GATS 2000: New Directions in Services Trade Liberalization

By Pierre Sauvé; Robert M. Stern | Go to book overview

COMMENT BY Bernard M. Hoekman

What is at stake in liberalizing services trade and investment? And what are the benefits and constraints associated with multilateral attempts to achieve such liberalization? These are the two major themes of part 1 of this volume. They are important questions. Clearly the greater the potential benefits of liberalization (the higher the costs of policies that restrict competition), the greater the priority that should be given to reform. There is therefore significant interest in seeking to quantify the potential benefits of liberalization. However, such reforms can in principle be undertaken unilaterally. This leads to the second question: why do it in a multilateral context?

The authors suggest a number of answers. One is the well-known political economy argument for multilateral trade negotiations: going to the World Trade Organization (WTO) may help overcome resistance to domestic reform if local forces with an interest in increasing exports can be mobilized to support liberalization. Another is that multilateral agreement can be a valuable mechanism for locking in or precommitting to reform, thereby reducing uncertainty and risk. Although reforms can and should be pursued autonomously, there is value in multilateral commitment, as it can help ensure that reforms are maintained over time through the threat of dispute settlement. The classic argument is that negotiation is required in order to get other countries to reduce their barriers on a reciprocal basis.

Rolf Adlung believes that governments generally have a conservative social welfare function and that the costs of reform weigh much more heavily than the benefits.1 However, forces are emerging in the services context that facilitate (unilateral) reform: users of services have an incentive to oppose inefficiencies; technological change is making it difficult to maintain traditional rents; and the adjustment costs associated with greater competition are more manageable politically because labor tends to perceive fewer downsides from services liberalization. The implication is that much can be (and is being) achieved unilaterally. Why, then, pursue reform through the WTO? The main answer, Adlung suggests, is to achieve "lock-in" and commitment objectives. Hence a key policy issue is how to

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1
See Corden ( 1974).

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