The new Trade in Services Agreement, currently being negotiated by 24 of the world’s largest economies – but not the BRICS, may be well intentioned, but it is really all about market access and not true trade liberalization.

Interestingly enough, BRICS states are excluded from the TiSA negotiating process. Photo: AP

The whistleblower website Wikileaks scored a coup at the beginning of June, obtaining and publishing large portions of the upcoming “Trade in Services Agreement” (TiSA). Currently being negotiated by some of the world’s largest economies (but with several notable countries excluded, including Russia), the TiSA is meant to liberalize services trade in an update of the WTO’s General Agreement on Trade in Services (GATS) from 1995.

However, Wikileaks’ publication of TiSA’s various annexes has helped the usual ragtag coalition against free trade assemble and rail against the perceived secret dealings of the agreement. Indeed, conspiracy theorists, leftists against “corporate domination” and in favor of large amounts of regulation, socialists and communists who think that allowing any trade outside of the state is impossible, union leaders threatened by competition, and many others have all begun to publicly denounce TiSA.

But lost in this cacophony of paranoia are deeper economic questions regarding the expected impact of the agreement, or whether it is even the right vehicle to reach the desired goal of liberalization. While wrong on the specifics, the conspiracy theorists may actually have a point about the nature and philosophy behind the agreement. TiSA may actually be a bad approach to a good outcome.

Liberalizing services trade

Unlike liberalization of trade in goods, which has stalled at the multilateral level for the past 15 years with the death of the Doha round, liberalization of services has been a much more vibrant area for policymakers. Indeed, with the expansion of the services industry across the globe and the creation of new industries that didn’t even exist 20 years ago, there has been a clamoring for updating the World Trade Organization’s approach to services.

Taking the WTO’s GATS as a starting point, the TiSA has been in negotiations since 2013 to expand the liberalization of specific services, creating new binding commitments for governments in the area of financial services, telecoms, maritime services and other important areas of the new economy.  

In its current form, the TiSA is being negotiated amongst 24 existing WTO members, but is in theory open to any nation to join. The current parties to the agreement represent approximately 70 percent of all trade in services worldwide, and thus the potential impact of increased trade could be substantial.

Moreover, there is a hope from these countries involved to go beyond the relatively small number of participants; the EU explicitly notes on its website that TiSA should be used as a vehicle to restart the moribund Doha round and continue liberalization in trade in goods as well. Additionally, the joining of the agreement by more countries could lead to TiSA becoming enshrined as part of the WTO (rather than merely a multilateral agreement).

Building an agreement without the BRICS

Given these relatively anodyne goals, what could possibly go wrong? One of Wikileaks’ claims on TiSA, and one picked up by countless other commentators such as The New Republic, is that the BRICS countries have been “left out” of the agreement. Why would this be so? In the first instance, any deliberate program to exclude the BRICS countries would not be driven by a sinister conspiracy of corporations.

Indeed, it has been multinational corporations that have been pushing for much greater market access to China’s lucrative market, and who have little presence in the locally dominated (and quasi-state-owned) markets of Brazil, India or Russia. Excluding the BRICS countries would be directly antithetical to the interests of many companies, which should be searching for a way into India and Brazil.

Perhaps there are thus geopolitical reasons behind the snub. One need look no further than the list of countries included to explore this idea, as Chinese Taipei (Taiwan) is already on board as a signatory of the TiSA. With Taiwan already a party to the agreement, the People’s Republic may be reluctant to also join up (even though both are members of the WTO).  

But this explanation is directly contradicted by the reality that China (Beijing) has already requested to join the TiSA talks in 2013. In fact, there were many worries that China was asking to join only to sabotage it from the inside, a tactic it had taken with the Information Technology Agreement (ITA). Even with this eventuality, as of today, China remains the only country of the BRICS that has expressed an interest in joining.

Thus, the explanation for the BRICS’ “exclusion” may be simpler than conspiracies or geopolitical posturing, and derive from the BRICS themselves. In reality, the BRICS have voiced their opposition to the agreement for some time, ironically claiming that such multilateral agreements would undermine the WTO and issues of transparency (researchers at the Petersen Institute for International Economics also note that TiSA would dilute the BRICS’ own bargaining power).

This opposition to the institutional framework of the TiSA dovetails with the tiny appetite for trade liberalization in general that the BRICS outside of China have shown over the past decade, and it is not surprising that they would not be pushing hard for liberalizing their own service sectors. Indeed, the BRICS body itself has been pursuing multilateral integration measures that have taken precedence over WTO-led liberalization, while Russia has been forming the Eurasian Economic Community with little input from the WTO on services liberalization. The only opposition to the BRICS joining the TiSA comes from the BRICS countries themselves.

Trade liberalization or market access?

Even without being explicitly directed at the BRICS, this does not mean that TiSA is still the appropriate vehicle for trade liberalization in services. In fact, the real problem with something such as the TiSA is not that it represents some shadowy corporate world, but that it is not representative of true trade liberalization.

The concept behind the agreement remains that governments should pick and choose amongst themselves on which avenues of trade are important and need to be freed, and which should remain closed. Economic theory predicts and real-life experience confirms that trade liberalization is best when it is done quickly, comprehensively, and with or without reciprocity from partners. Every consumer gains from trade (even if some producers don’t), and unilateral liberalization is theoretically easily accomplished; scrap all tariffs and non-tariff barriers, and trade flows increase. No negotiations are necessary.

Thus, agreements such as TiSA are about market access, not necessarily liberalization, prying open closed markets for commercial benefits with the negotiating party. As governments continually retain the right to intervene in trade, agreements such as TiSA reflect a mindset of partial liberalization, and one that is only done on strategic grounds. While any move towards liberalization can be beneficial, there is not necessarily the same extent of benefits that can come with piecemeal liberalization.

Moreover, trade agreements have a tendency to put up more barriers to trade or, at least, require new bureaucracies to navigate such obligations as rule of origin. While these obligations are more binding for trade in goods than services, they are also part of the mindset of any agreement that doesn’t include every country in the world. There must be some exclusion possible, to make sure that other countries do not free ride off of the gains of others.

This also brings up additional issues. How, for example, does one exclude a service from a country that may not be a party to the agreement? In a globalized world, saying that an accounting firm in Moscow cannot provide financial services in Turkey because Russia is not a signatory to TiSA makes little sense, if that firm’s Turkey office can do the job. This reality can also increase burdens to signatory governments that have little to do in the way of actual free trade.

In short, the TiSA has many flaws in its character, but these come from the philosophical mindset that trade is a bargaining chip that can be negotiated, and not from any attempt at “corporate domination.” And, contra the worries about the BRICS countries, it is highly unlikely that the BRICS are standing on a firm commitment to unilateral liberalization by not joining TiSA.

It is more likely that Moscow, New Delhi, or Brasilia do not see TiSA as offering the same opportunities as other vehicles. In this case, both those on the outside and those on the inside of the TiSA are unaware that they are actually all in agreement about the ends, they just quibble on the means.

The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.