international trade - gats & gatt - italys trade structure

8/9/2019 International Trade - GATS & GATT - Italys trade structure

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IITD MWTO 2009

Institute for Financial Management &

Research (IFMR), Chennai

Details

Name: Srikant Rajan

Mail: [email protected]

Contact: +919962552824
mailto:[email protected]:[email protected]


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Abstract

This paper is broadly divided into four sections. The first section of the

paper attempts to analyze Italys trade structure and establish any

significant trends in trade flows in the previous years.

In the second section these trends are analyzed with respect to Italys

trade structure vis--vis the European Union, developing countries and

the other developed countries such as the USA. Here an attempt is

made to establish a trade portfolio keeping in mind the dominant

trends identified in the first part of the analysis. A negotiation schedule

is then worked out to maximize advantage to Italy from trade flows.

In the third section fundamental differences in GATS and GATT policy

are explored .Additionally an attempt is made to uncover potential

challenges in negotiating the agreement established in the second part

of the analysis.

The final part of the analysis contains the resolutions that were

discussed, debated and finally accepted in the conference. It is

heartening to note that the drafted resolution aid in establishment of

the portfolio recommended in the second part of the analysis


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Table of Contents

I. Italian Trade Policy Snapshot

II. Negotiation Schedule

III. Challenges in GATS policy

IV. Final Negotiated Resolutions

V. References


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I. SNAPSHOT ITALY TRADE POLICY

EU leads the world ranking w.r.t to the trade in services followed by the

US. Together, these two economies account for some 50 per cent of

world exports and 43 per cent of world imports of services.

During the last year EUs share of exports remained stable, while its

share of imports declined; with an appreciable improvement in the

surplus.

Italian trade structure predictably resembles the EU. For

instance the in the year 2007, the growth rate of trade in services,

exceeded the growth in goods trade by 2 basis points. One of the

reasons for this growth is the rapid proliferation of ICT (Information and

Communication Technology) services, which has made fragmentation

of international production possible. This in turn has lead to increased

trade in intermediate services.

However compared to the situation in analogous countries such asSpain, the contribution of services to Italys current account balance is

comparatively small. However last two years saw an

intensification of Italian trade in services with almost every

region and, in particular, with countries outside the European

Union, prolonging the trend towards a greater geographical

diversification of service trade flows.

Additionally the improvement in Italian trade balance is also

coming with a shift in the trade flows. For instance the year

2006,saw a growth of exports to developing countries by more

than 20%.This has lead to a shift in purchasing power to commodity

producing countries, which typically having a low propensity to


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consume/import. This factor coupled with increased transportation

costs, rise in oil prices lead to a greater decrease in goods and services

trade, for the year 2008 than the decrease in production. Additionally

the expansion in exports of goods and services has been lesser as

compared to 2006. The growth rate in volume diminished from 6.2 to 5

per cent as a result of a marked slowdown in services. The increase in

export prices declined from 4.5 to 3.6 per cent, in part reflecting firms

attempts to attenuate the loss of competitiveness due to the

appreciation of the euro. The ratio of exports to GDP rose, but

remained lower than in the other euro-area countries except Greece.

This weakened demand bought by the shift in trade flows has

also impacted imports. The growth in the volume of imports of

goods and services slowed from 5.9 per cent in 2006 to 4.4 per

cent in 2007. The degree of import penetration in relation to domestic

demand nevertheless increased, although it remained by far the lowest

among the euro-area countries, including big economies such as

France and Germany.

The rate of increase in import prices declined from 7.6 to 2.3 per cent,

held down by the strengthening of the euro and by the deceleration,

on an average annual basis, in commodity prices. However, commodity

prices headed sharply upwards again in the final part of the year and

the first few months of 2008, again increasing the burden of imports.

II. NEGOTIATION SCHEDULE

THE EU/ITALY STRUCTURE

Other commercial services such as communication, construction,

insurance, financial, computer, information, cultural & recreational


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services, and royalties& license fees account for the largest component

of commercial services exports. Growing by 20 per cent in 2007 to

$1,685 billion, these services accounted for 51 per cent of the overall

total for commercial services. In 2007 the European Union accounted

for more than half of the total value of other commercial services

exported to the world. The EU specializes in financial, insurance

and transport services, while its weak points lie primarily in

royalties and licenses (with an increasing deficit), tourism and

cultural services.

Relatively unknown sectors such as the construction sector present an

enormous opportunity for new ventures. Much of extra EU exports are

concentrated in regions such as Africa and the emerging economies of

India and China. However there is the dominance of Germany in this

sector with nearly 40% of the next exported service. Thus I would

negotiate for an equal distribution of this service. Particularly since

there was appreciable growth in the share of world trade

accounted for by sectors such as mechanical machinery and

fabricated metal products. It makes sense to tie it with aservice.

Thus such an agreement would leverage on EUs existing

expertise, and also shift the trade advantage equally among

all the member nations.

ITALY/DEVELOPING COUNTIES STRUCTURE

EU exports of audiovisual services decreased by 9 per cent in 2007

compared to 2006. Since 2004, exports have declined by an annual

average of 8 per cent. One of the reasons for the decline could be

decrease from receipts of foreign film distribution as in the case of


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France which saw a decrease in audience numbers which lead to a

15% point reduction in export of these services. The largest exporters

of audiovisual services are the United Kingdom and France, which

together account for 41 per cent of EU audiovisual services exports.

And here is where the opportunity lies for Italy. Italy as a nation is

perceived as a cultural rich country (wine and food!). Developing

countries at the same time with their presence growing into the trade

portfolio are an ideal position for exchange of trade services under

mode 4.The takeaway for this would be a relaxation in trade in

educational services which are perceived to be in higher

demand for such countries again under mode 4.

Such an arrangement would also help in dealing with the transaction

mentioned in the inter EU trade agreement.

However there would be a conflict here as Australia has become the

fourth-largest world exporter of travel and the second among Asian

countries behind China.

Australia's travel exports grew by 25 per cent. In 2007, overseas

student enrolments were increased by 66 per cent compared with

2002.Much of the travel has been related to education related travel.

Education-related travel accounted for 46 per cent of the country's

total travel exports in 2007, becoming the most important service

category exported by the economy. Foreign students spent over

$10 billion in Australia, of which 39 per cent was on tuition

fees while the remainder was on food, accommodation, local

transport and leisure. The students are mostly from Asian

countries, with China and India accounting for 35 per cent of

total international enrolment.


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III. CHALLENGES IN GATS POLICY

The evolution of the decision making structure at the WTO is evident

by the shift in power centers. The previous rounds of trade

negotiations were dominated by the EU and the US, however with the

inclusion of developing countries such as India, Brazil coupled with the

might of the Chinese dragon (only country with expanding trade

balances (surplus) with the rest of the world) has provide more

negotiating muscle to the interests of these countries. Little progress

was made last year in the agricultural talks, owing to the resistance of

the United States and Europe, and this also had repercussions on the

negotiations on manufactures and services. The difficulty in

decision making is highlighted by the increased tendency to

conclude preferential trade agreements on a region and often

bilateral basis. (Some 200 such agreements were in place at

the end of 2007).

GAT is conceptually similar to the previous agreement GATT; howeverdiffers in coverage as well as implementation. A GAT has broader

policy coverage and its implementation also differs with regards to

MFN status, transparency, trade reciprocity, and national treatment

and negotiated binding concessions.

GATT focused specifically on tariffs as a form of protectionism.

However GATS included more forms of protectionism such as import-

displacing subsidies possibly recognizing the fact that services trade

differs from conventional goods trade. The catch however was a

change in the structure, with GATS being more focused towards

structuring a framework and leaving the much critical rules

open to negotiation. The substantial obligations of the GATS as


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spelled out in Part II (including the MFN requirement and

disciplines on monopoly and exclusive suppliers) and Part III

(market access and national treatment) do not extend to

exports

Market access, the term was not at all used in GATT. In GATS, however

it covers the service sectors scheduled by the member nations in

addition to specified quantitative forms of restrictions as

prohibited for these sectors. GATS, however does not include any

export related provisions that may potentially constrain a member

nations ability to either restrict or promote supplies. Also trade

mechanisms such as anti dumping measures, safeguards are

conspicuous by absences which were evoked with a rather high

frequency in GATT. Finally, rules governing domestic regulations are

weak. This in turn varies the level of member nations

commitments, as well as introduces variance on account of

domestic factors such as region specific political sensitivities.

When we talk about a schedule there are no rules as to definewhich sectors to include or exclude from the schedule. Naturally

any member nation would exclude a service which it did not intent to

allow liberalizing from the schedule thus retaining the previous from of

protectionism however in the guise of liberalization. Additionally there

is no guidance on the scope of the product/service, modes of coverage,

levels of access or the use of restrictions. Predictably the schedules

vary across member nations both in coverage as well as content.

Fundamentally it is worth exploring if the absence of a service sector

from a member nation schedule still leaves it under the ambit if

international trade.


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The WTO rules, however, encompass neither the international

movements of capital or labor, nor other non-trade policies, such as

those relating to the environment, labor standards, and competition

policy, with minor exceptions.

IV. Final Negotiated Resolutions on Service Sectors

1. Ensuring compliance in Telecommunication services

Bearing in mind the existing large number of restrictions in the

telecommunications sector across different economies, we urge the

member nations towards elimination of these as a matter of priority.We urge all towards affirmation of technology neutral

commitments and full adherence to the reference paper on

Regulatory Principles for Basic Telecommunications.

We support therefore that commitments in the telecommunication

sector are interpreted in an extensive manner and incorporate

technological developments such as Internet-based services.

2. Reform in tourism services

International travel has shown an increase in 2007 rising costs and

lower disposable income in developed countries notwithstanding.

However we are deeply concerned about remaining barriers in the

travel and tourism sector in member countries. In particular we find

the government setting of population needs in member countries as

anachronistic in a market driven economy.

This proposal covers the services which already appear in sub-chapter

9 (Tourism and Travel Related Services) in the list contained in


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document MTN.GNS/W/120 and which traditionally make up the core of

the tourism sector (see Annex for precise definitions):

A. Hotel and restaurant services (including catering services) (CPC 641-

643)

B. Travel agency and tour operator services (CPC 7471)

C. Tourist guide services (CPC 7472)

1. The remaining barriers in the hotel and restaurant area in certain

Member countries should be eliminated. If the economic needs tests

cannot be entirely abolished, they should at least be made more

transparent in the schedules of commitments and more predictable.

2. Members are invited to make further commitments and to eliminate

existing restrictions, in particular with respect to modes 1, 2 and 3 in

the travel agency and tour operator services area.

3. Restrictions under mode 4 with respect to travel agency and tour

operator services as well as tourist guide services must also be

evaluated.

4) Energy Services

All nations and all economic activity depend on the production of

clean, reliable energy that is efficiently produced and reasonably

priced. An important component of the production of energy is the

energy services industry. We strongly support including energyservices in the GATS. Barriers to energy services fall into two

major categories: limits on market access, and restrictive or

discriminatory regulatory systems. The best way to ensure a

meaningful liberalization of energy services would be the negotiation


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of a broad set of market access commitments in energy services,

combined with a precompetitive regulatory reference paper.

5. Environmental ServicesThe most important barriers to trade in environmental services are

those which place horizontal limitations on the establishment of a

commercial presence and the employment of nationals of a company's

home country (mode 4)

In order to accommodate the gradual integration of environmental

services with other service activities, a suitable system must be set up

enabling Members to make specific commitments in the followingfields of activity, which have expanded significantly in recent years:

- Professional services relating to the environment

- Research and development relating to the environment

- Consultancy, sub-contracting and engineering relating to the

environment

- Construction relating to the environment

1. We seek considerably less stringent commercial presence

requirements for environmental service suppliers. We emphasize

specific commitments to be undertaken by more Members in respect of

market access and national treatment mainly under mode 3 but also

under modes 1 (where technically feasible) and 2.

2. Traditionally services transfer under mode 3 is important for

environmental services. However the relevance of mode 4

commitments is critical particularly due to the rising demand for of

consultancy and engineering services.


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V. REFRENCES

WTO Website

Italian Institute for Foreign Trade (ICE)

Research Papers by Rudolf Adlung, Senior economist, Trade in

Services Division, WTO Secretariat

international trade - gats & gatt - italys trade structure

Documents