Do WTO+ commitments in services trade agreements reflect a quest for optimal regulatory convergence? Evidence from Asia

• Date: 01 May 2018
• Published date: 01 May 2018
• Author: Pierre Sauvé,Anirudh Shingal,Martin Roy
• DOI: http://doi.org/10.1111/twec.12574

ORIGINAL ARTICLE

Do WTO+commitments in services trade

agreements reflect a quest for optimal regulatory

convergence? Evidence from Asia

Anirudh Shingal

1

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Martin Roy

2

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Pierre Sauv

e

3

1

European University Institute, Florence and World Trade Institute, University of Bern, Bern, Switzerland

2

World Trade Organization, Geneva, Switzerland

3

World Bank, Geneva, Switzerland

1

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INTRODUCTION

One of the striking features of contemporary trade diplomacy has been the proliferation of prefer -

ential trade liberalisation and rule-making (Kawai & Wignajara, 2010). As of 1 December 2015,

close to 619 preferential trade agreements (PTAs) were notified to the GATT/WTO, of which 413

were in force.

Efforts to institutionalise trading relationships through PTAs have chiefly focused on goods

trade up until 2000. Since then, however, there has been a preponderance of services trade agree-

ments (STAs) in the new PTAs entered into force and notified to the WTO. For instance, of the

194 WTO-notified PTAs that entered into force over January 2000–August 2015, 124 (64%)

included provisions on services trade. In contrast, only eight of the 81 (10%) WTO-notified PTAs

that entered into force before 2000 included a services chapter. The above trends signal the height-

ened importance of services trade in general, the growing need felt by countries to place such trade

on a firmer institutional and rule-making footing and the attractiveness of doing so on an expedited

basis through preferential negotiating platforms (Sauv

e & Shingal, 2011).

A further stylised fact of services negotiations is the propensity for countries to commit more to

each other preferentially in STAs than multilaterally at the WTO (for instance see Marchetti &

Roy, 2008; Roy, Marchetti, & Lim, 2007; Roy, 2011; van der Marel & Miroudot, 2014). It is esti-

mated that in aggregate, the levels of commitments in STAs may be twice as high on average than

at the WTO (Roy, 2014). To the best of our knowledge, only van der Marel and Miroudot (2014)

have attempted to explain the observed “commitment gap”between multilateral and preferential

advances in services. But the authors did not consider the role of services regulatory frameworks

in their analysis. The latter is the main (empirical) contribution of this paper.

As opposed to van der Marel and Miroudot (2014), this paper uses three different measures of

commitment gap in analysis, which are also constructed differently from that in van der Marel and

Miroudot (2014); details on these measures and their construction are provided in Sections 4 and

5.1. Relative to van der Marel and Miroudot (2014), the main value-added of the analysis

DOI: 10.1111/twec.12574

World Econ. 2018;41:1223–1250. wileyonlinelibrary.com/journal/twec ©2017 John Wiley & Sons Ltd

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presented in this paper is the examination of the role of services regulatory frameworks in

explaining WTO+commitments in STAs. Since domestic regulation is the currency of negotia-

tions in services trade, the incidence of trade-restrictive services regulation and similarity in ser-

vices regulatory frameworks are likely to be important factors in countries negotiating deeper

STAs. Not accounting for these factors explicitly is thus likely to bias any empirical findings on

the subject.

The motivation for the role of services regulatory framework in our research also stems from

the “optimum regulatory convergence areas”(ORCA) hypothesis in the existing literature (Hoek-

man and Mattoo, 2011; Hoekman & Mavroidis, 2015; Mattoo, 2015; Mattoo & Sauv

e, 2011). This

hypothesis has been advanced as one plausible reason for the observed commitment gap; it sug-

gests that, by reason of their roots in the political economy of proximity, preferential or regional

constructs may afford greater space to pursue a wider range of regulatory convergence agendas

than is possible on a global scale. As the work of Estevadeordal, Frantz, and Nguyen (2003) has

shown, these are also agendas for which the supply of regional public goods

1

is also more likely

to be forthcoming in ways that impart deeper roots to efforts at economic integration.

Thus, the greater ease with which regulatory convergence can be pursued at the regional level

may help explain the deeper commitments observed within intraregional preferential services agree-

ments. We examine this proposition explicitly by considering the role of incidence and similarity

of services regulatory frameworks in determining the observed commitment gap in a sample of

Asian STAs in force as of August 2015. In doing so, this paper extends the analysis in van der

Marel and Miroudot (2014). The paper uses data on services regulation from the World Bank’s

Services Trade Restrictiveness Index (STRI) database (Borchert, Gootiiz, & Mattoo, 2014). It also

builds on the data set on services commitments in PTAs that was initially developed by Marchetti

and Roy (2008) and subsequently expanded by Roy (2014).

We focus on Asia as economies in the region have been at the forefront of the ongoing trend

towards the preferential liberalisation of services markets. According to the WTO’s RTA-IS data-

base, 60 of the 132 STAs in force up until August 2015 (45% of all STAs in force) involved at

least one South or South-East Asian trading partner; 22 of these 60 STAs (and 17% of all STAs in

force) were entered into between Asian partners. Moreover, Asian trading partners have also com-

mitted more in their bilateral and regional STAs among each other than mul tilaterally in the

GATS/Doha Round context (for instance see Roy, 2014). Evidence in this regard is also provided

in Table 1, which reports the average GATS+commitments undertaken by each of the samp le

Asian country against the other sample Asian trading partners, by two modes of services delivery

(and their total) and according to the three different measures of commitment gap used in the

paper.

Our empirical findings suggest that trading dyads with more similar regulatory frameworks and

greater levels of services trade policy restrictiveness tend to undertake higher levels of WTO+

commitments in their STAs, lending support to the ORCA hypothesis. There is also evidence in

our results for preference margins in negotiated Asian STAs being driven by goods trade comple-

mentarities alluding to embedded supply chains in the region. Such results lend support to the

hypothesis that the heightened “servicification”

2

(National Board of Trade, 2012) of production

generates a demand to lower services input costs that arise from the incidence of restrictive regula-

tion as well as regulatory heterogeneity. These findings in turn reflect the servicification of Asian

1

These include funding for infrastructures favouring regional connectivity or the establishment of institutions allowing regu-

latory governance to be pooled, for instance.

2

This is defined as the heightened share of services value added in final production.

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