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Services are often described as things you can buy or sell but can’t carry (or drop on your foot!). They include a wide and diverse range of economic activities, from professional services, such as legal, accountancy, engineering, and medical services, to communication services, such as postal and telecommunications services, through to financial, education, tourism and transport services.
Some examples of trade in services: a New Zealand geothermal energy consultant advising on a project in Indonesia, a German tour group arriving for a farm-stay holiday in New Zealand, and a foreign student coming to study at a New Zealand university.
The ongoing services negotiations at the World Trade Organisation (WTO) are critical to New Zealand because our services exporters need access to international markets and fair and equitable treatment once there. The WTO estimates that 50% of world trade will be in the form of services trade by 2020.
Services are often described as things you can buy or sell but can’t carry (or drop on your foot!). They include a wide and diverse range of economic activities, from professional services, such as legal, accountancy, engineering, and medical services, to communication services, such as postal and telecommunications services, through to financial, education, tourism and transport services. These sectors are the key infrastructural components of a healthy and well-performing economy, in their own right and as critical inputs to the production of goods.
Trade in goods is relatively straightforward - an exporter sends a consignment of goods across a physical border into another country. With services trade, borders are less clearly defined.
To help us identify exactly how services are traded the World Trade Organisation’s General Agreement on Trade in Services (GATS) sets out the following four methods, or "modes", for delivering services:
Whenever a New Zealand services supplier provides his or her services to an overseas customer, whether that consumer is inside New Zealand or overseas, that service is being exported. Given our small domestic market, a number of New Zealand's services sectors specifically target export markets. The most obvious example is the tourism sector, which relies almost entirely on its overseas customers, and which is one of New Zealand's most important economic activities. Education, particularly at the secondary and tertiary level, engineering and other professional services such as legal, consulting and architectural services, construction and postal services are some of New Zealand's other key exporting services sectors.
Despite many of our key sectors exporting their services overseas, New Zealand’s services exports still make up only 26% of our total exports. Given that services makes up around 72% of our Gross Domestic Product there is real scope for increasing New Zealand’s exports overseas.
There are two types of barriers our services exporters typically face in overseas markets: horizontal barriers, which affect all services sectors; and sectoral specific barriers.
Examples of typical horizontal barriers are:
Sectoral barriers tend to relate to the specific nature of the service. For example, a restriction on New Zealand's legal services providers in a foreign market might be that they are only permitted to give legal advice on international law or New Zealand law. In education services, a barrier to trade might be legal requirements in certain markets which restrict the establishment of off-shore campuses by New Zealand educational institutions.
The Government is able to pursue improved access to markets for New Zealand's services suppliers, including the removal of trade barriers, through its membership of the WTO General Agreement on Trade in Services, or GATS.
The negotiation of the GATS as part of the Uruguay Round of multilateral trade negotiations brought government measures affecting services trade under WTO rules for the first time. This recognised the importance for the global economy of international trade of services, as traded services in their own right and as infrastructure for other areas of economic activity.
The GATS covers all services sectors except "services supplied in the exercise of governmental authority". These are defined as services which are supplied "neither on a commercial basis nor in competition with one or more service suppliers". Air Transport Services are also not fully integrated into the GATS, with air traffic rights and all services directly related to the exercise of these rights excluded from the scope of the Agreement. Most measures maintained by Member governments related to trade in services are covered by the GATS, but not all - for example, subsidies and government procurement are not currently disciplined by the GATS.
The GATS has two parts - the framework agreement, which contains the rules and principles for services trade that Members agree to abide by, and the lists, or "schedules", in GATS parlance, of the Members' specific commitments. These specific commitments guarantee the degree of access Members are prepared to allow foreign services suppliers in their market.
GATS basic disciplines
The basic disciplines set out in the GATS include:
For full explanations of relevant disciplines, see "Services: Rules for Growth and Investment" [external link to the WTO website]
Parties of the GATS are extended a range of benefits including:
Equality: The GATS provides one set of rules applying to all Members;
Consensus: The consensus-based decision making process means that small countries, such as New Zealand, can participate on an equal footing with large trade partners;
Liberalisation: Progressive rounds of negotiations allow for the ongoing elimination of discriminatory treatment;
Flexibility: The GATS' structure, in particular the right to regulate and to maintain Most Favoured Nation exemptions, allows Members the flexibility to choose the sectors in which they make commitments, and the degree of market access and national treatment they are prepared to guarantee. This flexibility is especially important to developing countries;
Transparency and predictability: Members' specific commitments provide legally binding guarantees of the degree of access foreign suppliers are permitted in each others' markets;
Technology transfer: Trade and investment resulting from services liberalisation fosters the spread of new technologies. This is particularly relevant for developing countries;
Support: For countries becoming WTO Members, the GATS provides support for their programmes of domestic economic reform;
Dispute resolution: The GATS provides for an effective system of dispute settlement.
The extensive programme of economic reform and deregulation undertaken during the 1980s and early 1990s left New Zealand in a position to commit its market liberalisation in a range of services sectors. These included professional services, telecommunications, audio-visual services, construction services, distribution services, education services, financial services, tourism and transport services.
New Zealand's schedule of specific commitments can be found in the "Search in Documents Online" section of the WTO website (under GATS/SC/62).
In recent years, concern has grown in some areas about the scope of the GATS in relation to Members' ability to regulate their services sectors, particularly those services sectors which have traditionally been provided by government and which have a strong "public good" element, such as education, health and social services.
For a detailed explanation of the actual scope of the GATS, and a response to some of the concerns of a number of groups, see "GATS - Fact and Fiction" [external link to WTO website].
Progressive liberalisation of the commitments made under the General Agreement on Trade in Services are being negotiated as part of the Doha Development Round. Further information on these negotiations can be found on the WTO website. http://www.wto.org/english/tratop_e/serv_e/s_negs_e.htm
Aside from the GATS, New Zealand has entered into seven other trade agreements that cover services trade. The Services Protocol of the CER Agreement between Australia and New Zealand is New Zealand's most extensive services agreement. Commitments under the Protocol cover virtually all sectors and are supplemented by the Trans Tasman Travel Arrangement, which permits the free movement of labour between the two countries, and the Trans Tasman Mutual Recognition Agreement, which provides for the recognition of occupational qualifications and registration.
The New Zealand/Singapore Closer Economic Partnership Agreement of 2001, the Trans-Pacific Strategic Economic Partnership of 2005, the New Zealand-China Free Trade Agreement of 2008, the New Zealand-Malaysia Free Trade Agreement (signed on 26 October 2009 but not yet entered into force); the ASEAN-Australia-New Zealand Free Trade Agreement of 2010 are all GATS plus agreement, that include services commitments which extend beyond the Parties respective schedules of GATS commitments. A number of these Agreements also provide more substantive disciplines relating to domestic regulation, the movement of business people and the facilitation of the development of mutual recognition arrangements on qualifications and professional registration between New Zealand's professional bodies and regulatory agencies.
The Trans Pacific Strategic Economic Partnership Agreement, covering New Zealand, Chile, Singapore and Brunei, and the Hong Kong and New Zealand Closer Economic Partnership are also both GATS-plus agreements. Significantly however these two agreements include the more advanced negative list approach to the scheduling of services commitments. (Under a negative list, all services sectors are deemed covered by the FTA unless specifically excluded.)
Further information in all of New Zealand’s trade agreements can be found on this website: http://www.mfat.govt.nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/index.php
New Zealand is also an active member of two international trade forums in which services trade is under consideration.
The APEC Group on Services meets three times a year during Senior Officials meetings. APEC's informal, consensus-based format and mix of developed and developing countries makes the Group on Services an especially useful forum for discussion of services sectors and horizontal issues of key interest to the Asia-Pacific region. A key focus of the work of the Group in Services is support for the WTO services negotiations.
The OECD's Working Party on Trade Committee [external link] is the main forum for the OECD's consideration of services trade issues. It produces a great deal of informative and useful research on patterns of services trade within the OECD and detailed exploration of issues for further multilateral negotiation in the WTO.
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