Bilateral or plurilateral agreements?

In Part 2 and most of Part 3, economists and legal scholars seem to agree that bilateral and regional trade initiatives can offer a first step towards multilateral agreement. Roy, Marchetti, and Lim argue that, in the absence of Multilateral Trade Agreements (MTAs), the formation of Preferential Trade Agreements (PTAs) is not harmful to the constitution of future MTAs. Instead, their second best argument is that it enhances ‘competitive liberalization’, thus forcing other countries to join, which ultimately tends towards multilateralism. From this perspective, the authors evaluate 29 countries in 28 opened service sector PTAs and find that the commitments taken sometimes exceeded the GATS offers made. Next, Kelly uses a legal approach to argue that the bilateral (request-offer) negotiating approach is a good complement to plurilateral approaches because it requires a (fixed) cost of gathering information about potential partners and building relationships that would have been incurred anyway. If bilateral initiatives are a second-best approach to reach plurilateral agreement eventually, how far should trade-liberalizing services agreements go? Dihel, Eschenbach, and Shepherd focus on south–south bilateral services trade and argue that large–scale bilateral liberalization policies are better for country-level performance than those conducted on a smaller scale.

Services trade to be treated like goods trade?

Many questions raised across chapters stem from one essential matter: the similarity of treatment between goods and services trade. Fink and Nikomborirak concentrate their work on the rules of origin. In goods trade, rules are set to prevent transshipment. The authors examine the extent to which the same rules of origin requirements apply to services trade. They provide a theoretical argument that similar rules might prevail for trans-border services trade (mode 1). For instance, one member country of a PTA can outsource to third countries the arm's length services sold to other PTA members; for example, consultancies or call centers. Nevertheless, the authors do note that such rules of origin are difficult to apply because many services are intangible. Furthermore, in the case of cross-border supply of services (mode 3), the rules of origin differ because they depend on the supplier of the service and not on the service itself.

Other chapters raise legal questions such as whether the design and implementation of services trade agreements can replicate goods trade agreements. In the GATS as much as in the GATT, countries can employ non-discriminatory safeguard policies to protect their national firms. But in order to identify whether firms from a country are being threatened by foreign competitors, it is necessary to identify first how ‘like’ the competing products are. Cossy, for example, argues that it is possible to only partly apply to services the four-pronged test developed under the GATT to establish the likeness of goods (classification, physical characteristics, end-uses, and consumer tastes). The aggregate nature of services classifications does not provide sufficient information on likeness of products, and physical characteristics by nature do not apply to intangible services. In separate chapters, Pierola and Poretti examine safeguards and subsidy disciplines, respectively, in services trade. These are two important issues not yet sorted out and are still on the GATS agenda. They examine the extent to which safeguard and countervailing duty mechanisms agreed upon in the GATT are transferable to GATS. Both emphasize the differences between services and goods that make the safeguards and countervailing duties mechanisms very difficult to apply. In particular, the conceptual difficulty of likeness in services (identified earlier by Cossy) is even more challenging in the context of injury determination and attribution in anti-subsidy or safeguard investigations. Furthermore, because subsidies are directed mainly toward particular industries (for example, transport, audiovisual, and tourism), Poretti proposes that sector-specific instruments may be better suited to address subsidy issues rather than trying to establish an horizontal mechanism that applies across all traded services.

The last section of the volume treats the relationship between conflicts and trade. Panizzon examines the impact of human rights violations on services trade, in particular on labor supply through mode 4, and proposes a mechanism to discipline receiving countries by inciting sending countries to bring claims against the latter in front of the WTO. Janda and Glynn support a cosmopolitan view of trade in services whereby trade, by increasing the length of relations across countries, increases the opportunity cost of conflict between them. While Panizzon proposes a WTO intervention mechanism, Janda and Glynn support a laissez-faire view whereby potential conflicts would be resolved eventually through trade. While the basic relation between conflicts and international trade in goods is not new, the emphasis here on services trade is somewhat novel; for example, the idea that a new WTO mechanism could be used to pressure some member states to provoke conflicts by violating human rights. Nevertheless, for an organization already struggling to cope with purely economic conflicts raised by services trade, it is difficult to imagine that the WTO would be adept at diffusing political tensions as well.

For an economist, this book is an extremely interesting read because it clearly identifies how the legal profession thinks about GATS. Economists tend to measure regulations and their impacts on trade, and we sometimes engage in normative exercises that seek to explain why some measures can perform (economically) better than others. On the other hand, legal scholars focus more on how regulations can be designed, interpreted, and circumvented by member countries. This book contains a nicely balanced collection of both visions to help improve understanding of the GATS.