The trouble with TiSA

Services are central to everything an economy produces, exports, and invests in. As such, an inefficient services sector represents an unwelcome burden on economic performance. The growing acceptance of this central economic reality has fuelled unprecedented autonomous liberalization in services markets around the globe in recent decades.

However, trade agreements, and especially the General Agreement on Trade in Services (GATS), have not yet proven adept at locking in autonomous policy virtue. In the case of GATS, broader negotiating dynamics in the Doha Round may well have exerted the largest inhibiting influence. The push for a plurilateral Trade in Services Agreement (TiSA) responds to genuine frustration on the part of those favoring openness in services markets.

The substantive merits of a proposed TiSA would be easy to applaud if the negotiations were being presented for what they are: potentially the largest preferential trade agreement pursued under GATS Article V to date. Based on the limited information that has filtered out of the nascent talks, a number of genuine reservations may be advanced, both procedural and substantive, that the agreement being devised could easily or anytime soon be incorporated into the World Trade Organization (WTO) architecture, let alone replace it.

The advent of TiSA represents a genuine opportunity to further the cause of preferential liberalization in services markets among a coalition of countries representing some two-thirds of the global market. That figure would approach three-fourths of world services trade should China succeed in joining the negotiations. While this remains significantly less than the 90%-95% ratio achieved in recent plurilateral agreements brokered at the WTO in the areas of information technology, basic telecommunications or financial services, it is far from trivial in potential market access terms.

Yet, in pursuing TiSA, greater attention must be paid to the negotiating atmospherics and concrete steps taken to promote greater inclusiveness, including on the part of the WTO secretariat in an observer capacity, than has been the case so far. At this critical juncture for both the WTO and the Doha Development Agenda (DDA), one may legitimately ponder TiSA’s systemic implications and question the incentives its completion would entail for the DDA’s services talks.

Somewhat paradoxically, the more successful TiSA is, the greater the systemic threat it poses for GATS and the WTO more broadly. A concluded TiSA runs the very genuine risk of dramatically lessening the incentive to negotiate on a most favoured nation basis at the WTO in future, undermining the careful balance of benefits currently underpinning the multilateral trading system.

Moreover, with only a handful (23 to 25) of WTO members involved in the talks, questions arise regarding the political legitimacy and marginalization risks they pose for non-members. China’s attempt to join the talks raises further questions, notably with regard to the position that other large developing countries or fast-growing emerging economies will take.

India and Brazil, for instance, are concerned that a successful agreement would significantly lessen the DDA negotiating leverage they exercise in areas of greater importance to them by strategically withholding engagement in the services negotiations. The prospect of China garnering preferential access to services markets in major Organisation for Economic Co-operation and Development (OECD) countries could produce a domino effect and generate an important rise in TiSA’s critical mass. This would, in effect, create two parallel global regimes for services trade and undermine the WTO system’s political and judicial credibility.

Corrective gestures should be taken in pursuing the agreement to ensure that the negotiating process is genuinely inclusive and transparent and does not pit developing countries against the predominantly developed country-centric group. As things currently stand, OECD member countries account for more than 90% of intra-TiSA services trade.

Looking ahead, plurilateralism and other forms of variable geometry are likely to prove important ways of keeping the WTO relevant and of sustaining the multilateral bicycle’s forward journey. This should occur while acknowledging the increasing diversity of collective preferences, interests and abilities among a membership consisting overwhelmingly of developing countries whose primary export interests may not always lie in services.

Whenever possible, WTO members should explore and pursue, under a common roof, the scope that exists for flexible approaches to rule-making and market-opening commanding adequate critical mass. Creating negotiated outcomes in an open setting allowing for economies of scale and learning is not the same as negotiating behind closed doors.