East Asian Free Trade Agreements in Services: Facilitating Free Flow of Services in ASEAN?
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East Asian Free Trade Agreements in Services: Facilitating Free Flow of Services in ASEAN? REPSF II Project No. 07/004 Authors: Dr. Ray Trewin Malcolm Bosworth Dr. Dionisius A. Narjoko Dr. Arpita Mukherjee Prof. Andrew Stoler James Redden Victoria Donaldson Graeme Thomson Final Report 19 May 2008 The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat and/or the Australian Government. East Asian FTAs in Services: Facilitating Free Flow of Services in ASEAN? ABSTRACT There have been large increases in the number of East Asian Summit (EAS) countries’ Free Trade Agreements (FTAs) in services. Do these FTAs facilitate or hinder the free flow of services in ASEAN? Comparisons of liberalisation of services trade in FTAs with General Agreement of Trade in Services (GATS) commitments and Doha offers showed that in most cases, FTAs have improved beyond GATS and, for certain countries, somewhat beyond Doha. There was, however, little evidence found of actual liberalisation and most evidence pointed to negotiated offers never being at unilateral liberalising levels. Though weak, there have been identifiable differences in commitments under various EAS FTAs and political economy reasons for this tended to be dominant. Weak and partial FTAs do not liberalise where it matters nor drive integration through structural adjustment and trade based on comparative advantage. The Blueprint for an ASEAN Economic Community (AEC) and the ASEAN Charter, which includes aspects such as dispute settlement, could assist integration by providing a stronger, rules-based framework. In terms of the impact of differing commitments between ASEAN countries on their integration, FTAs that mimic unilateral and multilateral approaches could lead to competitive multilateralism where a “domino effect” attracts countries into FTAs that are then multilateralised and this would assist integration. Such FTAs would counter other agreements that hinder integration through introduced complexities (e.g. Rules of Origin (ROOs)) increasing transaction and other costs, and some ASEAN countries seeing forging bilaterals with non-ASEAN countries as inconsistent with and detrimental to the economic interests of ASEAN as a whole due to trade and investment diversion. A key element of integration is that the less developed ASEAN countries receive substantial capacity building in infrastructure, institutions etc, as well as being offered some more time and flexibility in their commitments. Specific recommendations within the broad categories of liberate, facilitate and cooperate that would promote ASEAN integration, in addition to those just mentioned, include liberalising investment; monitoring liberalisation; actively assisting services business sectors such as disseminating information on the benefits of liberalisation; and applying a “whole-of-government” approach with agencies working across portfolio boundaries. REPSF II Project 07/004: Draft report i East Asian FTAs in Services: Facilitating Free Flow of Services in ASEAN? This page has intentionally been left blank. REPSF II Project 07/004: Draft report ii East Asian FTAs in Services: Facilitating Free Flow of Services in ASEAN? CONTENTS ABSTRACT..............................................................................................................................I CONTENTS............................................................................................................................III LIST OF TABLES ...................................................................................................................V LIST OF BOXES ....................................................................................................................VI ABBREVIATIONS.................................................................................................................VII ACKNOWLEDGEMENTS......................................................................................................IX EXECUTIVE SUMMARY........................................................................................................XI I. INTRODUCTION .........................................................................................................1 II. BACKGROUND ..........................................................................................................3 A. The Importance of Services in Development ..........................................................3 B. Services Links to Goods...........................................................................................3 C. ASEAN Economic Integration ..................................................................................3 D. Changes in EAS Comparative Advantage and Trade Policies ..............................4 E. Approaches to Trade Liberalisation ........................................................................5 III. COMPARATIVE ANALYSIS OF SERVICES AGREEMENTS, GATS COMMITMENTS AND DOHA OFFERS OF EAS COUNTRIES .................................7 A. Summary of the Fink and Molinuevo Approach .....................................................7 B. Qualification to the Fink and Molinuevo Approach................................................8 C. Selective Analysis of EAS Countries’ Trade in Services Liberalisation.............10 1. General Observations from the Analysis ........................................................10 2. Choice of EAS Countries for Analysis.............................................................11 3. Choice of Agreements for Analysis .................................................................12 4. Country Summaries for Selected EAS Countries...........................................12 a. Australia .......................................................................................................12 b. India ..............................................................................................................13 c. Japan.............................................................................................................13 d. Malaysia........................................................................................................14 e. Singapore .....................................................................................................14 f. Thailand ........................................................................................................15 D. Architecture of the EAS FTAs ................................................................................16 E. Case Studies of Specific Sectors, Unilateral Liberalisation, and some Analytic Results.......................................................................................................26 1. Financial Services in FTAs ...............................................................................26 2. Unilateral Liberalisation and the Indian IT Sector ..........................................28 3. Some Measurement of the Trade and Investment Effects of FTAs...............29 IV. FACTORS EXPLAINING ANY EAS DIFFERENCES IN THEIR VARIOUS COMMITMENTS........................................................................................................31 A. Political Economy Reasons....................................................................................31 B. Other Reasons .........................................................................................................31 C. Analysing Potential Factors ...................................................................................32 V. THE IMPACT OF DIFFERING SERVICES COMMITMENTS ON THE ASEAN INTEGRATION AGENDA .........................................................................................35 A. Defining Integration.................................................................................................35 REPSF II Project 07/004: Draft report iii East Asian FTAs in Services: Facilitating Free Flow of Services in ASEAN? B. Differences in Services Commitments ..................................................................36 C. Integration Impact of Different Services Commitments.......................................37 VI. FEATURES OF SERVICES AGREEMENTS PROMOTING AND DISTRACTING FROM THE CREATION OF THE AEC .....................................................................41 A. Promoting Features.................................................................................................41 B. Discouraging Features............................................................................................43 C. Treatment of some Key Issues in FTA Provisions ...............................................44 VII. HOW TO PROMOTE ASEAN INTEGRATION UNDERVARIOUS TRADE STRATEGIES............................................................................................................49 A. Promotion within Trade Strategies ........................................................................49 B. Promoting Approaches...........................................................................................49 VIII. RECOMMENDATIONS............................................................................................55 REFERENCES......................................................................................................................57 APPENDIXES .......................................................................................................................62 A. APPENDIX 1: TERMS OF REFERENCE .................................................................62