urgent need to build a pro-growth agenda, for which the services sector is the best candidate, since it accounts for 60-70 percent of the G20 GDP. Such an agenda means reforms: in order to take the right decisions when redesigning their strategies, service providers need clarity and predictability on how their markets will operate. History shows that introducing pro-growth domestic reforms is hugely bolstered by opening — or reopening — domestic markets to foreign competitors.
This is why a “sleeping” Doha is not a reason for not starting negotiations now on how to improve market access in services. This paper argues that the two largest world economies, the United States and the EU, should launch bilateral negotiations on services. The expected gains for consumers and the opportunities for service providers are huge in both sides of the Atlantic because their services sectors are likewise huge and because the protection still prevailing in many services areas is still high. Potential gains come from three sources:
- cutting the currently applied barriers on market entry;
- lowering the U.S. and EU bound commitments on services liberalization dating from the Uruguay Round to the level of the (much) lower barriers actually in force today, a source of invaluable certainty in a crisis plagued by so much uncertainty; and
- “defragmenting” the EU internal market by opening the markets of the most protectionist EU Member States to competition from the United States and from the other EU Member States — and vice-versa for the U.S. “internal market.”
In this context, this paper gives a sense of the services for which some “willingness to negotiate” could be targeted for moving ahead.
Transatlantic negotiations on services are likely to generate dynamics that will go beyond the United States and the EU. It would be relatively costless and highly beneficial to extend these talks to roughly eight countries — a group small enough to keep negotiations manageable and large enough to ensure that more than 80 percent of world production in services would be covered in the negotiations. Shifting from bilateral to such plurilateral negotiations would be attractive for all the participants because these eight additional countries have a service sector equal to the size of the EU or U.S. markets, with a level of protection similar or higher.
These powerful dynamics justify the complications inherent in extending bilateral transatlantic services negotiations to include a limited number of other countries because such a move would reduce the risk of distortions that a purely transatlantic deal would create, and because, ultimately, such an initiative would open the door to multilateral negotiations in services when the time comes.
The United States and the EU are the “obvious” candidates to launch a liberalization process. This may not be necessarily the case, however. Alternatives are emerging from transpacific initiatives in services to East-Asia initiatives to Asia-Europe initiatives. All these options share one common feature: as soon as one of these dialogs takes off, dynamic forces will induce the nonparticipating largest economies to join the ongoing talks. In other words, the starting point of the whole negotiating process may be different, but the dynamic effects will be the same. This is not so surprising. After all, it echoes very well the history of the last two centuries of international trade liberalization.