Why Do Economies Enter into Preferential Agreements on Trade in Services? Assessing the Potential for Negotiated Regulatory Convergence in Asian Services Markets

Abstract

More than one-third of the World Trade Organization-notified services trade agreements that were in effect between January 2008 and August 2015 involved at least one South or Southeast Asian trading partner. Drawing on Baier and Bergstrand's (2004) determinants of preferential trade agreements and using the World Bank's database on the restrictiveness of domestic services regimes (Borchert, Gootiiz, and Mattoo 2012), we examine the potential for negotiated regulatory convergence in Asian services markets. Our results suggest that Asian economies with high levels of preexisting bilateral merchandise trade and wide differences in services regulatory frameworks are more likely candidates for services trade agreement formation. Such results lend support to the hypothesis that the heightened "servicification" of production generates demand for the lowered services input costs resulting from negotiated market openings.

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

“…This paper draws on the seminal work by Baier and Bergstrand (), the first to document how distance, remoteness, economic country size and factor endowments could be seen as the main economic determinants of PTA membership. Sauvé and Shingal () added regulatory incidence and similarity in regulatory frameworks to the Baier and Bergstrand () set of determinants to explain STA membership for the same sample of Asian countries as in this paper. We use the Sauvé and Shingal () set of determinants in our empirical analysis to examine their role in explaining WTO+ commitments in Asian STAs.…”

“…As discussed in Mattoo and Sauvé () and Sauvé and Shingal (), optimal regulatory convergence areas are defined as sets of countries whose aggregate welfare would be maximised as a result of the adoption of convergent regulatory norms and practices. Such an area would balance the benefits and costs of participation in a preferential services agreement .…”

“…Rather, countries join GTAs largely in accordance with economic reasoning (see Baier & Bergstrand, ; Baier and Bergstrand, ; Egger, Egger, and Greenaway, ; Egger & Larch, ). More recently, Egger and Wamser (), Cole and Guillin (), Egger and Shingal () and Sauvé and Shingal () have built on this work on GTAs and explored determinants of STA membership. The services literature has also evolved to explain services commitments in the GATS (Egger & Larch, ; Roy, ), reciprocity in STA commitments (Marchetti, Roy, & Zoratto, ) as well as GATS+ commitments in STAs (van der Marel & Miroudot, ).…”

Granting preferential market access in services sequentially versus jointly with goods

“…Rather, countries join GTAs largely in accordance with economic reasoning (see Baier & Bergstrand, , ; Egger, Egger, & Greenaway, ; Egger & Larch, ). More recently, Egger and Wamser (), Cole and Guillin (), Egger and Shingal () and Sauvé and Shingal () have built on this work on GTAs and explored determinants of STA membership. This growing literature suggests that, as is true of GTAs, the membership of STAs responds to economic, geography and cultural‐distance variables as predicted by economic theory.…”

“…More recently, Egger and Shingal () have added regulatory incidence and similarity in regulatory frameworks to the Baier and Bergstrand () set of determinants to explain STA formation. Sauvé and Shingal () have done so in the context of STAs negotiated among Asian trading partners.…”