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Services Negotiations Under the Tripartite FTA

01-01-2012

Kruger, P. 2012. Services Negotiations Under the Tripartite FTA. GREAT Insights, Volume 1, Issue 1. January-February 2012. Maastricht: ECDPM

The Heads of State and Government of the 26 member states of the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) agreed in October 2008 to establish a grand Free Trade Area which is referred to the Tripartite FTA. Negotiations to pursue the FTA were formally launched in June 2011. It is envisaged that the proposed Tripartite Free Trade Area (FTA) will not only cover trade in goods, but also trade in services. 

One of the general objectives stated in Article 3 of the draft Tripartite Agreement is the creation of a large single market which would include the free movement of services. Services negotiations at the tripartite level will however only be addressed in the second phase of the negotiations, together with the other trade related issues of intellectual property rights, competition policy, and trade development and competitiveness. It is also likely that the tripartite services negotiations will be sequenced to take into consideration the outcome and progress of services liberalisation at the regional levels. Due to the varying pace of progress made by member states of the SADC, COMESA and the EAC a more complete and accurate assessment can only be made closer to the start of the tripartite services negotiations. 

Services liberalisation under the Tripartite FTA

The main tripartite document is the draft Agreement establishing the COMESA, EAC and SADC Tripartite Free Trade Area, together with its 14 annexes covering a number of areas that are deemed important for the effective operation of the regional market. Annex 12 of the draft Tripartite Agreement (November 2009 version) exclusively deals with trade in services and contain guidelines countries can use during the first round of services negotiations. However, this Annex 12 was not revised together with the draft agreement and the other annexes in December 2010. It is likely that the drafters are waiting to evaluate the processes happening at the three regional levels before deciding on the most suitable way forward. Despite the fact that the services annex was omitted, it is still necessary to consider the original Annex 12 (November 2009 version) as this is the only available document providing some insight on the liberalisation process the tripartite member states are likely follow. Furthermore, the guidelines contained in the annex are quite similar to what is expected from the member states at the regional levels of COMESA, EAC and SADC; so in that sense the analysis can contribute to the regional debate. 

Converging the negotiations

This new situation of supra-regional services negotiations will demand continuity and coherence; the converged tripartite market will have to build on what has already been achieved in the regional markets of COMESA, EAC and SADC. However, developments in the area of trade in services are still novel experiences for the regions and it is difficult to predict how these regional negotiations are going to turn out. Apart from the progress made by the EAC, the outcomes and effect of regional services liberalisation is still somewhat unclear. 

When services negotiations at the tripartite level eventually commence, most countries will hopefully have acquired substantial experience in dealing with services liberalisation. Valuable lessons can be taken from those countries with experience, on how they have sequenced, harmonised and dealt with these layers of services negotiations. It can be argued that, when the time comes to negotiate services at the tripartite level, countries would already have acquired the necessary expertise and capacity to effectively negotiate a services chapter. 

Do the guidelines currently instruct countries to extend liberalisation commitments made in the regional services negotiations of COMESA, EAC and SADC to other configurations? It seems as if the guidelines contained in the original Annex 12 hint at the possibility: “Member States shall exchange offers and requests on the basis of which schedules of specific commitments shall be agreed. The commitments shall include sectors and sub-sectors that Member States have liberalised under the programs of the regional economic communities”. A measure such as this can simplify the regulatory framework dealing with trade in services and is something that deserves consideration. This will keep the regulatory framework simple and will ease the transition towards the convergence of the services markets. Otherwise the possibility exists that a country will have one or more sets of rules for COMESA, EAC and SADC countries, another set of rules for tripartite members, in addition to the sets of rules for other WTO members. Furthermore, all of these rules will have to be incorporated into domestic laws; something which can complicate the process. 

So, depending on the approach of the tripartite member states, the process can either be simple (by automatically extending liberalisation commitments/preferences) or more complicated (by renegotiating the liberalisation commitments). It will require careful consideration on the part of the tripartite member states on how they want to merge the regional services negotiations. 

Creating an integrated services market

Meaningful services liberalisation can only be achieved by focusing on the regulatory environment that would determine the access for foreign suppliers (market access) and conditions for their local operations (national treatment). The suppliers would accordingly know what is allowed and how to conduct their operations in a given services market. But in the steps towards a more integrated services market, other issues besides liberalisation become crucial. 

It is expected that services liberalisation will be less of an issue when the tripartite negotiations start since this will already have been comprehensively addressed at the regional levels of COMESA, EAC and SADC. At that time, hopefully the domestic regulatory frameworks will be strong enough to allow for substantial liberalisation and to welcome any foreign competition. Or on the other hand, perhaps countries would have realised that services liberalisation alone did not bring the desired benefits they were hoping for. Tripartite member states will have to find ways to build on the substantial liberalisation already achieved in the regional negotiations. 

It can be argued that one way to build on the substantial liberalisation already achieved in the regional negotiations will be serious efforts aimed towards deeper integration by addressing issues such as transparency, competition regulation, specific sectoral disciplines, mutual recognition agreements and the harmonisation of certain areas by going through a process of domestic reform. 

With deeper integration agreements, the focus should be shifted from liberalising the barriers that exist at the borders, towards addressing the ‘behind-the-border’ issues, which exist within the jurisdiction of the member states. All three configurations deal to varying degrees with these ‘deeper integration’ issues, with some also scattered in related protocols and regulations. There are specific obligations dealing with cooperation and harmonisation in areas such as communications, financial, education, health, transport, tourism and energy services. If countries want to address issues apart from services liberalisation, it is here where they should start. Their intentions for deeper integration have clearly been stated by focusing on cooperation, harmonisation and standardisation in some of the priority sectors. These kinds of measures have the potential to make a great impact on the regional development of the services industries, but only if they are effectively implemented. 

Conclusion

At the moment it is difficult to predict the outcome of the regional negotiations, something which will have an impact on the tripartite process. It is only the EAC member states that have negotiated binding liberalisation commitments, while SADC and COMESA are still in different stages of the negotiating process. This creates a certain degree of uncertainty which will only be resolved once all configurations have completed their liberalisation schedules and processes. It is after the finalisation of the schedules that the Tripartite Committee on Trade in Services can evaluate the regional outcomes and decide on the most suitable way forward. It is likely that the services negotiating guidelines will only be revised and published once this had been determined. 

The published guidelines will have go beyond the basic issues and also clarify some of the more challenging areas. Some of the more pertinent issues relate to the WTO compatibility of the eventual tripartite services chapter. What will be the responsibility of the more developed countries in the configuration? Although the more developed countries will have a greater interest in protecting their services industries, clear thresholds will have to be set. The original guidelines call for the ‘possibility of no restrictions’ in priority sectors; member states, however, need to be more realistic and precise when stating such objectives. The degree of flexibility for the lesser developed states must also be stated clearly. 

It is understandable that tripartite member states long for the absolute free movement of services, but countries must be able to retain some kind of policy space when negotiating services. In this regard the operation and effect of a possible standstill clause must be carefully weighed as it has the potential to liberalise all services sectors with almost immediate effect. 

It may take a long time before the tripartite services negotiations actually start; meanwhile countries must use the opportunities at the regional level to prepare the ground for effective liberalisation and essential domestic reform. Governments must ensure that all relevant obligations under the WTO and regional agreements are fully implemented and that all necessary institutions are established and functioning properly. All measures affecting trade in services must be identified, indexed and stored to facilitate the administration and dissemination of the regulatory information. Meaningful communication channels must also be established between government and stakeholders to appreciate the differentiation and developments in the various services sectors. This constructive engagement is also crucial to monitor the progress and effect services liberalisation have on the wider economy. 

This is the time to use the opportunities presented by the regional negotiations in order to acquire the necessary experience and capacity to effectively negotiate a more complicated services chapter at the tripartite level. 

The full version of this paper can be accessed via the TRALAC website

Paul Kruger is a researcher at the Trade Law Centre

This article was published in GREAT Insights Volume 1, Issue 1

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Economic Transformation and TradeTrade Policy and Economic Partnership AgreementsCommon Market for Eastern and Southern Africa (COMESA)East African Community (EAC)Free Trade Area (FTA)Regional Economic Communities (RECs)Southern African Development Community (SADC)TradeAfrica

External authors

Paul Kruger