Determinants of services trade agreement membership

Abstract

Since about a decade, we have seen a surge in interest as well as in the use of services preferentialism and unilateral services regulations. This paper provides an economic explanation of services regulation and services preferentialism, including their interaction. The paper derives hypotheses based on a numerical welfare analysis where tradable services are treated as a secondary (produced) input in the production of tradable goods. Apart from hypotheses on the emergence of services trade agreements (STAs), the paper derives ones on the stringency of unilateral services provision-a general services trade restrictiveness. For instance, one of the hypotheses is that services trade restrictiveness is endogenous, and it is aligned with economic fundamentals. Another hypothesis suggests that countries are more likely to participate in STAs if the partners' general, unilateral services trade restrictiveness is more similar to theirs. These and other hypotheses are supported by data.

Right here, right now? New evidence on the economic effects of services trade reform

“…A period of adjustment is required before full benefits of a services liberalisation can materialise. For manufacturing trade, most of the adjustment happens within ten years after a policy reform (Baier and Bergstrand, 2007[27]; Anderson and Yotov, 2020 [21]; Egger, Larch and Yotov, 2021 [28]), providing a tentative indication for the meaning of the term "long-run" effect. 17 Results in this section are based on a specification where exporter-year and importer-year fixed effects absorb each country's multilateral resistance to trade, while observable gravity variables such as bilateral distance, contiguity and common language to control for bilateral trade costs between two countries.…”

“…The impact of trade policies over time can be assessed by using lags and leads of trade policy variables, in addition to the contemporaneous variable. For merchandise trade, results suggest that the significant impact of an RTA on bilateral trade flows has fully materialised between 10-15 years after entry into force of the RTA (Baier and Bergstrand, 2007[27]; Egger, Larch and Yotov, 2021 [28]). This result does not come as a surprise, given that many RTAs use so called phase-in periods for the introduction of commitments, such as new tariff schedules for manufactured goods.…”

“…It remains possible that other reforms or political shifts took place that could also impact services trade flows. Since the synthetic control units are constructed as a combination of different other countries and sectors, the effect of such unaccounted-for changes on the results is considerably softened 28. Regardless of the specific sector under investigation, all services sectors in other countries are included in this set of potential comparison cases.…”

Mode 4 restrictiveness and services trade

“…In fact, regulatory heterogeneity has been found to account for 21 percent of total trade costs in services along with trade policy barriers (WTO, 2019 ). Regulatory incidence and heterogeneity have also been shown to be significant determinants of countries’ propensities to negotiate preferential services trade agreements (Egger & Shingal, 2021 ) and of their deeper commitments in such agreements relative to their WTO GATS commitments (Shingal et al, 2018 ).…”

“…Trade costs for services, for intermediate vs final services, and for disaggregated services sectors, have been computed “top-down” by Miroudot et al ( 2013 ) and Miroudot and Shepherd ( 2016 ) using the theory-based methodology of Novy ( 2013 ) as well as estimated in a structural gravity framework (WTO, 2019 ). Measures of regulatory impediments to services trade - the services trade restrictiveness indices (STRI) put together independently by the World Bank and the OECD - have also been used to examine the effects of regulatory incidence and heterogeneity on services trade, investment, integration into global value chains, and the membership and depth of of preferential trade agreements (Kox & Nordås, 2007 , 2009 ; Nordås, 2016 ; Miroudot & Cadestin, 2017 ; Nordås & Rouzet, 2017 ; Rouzet & Spinelli, 2016 ; Rouzet et al, 2017 ; Andrenelli et al, 2018 ; Shingal et al, 2018 ; Benz & Jaax, 2020 ; Egger & Shingal, 2021 ). However, the effect of barriers specific to Mode 4 services trade has not yet been quantified.…”