IITD MWTO 2009

Institute for Financial Management &

Research (IFMR), Chennai

Details

• Name: Srikant Rajan

• Mail: srikant.rajan@ifmr.ac.in
• Contact: +919962552824
 Abstract

This paper is broadly divided into four sections. The first section of the
paper attempts to analyze Italy’s 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 Italy’s
trade structure vis-à-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
 Table of Contents

I. Italian Trade Policy Snapshot

II. Negotiation Schedule

III. Challenges in GATS policy

IV. Final Negotiated Resolutions

V. References
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 EU’s 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 as

Spain, the contribution of services to Italy’s 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
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
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 a
service.

Thus such an agreement would leverage on EU’s 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
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.
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; however

differs 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
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 nation’s
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 define

which 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.
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
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 energy
services 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
of a broad set of market access commitments in energy services,
combined with a precompetitive regulatory reference paper.

5. Environmental Services

The 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 following
fields 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.
V. REFRENCES

• WTO Website

• Italian Institute for Foreign Trade (ICE)

• Research Papers by Rudolf Adlung, Senior economist, Trade in

Services Division, WTO Secretariat