Ishita Chatterjee
Published: 2014
Total Pages: 0
Get eBook
If a government is concerned about this it could require foreign banks to establish local subsidiaries that must satisfy local capital adequacy requirements. But this presupposes that there is effective regulation and an effective regulator that considers the potential effects of different forms of liberalization. Another example is when there are significant rents associated with a certain policies. Regulatory agencies may argue that it is better that these accrue to domestic agents than to foreign firms, even if the latter are more efficient providers of services. The name of the game in trade negotiations is market access: this may easily result in a transfer of rents from local firms to foreign ones if the regulatory regime is not one that ensures markets are contestable. The implication is that broader regulatory reform is in many cases needed to ensure that welfare increases after liberalization. In general, improved prudential and pro-competitive regulation will be necessary to deliver the full benefits of liberalization in sectors such as financial services; basic telecommunications and other network-based services. Thus, attention should focus on strengthening and maintaining a robust capacity to identify, understand and design the domestic regulatory reforms that are needed to enhance the efficiency of services sectors. Addressing regulatory concerns and constraints: Given the importance of regulation as a source of market segmentation, cooperation on regulatory matters is needed for trade agreements to do more than be a mechanism to lock-in applied policies and “harvest” unilateral actions by governments to open markets. One dimension of such cooperation is international assistance for national regulatory reform and strengthening implementing institutions so as to increase the prospects of achieving efficiency and equity objectives. This is a process that takes time and that will benefit substantially from information on the approaches and experiences of other countries that have (had) similar challenges. There is not necessarily any regulatory “best practice” for a sector or cluster of activities - in many cases there will be many options and countries need to figure out the approach most appropriate to their circumstances and needs. Once a reform path has been defined, implementation could be assisted by external assistance from high-income partners in North-South PTAs or development agencies as part of the multilateral “aid for trade” initiative. International dialogue and exchange of information and experiences - as is done through APEC - is another option. While APEC has often been criticized for being a “talking shop” the process has been effective in facilitating learning about country experiences and building trust among governments and regulators from participating countries. Better regulation will often be a precondition for action to open markets to greater competition, as well as for greater trade in instances where recognition of, or convergence in, regulatory norms is required to permit foreign firms to contest the domestic market. Another type of cooperation is between regulators and is explicitly focused on expanding market access opportunities: aiming to address regulatory externalities that impede greater trade in services. The types of externalities that may arise will differ depending on the service activity. More cooperation on prudential regulation may be a precondition for trade in financial services and in information-based services to occur - for example, regulators may need to converge on a set of regulatory or data protection standards and establish that such standards are enforced. Competition agencies may need to have assurances that pro-competitive regulations apply in partner markets to ensure that gains from liberalization are not appropriated by international oligopolies. Particularly important is cooperation between regulatory agencies in host and source countries to allow greater temporary cross-border movement of natural persons that provide services - the experience of a number of successful bilateral labor agreements demonstrates that this is a precondition for arrangements that expand the “circular flow” of people. Mutual recognition of licenses and certification will often be another part of the equation. Sometimes there is no good reason to hold back on liberalization even when regulatory reforms and access widening policies take time to implement. This is true for reforms that are “additive” in that the benefit from trade reform is independent of the benefit from domestic reforms and each can be undertaken separately. Thus, for example, the powerful growth of mobile telephony even in institutionally weak countries like Somalia suggests that there is no economic reason to wait to liberalize until a universal access policy is put in place say in telecommunications. In other cases reforms are “multiplicative” in that a country would benefit more from trade reform if domestic reforms were also implemented (and vice versa), but the order in which the two are implemented does not matter. Thus, regulatory improvements and competition in transport are mutually beneficial but the sequence is probably not critical. However, in a number of situations, “sequences matter” in that if a country implements trade reform before the necessary domestic reform, then the long-term payoffs will be lower than if the opposite sequence had been followed. This can be for both economic and political reasons. In these situations, if the complementary reform cannot be implemented instantaneously, then there is a case for gradual liberalization. For example, in countries like Zambia and South Africa, the failure to introduce full competition in a sector such as telecommunications made it much more difficult to implement effective regulation because of the excessive economic and political power of a monopolistic incumbent. In other sectors the problem has rather been too much competition too early leading to a form of “regulatory overshooting”. For example, allowing new entry in banking without creating a mechanism to sift the sound institutions from the dubious led to disruptions that have had a durable effect on the development of the financial sector in many countries: the once-bitten depositor is skeptical of the benefits of banking and the once-bitten central bank excessively prudent with stability the main concern. The result has been the implementation of excessively stringent regulation that has itself become an impediment to access. Fora for learning and communication: “knowledge platforms”: There are two specific dimensions to the broad challenge of national regulatory cooperation and services policy reform: (i) addressing knowledge gaps - increasing information on regulatory experiences and impacts and identifying alternative options/good practices; and (ii) identifying the impact of - and the options for dealing with - the political economy constraints that impede the implementation of welfare improving reforms. A number of analysts including Geza Feketekuty (2010), one of the “fathers” of the GATS, have suggested that efforts to improve market access opportunities need to be complemented by other approaches. Feketekuty argues for a mechanism to share experiences.