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Obstacles impeding EU service agreements

Compares the ‘reserved rights’ of EU, member and three non-member countries in the opening offers at the WTO Trade in Services Agreement (TiSA) talks in 2013, to illustrate the hurdles facing any prospective EU partner country


When surrendering the right to negotiate trade agreements to the European Commission, the UK placed an extraordinary degree of trust in a then unknown and untested body. There it has remained for over forty years. No UK government has ever evaluated its negotiation strategy, never asked any government agency to monitor its work, or to measure the impact of the agreements it has negotiated.

Evidence mentioned in previous chapters suggests that this trust was misplaced. Successive Prime Ministers have spoken frequently of the importance of services to the future of the British economy and yet the Commission has concluded rather few service trade agreements by comparison with small independent countries such as Chile, Korea, Singapore and Switzerland. In total, EU agreements with countries outside the EEA now cover just 2.4 per cent of total UK services export markets.

The neglect of the Commonwealth other than the Cariforum, which includes most of the Caribbean Commonwealth countries, almost seems like a deliberate snub; since they, along with countries like Japan and China, where English has been semi-officially accepted as the second language, seem the most promising prospects for UK services exports.

This chapter will not question why the CBI, followed by a good number of trade federations and large British companies have somehow come to believe that the UK has exercised considerable influence on EU trade strategy. When asked for their opinion by the Balance of Competences review in 2013, they strongly supported the present balance because the ‘heft’ or ‘clout’ of ‘negotiating leverage’ is an immense advantage in securing effective trade agreements. That’s a mystery for another occasion.

Instead, it will identify two factors that appear to have handicapped their past efforts to negotiate service trade agreements and which seem likely to remain to limit effective agreements in the future.

Mixed motives: the EU has multiple goals when conducting trade negotiations

For a long time agreements seem to have been primarily seen as an instrument of EU foreign or neighbourhood policies. Its current agreements have three pillars – economic, social and environmental – which encourage its negotiators to engage in discussion about many aspects of the potential partners’ society and culture, and to consider not merely the export of goods and services, but also the export of European values.[1] One imagines that, on many occasions, raising such issues will delay or even scupper any prospect of reaching a trade agreement, whatever clout the EU might bring to bear.

Because they include social and environmental issues, EU agreements are frequently described as ‘deep and comprehensive’, like its agreement with Ukraine; or as ‘partnership agreements’, as if they were half-way towards an alliance rather than mere trade agreements. By contrast, Korea, Singapore and Chile and other small countries have been far more single-minded. Their trade agreements are just that, trade agreements, and intended solely to increase their exports, which the evidence suggests they have generally been able to do (see Chapter 38). Switzerland’s agreement with Ukraine came into force in 2013 without exciting any particular interest or concern in Russia.

The CBI counts itself a strong supporter of the EU’s ‘deep and comprehensive’ trade agreements, though it is not entirely clear whether it has a mandate from its members to support Commission negotiators in including human rights, gender relations and climate change as part of an agreement ostensibly intended to increase trade.[2] When it came to defending these agreements, the CBI focused on their supposed trade benefits rather than their contributions to human rights or the environment; but then it has no evidence that these agreements have been effective on any count.

The EU has failed to create a Single Market in services within the EU itself

This failure means of course that the Commission cannot offer a potential partner country an integrated services market of 500 million people. This image may be persuasive in domestic political debate, but it can hardly be a powerful bargaining chip in trade negotiations, since potential partner countries and investors could not long remain unaware of the many regulatory barriers within this supposed Single Market. There are two sources of evidence about these intra-EU barriers:

Chapter 37 - table

In 2014, the OECD published Services Trade Restrictiveness Indices (STRIs), which calculated and scored, on the basis of a regulatory database of comparable, standardised information on trade and investment policies in force in each country, the degree of restrictiveness in 18 service sectors of the 34 OECD members.[3]

The 18 sectors included architecture, accounting, engineering, legal services, banking, insurance construction, telecoms, computer services, air and maritime transport, road and rail freight, courier services, TV and broadcasting, sound recording, motion pictures, and distribution.

The restrictions fall into two broad categories: those common to all of them, (such as maximum foreign equity share, statutory monopolies’ jurisdictions, duration of stay for temporary services suppliers, public procurement, administrative procedures regarding nationality and establishing and licensing businesses); as well as detailed sector-specific regulations.

The OECD found no reason to consider regulations of the kind that distinguish EU members from non-members, so they evidently did not rate these as discriminating or powerful enough to mark a significant divide between EU members and non-EU members. One might take this as an inadvertent, therefore highly credible, measure of the insignificance of the Single Market in services, which, in terms of this cross-national measure of trade restrictiveness, could remain an unnoticed variable. Nine years earlier, some private researchers came to a similar conclusion.[4]

That said, measures taken over many years to harmonize and standardize member countries’ services in the interest of creating the Single Market may have had some effect, since member countries were, on average, slightly less restrictive compared to non-members, with a mean score of 3.15 versus non-members’ 4.0. However, the variations between EU members shown in the table, demonstrates that they are still far from being members of a cohesive Single Market in terms of service trade restrictions.

These variations demonstrate the difficulties facing both the Commission and partner country negotiators in trying to formulate services trade agreements. If one tries to answer the critical question of who a partner country would prefer to negotiate with, they would, one suspects, with other things being equal, choose the Netherlands over Poland. Other things are not equal of course, and if the GDP of the country is a relevant issue or a shared language, the chances are that the UK would top the list; though Poland, Austria or Greece might not be at the bottom. Probably the very worst option of all would be to negotiate with all 21 of these countries simultaneously. Yet this is what the EU expects prospective partner countries to do.

European Commission’s opening ‘offer’ in the TiSA Geneva talks

The publication of the opening EU ‘offer’ in the TiSA (Trade in Services Agreement) negotiations in 2013 provides a particularly vivid demonstration of the difficulties of formulating services trade agreements in which the EU is involved.[5] The proposed agreement is intended to improve market access, and to set universal rules for services trade. The talks are being conducted under WTO auspices in Geneva, with 23 countries, including Hong Kong, Norway, New Zealand and Israel, among other small countries; as well as Japan and the United States, though not India. China is expected to join them shortly. The 28 EU countries, including the UK, are represented by the European Commission and have no independent participation.

The opening EU offer demonstrates the difficulties of negotiating a services trade agreement as a member of the EU, and may therefore help to explain why the Commission has negotiated so few, and why one should expect few in the future.

The offer begins with 31 dense pages setting out, in Section A, the ‘reserved rights’ of individual EU countries, as well as those of the EU as a whole which all members have in common. Like the OECD’s STRIs, these pages themselves demonstrate the limitations of the Single Market in services, since many of the rules restrict fellow members as much as non-members; the notable exceptions being nationality and educational qualifications.

The following chart shows, for each country, the number of conditions for sectors, sub-sectors or activities, listed in Section A, through which they claim the right to treat non-national service providers differently to national service providers. Later sections of the offer include limits on non-national providers and are identified either as all sector or sector specific limitations.

The lower part of each column shows common EU conditions (members each have some individual exceptions to these so they vary by country), and on top of these, the reserved rights or conditions that are specific to each country. On many occasions, of course, groups of EU countries reserve the same rights, but at the end of the day all 28 members have their own unique profile of national conditions.

On the far right of the chart, the reserved rights of the three non-EU members have been added, because they also published their opening offers. Their reserved rights are all of course national ones; Switzerland’s oddly enough extends to fortune-telling and shoe-cleaning. However, for the sake of comparison, those that are roughly similar to the common EU conditions are distinguished from the others in a darker blue.

Chapter 37 - graph

The full table from which this is drawn charts the profiles of the 28 members, and three non-members, on each of 140 service sectors. The UK is among those with rather few national conditions; four relate to health and social services, three to professional services, and one each to business, energy and distribution.

As a whole, the chart provides a visual indicator of the difficulties facing service trade negotiators, and the limitations of the European market on offer. Presumably, prospective partners would prefer to negotiate with Norway, if only it was not so small and did not speak Norwegian. At the other extreme is the EU. Presumably its negotiators have already tried, in separate negotiations, to reduce the number of members’ reserved rights, but they are left to confront prospective partners with some 240 of them, before looking at Section B.

To prospective partners and investors, the rhetoric of a Single Market of 500 million must all seem rather hollow, and it seems doubtful that all the ‘heft’ and ‘clout’ and ‘negotiating muscle’ the EU negotiators bring to the table, would make a lot of difference.

For the EU to have a Single Market in services the same conditions should of course apply to all service providers equally across the EU, and if that were the case all the conditions within the EU offer would be EU conditions. The fact that there are almost three times as many national reserved rights as there are EU reserved rights within the EU’s initial offer, shows that countries within the EU have not yet created, and are almost certainly not willing to embrace, a Single Market in services. In a manner of speaking, the far left column is an index of the progress of the Single Market in services or the lack thereof.

If and when an agreement emerges from negotiations, it will either be very narrow indeed or look like a Baedeker guide with specific qualifications for each of the member countries and not quite the Single Market as advertised. The agreement reached with Mexico in 2001 gives a rough idea of what to expect, though it includes only a very small proportion of the services discussed in the TiSA talks.[6] An annex lists 85 national reserved rights, (two of which were made by the UK), which one imagines did not excite Mexican investors too much, or encourage other prospective partners to ask for a similar deal. However, appearances could be deceptive, and the efficacy of this agreement, or any other, can only be determined by regular comparative post facto assessment. The failure both of the EU and the UK governments to institutionalize such assessments makes it impossible for us, or them, to make any confident claims.

Messrs Blair, Cameron, the CBI and many multinationals, however, do make confident claims that British exporters have gained by the UK surrendering the right to negotiate trade agreements, and that the interests of British companies, and the livelihoods of the British people, have been wisely and safely entrusted to the EU, because of the ‘negotiating muscle’ obtained by negotiating alongside 27 other countries.

The most likely consequence has been many lost years of freer trade for UK exporters, which remain unnoticed and unregretted by the CBI, and the many large multinationals who want the present arrangements to continue unmonitored into the indefinite future.

Notes

[1] Our Global Future: The business vision for a reformed EU’, Confederation of British Industry, 2013.

[2] Ibid, p.58

[3] http://oe.cd/stri

[4] In 2005, private researchers came to a similar conclusion on the grounds that ‘most of the barriers will be the same for foreign intra-EU and extra-EU firms’, which are anyway difficult to tell apart. Coca Cola, it pointed out is an intra-EU by virtue of its subsidiaries in member states; Copenhagen Economics, ‘Economic Assessment of the Barriers to the Internal Market in Services’, (Final Report, January 2005) pp.59-60

[5] http://trade.ec.europa.eu/doclib/docs/2014/july/tradoc_152689.pdf

[6] Official Journal of the European Communities 12.3.2001 L 70/7Decision No 2/2001 Of The EU-Mexico Joint Council of 27 February 2001 implementing Articles 6, 9, 12(2)(b) and 50 of the Economic Partnership, Political Coordination and Cooperation Agreement http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/


 

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