mega ptas services and investment · web viewlook back to see what’s ahead a review of mega-ptas...

Look back to see what’s aheadA review of mega-PTAs on services and investment that

will shape future trade agreements

Martín MOLINUEVO

Anne-Katrin PFISTER

Table of Contents1. Introduction.........................................................................................................................................62. The regulation of services sector..........................................................................................................8

a) Overview of the selected agreements: TPP, CETA, CHAFTA, JICEPA, CKFTA, TPP............................9

Trans-Pacific Partnership (TPP)............................................................................................................9

Colombia-Korea FTA (CKFTA).............................................................................................................11

India-Japan EPA (JICEPA)....................................................................................................................11

China-Australia FTA (CHAFTA)............................................................................................................11

Canada- EU Comprehensive Economic and Trade Agreement (CETA)................................................11

3. Scheduling commitments to PTAs’ services and investment chapters...............................................12

a) Positive and negative listing..........................................................................................................12

b) The hybridization of negative lists.................................................................................................14

4. Horizontal restrictions........................................................................................................................16

a) The role of “undisclosed restrictions”............................................................................................17

5. Sectoral Commitments and regulatory restrictions............................................................................19

a) General level of commitments......................................................................................................20

Sectoral commitments.......................................................................................................................21

Commitments by income level...........................................................................................................22

Commitments at national level..........................................................................................................23

b) Investment in goods sector...........................................................................................................24

Types of restrictions to investment in primary and manufacturing...................................................25

c) Commitments in services sector....................................................................................................27

Commitments by income level...........................................................................................................28

Sectoral commitments.......................................................................................................................29

6. Conclusion: main findings and policy implications.............................................................................317. Bibliography.......................................................................................................................................33Annex I: Overview of negative and hybrid lists in the TPP.........................................................................37Annex II: Methodology and Database.......................................................................................................40Annex III: Overview of measures affecting trade in services and investment............................................45Annex IV: Regulatory measures affecting trade and investment in services - definitions.........................46

Quantitative...........................................................................................................................................46

Qualitative.............................................................................................................................................47

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Annex V: Figures........................................................................................................................................51

Figure 1. Horizontal Limitations.................................................................................................................................15Figure 2. “Undisclosed” restrictions...........................................................................................................................16Figure 3 General level of commitments in PTAs.........................................................................................................20Figure 4 . Partial and Full commitments in investment in goods sector....................................................................23Figure 5. Restrictions on investment in primary and manufacturing sector..............................................................25Figure 6. Partial and Full commitments in investment in the services sector...........................................................27Figure 7. Regulatory restrictions on professional services.........................................................................................28Figure 8. Restrictions on investment in services sector.............................................................................................29

Figure V: 1: Overall Level of commitments in primary, manufacturing and services sector.......................................50Figure V: 2. Horizontal regulatory restrictions on primary, manufacturing, and services sectors..............................51Figure V: 3. Commitments on Investment in Primary and Manufacturing sectors.....................................................53Figure V: 4. Listed restrictions on Investment in primary, manufacturing, and services sectors................................55Figure V: 5. Listed restrictions on investment in business services............................................................................60

Box 1. Innovations found in the TPP investment chapter...........................................................................................9Box 2: Scheduling techniques....................................................................................................................................11Box 4 Example sectoral reservation...........................................................................................................................40Box 5 Example horizontal reservation........................................................................................................................40Box 6 Example for interpreting Positive Lists in the TPP............................................................................................41Box 7 Example interpretation of reservation.............................................................................................................42Box 8 Example Interpreting types of reservations vs description..............................................................................42

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AbbreviationsBIT Bilateral Investment TreatyCETA Comprehensive Economic and Trade AgreementCHAFTA China Australia Free Trade AgreementCKFTA Colombia Korea Free Trade AgreementEU European UnionFDI Foreign Direct InvestmentFTA Free Trade AgreementGATS General Agreement on Trade in ServicesGDP Gross Domestic ProductIIA International Investment AgreementISDS Investor State Dispute SettlementJICEPA Comprehensive Economic Partnership Agreement between Japan and IndiaKORUS Korea-United States Free Trade AgreementMega-PTA Mega Preferential Trade AgreementNAFTA North American Free Trade AgreementPTA Preferential Trade AgreementRTA Regional Trade AgreementSTRI Services Trade Restrictiveness IndexTISA Trade in Services AgreementTPP Trans-Pacific PartnershipUSA United States of AmericaWTO World Trade Organization

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1. IntroductionMega-preferential trade agreements (mega-PTAs) are raising above the horizon as the main major development in global economic governance in the coming years. Because of the number of countries involved and/or the trade and investment flows they entail, mega-PTAs being negotiated and concluded today have the potential to shape the rules of international trade, for generations to come, including for countries that are not currently involved in those trade talks.

Mega-PTAs can be seen as a response by global economic powerhouse, such as the EU, China, Canada, Japan, India and the United States to advance rules on economic governance circumventing the challenges for multilateral rule-making at the WTO. In addition to offering market access, Mega-PTAs, such as the Trans-Pacific Partnership (TPP), the Comprehensive Economic and Trade Agreement (CETA) and the Regional Comprehensive Economic Partnership (RCEP), focus in setting rules on issues that have either been left outside the scope of WTO negotiations or have been, arguably, only partially covered in the broader multilateral trading system. These issues include sectoral rules on services trade, liberalization and protection of foreign direct investment (FDI), intellectual property rights, e-trade and the relationship between trade and environment.

In this way mega-PTAs are also reaching increasingly into areas of policy that affect the overall competitiveness of the economy, not just its trade performance. In contrast to trading reduction of tariffs, reforms undertaken through mega-regional agreements in areas like policies affecting the services sector, investment protection, competition policy, regulatory coherence, and transparency affect domestic laws and regulations that do not tend to discriminate between trading partners. As such, these regulatory reforms are normally implemented on an MFN basis, and therefore their effects are not limited to the parties to the agreement, but they extend to a wider range of economic actors, both domestically and in other trading partners.

If successful, mega-PTAs could become another pillar of global trade governance by paving the way for pluri- or multilateral disciplines on emerging topics. They could positively contribute to global growth and energize the multilateral process. The exact impacts, however, will depend on the context of the agreements and where countries are positioned. These agreements include both “WTO plus” measures (deepening coverage of topics already taken up in the WTO such as market access, non-tariff measures, and intellectual property) and “WTO extra” measures (new topics which are not part of the Uruguay Round agreements).

In order to better understand the scope of mega-PTAs, this paper seeks to offer some tentative guidelines on the main rules and commitments on two key regulatory areas of trade agreements, trade in services and foreign direct investment. By reviewing the disciplines and country-specific commitment on trade in services and foreign investment of a set of the latest agreements concluded by some of the global trade powerhouses, this study seeks to offer a realistic insight on the rules and liberalization content of mega-PTAs.

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To that end, the study reviews the disciplines and country-specific commitments of a series of existing agreements that offer some insights into current and potential mega-PTAs. In particular, the study reviews the following agreements:

Trans-Pacific Partnership (TPP) Comprehensive Economic and Trade Agreement (CETA), the Colombia-Korea Free Trade Agreement (CKFTA), India-Japan Economic Partnership Agreement (JICEPA), China-Australia FTA (CHAFTA).

These five agreements reveal in one way or another information about countries’ engagement in trade ‘openness’. Why those mega-PTAs? TPP, despite its early demise, remains a de facto reference point for an ambitious plurilateral agreements; in addition, most TPP countries have stressed their interest in the agreement, which may suggest that the agreement could at a later stage be re-considered and brought into force. The EU and Canada, the signatories of CETA, are major players in world trade governance and have concluded a vast network of bilateral trade and investment agreements worlwide. Canada in addition is part of the TPP. China and Australia are not only major trading partners and have also a major share in world trade, but both countries are leading voices in the ongoing RCEP negotiations. 1 Thus CHAFTA may at some point actually influence or already reveal some of RCEP’s content. India who is also part of RCEP talks, and Japan, who is part of TPP and is advancing toward an agreement with the European Union, are major trade actors likely to influence global or regional rules. Colombia and Korea are developing countries who are actively involved in trade agreements, and have both shown ambition to engage in mega-PTAs; Korea may also at some point join the RCEP negotiations.

This paper draws the attention to the chapter on trade in services and investment of these agreements and their country-specific sets of commitments. This comprehensive approach is necessary as the disciplines in the text of the agreement set out the rights and obligations for the parties, but it is only the individual country commitments that reveal the sectoral scope and actual content of these PTAs. Not only do agreements differ in how countries approach basic provisions such as national treatment (NT), market access (MA), most favored nation (MFN) treatment and others (see Box 1 for more details) but the actual country commitments reveal whether countries have liberalized certain sectors, and to which extent. Therefore the focus of this analysis is on the services as well as the investment chapters and commitments of these selected five “mega-PTAs”.

Overall the purpose of this paper is to shade light on the critical aspects of the trade in services and investment chapters of the five selected mega-PTAs by highlighting the novelties and in particular by analyzing the annexed commitments (Annex I and II) of each agreement. Some questions this review tries to answer include:

What are the novelties of the selected agreements in terms of trade in services and investment?

1 Negotiations are underway between ten ASEAN countries (Brunei, Burma Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and six major trading partners (Australia, China, India, Japan, South Korea and New Zealand) with a view to establishing the Regional Comprehensive Economic Partnership (RCEP). Seven of RCEP the negotiating parties are in fact also part of TPP.

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What are the measures services providers and investors are facing when importing or investing into PTA member countries?

Which sectors have restrictions for cross border trade and/or investment? What are these restrictions?

Which sectors are (more) open/ closed for foreign investment? What are the implications for members and non-members eager to implement or join any of the agreements in the near future?

The analysis is set out in three major parts. First, it describes the agreements approaches to services and investment by highlighting the major novelties and the particular architecture of each agreement. The second part compares countries’ horizontal restrictions, openness, and highlights of cross border trade in services and investment restrictions. Individual sectoral commitments and regulatory restrictions are analyzed in the subsequent section, addressing in particular professional services, distribution services, telecommunications, and transport. This research is based on the authors’ compilation of data by reviewing individual country by country commitments as set out in Annex I and II of the five agreements. The paper concludes with summarizing the main findings, addressing the challenges countries may face when implementing these agreements, and providing policy recommendations for those countries who are not yet part of such mega-PTAs.

2. The regulation of services sectorOverall services represent the fastest growing sector of the global economy and account for two thirds of global output, one third of global employment and nearly 20 percent of global trade. (WTO, 2016) Services are the enablers of today’s production networks worldwide and are hence important for developing and developed countries alike. The WTO GATS General Agreement on Trade in Services (GATS), for example, defines trade in services depending on the territorial presence of the service supplier and the consumer at the time of the transaction. GATS, Article I:2, covers services supplied

from the territory of one Member into the territory of any other Member, also referred to as Mode 1 or cross-border trade) (e.g. call centers, legal services);

in the territory of one Member to the service consumer of any other Member (Mode 2 — Consumption abroad) (e.g. travel/tourism, education services);

by a service supplier of one Member, through commercial presence, in the territory of any other Member (Mode 3 — Commercial presence) (e.g. a branch of a bank; foreign direct investment); and

by a service supplier of one Member, through the presence of natural persons of a Member in the territory of any other Member (Mode 4 — Presence of natural persons) (e.g. construction workers, engineers) .

It is now standard to refer to trade in services in these four modes of supply rather than describing the actual transaction. The focus of this paper will be predominantly on Mode 1 and 3, addressing the cross border trade in services and investment issues and their corresponding commitments in each PTA.

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Unlike trade in goods which is traditionally governed by measures that regulate the entry of foreign merchandise such as customs tariffs and phytosanitary controls, restrictions to cross-border services and to foreign investment stem from a variety of laws and regulations that govern access and operations in the domestic market for both domestic and foreign firms. In broad terms, these domestic regulations measures can affect the ability of foreign traders and investors to access the domestic markets (“market access” or “establishment”), or the conditions under which they may conduct their business operation in the domestic market. Altogether, these laws and regulations determine the treatment that foreign traders and investors receive when operation in the market.

Disciplines on cross-border services and foreign investment seek to promote greater and fairer competition between domestic and foreign firms by ensuring market access to foreign service suppliers and investors and by reducing unnecessary operational conditions, especially those that discriminate between domestic and foreign actors.

Individual measures which affect market access and operations of service providers and investors will be discussed in more detail in the second part of the paper. An overview of measures service suppliers may face in general is provided in Annex III: Overview of measures affecting trade in services and investment. Those measures may be related to entering the destination market (also referred to as ‘market access’ or ‘establishment’) or to providing the actual service in the country (also referred to as ‘operation’). For both these options, measures may be of quantitative or qualitative nature, depending on what is required from the service provider or investor. Accordingly Annex IV: Regulatory measures affectingtrade and investment in services - definitions” provides a comprehensive list of such qualitative and quantitative measures.

All the agreements under review include a set of obligations to improve the conditions of competition between domestic and foreign service suppliers and investors. Chapters on cross-border trade in services include non-discrimination principles granting national treatment and most-favored nation treatment; a provision meant to curb quantitative restrictions (equivocally called “market access”), and a prohibition of local presence requirements, amongst others. Disciplines on investment often provide investors with the right of establishment in the host state, and disciplines against discriminatory treatment, such as national treatment of foreign investments or investors and most favored nation treatment. Additionally, the investment chapters provide for some guarantees of treatment of foreign investors in the form of minimum standard of treatment; disciplines against expropriation; prohibition on performance requirements; free transfer of funds; and freedom to appoint foreign managers. Error:Reference source not found below provides an overview of the individual chapters where these disciplines apply.

Trans-Pacific Partnership (TPP)The TPP was concluded among twelve Pacific-Rim countries in 2015, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, the United States and Vietnam. It has been touted a “landmark 21st-century agreement, setting a new standard for global trade”. (USTR,2016) However, in the early days of the Trump Administration in November 2016, the Office of the U.S. Trade Representative (USTR) issued a letter to signatories of the TPP that the US has formally withdrawn

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from the agreement per guidance from the President. (USTR, 2017) At the time of finalizing this paper the future of the TPP was still in limbo considering that different scenarios, with or without the US, were discussed.2

Nevertheless the conclusion of the TPP agreement in itself has been perceived as major achievement after years of intensive negotiations among the twelve members. The objective of the agreement was to “establish a comprehensive regional agreement that promotes economic integration to liberalise trade and investment, bring economic growth and social benefits, create new opportunities for workers and businesses, contribute to raising living standards, benefit consumers, reduce poverty and promote sustainable growth”. (TPP, 2015, p. 1) As a result the 30 chapter heavy agreement covers a wide range of issues such as provisions on lowering barriers to trade and investment in goods and services, as well as critical new issues such as digital trade, state-owned enterprises, intellectual property rights, regulatory coherence, labor, environment, dispute settlement and more. These advancements are not lost despite the withdrawal of the US and may still influence agreements in the future.

Box 1. Innovations found in the TPP investment chapterWhen it comes to innovations among the PTAs under review, it seems that for example the TPP, although much of the investment chapter was carried over from prior American treaties, as for example (Alschner &Skougarevskiy, 2016) argue that about 82 percent of its text is taken from the USA Colombia FTA investment chapter, there are nevertheless a number of innovative elements.(Hufbauer, 2016) points out that provisions of the chapter define more clearly ‘fair and equitable treatment’, clarify concepts in the nondiscrimination and minimum standard of treatment obligations, eliminate ‘forum shopping’3, enable the assessment of costs against a losing party (a provision that discourages frivolous cases), and clarify that the investor bringing the case against the government bears the burden to prove all elements of its claims. The TPP investment chapter also renders more precisely that regulatory actions to protect public health include, among others, such measures with respect to the regulation, pricing and supply of, and reimbursement for, pharmaceuticals, diagnostics, vaccines, medical devices, gene therapies and technologies.Moreover it includes an explicit provision that Parties have the right to regulate in the public interest, including the right to adopt, maintain and enforce any measure otherwise consistent with the investment chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives (Art. 9.15).The chapter’s ISDS provisions go a step further than recent agreements in making ISDS proceedings fully open and transparent by allowing the participation of civil society organizations and other parties which are not a direct party to the dispute. Tobacco companies, however, are blocked from brining ISDS claims under the TPP as tobacco control measures (Art. 29.5) are exempted from the agreement.One innovation of the TPP’s chapter on cross border trade in services is found in the Annex on Express Delivery Services. This Annex addresses the challenges private suppliers face when competing with postal entities in express delivery. The enhanced disciplines for express delivery services focus on fair competition in a sector in which private suppliers often compete with government-owned or government-authorized postal monopolies, including prohibition on cross-subsidization4 and disciplines on the independence of the regulator. These

2 See for example the discussion between Australia (“Australia Pushes for TPP Without U.S. After Trump Exits Deal”) (Reynolds& Heath, 2017) and Japan (“Tokyo turns down Australian proposal for TPP without U.S., vows to keep pushing Trump”) (Yoshida, 2017) . 3 i.e. the attempt by companies to litigate in the most sympathetic places4 This obligation will not apply to Vietnam for a period of three years since the entry into force of the agreement.

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disciplines too are subject to any conditions set out in the reservation lists.

Colombia-Korea FTA (CKFTA)The Colombia-Korea FTA was signed in 2013 and entered into force in 2016. It spans over 22 chapters, among others investment, cross-border trade in services, temporary entry for business persons, telecommunications, and electronic commerce with both countries having sectoral services and investment commitments in Annex I and II of the agreement. In addition the PTA contains two separate side letters, one on Gambling Services and one on Cross-border Trade in Services and Investment.

India-Japan EPA (JICEPA)Similarly the India-Japan EPA (JICEPA) entered into force in 2011, covering 15 chapters, including trade in services, investment, and movement of natural persons, with Annex 6 containing all commitments with regard to trade in services, whereas Annex 8 and 9 cover investment commitments. The JICEPA also contains separate Annex on Financial Services (4) and Telecommunications (5), as well as Specific Commitments for the Movement of Natural Persons (7).

China-Australia FTA (CHAFTA)Further the free trade agreement between China and Australia (CHAFTA) entered into force in 2015. In 17 chapters it covers topics such as trade in service, investment, movement of natural persons, electronic commerce, and contains a series of side letters among others on financial services, education, legal services, and traditional Chinese Medicine. Annex III contains for both countries the schedules of specific commitments referring to trade in services, movement of natural persons, and investment. The agreement also contains a specific Memorandum of Understanding (MoU) related to an Investment Facilitation Arrangement and a MoU on Work and Holiday Visa Arrangement.

Canada- EU Comprehensive Economic and Trade Agreement (CETA)

CETA is one of the most recent additions to the preferential agreements series spanning over 30 chapters. These range from chapters on subsidies; investment; cross-border trade in services; temporary entry and stay of natural persons for business purposes; mutual recognition of professional qualifications; domestic regulation; financial services; international maritime transport services; telecommunications; electronic commerce; and state enterprises, monopolies, and enterprises granted special rights or privileges; but also trade and environment and trade and labour are chapters of the CETA. The specific services and investment commitments can be found in Annex I and II of the agreement. Annex III covers commitments for the financial services chapter only. In addition CETA contains an Investment Court System, which has been specifically designed for this agreement. (European Commission, 2016) At the time of writing this paper, both parties had approved the agreement. The European Parliament in February 2017 and the Canadian Senate in May 2017. Full ratification, however, will still require approval from national and regional legislatures. (ICTSD, 2017)

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3. Scheduling commitments to PTAs’ services and investment chaptersThe extent and coverage of the substantive obligations of the agreements, however, is not universal or unconditional, but are determined the specific sectoral commitments undertaken by each party to the agreements. Through lists of reservations (or “non-conforming measures”) each country may decide, subject to the negotiating dynamics, whether and to what extent each sector of its economy is subject to the obligations of the agreements. Indeed no country has signed a trade in services agreement without excluding or restricting certain sectors for its economy. The details of such sectoral exemptions and restrictions are described in a country’s schedule of commitment.

Not all the provisions featured in services and investment chapters allow for such sectoral limitations. Figure 1 above highlights the provisions that admit such sectoral reservations. Provision on non-discrimination, quantitative restrictions, local presence and performance requirements, and on the nationality of senior personnel typically allow for sectoral limitations or conditions. On the contrary, measures on domestic regulation, minimum standards of treatment, expropriation and transfers of funds do not admit sectoral exclusions or limitations and apply across the board to all sectors. This suggest that provisions that entail a component of market opening and the promotion of competition between foreign and domestic firms generally allow for sectorial exclusions, while provisions aimed at ensuring fair administration of regulation do not usually admit for sector-specific limitations.

a) Positive and negative listingTwo main approaches exist in drawing up these schedules. Fundamentally they differ in identifying “what is covered or allowed” under the agreement (positive) or “what is not covered or not allowed” (negative) or a variety of both (hybrid). (See Box 2 below for a short description of the different scheduling approaches.

Box 2: Scheduling techniquesPositive-list approachThe positive list approach is the listing of sectors, sub-sectors and (in trade in services) individual modes of supply in which countries voluntarily undertake liberalization commitments. The selective nature of liberalization under this approach entails that an agreement’s core obligations apply only to the activities listed in a country’s schedule and solely on the terms described therein. So commitments do not apply unless the sector and/or specific sub-sector is inscribed in the schedule.

Negative-list approachFor the negative-list approach countries agree on a set of general obligations and then list all individual measures to which such obligations either do not apply or which qualify their obligations. It means that everything is liberalized unless otherwise specified in the list/schedule. Such approach is useful for producing a detailed inventory of all non-conforming measures IIA contracting parties maintain.

Hybrid approachA hybrid approach is any variation of either approach above. In the GATS, for example, the positive list approach

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is combined with the negative listing of the non-conforming measures countries wish to maintain in scheduled sectors, sub-sectors and/or modes of supply.

Source: Adapted from (UNCTAD, 2006)

In the case of the five mega-PTAs under review, countries chose different approaches to scheduling their reservations. (Table 1. Overview of mega-PTAs scheduling approaches, below) For the CETA, TPP, and the Colombia Korea FTA members agreed to accept the core obligations on a “negative list” basis. This means that, unless a particular service sector or subsector is scheduled/ listed in either Annex I or II of the agreement, market access is open to service providers and firms based in all member countries. These reservation lists are thus key elements of the obligations on trade in services and investment, since they determine the services sectors and conditions in which each party is bound to the agreement.

Japan and India chose for the JICEPA to follow a ‘positive list’ approach for the services chapter and a ‘negative list’ approach for their investment chapter, including Annex I and II. Members of the CHAFTA agreement, however, decided to use opposite approaches, Australia opting for a ‘negative list’ for both services and investment chapters, whereas China followed a ‘positive list’ approach for all its commitments to the services chapter (including (3) commercial presence). China deferred, however, its commitments to the investment chapter to the ‘Future Work Program’ (CHAFTA, Art. 9.9).

Table 1. Overview of mega-PTAs scheduling approachesMega-

PTAChapter

Negative List

Positive List

Comments

TPP

Services -Read in combination with Error: Reference source not found, as some countries chose to schedule certain sectors using a positive list approach

Investment -Read in combination with Error: Reference source not found, as some countries chose to schedule certain sectors using a positive list approach.

CKFTAServices -

Investment -

JICEPAServices - The schedule includes (3) commercial presence.

Investment -

CHAFTA

Services (Australia)

-

Services (China)

- The schedule includes (3) commercial presence.

Investment (Australia)

-

Investment (China)

- -

According to Art.9.9 (Future Work Program), both parties agreed that future negotiations will include (c) scheduling of investment commitments by China on a negative list basis.

CETA Services -

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Investment -Source: Authors

Table 1 shows that varieties exist in scheduling reservations (or non-conforming measures) and that different countries prefer different approaches. In agreements that adopted a negative list approach, such as the CETA or TPP, the parties inscribed their reservations in two different types of lists: one annex (Annex I, usually called “non-conforming measures”) lists all existing measures from national legislation that derogates from the main disciplines of the agreements. A second annex (Annex II, referred to as “future measures”) lists the sectors and subsectors for which it reserves the right to derogate in the future from the indicated provision of the agreement, including in cases where no measures currently exist (EU, 2016, p. 4). In agreements with positive or hybrid lists, the parties explicitly list all the sectors that are subject to the main disciplines of the agreement. The sectors that are not explicitly mentioned are excluded from such disciplines.

Because of these different approaches to scheduling, some experts have argued that negative list agreements yield greater openness to services trade and provide for greater transparency for services policies.5 A recent study by (Broude & Moses, 2016) however claims that a negative list approach might in principle be more encouraging towards economic liberalization, in practice however, the complexity of negotiating positions makes it difficult, if not impossible, to make any such conclusion. Also (Fink &Molinuevo, 2008) argued that the scope and nature of scheduled limitations is in the end more significant than the scheduling approach as such.

b) The hybridization of negative listsIn practice, the choice between positive or negative lists for commitments on services and investment is not necessarily a definitive one. In fact, the agreements under review suggest that countries can innovate with the form of the scheduling techniques in ways that best suit the Parties to the agreement.

For this discussion the case of the TPP is particularly interesting: Following the approach of agreements promoted by the United States, TPP Members adopted negative lists for both the trade in services and investment chapters.6 However, the parties enjoy great flexibility with regard to the scope and content of the reservations, which has translated in the TPP to effectively adopting a positive list approach for measures relative to quantitative restrictions. For instance, the United Stated adopted a horizontal reservation on quantitative measures (Article 10.5 Market Access) for which it only commits to what the country has already committed under the GATS (which is listed on a positive list basis), subject to a list of sectoral improvements – on a positive list basis.

The United States in not alone in this approach: eight out of the twelve countries chose this combination by complementing their negative lists of reservations with positive lists. For example, Australia, Canada, New Zealand, the United States and Vietnam, combine their negative lists with a direct reference to their GATS commitments. Also countries chose either to reference their GATS schedules of commitments as part of the TPP agreement (Canada, United States) or/and to modify those 5 See for example (Hoekman & Sauve, 1994), (Stephenson, 2002), (UNCTAD, 2006), and (Moran & Oldenski, 2016) 6 Note that commitments under the financial services chapter are scheduled on a positive list basis. However, they are not part of this analysis.

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commitments specifically for the TPP context (Australia, New Zealand, United States, and Vietnam). Other countries (Chile, Mexico, and Peru) chose to not reference the GATS specifically but to list sectors and sub-sectors which are subject to specific limitations and conditions again using a positive list approach. Only four countries, namely Brunei Darussalam, Japan, Malaysia, and Singapore, chose not to have a ‘hybrid list’ but rather a negative list only for their Annex I and II reservations. Annex I: Overviewof negative and hybrid lists in the TPP shows these varieties in scheduling reservations.

What could be implications of this hybrid scheduling techniques in the TPP context?

First, one may argue that it blurs the picture of what has actually been scheduled under the TPP agreement. Investors and service providers from TPP member countries alike can not only rely on the commitments made in Annex I and II, but need also to review the referenced commitments made under the GATS or/and other positive lists which are an integral part of the agreement.7

Second, one may also argue that the advantages and disadvantages of negative lists and positive lists alike become obsolete in a hybrid list of such extent.8 Even though one may say that the scope and nature of scheduled limitations is in the end more significant than the scheduling approach as such. (Fink & Molinuevo, 2008, p. 279) Nevertheless the sheer amount of ‘to be reviewed lists’ may put more burden and costs on small business and countries with less capacity than others.

The examples of hybrid approaches to services agreements go beyond the sample of agreements under review. One noteworthy case is that of the plurilateral Trade in Services Agreement (TiSA) being negotiated by 23 countries (counting the entire EU membership as one), which aims to set a model that could eventually be adopted under the WTO framework. TiSA is intended to feature the familiar provisions on national treatment and on quantitative restrictions (“market access”). However, in TiSA negotiations a hybrid approach is applied: national treatment commitments negotiated using a negative list approach while a positive list approach would be used for negotiations on quantitative restrictions. (EU, 2016)

This trend toward the “hybridization” of services and investment schedules can have important implications for future mega-PTAs. As current practice in trade agreements dilutes the difference in negative and positive scheduling approaches, future mega-PTAs may offer hybrid models that best suit the interests of their membership, or even admit different scheduling approaches for the different parties under one agreement without altering its substantial disciplines. This greater flexibility in the structure could accommodate the concerns of a wide range of countries, with different approaches to trade policy, thus helping gather consensus amongst a broader membership and expanding the mega aspect of future mega-PTAs.

7 This does not apply to Brunei Darussalam, Japan, Malaysia, and Singapore.8 For example (Fink & Molinuevo, 2008) elaborate on the different approaches in East Asian free trade agreements in services and discuss the advantages and disadvantages of the different scheduling techniques.

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4. Horizontal restrictionsHorizontal measures can be described as limitations that apply to all the sectors of the economy. While the term “horizontal” commitments is most commonly used in positive list agreements to refer to measures that apply to the sectors listed in the schedule, negative list agreements also feature entries that are “horizontal” in nature since they apply to all sectors of the economy. An evaluation of sector specific limitations must hence take the horizontal entries into account as they apply in addition to the sector specific ones.

Figure 1. Horizontal LimitationsEstablishment

Quantitative

Authorization / permit requirements ENTs Limitations to foreign equity 1-50 Limitations to foreign equity 50-99 Local Presence (M1) / Joint Venture.. Monopoly / exclusive service suppli.. Numerical restrictions Other undisclosed quantitative restri.. Other (1)

Qualitative

Domestic partner requirement Form of establishment Licensing (experience) Licensing (qualifications) Minimum capital requirements Nationality (for services supplier) Requirement to subscribe to associ.. Requirements not publicly disclosed Residency (for services supplier) Other undisclosed discriminatory m.. Other (2)

OperationQuantitative

Numerical restrictions (4) Performance requirements Screen / performance quotas Other undisclosed quantitative restri.. Other (4)

Qualitative

Access to government contracts Advertising limitations Discriminatory Taxation Knowledge Transfer Land Ownership Limitations on pricing Nationality and Residency Require.. On transfer of funds Other undisclosed discriminatory m.. Performance requirements Requirements not publicly disclosed Residency requirements (for service.. Restrictions on foreign employment Other (5)

Primary Investment

Manufacturing Investment

Services

Cross-borderservices

Investment

NT: the size of the indicates the share of country-specific lists featuring such a horizontal restriction

A review of horizontal restrictions confirms the sensitivity of the services sectors, which draws a greater number and variety of general restrictions than the manufacturing and primary sectors. 9 Notably, manufacturing services features only a handful of horizontal restrictions affecting investment in the manufacturing sector, in the form of investment screening procedures (Australia), performance requirements (Malaysia, Brunei, and Peru). Investment in the primary sector has attract a greater range of general restrictions, including onerous measures limiting the establishment of foreign investments in the sector, such as economic needs tests (Vietnam, Japan), restrictions on foreign equity participation (Canada, Mexico, USA) or restricting certain mining and agricultural activities to their own nationals and domestic firms (USA, Mexico, Japan, and New Zealand), in addition to a series of limitations on the business operations of those investments. Nevertheless, horizontal limitations to on investment in the primary sector remain largely idiosyncratic, and show little commonalities across countries and agreements. The services sector, on the other hand, sees not only a great range of restrictions, but also more restrictions lodged by more countries in the sample. Almost all types of restrictions are found under to the sector, affecting both the establishment and the operation of the firms. For instance, more than 90 percent of the countries in the sample may require that the members of the board of directors of services firms are their own nationals or residents; while more than 40 percent reserved the ability to maintain some kind of screening or authorization procedures for investment in the services sector, to

9 While this assessment remains true, the actual percentages reflected in the data are inaccurate. Due to limitations on the methodology, horizontal restrictions that cover all economic sector (primary, manufacturing, and services), such as restrictions on the use of land, were counted as horizontal restrictions to the services sector. As a result, the percentages featured in the tale are biased in favor of over-representing horizontal restrictions on the services sector.

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0%

20%

40%

60%

80%

100%

restrict land ownership, limit the type of juridical person, or apply performance requirements in the operation of the services firm.

The greatest number of horizontal restrictions, however, falls under the broad categories of “undisclosed restrictions”. Almost all countries in the sample inscribed this type of measures. Table XXX illustrates where each country in the sample introduces horizontal undisclosed restrictions. “Undisclosed restrictions” do not indicate a particular type of restriction that will be applied in sector or across the board, but rather point to a certain policy goal which may justify the maintenance or introduction of any type of restrictive measures.

a) The role of “undisclosed restrictions”Undisclosed restrictions provide ample flexibility to the party to resort to any trade- or investment- restriction under a certain context, without the need to identify it advanced. In negative list agreements, “undisclosed restrictions” typically reserve the right of the party “to adopt or maintain any measure” with regard to a certain policy goal. Undisclosed restrictions typically cover measures that may be already in place, or those that may be introduced in the future. In that sense, they operate as the negative-list equivalent of the concept of “unbound” that is used in positive-list agreements.

Undisclosed restrictions are especially common as horizontal entries, as they typically can apply to a broad range of economic activities. For instance, under the TPP, Chile has reserved “ the right to adopt or maintain any measure according rights or preferences to socially or economically disadvantaged minorities.” Under this reservation, Chile wishes to ensure that it may introduce any restriction under any economic activity with the objective of providing preferences to disadvantaged minorities. In this context, the use of a broad, horizontal undisclosed restriction is particularly fitting, since social policy measures may apply in a variety of different sectors and situations, ranging from subsidized transport for poorer sector of society, to the exclusive exploitation of certain natural resources to indigenous peoples.

Undisclosed restrictions, however, do limit the transparency and predictability of the agreements. By offering great flexibility to the policy makers, undisclosed restrictions, like “unbounds” say little about the potential restrictive measures that may be applied, or the sectors in which they may fall. As a results, they reduce the certainty of the commitments achieved in the agreement.

However, “undisclosed” entries in negative list agreement seek to balance flexibility and transparency. The agreements under review, especially those following a negative list approach, seek to strike to balance between the need for flexibility in policy making with the transparency of the agreement by describing in certain detail the policy goals or contexts where the undisclosed restriction applies. In that sense, the stated objectives provide context and condition the use of trade and investment restrictions.

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Figure 2. “Undisclosed” restrictions

Horizontal

Agriculture Mining Manufacturing ALL +Services

Australia


Investment

BruneiDarussalam


Investment

Canada


Investment

Chile


Investment

China


Investment

Colombia


Investment

EU


Investment

India


Investment

Japan


Investment

Korea


Investment

Malaysia


Investment

Mexico


Investment

New Zealand


Investment

Peru


Investment

Singapore


Investment

UnitedStates


Investment

Vietnam


Investment

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Positive list agreements, tend to show fewer horizontal undisclosed restrictions, due to stronger carve out in the text of the agreement. While un principle nothing prevents the parties to carve out a social policy measure in the horizontal sections, in practice positive list agreements tend not to receive this type of broad horizontal restrictions. This may be explained by the fact that agreements based on the GATS feature stronger carve out in the text of agreement that tend to capture measures similar to the ones outlined in horizontal restrictions in negative list agreements. For instance, some countries have included, in negative list agreements, a horizontal undisclosed restriction covering services like public law enforcement, and social services provided by the government, such as public health and education. Arguably, positive list agreement outright excluded such services from their scope, as they are covered by the so-called “governmental carve-out”. Positive list agreements that include such as provisions, such as the CHAFTA and JICEPA, do not need to feature a horizontal restriction to reserve policy flexibility in those areas. As a result, the parties may feel reasonably covered by those carve-out and exceptions, and hence do not consider it necessary to exclude such policies in their lists of commitments.

“Undisclosed” entries typically allow the country to maintain or introduce any type of measure with the purpose of fulfilling a desired policy goal. They are hence particularly important for ensuring flexibility regarding any future regulatory effort. For example, Vietnam has reserved the right to maintain any measure for the protection of minorities and other disadvantaged groups (see table X below). On the flip side, they also reduce the transparency of the agreement and undermine the openness of the sector, as the country essentially remains free to take any kind of policy measure in that sector. This type of “undisclosed” restrictions can be likened to “unbound” entries in the GATS and other positive list agreements on trade and investment in services, which also allow ample regulatory flexibility by excluding the concerned sector from the disciplines on quantitative restrictions and discriminatory measures.

Unlike for “unbound” entries the degree of flexibility offered by “undisclosed” entries is not always the same. While some measures are in fact totally silent about the type of restrictions that may be introduced, others offer some guidance that narrows down the scope of the restriction, but reflecting that such measures would be limited to specific circumstances, or only for certain economic activities that are narrower than the ones captured by our database. Hence, “undisclosed” entries can in fact provide a greater level of commitments than “unbound” entries, depending on how the entry is written.

In general, “unbound” entries in positive list agreements, instead, remain somewhat broader and, hence, less transparent. Inspired in the GATS, unbound entries do not typically indicate a specific policy goal or regulatory in which the restrictions may be adopted. This ensures a greater flexibility in policy making, but also reduces the certainty of the disciplines and commitments of the agreement. While it does not appear as a standard practice at this moment, countries negotiating on a positive list basis could enhance the transparency of their commitments by describing in greater detail the aim and scope of the “unbound” entries they wish to lodge, thus ensuring their needed room for policymaking while enhancing the transparency and predictability of the negotiations.

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5. Sectoral Commitments and regulatory restrictionsThe sectoral lists of commitments are a central instrument in assessing the success of trade agreements. The ambition of trade agreements, and their ability to contribution to economic growth is ultimately determined by their effectiveness in promoting and securing openness to global trade and investment flows. In cross-border trade and investment, these efforts translate into sector-specific obligations and commitments, which are captured by the individual list of commitments of each party to the agreement.

These lists of commitments contribute to trade and investment flows in two significant ways: One the one side, they entail a legal obligation not to introduce or maintain any restrictions to trade beyond those recognized by the lists themselves. As such, these lists of sectoral commitments act as the instrument that connect the broad disciplines of the agreements, to the conditions in each economic activity in the country concerned. They are, thus, the guarantee that certain conditions of openness to trade and investment will be maintained –as described in each sector of those lists of commitment. In addition, they also play an important role in revealing at least partially the legal and regulatory conditions affecting trade and investment in the country.

In this section, the analysis focuses on describing and comparing the level of openness, as well as the regulatory regimes on key sectors for the economy, achieved by the five trade agreements under review.

a) General level of commitmentsA major defining element of trade agreements is the level of commitment of sectoral commitments that they capture. Agreements with too limited sectoral coverage may have little impact in the trade and investment reality, as it main liberalization measures would in practice apply to few businesses. On the other hand, some degree of sectoral limitations may be necessary to safeguard key policy concerns. Yet, limitations to obligation such as national treatment, local presence, and quantitative restrictions often reflect political economy sensitivities stemming from the desire to shelter domestic business from foreign competition. In that sense, the level of commitments of the agreements signals the degree of ambition of the agreement in terms of reciprocal market opening –or, at least the willingness to reciprocally consolidate existing openness to foreign competition.

An initial step to assessing the ambition of the agreement is to identify the share of entries with full, partial or no commitments. The first observation is that all the agreements under review feature close to universal sectoral coverage. Only two agreements, CHAFTA and JICEPA have excluded a few sectors from the main liberalization disciplines of the agreement.

Error: Reference source not found captures these exclusions under as “unbound”. These sectors are excluded from the disciplines to which the parties can maintain reservations, but are still subject to other general obligations that are not bound by schedules of commitments. The absence of “unbound” sectors in agreements other than CHAFTA and JICEPA, however, is not surprising, since that concept is typical of GATS-like positive lists, which are only admitted in this sample under those two agreements. Negative list agreements do not feature “unbound” entries –however, as discussed above in section XXX, entries in negative list agreements that feature “undisclosed restrictions” have an effect

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substantially equivalent to the concept of “unbound”, as they allow policy makers to maintain any type of restriction.

With only a tiny fraction of entries (less than 5 percent, both JICEPA and CHAFTA) explicitly excluding sectors, the agreements stand out for their almost universal coverage. Not all entries, however, entail a full commitment to the discipline of the agreements. In fact, just over half (53 percent) of the sectors and modes recorded are listed as free of any restriction, while the other half faces some type of limitation. These figures apply with relative consistency to all the agreements under review: CETA appears as the agreement with the greatest share of partial restrictions (61 percent), whereas JICEPA features the largest percentage of unfettered sectors, followed by CHAFTA. Interestingly, these two agreements are the ones adopting positive lists (for China, in the case of CHAFTA), which casts doubts about the conventional wisdom and empirical findings that negative-list agreements yield greater sectoral coverage.

Figure 3 General level of commitments in PTAs1.A. level of Commitments per Agreement

Primary Manufacturing Services Total All Sectors

CETA

CHAFTA

CKFTA

JICEPA

TPP

Total AllAgrements

96%

56%

42%

22%

78%

33%

64%

36%

52%

61%

39%

67%

17%

83%

47%

71%

93%

53%

43%54%

58%

41%

83%

17%

48%52%

24% 29%

67%

29%

71%

13%

87%

52%48% 47%

53%

42%

58%

17%

83%

50%49% 47%

4%

4%

0%

0%

3% 3%

0%

0%

0%

0% 0%

0%

0%

0%

0%

7%

0%

0%

1%

5%

0%

1%

0%

No Restrictions Partial Restrictions Unbound

3.b. level of Commitments per Income Level

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Primary Manufacturing Services Total All Sectors

High Income

UpperMiddleIncome

LowerMiddleIncome

Grand Total42%

47%

53%

58%

14%

86%

53%

52%48%

17%

48%52%

50%

21%

79%

49%

12%

88%

47%

49%49%

52%

46%

83%

54%

46% 46%

54%

39%

57%

41%

57%

0% 0% 0%

0% 1% 1%

0%

3%

0%

1%

0%

0% 1%

3%

NB: Aggregate level of commitment for cross-border trade and foreign investment. Figures from Primary and Manufacturing sectors reflect commitments on FDI. Figures on Services sector reflect commitments on cross-border services and foreign investment.

Sectoral commitments Not all sectors of the economy, however, elicit the same level of restrictions. The services sector appears to attract the greater share of limitations, while manufacturing brings about the least regulatory concerns. This pattern seems to generally apply across the different agreements, although some noteworthy cases stand out:

JICEPA boasts the highest level of unrestricted services with 71% percent –almost 20 points above the second ranked, CHAFTA. However, JICEPA features the least share of unrestricted commitments in investing in manufacturing (with 52 percent of unrestricted entries), and is the second most-restrictive in agriculture and other primary industries (with only 17 percent unrestricted entries.

CHAFTA scores the highest in unrestricted entries on investment in both primary industries and manufacturing, both with over 90 percent of unrestricted sectoral entries. These figures, however, reflect Australia’s commitments, since China does not have a schedule for investment in the goods sector.

CETA appears as the agreement with the lowest share of unrestricted entries in all three economic sectors. Both Canada and the EU countries have listed at least one partial restriction for all primary activities, recognizing the historical sensitivity of sectors like agriculture and fisheries for these OECD countries.

Commitments by income levelThe overall level of commitments, and its differences across sectors of the economy does not appear to be affected by the income level of the country concerned. Figure 3b portrays the level of overall level of

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commitments according to the income level of the countries concerned.10 The level of commitments across economic sectors and income level appears remarkably homogeneous: For instance, all three income groups in the sample recorded that around 55 percent of all economic activities are free from any restrictions. In fact, it appears that, counterintuitively, the lower-middle income economies in the sample (India, Vietnam), accepted full obligations in more economic activities than then higher-middle income, and high income partners (57, vs 53, and 52 percent, respectively).

In the aggregate, the main discrepancy where income level seems to play a role is on the level of openness of the manufacturing sectors. As noted earlier, investment in the manufacturing sector tends to attract the fewest number of restrictions, with over 80 percent of activities free from any restrictions in total. While high-income, and higher-middle income both show similar figures in almost 90 percent, lower-middle economies, score well below this range, with only slightly more than 50 percent of activities in manufacturing free from any restrictions. While this approach could generally be expected in lower-middle of low- income countries as a reflection of infant industry policies, in the sample under review it appears to reflect India’s low level of commitments in the manufacturing sector -as explained below- with only 30 percent of unrestricted activities.

Commitments at national levelWhile in the aggregate all five agreements under review appear to yield comparable shares of unrestricted activities, (with the exclusion of CETA and JICEPA commitments on the primary sector), the schedules show significant discrepancies at the individual country level. Annex V, Figure 1 depicts the level of commitments for each party to the agreements under review for both investment and cross-border services at an aggregate sectoral level. Annex V, Figure 3 further illustrates this information at a subsectoral level.

The schedules of individual countries further bring out important lessons.

Colombia stands out as the country with the largest share of unrestricted sectors to foreign investment (76 percent) followed by Peru (73 percent). Australia’s commitments under TPP, and the EU’s under CETA appear as the ones with the lowest share (22 and 34 percent respectively).

Commitments on cross-border services and investment in the services sector are generally in line, with a few exceptions: under CHAFTA China adopted full commitments for 70 percent of cross-border services, but just over half that much (38 percent) for investment in the services sector. Similarly, almost 90 percent of Japan’s services are fully open to cross-border services, but just over 50 percent have no restrictions to investment.

Notably, Australia features both the most restrictive and the most liberal schedules on investment in the primary sector. While under the TPP Australia listed no restriction to investment in any individual primary activity, under CETA its schedule does not feature any activity fully open. This stark contrast may suggest that specific scheduling rules of each agreement, can play an important role in the way commitments (and reservations) are listed, creating different perceptions of the outcome of the agreements.

10 The classification follows the country groups as recognized by the World Bank Group. Following the Atlas method, as described in https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups.

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https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups

The manufacturing sector is consistently the sector with the highest share of unrestricted sub-sectors, with a total average of over 80 percent. India’s schedules stand out as the main exception to this, with only 30 percent of manufacturing activities free of any restriction.

Overall, a review of the general level of restrictions suggests that most agreements follow a pattern of a largely open and unrestricted manufacturing sector, to a greater share of limitation in the services sector. Schedules on primary activities such as agriculture, fisheries, forestry and mining show a greater level discrepancy amongst agreements.

Despite this general pattern, however, the level of individual commitments can vary substantially across agreements, or even between countries under the same agreement, such as TPP or CHAFTA. The former suggests that the disciplines and structure of the agreement can have –understandably- an impact on how commitments or reservations are listed, which may alter, if not the substance, the perception of the level of ambition of the agreement. The latter, however, highlights that even one single agreement is unlikely to yield the same level of openness for all the parties concerned, suggesting that negotiating dynamics allow for substantially different overall outcomes. These differences in commitments in services and investment could be explained as the result of a “grand bargain” for which ambitious achievements under other chapters of the trade agreements such as tariff negotiations, or rules on state owned enterprises, are possible due greater flexibility in commitment in cross-border services or investment.

b) Investment in goods sectorA review at the commitments on investment in the goods sectors highlights the general openness towards foreign investment in the manufacturing sector, as well as the sensitivity of some agricultural and mining activities. Fisheries, in particular, remains the most sensitive sector in all agreements under review, followed by mining in energy-related products. Notably, these sectoral sensitivities affect similarly countries at all level of development.

Figure 4 . Partial and Full commitments in investment in goods sector

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Primary

Agriculture,Forestry And

FisheryMining

Manufacturing

Food &Beverages and

Textiles & Appa..

Machinery AndEquipment

Chemicals andOther Goods

Total AllSectors

CETACanada

EU

CHAFTAAustralia

CKFTAColombia

Korea

JICEPAIndia

Japan

TPPAustralia

Brunei Darussalam

Canada

Chile

Japan

Malaysia

Mexico

New Zealand

Peru

Singapore

United States

Vietnam

Total All Agrements

High Income

Upper Middle Income

Lower Middle Income

Investment in manufacturing activities appears as the most open sector across trade agreements. Preferential trade agreements are often advocated for as tools for attracting investment, especially those that help domestic economies contribute to global value chains and add value to domestic production. This objective seems to be reflected on the few limitations to investment in the manufacturing sector, with all three manufacturing subsectors featuring an average of 80 to 85 percent of full commitments. In the reviewed sample, India appears as the country with greater reservations to investment in manufacturing, having full openness commitments in just over a quarter of all primary and manufacturing activities –well below the average of 75 percent for the total of all agreements under review.

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Foreign investment in the primary sector remains a sensitive area for most countries. Overall, agriculture and mining see under 60 percent of all activities fully committed, whereas this figure is over 80 percent for investment in manufacturing. A few activities appear to concentrate the most restrictions: of 19 schedules under review, a handful include full commitments on investment in fisheries, oil, and energy (2, 6 and 4 respectively) (Annex V, Figure 3). All other agriculture and mining activities, instead, received full commitments by at least half the countries under review.

Some agreements clearly show higher level of restrictions in these activities -but the reason behind is less than clear. JICEPA and CETA have the lowest number of agricultural and mining activities fully committed to foreign investment (less than and just over 50 percent of activities). All other agreements, instead, show an average of over 75 percent of agri and mining activities fully committed to foreign capitals. The reasons for JICEPA and CETA to stand out in this area are less obvious. Both agreements follow different scheduling approaches, and the commitments by developed and developing countries are also comparable. Other than the traditional concerns of OECD economies on primary activities, the difference in outcome may stem from specific negotiating dynamics. In the case of CETA, of instance, the need to incorporate restrictions from 28 European economies may explain the low number of fully open sectors.

The sensitivity to investment in agricultural and mining activities affects developed and developing countries alike. In fact, the average of the agreements reviewed shows that upper – middle income economies are the most likely to feature full open commitments in agricultural activities, followed by high income economies and then lower- middle income ones11. For investment in manufacturing, instead, fully open commitments are equally high (around 80 percent) for both high income and upper – middle income economies.

Types of restrictions to investment in primary and manufacturing

Measures affecting market access tend to restrict trade and investment more than measures affecting operations, because they limit the entry of new market actors, favoring existing providers and limiting competition, which usually raises prices. Measures affecting operations may increase costs, causing prices to rise, but in general they favor a more competitive market. Where restrictions on investment are necessary to achieve public policy goals, it is thus preferable that they focus on the operations stage.

Most countries show a preference for measures limiting the establishment of foreign companies in primary and manufacturing. A detailed review to the country-specific schedules allows to identify the specific types of restrictions that each party to the agreement reserve for current use or future adoption. This exercise, reflected partially in Figure 5 and in Annex V, Figure 4 in greater detail, shows a preference for restrictions affecting the establishment of foreign investments as the main regulatory tool in the primary and to, a lesser degree, manufacturing sector. Investment screening measures, comprising requirements for government authorization or approval prior to the foreign investment are the most frequent limitation affecting primary and manufacturing activities, especially, in this latter, in the chemical industry. 12 out of 17 countries of all income levels have reserved the ability to maintain

11 Only two countries in the selected sample fall under the lower – middle income category: India and Vietnam.

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screening procedures for investment in the mining sector, and while seven did so for the agricultural sector. In contrast, only three countries schedule a similar reservation for investment in the food and textiles sectors, and only two did so for manufacturing in machinery and equipment. Other popular restrictions affecting the establishment include the sanctioning of monopolies or firms with exclusive rights –also frequent for investment in mining as well as the chemicals / energy sector, where many investments are established under a concession contract with the authorities.

Figure 5. Restrictions on investment in primary and manufacturing sector

EstablishmentQuantitative

Authorization / permit requirements ENTs Limitations to foreign equity 1-50 Limitations to foreign equity 50-99 Local Presence (M1) / Joint Venture requirements (M3) Monopoly / exclusive service suppliers Numerical restrictions Other undisclosed measures Other

Qualitative

Domestic partner requirement Form of establishment Licensing (experience) & Licensing (qualifications) Minimum capital requirements Nationality (for services supplier) Requirement to subscribe to association Residency (for services supplier) Other undisclosed measures Other


Numerical restrictions (4) Performance requirements Screen / performance quotas Other undisclosed measures Other

Qualitative

Access to government contracts Advertising limitations Discriminatory Taxation Knowledge Transfer Land Ownership Limitations on pricing Nationality and Residency Requirements (for senior personnel) On transfer of funds Performance requirements Residency requirements (for services suppliers) Restrictions on foreign employment Other undisclosed measures Other

Primary

Agriculture,Forestry AndFishery

Ores AndMinerals

Manufacturing

Chemicals andOther Goods

Food &Beverages andTextiles &Apparel

Machinery AndEquipment

Establishment Operation Grand Total

Quantitative

Qualitative

Grand Total

Quantitative measures fall heavily on the establishment phase, while measures limiting operations tend to focus on qualitative requirements. Quantitative measures are meant to limit competition in the market by either controlling the number of actors in the market or setting limits in the amount or value of their operations. Quantitative restriction resulted in limited competition, often reducing the market to one monopolistic operator, which often translates in high prices. In the primary sector, quantitative

26

restrictions are often maintained as means to control the exploitation of non-renewable natural resources. Qualitative measures, instead, set out certain conditions and any operator meeting can participate in the market, thus allowing for greater competition. In this light, quantitative measures often entail a greater distortion than qualitative measures. However, qualitative requirements also include discriminatory measures that may allow for market competition but excluding foreign participants.

The most popular limitations to establishment listed in these agreements are authorization requirements. Authorization requirements typically involve some degree of investment screening by domestic authorities

Measures affecting operations tend to be of qualitative nature, focusing on the nationality of directors and senior personnel or establishing performance requirements. Nationality requirements for directors and senior staff are oriented to promoting that national interests are represented in the management of private firms. Performance requirements focus on mandating a desired conduct as a condition for operating in the market, or for gaining certain advantages, such as tax incentives or access to special economic zones. Required conducts typically involve providing trainings, or procuring use of domestic inputs, or other specifics activities set out in investment contracts.

c) Commitments in services sectorA review of commitments in the services sectors confirms the lower level of commitments compared to primary and manufacturing activities (Figure 6). The level of development does not seem to play a role on this caution approach towards services commitments, as in the mega-PTAs under review almost all countries show fewer full commitments in the services sector than in goods sectors. In fact, all three income level group follow similar patterns of commitments, and offer similar averages of full commitments for the services sector as a whole (52 percent for both lower- and upper- middle income countries, and 44 percent for high income countries).

Figure 6. Partial and Full commitments in investment in the services sector

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Commitments by income levelIndia appears as the main outlier in this group, having undertaken far great commitments in investment in the services sector than in primary and manufacturing. Whereas India adopted full commitment in less than 30 percent of goods sectors (see Figure 6 above) under JICEPA, it adopted full commitments in two thirds of services activities. On the other side, Australia appears as the country with the least full commitments in the services sector (none, in fact) due to the authorization requirements for foreign investments (screening) above a certain financial threshold on services sectors. The second least committed services lists are those of the European Union, with only a quarter of services sector fully committed, well below the average for all the countries reviewed, at 46 percent of services sectors.

India’s commitments also question the traditional perception that negative list agreements tend to bring about greater number of liberalization commitments than positive list agreements. In the sample under of mega-PTAs, the greatest share of full commitments is indeed found in JICEPA, the only positive-list agreement under review, with 59 percent of the services sector fully committed. JICEPA’s vast commitment in services, an India’s in particular, stands in stark contrast to its performance in the goods

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sectors, where the agreements and the country rank last in terms of full commitments. In services, JICEPA is followed by Colombia - Korea FTA (55 percent) and well above of the average for all PTAs under review, of only 45 percent of services sectors fully committed.

Sectoral commitmentsA broad glance at the overall level of commitments in the services sector offers a reminder of the need for comprehensive understanding and of the sectoral lists when assessing the degree of liberalization in services agreements. A general assessment, based on broad review of partial or full commitments can indeed point to misleading conclusions. For instance, a general scan suggests that business services is the sector with the greatest level of full commitments (66 percent). However, business services include professionals services such as legal, accounting, and medical, which are typically heavily regulated activities for reasons of both market failure and protectionist pressures –and as such attract a number of reservations in trade agreements; the business services also includes a number of other services activities, such as computer services and other businesses services that do not usually feature major restrictions, thus explaining the relative openness of the business services.

As a result, a sectoral assessment requires an integrated reading of the sectoral commitments as well as the horizontal ones, in addition to an adequate understanding of the scope of the different services categories, and the nature of the restrictions listed in the schedules. Annex V, Figures 4 and 5 provide a landscape of the type of restrictions found across all services sub-sector, and within the business sector in particular, respectively. The sample of commitments in the mega-PTAs under review can help identify certain guidelines in that regard:

While business services appear as the sector with the greatest number of full commitments in the sample, there is great variation within the categories it encompasses. All 17 countries in the sample have lodged some limitations on professional services, while only three countries have included some restriction on activities related to computer services. Authorizations for establishment, as well as joint venture requirements are common on professional services as well as licensing requirements. Discriminatory measures, particularly in the form of nationality or residency requirements for professionals are also pervasive in the sector, both for high- and higher-middle income countries –notably, the two lower-middle income countries in the sample, India and Vietnam, have not indicated any discriminatory restrictions in professional services (however, both countries have introduced “undisclosed restrictions” on certain professions, which does allow for maintaining or introducing discriminatory measures) )Table XXX). Beyond professionals, most other restrictions on business services are concentrated on four services incidental to energy distribution as well as the primary sector.

Figure 7. Regulatory restrictions on professional services

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Figure 8. Restrictions on investment in services sector

Environmental services appear like one of the services sub-sectors with the greatest level full commitments, especially. This may appear counterintuitive, given the regulatory sensitivities regarding to the environment as well as the fact that most of such services are often provided under governmental authority. Such high level of commitments may be explained by the

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inclusion of broad horizontal restrictions, particularly in the form of “undisclosed restrictions” relating to environmental policies and the provision of public services, which grant great flexibility for countries to regulate on this area, even in the presence of full commitments.

In terms of the nature of restrictions across the services sector, measures affecting the establishment of services firms, in particular in the form of authorization and licensing requirements, appear as the most frequent type of restrictions accounting for almost two third of the total measures in the services sector (Table XXX). While the abundance of regulatory measures on the establishment of services firms (as opposed to the operation) may be expected given the intangible nature of services -and hence the need to focus on the characteristics and qualities of services providers, the predominance of quantitative measures12, including requirements for joint ventures and limitations on foreign ownership speak of the desire to shelter domestic services firms for international competition.

6. Conclusion: main findings and policy implicationsMega-PTAS promoted by the major global trading powerhouses, including the US, China, EU, Japan, and India, offer a glimpse into key aspects of trade agreements including their rules, negotiating approaches, and scope for binding domestic policies. Some key lessons that can be drawn from their review include the following:

Scheduling approach 1: mega-PTAs are increasingly embracing negative lists for commitments and reservations, including by developing countries. Countries like Malaysia and Vietnam have concluded their first trade agreement with such approach, while others like Colombia, and Peru appear to be consolidating a trend. The biggest developing countries in the sample, however, remain strong enthusiast of positive lists.

Scheduling approach 2: the difference between positive and negative lists is increasingly blurry. This is so not only because innovative approaches, such as China – Australia FTA demonstrate that both positive and negative schedules can co-exist in one single agreement, but also because entries in negative lists can be designed so as to de facto convert a negative list of reservations, or part thereof, in a positive list.

Horizontal restrictions: a review of countries’ list of commitment and reservations highlight the importance of horizontal restrictions, in particular as tools to carve policy and regulatory space in non-economic areas. This is particularly the case for agreements that do not feature a provision on governmental services or a general exception for public policies such as social protection, environment, or “public order” or similar broad safeguard.

Sectoral scope of mega-PTAS: in terms of sectoral coverage, mega-PTAs unanimously show a trend towards almost universal scope, leaving few sectors out of the scope of their main market access and non-discrimination obligations. Notably, JICEPA shows that positive list agreements, once seen as less ambitious in scope than negative lists, may prove as wide-ranging as negative list agreements or more. Countries embarking in trade talks, must hence be prepared to face

12 In our methodology, authorization and permit requirements, like ENTs, are included as quantitative restrictions when they do not provide clear guidance on the type of conditions that regulation requires. When conditions are set out transparently, measures are recorded under licensing requirements.

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requests for openness throughout their services sector, and may seek opportunities for market access in their trading partners also on those sector traditional elusive to international commitments.

Regulatory restrictions: the expansion in sectoral coverage does not mean that countries are face full openness across the board. On the contrary, the mega-PTAs under review suggest that countries can retain ample regulatory flexibility, especially for non-economic public policies goals. Discriminatory restrictions, instead, face weak prospects, except in certain sectors where they abundant for developed and developing countries alike, such as professional and transportation services.

One master lesson to draw from mega-PTAs is the need to face trade negotiations adequately prepared, both regarding the economic interest at play and the policy and regulatory context that will be subject to negotiations. This entails not only understanding the potential impact of the agreement on the domestic economy, but also what regulatory policies are in place for each trade and investment in services and goods, and how these policies may play with the main disciplines of the agreement. Trade policy-makers and negotiators should prepare by reviewing existing practices in trade agreements and, importantly, by coordinate domestically with the agencies involved in the regulation of trade and investment.

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Broude, T. & Moses, S., 2016. The Behavioral Dynamics of Positive and Negative Listing in Services Trade Liberalization: A Look at the Trade in Services Agreement (TISA) Negotiations. In: P. Sauve & M. Roy, eds. Research Handbook on Trade in Services. s.l.:Elgar, pp. 385-411.

Broude, T. & Moses, S., 2016. The Behavioral Dynamics of Positive and Negative Listings in Services Trade Liberalization: A Look at the Trade in Services Agreement (TISA) Negotiations. In: P. Sauvé & M. Roy, eds. Research Handbook on Trade in Services. s.l.:Elgar, pp. 385-411.

Economist, T., 2016. ASEAN Connections: How mega-regional trade and investment initiatives in Asia will shape business strategy in ASEAN and beyond. [Online] Available at: http://ftp01.economist.com.hk/ECN_papers/ASEANConnections[Accessed April 2016].

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Fink, C. & Molinuevo, M., 2008. East Asian Free Trade Agreements in Services: Key Architectural Elements. Journal of International Economic Law, 11(2), pp. 263-311.

Gootiiz, B. & Mattoo, A., 2016. Does TPP Bring More Openness in Services?. [Online] Available at: http://pubdocs.worldbank.org/pubdocs/publicdoc/2016/3/797541457379459380/Policy-

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Research-Talk-Aaditya-Mattoo-Final.pdf[Accessed April 2016].

Goswami, A. G., Mattoo, A. & Sáez, S., 2012. Exporting Services: A Developing Country Perspective. [Online] Available at: https://openknowledge.worldbank.org/bitstream/handle/10986/2379/658370EPI188160Box365736B0Exporting.pdf?sequence=1&isAllowed=y[Accessed May 2016].

Hoekman, B. & Sauve, P., 1994. Liberalizing Trade in Services, Discussion Paper No. 243, Washington DC: The World Bank.

Hufbauer, G. C., 2016. Investor-State Dispute Settlement. In: Assessing the Trans-Pacific Partnership, Volume 1: Market Access and Sectoral Issues. Washington DC: Peterson Institute of International Economics, pp. 109-119.

Hufbauer, G. C., 2016. Liberalization of Services Trade. In: Assessing the Trans-Pacific Partnership. Volume 1: Market Access and Sectoral Issues. PIIE Briefi ng 16-1 ed. Washington: Peterson Institute for International Economics, pp. 81-90.

ICTSD, 2017. Canadian Senate Approves CETA Implementation Bill. BRIDGES, 18 May, 21(17).

Latrille, P. & Lee, J., 2012. Services rules in regaionl trade agreements - How diverse and how creative as compared to the GATS multilateral rules?, Geneva: WTO.

Low, P. & Mattoo, A., 2010. Is there a better way? Alternative Approaches to Liberalization Under GATS. In: P. Sauve & R. M. Stern, eds. GATS 2000: New Directions in Services Trade Liberalization. s.l.:Harvard University Press, pp. 449-467.

Molinuevo, M. & Saez, S., 2014. Regulatory Assessment Toolkit, Washington: World Bank.

Moran, T. H. & Oldenski, L., 2016. Provisions on Investment. In: Assessing the Trans-Pacific Partnership, Volum 1: Market Access and Sectoral Issues. Washington DC: Peterson Institute for International Economics.

Reynolds, I. & Heath, M., 2017. Bloomberg Politics. [Online] Available at: https://www.bloomberg.com/politics/articles/2017-01-24/australia-leads-push-for-tpp-without-u-s-after-trump-exits-deal[Accessed 7 February 2017].

Stephenson, S., 2002. Regional versus Multilateral Liberalization of Services’. World Trade Review, 1(2), pp. 187-209.

TPP, 2015. Preamble. In: Trans-Pacific Partnership. s.l.:s.n.

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[Accessed June 2016].

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USTR, 2015. TPP Chapter 10: Cross Border Trade in Services. [Online] Available at: https://ustr.gov/sites/default/files/TPP-Chapter-Summary-Cross-Border-Trade-in-Services.pdf[Accessed 2016].

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WTO, 2017. Regional Trade Agreements: Facts and Figures. [Online] Available at: https://www.wto.org/english/tratop_e/region_e/regfac_e.htm[Accessed 7 February 2017].

Yoshida, R., 2017. The Japan Times. [Online] Available at: http://www.japantimes.co.jp/news/2017/01/24/national/politics-diplomacy/tokyo-turns-australian-proposal-tpp-without-u-s-vows-keep-pushing-trump/#.WJniTk3fMy8[Accessed 7 February 2017].

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Annex

Annex I: Overview of negative and hybrid lists in the TPPTPP Country

Negative List

Positive List

Source Remarks

Australia x x

TPP, Annex II, p. 4

TPP, Annex II, Appendix A, p. 20-26

Australia reserves the right to adopt or maintain any measure at the regional level of government that is not inconsistent with Australia’s obligations under Article XVI of the GATS.

For the purposes of this entry, Australia’s Schedule of Specific Commitments is modified as set out in Appendix A.

For the purposes of this entry, the reference to Australia’s commitments under Article XVI of the GATS includes commitments made under that Article after the date of entry into force of this Agreement.

Brunei Darussalam

x o

Canada x x

TPP, Annex I, p.32

TPP, Annex I, Appendix I-A, p. 36-38

For purposes of transparency, Appendix I-A sets out an illustrative, non-binding list of non-conforming measures maintained at the regional level of government

This document is provided for transparency purposes only, and is neither exhaustive nor binding. The information contained in this document is drawn from Canada’s GATS May 2005 Revised Conditional Offer on Services (TN/S/O/CAN/Rev.1, 12 May 2005) (Cross Border Trade in Services & Investment)

Chile x xTPP, Annex II, p. 18 - 24

Chile reserves the right to adopt or maintain any measure relating to Article 10.5 (Market Access), except for the following sectors and sub-sectors subject to the limitations and conditions listed below: (…)

Japan x oMalaysia x o

Mexico x xTPP, Annex II, p. 12 - 42

Mexico reserves the right to adopt or maintain any measure related to Article 10.5 (Market Access), except for the following sectors and sub-sectors subject to the limitations and conditions listed below: (…)

This entry does not apply to entries listed in Annex I with respect to Article 10.5 (Market Access). Mexico’s limitations on market access in this entry are only those limitations which are not discriminatory.

New Zealand

x x TPP, Annex II, p. 14

New Zealand reserves the right to adopt or maintain any measure that is not inconsistent with New

37

TPP, Annex II, Appendix AI, 33-40

Zealand’s obligations under Article XVI of GATS as set out in New Zealand’s Schedule of Specific Commitments under GATS (GATS/SC/62, GATS/SC/62 Suppl. 1, GATS/SC/62/Suppl. 2).

For the purposes of this entry only, New Zealand’s Schedule of Specific Commitments is modified as set out in Appendix A.

Peru x xTPP, Annex II, p. 21-29

Peru reserves the right to adopt or maintain any measure relating to Article 10.5 (Market Access), except for the following sectors and sub-sectors subject to the limitations and conditions listed below: (…)

Singapore x o

United States

x x

TPP, Annex I, p. 16

TPP, Annex I, Appendix I-A, p.17-20

For purposes of transparency, Appendix I-A sets out an illustrative, non-binding list of non-conforming measures maintained at the regional level of government.

Appendix I-A: Illustrative list of U.S. regional non-conforming measures (This document is provided for transparency purposes only, and is neither exhaustive nor binding. The information contained in this document is drawn from U.S. commitments under GATS, the May 2005 Revised U.S. Services Offer under the Doha Development Agenda negotiations, and related documents.)

TPP, Annex II, p.11

TPP, Annex II, Appendix II-!, p. 13-16

The United States reserves the right to adopt or maintain any measure that is not inconsistent with the United States’ obligations under Article XVI of GATS as set out in the U.S. Schedule of Specific Commitments under GATS (GATS/SC/90, GATS/SC/90/Suppl.1, GATS/SC/90/Suppl.2, and GATS/SC/90/Suppl.3).

For the purposes of this entry only, the U.S. Schedule of Specific Commitments is modified as indicated in Appendix II-A.

Appendix II-A: For the following Sectors, U.S. obligations under Article XVI of GATS as set out in the U.S. Schedule of Specific Commitments under GATS (GATS/SC/90, GATS/SC/90/Suppl.1, GATS/SC/90/Suppl.2, and GATS/SC/90/Suppl.3) are improved as described.

Vietnam x x

TPP, Annex II, p.36

TPP, Annex II, Appendix

Viet Nam reserves the right to adopt or maintain any measure that is not inconsistent with Viet Nam’s obligations under Article XVI of GATS.

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II-A, p.38-40

For the purposes of this entry, Viet Nam’s Schedule of Specific Commitments is modified as set out in Appendix II-A.

For the purposes of entry at Annex II – Viet Nam – 36, Viet Nam’s obligations under Article XVI of GATS as set out in Viet Nam’s Schedule of Specific Commitments in Services under the GATS (WT/ACC/VNM/48/Add.2) are improved in the following sectors as described below.

Source: Authors’ compilation based on TPP Annex I and II

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Annex II: Methodology and DatabaseFor the purpose of this analysis individual provisions of the services and the investment chapters of the five mega-PTAs were reviewed. This included all entries of the lists of reservations (schedules), namely 24 Annex for the TPP, 6 Annex for CETA (2 federal and 2 provincial level Annex for Canada, and 2 for the EU), 3 Annex for CHAFTA (2 negative, 1 positive list), 4 Annex for JICEPA, and 4 Annex for CKFTA.

The entries of individual Annex were assessed according to the following elements:

• The "sector" element refers to the sector of the economy to which the non-conforming measure applies (either horizontal or sectoral).

• The "type of reservation/obligations concerned" element refers to obligations that would be inconsistent with the provisions of the chapter (e.g. national treatment, most-favoured-nation treatment, performance requirement etc.).

• The "measures" element refers to laws or decrees that are or could be inconsistent with the obligations listed in the "types of reservation affected" element.

• The "description" element presents an explanation of why the measure listed is inconsistent with the obligations.13

Subsequently all entries were categorized into a dataset, for each country and each PTA. Then a total of 20 datasets was compiled into one database, including 12 datasets for TPP, 2 for CETA, 2 for CHAFTA, 2 for JICEPA, and 2 for CKFTA.

Individual datasets allow accounting for services sectors (based on the WTO’s Services Classification List, also referred to as ‘W120’), measures/reservations (e.g. local presence requirement, nationality requirement etc.), as well as individual modes of supply.14 For this analysis the focus was put on Mode 1 (cross border trade) and Mode 3 (commercial presence) only.

The whole database covers thus two modes of supply (1 and 3), almost 200 sectors (154 services sectors plus 39 goods sectors), 52 different types of regulatory restrictions, and 5 agreements entail commitments from 20 parties (including the EU countries as one), for a total of around 550,000 observations. This database allows now to compare the findings by country, sector, reservation, and mode of supply.

The range of individual reservations/measures is described below in Annex III: Overview of measures affecting trade in services and investment and Annex IV Regulatory measures affecting trade and investment in services – definitions. These Annex provide an overview of individual reservations countries may use to carve out certain policy space and to protect sensitive sectors of their economies. The measures may range from horizontal to sectoral, may affect the ‘establishment/market access’ or

13 Note, however, that each PTA contains an explanatory note to the list of reservations which describes in detail the different elements of individual Annex. Thus the descriptions of the elements may differ from PTA to PTA.14 This methodology is based on (Molinuevo & Saez, 2014)

40

the ‘operation’ of a service, may be of quantitative or qualitative nature, and can be very specific or a rather broad measure.

For example, a typical reservation for professional services is shown in Box 2 below, where Korea has scheduled reservations for legal services in the CKFTA.

Box 3 Example sectoral reservationCKFTA, Korea, Annex I, p. 25Sector: Professional Services - Legal Services Obligations Concerned: Market Access (Article 9.4) Local Presence (Article 9.5) Measures: Attorney-at-law Act (Law No. 10922, July 25, 2011), Articles 4, 7, 21, 34, 45, 58-6, 58-22, and 109 Certified Judicial Scriveners Act (Law No. 8920, March 21, 2008), Articles 2, 3, and 14 Notary Public Act (Law No. 11154, January 17, 2012), Articles 10, 16, and 17Description: Cross-Border Trade in Services• Only a byeon-ho-sa (Korean-licensed lawyer) registered with the Korean Bar Association may supply legal

services. • Only a byeon-ho-sa (Korean-licensed lawyer) may establish the following types of legal entity: beop-yool-sa-

mu-so (law office), beop-mu-beop-in (law company with the characteristics of partnership), beop-mu-beop-in (yoo-han) (limited liability law company), or beop-mu-jo-hap (limited liability partnership law office). For greater certainty, a person that is not a Korean-licensed lawyer is not permitted to invest in any of these types of legal entity.

• A byeon-ho-sa (Korean-licensed lawyer) or beop-mu-sa (Korean-certified judicial scrivener) who practices in Korea must establish an office in the jurisdiction of the district court in which he or she practices. A gong-jeung- in (Korean notary public) must establish an office in the jurisdiction of the district office of the public prosecutor in which he or she practices.

• This entry is subject to the commitments undertaken in the entry for Legal Services – Foreign Legal Consultants in the Schedule to Annex II.

Box 2 shows the different elements of the non-conforming measure and describes in detail the requirements for providing legal services in Korea, namely for Cross-Border Trade in Services: (1) requirement to subscribe to an association, (2) licensing requirement (qualification), and 3) ‘local presence’ requirement. Thus those three entries were accounted for in the Korea-CKFTA dataset for legal services, Mode 1.

Another example, this time for categorizing horizontal measures, is Box 3 below. This example is taken from Australia’s list of reservations in the CHAFTA agreement. The different elements describe that Australia is reserving across all sectors for both Mode 1 and 3, a ‘nationality and residency requirement for senior personal’. The reservation describes four different scenarios but for Australia’s CHAFTA dataset this reservation is categorized as (only) one reservation.

Box 4 Example horizontal reservation

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CHAFTA, Australia, Annex III, Section A, p. 991Sector: All Sectors Obligations Concerned: National Treatment Level of Government: Central Source of Measure: Corporations Act 2001 (Cth)

Corporations Regulations 2001 (Cth) Description: At least one director of a private company must be ordinarily resident in

Australia. At least two directors of a public company must be ordinarily resident in

Australia. At least one secretary of a private company (if such a private company

appoints one or more secretaries) must be ordinarily resident in Australia. At least one secretary of a public company must be ordinarily resident in

Australia.

Following these examples, all entries of all reservation lists were categorized in this manner. However, there were some entries which were not as straight forward to categorize and gave space for interpretation. For example, Box 4 below shows the positive list scheduling in the TPP, in this case for Peru. In theory this entry (and all others as seen in Annex I: Overview of negative and hybrid lists in theTPP) would require a comparison with the country’s GATS schedule, in order to identify those entries which are not “improved” under the TPP entry. Those would then be categorized in the country’s dataset as a restriction as listed in the GATS. Since this analysis is focused on the comparison of the five mega-PTAs only and does not also include the review of all GATS schedules, the following ‘interpretation’ was chosen for this paper: Applies to all sectors (horizontal), and is considered as ‘Establishment/Other undisclosed quantitative restrictions’ and ‘Operation/Other undisclosed quantitative restrictions’.15 Specific measures that were identified under each of the individual sectors in these positive lists were accounted for and categorized into the individual country datasets. In the case of Peru, for example, for legal services a ‘numerical restriction’ requirement was inserted. (Box 4)

Box 5 Example for interpreting Positive Lists in the TPPTPP, Peru, Annex II, p. 21Sector: AllObligations Concerned: Market Access (Article 10.5)Description: Cross-Border Trade in Services Peru reserves the right to adopt or maintain any measure relating to Article 10.5 (Market Access), except

for the following sectors and sub-sectors subject to the limitations and conditions listed below: Legal services: For (a) and (c): None, except that the number of notary positions depends of the number of

inhabitants of each city. For (b): None. For (d): No commitments, except as indicated in the Law for Foreign Workers Recruitment (Ley para la Contratación de Trabajadores Extranjeros).

Accounting, auditing and bookkeeping services: For (a) and (c): None, except that auditing societies shall be constituted only and exclusively by public accountants licensed and resident in the country and duly

15 “Undisclosed” entries typically allow the country to maintain or introduce any type of measure with the purpose of fulfilling a particular policy goal. A typical ‘undisclosed measure’ is any Annex II entry stating "…reserves the right to adopt or maintain any measure relating to…”.

42

qualified by the Association of Public Accountants of Lima (Colegio de Contadores Publicos de Lima). No partner may be a member of another auditing society in Peru. For (b): None. For (d): No commitments, except as indicated in the Law for Foreign Workers Recruitment (Ley para la Contratación de Trabajadores Extranjeros).

Taxation services: For (a), (b) and (c): None. For (d): No commitments, except as indicated in the Law for Foreign Workers Recruitment (Ley para la Contratación de Trabajadores Extranjeros).

(…)

In other cases also individual entries gave room for interpretation. For example, Box 5 below shows an entry from the CHAFTA agreement for distribution services/commission agent’s services and wholesale trade services. In this case China ‘allows’/gives Australian investors ((3) commercial presence) market access to ‘wholly foreign-owned enterprises’. The question which arose was whether this is a ‘form of establishment’ requirement or a ‘limitation to foreign equity’ requirement, as both requirements could be considered in this case. However since no limitation was given to foreign equity, the entry was categorized as a ‘form of establishment’ requirement only.

Box 6 Example interpretation of reservation

Source: CHAFTA, Annex III, Part. 2, p. 176

Another example for interpreting certain aspects of individual entries is shown in Box 6 below. In this case the EU scheduled in the CETA agreement a reservation for social services, addressing in ‘type of reservation’ the following elements: market access, national treatment, performance requirement, and senior management and boards of directors. In the ‘description’ element it is explained in detail how the supply of social services is reserved. Thus the entry was categorized for the EU CETA dataset as follows: For Mode 3 it is a measure for social services, namely an ‘establishment/ undisclosed measure’ as well as an ‘operation/ undisclosed measure’ for both quantitative and qualitative categories. Also the entry was categorized for ‘licensing (experience)’ requirement and an ‘economic needs test’ requirement.

Box 7 Example Interpreting types of reservations vs descriptionCETA, EU Annex II, p. 133, 134Sector: Social servicesType of Reservation:

Market access National treatment Performance requirements

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Senior management and boards of directorsDescription: Investment The EU reserves the right to adopt or maintain any measure with regard to the supply of all social services

which receive public funding or State support in any form, and are therefore not considered to be privately funded, and with regard to activities or services forming part of a public retirement plan or statutory system of social security.

The participation of private operators in the privately funded social network may be subject to concession on a non-discriminatory basis. An economic needs test may apply. Main criteria: number of and impact on existing establishments, transport infrastructure, population density, geographic spread, and creation of new employment.

National complementary reservations may be found in the schedules of reservations applicable in BE, CY, CZ, DE, DK, EL, ES, FI, FR, HU, IE, IT, LT, MT, PL, PT, RO, SI, SK, and UK.

This is a typical example where the information from the description section provides more detail than the ‘type of reservation’ element and thus provides the needed information for categorizing the entry into the dataset. In general any entry of reservation lists must be read in combination with the ‘explanatory note’ preceding the reservation list. In the case of the CETA the Annex II ‘Headnote: Reservation for future measures’ clearly states “In interpreting a reservation, all elements of the reservation shall be considered. The Description element shall prevail over all other elements.” (para. 4)

Another important aspect in the case of CETA, but also other mega-PTAs with sub-national reservations, is the interpretation of provincial level entries. (See CETA, federal versus provincial level reservation lists) The mere fact that a province or state (EU) has scheduled a reservation in the list of non-conforming measures to the agreement, was interpreted as one entry for the country level dataset.

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Annex III: Overview of measures affecting trade in services and investment

quantitative qualitative

esta

blish

men

t

Monopoly / exclusive service suppliers Numerical restrictions Zoning / Geographical restrictions Limitations to foreign equity Economic Needs Tests Authorization / permit (non-qualified)

Licensing ono Qualifications / Educationo Experience o Technical capacity

Nationality / residency of services Residency Track record requirements Requirement to subscribe to association Approval of mergers and acquisitions Form of establishment Prohibition Minimum capital requirements

oper

ation

Numerical restrictions ono transactiono operations / outputo employeeso repatriation of fundso duration of license / divestmento hours of operations

Screen / performance quotas Performance requirements

Nationality / residency of managers, boards of directors

Land Ownership Discriminatory Taxation Access to Subsidies Knowledge Transfer Advertising limitations Rules on anti-competitive behavior Limitations on pricing Limitations on transfer of funds Type of shares owned by foreigners Performance requirements Import permits Access to government contracts

Source: (Molinuevo & Saez, 2014)

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Annex IV: Regulatory measures affecting trade and investment in services - definitionsQuantitative

1. Monopoly / exclusive service suppliers: Situation in which a single person or firm is the only supplier of a service (by law or by market power).

2. Zoning / Geographical restrictions: measures that regulate the number of providers that can establish themselves and/or operate in certain geographical areas in the country. Zoning restrictions are common, inter alia, for the establishment of larger retail stores in urban areas, where the traffic they bring about may generate traffic congestions.

3. Foreign equity restrictions: measures that provide for restrictions on the ownership of equity shares in domestic firms by foreign individuals or companies. Foreign equity restrictions are typically expressed as a maximum of the equity participation that may be held by foreigners (e.g. “Foreign equity participation may not exceed 49 percent”.” Often, construction, light manufacturing, retail, and tourism have no limits on foreign equity ownership. On the contrary, banking, insurance, and telecommunications, electricity are more often subject to limitations on foreign ownership.

4. Economic Needs Tests (ENTs): measures that restrict the entry of a services provider into the country to an assessment of the market conditions, such as population, number of other providers, employment, etc. ENTs may restrict both foreign and domestic suppliers’ access to a market, or only foreign suppliers, on the basis of the level of existing supply. Economic needs tests may have more or less distortive impact on trade and investment depending on the manner in which they are implemented, ranging from a mere formality without actual impact to a wholly discretionary decision by the administration.

5. Numerical restrictions (quotas) relating to establishment of a service provider: measures limiting the number of providers that can establish themselves [or operate] in a given area. The restriction may relate to both foreign and domestic suppliers’ access to a market, or only foreign suppliers. Numerical restrictions can be expressed as a specific amount of total services suppliers (e.g. an annually established quotas for foreign medical practitioners), or as a percentage of the total market or a certain market segment (e.g. Foreign participation in the domestic banking system is limited to 50% of the sector’s aggregate capital). Numerical restrictions can also be determined on geographical basis (e.g. the number of notaries by municipality or other jurisdiction)-

6. Numerical restrictions (quotas), relating to operations of a service provider, on:

a. Operations, output, or transactions: measures providing for obligations relating to the number of operations, output, or transactions that a service provider may carry out. For example: For example: “foreign bank subsidiaries limited to X percent of total domestic assets of all banks”.

b. Employees: measures regulating the number of employees that a service provider may recruit or have in certain positions. Numerical restriction for employees are common for limiting the amount or

46

percentage of foreign employees. For example: “Foreign labour should not exceed x percent and/or wages xy percent of total.”

c. Repatriation of funds: measures providing numerical/quantitative limitations (including percentages) to the quantities of funds and dividends that foreign service providers may repatriate.

d. Duration of license / divestment: measures providing minimum or maximum duration for licenses, and measures limiting the quantities of funds that investors may disinvest.

e. Hours of operations: measures regulating (e.g.: often limiting) the number of working hours and working days for which a services may be supplied. Limitations on hours of operation are common on retail services (e.g. hours that a store may be open), transport services (e.g. time during which cargo services may not be offered, especially in urban areas).

7. Screen / performance quotas: measure relating to the audio-visual and entertainment sector that limits the number of performances that may be carried out or the broadcasting or performance time for (foreign) shows. For example: “Foreign participation in the production is limited to 1/3 of the footage of advertising films”. “Thirty percent of the screen time of every theater, assessed on an annual basis, may be reserved for films produced by national persons.”

8. Limitations on transfer of funds: measures that impose limitations on the quantities or types of funds that may be transferred abroad by on domestically established firms or individuals in the country. Reporting mechanisms for statistical purposes, o monitoring procedures against money laundering should not be counted unless they operate as general de facto barriers to the international transfer of funds. For example, only X percent of revenue by subsidiary firms can be transferred abroad.

Qualitative9. Licensing / authorization: measures for which the provision of services or conduct of business is subject to the issuance of an operating license or any other authorization by relevant authorities. Typically, the licensing authority would the ministry or government agency charged with the regulation and monitoring of that particular services sector. For instance, if a license is required to perform as a tourist guide, such license would be normally issued by the Ministry of Tourism or similar agency. The licensing or authorization requirement may be based on one or more of the following criteria:

a. Qualifications / Education: measures that subject the issuance of the license to certain minimum qualifications and/or academic requirements. Education requirements are most common in professional services, whereby the professional must demonstrate academic knowledge in the sector to be authorized to act as such. If the services supplier is a firm, education requirements apply when asked from at least one of the natural persons employed in the firm.

b. Experience: measures that provide that licenses for the establishment of a company (service provider) may be subject to certain minimum experience requirements. Experience requirements may complement or substitute education requirements. For example, it may be required that lawyers have at least years of experience to act before high courts, such as the Supreme Court or Court de Cassation.

47

Foreign suppliers wishing to register or obtain a license to provide services in foreign countries are often subject to additional experience requirements.

c. Technical capacity: measures that provide that licenses for the establishment of a company (service provider) may be required to demonstrate a specific technical capacity in order to be licensed for a specific service. For example, a company wishing to obtain a license to operate inter-urban buses must ensure capacity to transport a minimum of X number of passengers per hour.

d. Formal requirements: authorization and (less often) licenses may be issued as a result of the recognition of meeting formal requirements (business registration, notifications, documentation, etc), without any substantial evaluation by the regulatory body.

10. Nationality / residency of services provider: Requirement that a provider of a service be a citizen of or lives (i.e.: has residence, domicile or an establishment) in the country in which the services is provided. If the service provider is a juridical person, the nationality requirements entails that the person is owned or controlled by the country nationals, or that the company is legally constituted in that country.

11. Nationality / residency of managers, boards of directors: requirement that some or all the managers, boards of directors, etc. of the service provider be citizens of or live (have residence, domicile or an establishment) in the country in which the service is provided.

12. Requirement to subscribe to association: measures whereby service providers are obliged to join a particular professional body, association, workers union or other type of organization as a condition to offer services in the country. Association requirements are common for professionals, and are frequent also for actors, musicians, or other performers.

13. Approval of mergers and acquisitions: measures whereby M&E (involving service providers) have to be vetted by government authorities.

14. Form of establishment: measures that regulate the modalities to establish a company or to operate in the country, by requiring specific types of legal entities banning others that can provide certain services. Several types of restrictions on the form of establishment are common:

a. Prohibition of establishment through subsidiaries (domestic incorporation requirement): the services provider must be established as a domestic legal entity (even if entirely foreign owned) in order to provide services in the country.

b. Establishment as limited corporation: a more stringent form of domestic incorporation mandates that the only permitted form of legal entity for a specific services provider is that of a limited liability corporation. This is common for banks and financial services providers, that can often only operate in the form of limited liability corporations (in common law), S.A. (Société Anonyme or similar in civil law) or equivalents, in order to be subject to more strict monitoring and to prevent fraud.

c. Services to be provided only by natural persons or by un-incorporated legal entities, such as associations. This type is requirement is common in professional services such as legal services.

48

15. Prohibition: measures that prohibit the provision of certain services in a given market. For example, the establishment of facilities for gambling or betting such as casinos is not allowed in some countries, like China, as such activities are considered illegal. (When considering this restriction, only services that are commonly available in a commercial basis in most countries should be considered. For example, the prohibition of commercial services related to assisted suicide would not need be expressly stated.)

16. Minimum capital requirements: The amount of capital a firm has to hold in order to operate in a given State is set out by its regulator; these requirements are put in place to ensure that institutions do not become insolvent.

17. Land Ownership: general restrictions on the ownership or use of land by individuals or legal persons. Land ownership limitations are frequent in socialist economies, where land ownership is often reserved to the State and private citizens and firms can only access to its use. In addition, many countries only allow land to be owned by its own nationals or firms domestically controlled. Finally, restrictions to land ownership by foreigners may also apply to the security concerns in specific geographical areas, such as border zones or next to key assets or facilities.

18. Discriminatory Taxation: measures whereby foreign services providers are treated differently as compared to national service providers of the same sector from the taxation point of view. Different treatment should amount to providing a competitive advantage to domestic services suppliers over foreign ones; mere differences in the procedures meant to address the foreign character of the services supplier should not in themselves be counted as trade restrictions.

19. Discriminatory access to subsidies: measures regulate the availability of public subsidies schemes on the basis of the nationality of the services providers.

20. Discriminatory access to government contracts: measures that limit eligibility to public procurement procedures for services based on the nationality or residency of the services supplier or its shareholders.

21. Knowledge Transfer: measures that impose obligations on service providers to transfer knowledge and expertise, such as compulsory training programs

22. Advertising limitations: measures that regulate advertising providing for limitations of the type of services that may be publicly advertised in the country. For example: some countries limit that ability of professionals such as lawyers to advertise their services in open media.

23. Limitations on pricing: measures whereby services providers are not free to determine the price at which their services will be provided and must comply with certain limitations (e.g.: maximum or minimum prices)

24. Class of shares owned by foreigners: measures whereby foreign services providers can only own certain class of shares or up to a certain quantities. For example: “supervoting shares” (i.e. shares that offer larger than proportionate voting rights compared with another class of stock issued by the same company) can only owned by be domestic investors.

49

25. Performance requirements: category of host country operational measures imposed on foreign affiliates to induce them to act in ways considered beneficial for the host economy. Most common requirements relate to local content, export performance, technology transfer and employment of nationals. Requirements can be mandatory (a precondition for entry or access) or voluntary (a condition for obtaining an additional benefit such an incentive).

26. Import permits: measures that require that the importation of certain goods necessary for the provision of services are subject to import permits, in a way that effectively limits the ability to provide the service. The distribution of many goods such as food products, alcohol products, medicines, and chemical products is often affected by import licenses. Import permits may also impair other services different from distribution. For example, import licensing requirements for the import of paper may translate into restriction to printing and publishing services.

27. Joint venture requirement: requirement that a foreign firm forms a joint venture with a domestic firm before it can operate in a country. The joint venture results in the domestic constitution of a new legal entity owned jointly owned by (at least) the foreign firm and the domestic partner. A joint venture requirement can be complemented by limitations on foreign equity participation (thus limiting the equity interest of the foreign partner) or simply leave the ownership proportions to the decision of the concerned stakeholders.

28. Domestic partnership requirement: restriction to the cross-border provision of services, for which services providers located abroad can only provide services to domestic consumers if in partnership with a locally established services supplier. Domestic partnership requirements are often found in professional services, as well as in telecommunication services.

50

Annex V: FiguresFigure V: 1: Overall Level of commitments in primary, manufacturing and services sector.

51

Primary Manufacturing Services Total AllSectors

CETA Canada Cross-borderservices

Investment

EU Cross-borderservices

Investment

CHAFTA Australia Cross-borderservices

Investment

China Cross-borderservices

Investment

CKFTA Colombia Cross-borderservices

Investment

Korea Cross-borderservices

Investment

JICEPA India Cross-borderservices

Investment

Japan Cross-borderservices

Investment

TPP Australia Cross-borderservices

Investment

Brunei Darussalam


Investment

Canada Cross-borderservices

Investment

Chile Cross-borderservices

Investment

Japan Cross-borderservices

Investment

Malaysia Cross-borderservices

Investment

Mexico Cross-borderservices

Investment

NewZealand


Investment

Peru Cross-borderservices

Investment

Singapore Cross-borderservices

Investment

UnitedStates


Investment

Vietnam Cross-borderservices

Investment

Total All Agrements

57%

48%

58%

48%

33%100% 43%

52%

42%

52%

67%

66%

74%

74%

74%

100% 34%

26%

26%

26%

89%

41%

42%

50%

42%

59%

58%

50%

58%

96%83%

61%61% 38%

70%

38%

70%

24%

68%

28%

68%

25% 76%

32%

72%

32%

96%75%

52%

75%

61%

75%

42% 48%

25%

39%

25%

89%58%

42%34%70%75% 57%

78%

66%

78%

30%25%

46%46%26%92% 52%

88%

52%

88%

74%

78%

25%

100%

25% 75%75%

100%100%

51%

53%

58%

53%

75% 49%

47%

42%

47%

96%25%

42%

41%

49%

41%

42% 58%

59%

51%

59%

93%58%

36%

60%

44%

60%

25% 64%

40%

56%

40%

96%75%

38%

38%

42%

38%

33% 62%

62%

58%

62%

78%67%

53%

63%

60%

63%

33%25% 47%

37%

40%

37%

67%75%

49%

50%

59%

50%

25% 51%

50%

41%

50%

93%75%

45%

51%

51%

51%

42% 55%

49%

49%

49%

81%58%

27%

53%

33%

53%

73%

47%

67%

47%

96%92%

54%

59%

61%

59%

33%25% 46%

41%

39%

41%

67%75%

33%

38%

40%

38%

67%

62%

60%

62%

96%83%

54%

53%

62%

53%

33% 46%

47%

38%

47%

78%67%

47%50%42% 52%49%83%58%

No Restrictions Partial Restrictions Unbound

52

Figure V: 2. Horizontal regulatory restrictions on primary, manufacturing, and services sectorsEstablishment

Quantitative


Qualitative

Domestic partner requirement Form of establishment Licensing (experience) Licensing (qualifications) Minimum capital requirements Nationality (for services supplier) Requirement to subscribe to associ.. Residency (for services supplier) Other undisclosed discriminatory m.. Other (2)



Qualitative

Access to government contracts Advertising limitations Discriminatory Taxation Knowledge Transfer Land Ownership Limitations on pricing Nationality and Residency Require.. On transfer of funds Other undisclosed discriminatory m.. Performance requirements Residency requirements (for service.. Restrictions on foreign employment Other (5)

Australia

CHAFTA

Primary Investment


Services


Investment

TPP

Primary Investment


Services


Investment

Brunei Darus..

TPP

Primary Investment


Services


Investment

Canada

CETA

Primary Investment


Services


Investment

TPP

Primary Investment


Services


Investment

ChileTPP

Primary Investment


Services


Investment

ChinaCHAFTA

Primary Investment


Services


Investment

ColombiaCKFTA

Primary Investment


Services


Investment

EUCETA

Primary Investment


Services


Investment

IndiaJICEPA

Primary Investment


Services


Investment

Japan

JICEPA

Primary Investment


Services


Investment

TPP

Primary Investment


Services


Investment

EstablishmentQuantitative


Qualitative

Domestic partner requirement Form of establishment Licensing (experience) Licensing (qualifications) Minimum capital requirements Nationality (for services supplier) Requirement to subscribe to associ.. Residency (for services supplier) Other undisclosed discriminatory m.. Other (2)



Qualitative

Access to government contracts Advertising limitations Discriminatory Taxation Knowledge Transfer Land Ownership Limitations on pricing Nationality and Residency Require.. On transfer of funds Other undisclosed discriminatory m.. Performance requirements Residency requirements (for service.. Restrictions on foreign employment Other (5)

KoreaCKFTA

Primary Investment


Services


Investment

MalaysiaTPP

Primary Investment


Services


Investment

MexicoTPP

Primary Investment


Services


Investment

New Zealand

TPP

Primary Investment


Services


Investment

PeruTPP

Primary Investment


Services


Investment

Singapore

TPP

Primary Investment


Services


Investment

United States

TPP

Primary Investment


Services


Investment

VietnamTPP

Primary Investment


Services


Investment

54

Figure V: 3. Commitments on Investment in Primary and Manufacturing sectors

Figure V: 4. Listed restrictions on Investment in primary, manufacturing, and services sectors

57

Figure V: 5. Listed restrictions on investment in business services