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Institute for International Integration Studies IIIS Discussion Paper - page 6 / 41





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The second category is restrictions imposed on the price of services. In some sectors government-appointed industry regulators will impose controls on prices. Such restrictions act as barriers to trade if they differentiate between firms based on their origin. Although the discussion of barriers thus far has focussed on non-tariff measures, tariff measures occasional do apply in services. Some price measures that impose fees may effectively function as tariffs. Hoekman and Braga cite examples such as entry visa charges to travellers or airport landing fees.

A third type of restriction arises from more direct government involvement in services sectors. Individuals may be legally required to hold a licence or qualification from a particular institution to be allowed to offer a service. Such restrictions act as barriers to trade if they discriminate in favour of domestic service providers. This type of restriction is especially common in medical service sectors, but it frequently applies to legal or financial services also. In sectors in which the government is one of main consumers, public procurement regulations will often discriminate against foreign firms.

The final category of barrier identified by Hoekman and Braga (1997) occurs when importers of services’ access to secondary services is restricted. If the service provider relies on local industries to supply their product, any discrimination against them will harm their competitiveness. Hoekman and Braga show that this can be a particular concern in transport and communication service sectors.

The Hoekman and Braga paper classifies barriers to trade in services. However, their classification is somewhat limited. The types of barriers they consider are discriminatory barriers that treat importers of services differently to domestic suppliers. Findlay and Warren (2000) show the importance of non-discriminatory barriers, i.e., barriers that restrict the supply of services by domestic and foreign producers equally. The role of such barriers needs to be considered in making cross-country comparisons of services trade.

In recent years the number of regional free trade agreements (FTAs) and customs unions promoting trade in goods has increased significantly. Many provide for free trade in goods but include few or no measures to facilitate trade in services. Crawford and Fiorentino (2005) show that only 17 per cent of FTAs notified to the WTO include some commitments to services trade liberalisation. The presence of FTAs and their relevance to services trade is discussed in later sections. It is generally accepted that the EU has made the biggest strides in liberalising services trade, thus it is useful to include a summary of the barriers to trade that remain within the European Union at this point.

EC (2002) surveys the barriers that remain to trade in services in the internal market of the EU. The findings suggest that physical or technical barriers to intra-EU services trade have been replaced by legal barriers. In addition to cultural and linguistic barriers across countries, several categories of legal restrictions are found to be common across the (at the time) fifteen member countries: barriers to establishment (qualification requirements); restrictions on use of inputs (employment of workers and use of equipment); barriers to the promotion of the services (control on commercial communications varies across member states); sales restrictions (legal requirements and price controls); and differences in legislation governing after-sale requirements (differing post-sale liabilities for example). The majority of the restrictions fit into the classification of Hoekman and Braga (1997). For most sectors and countries, the “rule of origin” or “rule of destination” principles do not apply as many service providers face regulatory


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