Services Trade Policy at Work

Trade in Services and EPAs: The way forward for the EAC

With an interim Economic Partnership Agreement (EPA) on trade in goods having been agreed between the European Union (EU) and the countries of the East African Community (EAC), attention in the current phase of negotiations has turned to the remaining issues in the negotiations to conclude a comprehensive agreement that include services liberalisation.

An underlying phenomenon of international trade in goods is that none of it does occur without an aspect of services rendered to the process. In regional trade agreements, significant market opening commitments are made between parties than done under the multilateral context. Under the economic partnership agreement (EPA) between the European Union and East African countries (EAC), the EU, the world’s most competitive services exporter, will be eagerly looking to gain substantial new opportunities in EAC services sectors than the EAC countries have committed at the WTO. And, to guarantee that new barriers will not be introduced in sectors that have not been committed or opened in the EAC EPA, the EU will most likely insist on including a standstill clause in the agreement.

This paper explores some of the options which EAC countries and the EU should consider in moving forward the discussion on services liberalisation as part of their EPA.

Although there is more scope to expand the contribution of trade in services to development of EAC countries, this can only happen under a competitive and well regulated environment. However, the limited level of regulatory development and lack of functional competition law in the EAC countries; the limited competitiveness of local service providers; and, the limited knowledge on the readiness of services sectors for liberalisation, all suggest that the EAC should move forward cautiously on liberalising their services sector to the EU. It is not possible, therefore, to determine with certainty whether liberalisation of services sector under the EPA with the EU would kill the budding industries in the EAC region or will support and enhance their growth. All options, including agreement simply on development cooperation would therefore need to be explored and a more informed and strategic approach taken to ensure that services liberalisation promotes development in EAC.

Even where effective domestic regulation would be the most appropriate tool for EAC to overcome any anti- competitive practices from the EU, the tool should only be used to promote the realisation of national policy objectives without promoting trade protectionism.

However, as they juggle which services sectors or sub-sectors to offer to EU, before making any such commitment, the EAC countries would need first to define:

a) their offensive interests: the services where they have high export potential (and where there exists effective regulatory framework) where they require export market in EU;

b) their defensive interests: the sensitive services that are better not liberalised and best reserved for domestic suppliers (criteria for excluding such services must be clear);

c) their FDI needs: the services with high potential but where they would require foreign investment or competition to increase efficiency and lower the cost of inputs; and, lastly,

d) the non-sensitive sectors with relatively low export potential which they would not mind offering to any country at the WTO; but which they should offer in exchange for premium concessions, for instance, giving (d) in exchange for (a).

Due to their inadequate preparations, the EAC should request for sufficient time to carryout all the necessary studies to explore the implications of a services liberalisation for their economies, develop suitable strategies and negotiate terms that will promote their development. Most importantly, both parties should ensure that development and poverty reduction objectives stay central to the negotiations, and the EU to extend maximum flexibilities to the EAC in relation to services, in recognition of the terms of GATS article V and the limited levels of development of these countries. If at all, the EU should allow EAC countries, if they do not wish to negotiate a full services agreement, to conclude an EPA without such terms and but allow EAC the access development assistance to support the development of their services sector.