Crafting an Innovation-Enabling Trade in Services Agreement

Liberalization of trade in services has long taken a backseat to trade in goods, despite the fact that services account for around 70 percent of the global economy. While not all services are tradable, technological innovation has allowed more services to be traded by small and large firms alike. However, barriers to service trade are most clearly visible when leading firms—often large and on the cutting edge of technology and business practices—enter service sectors that have traditionally been heavily protected from competition, a protection that results in large numbers of small and inefficient firms.

In response to this disruptive competition, many countries are using regulations as a protectionist tool. By not fully addressing non-tariff trade barriers faced by technology-based service firms, the international trading system limits gains from efficiency and innovation that have the potential to significantly benefit most consumers globally.

To update rules governing the global trade in services for the digital age, 23 economies have joined together to negotiate a Trade in Services Agreement (TiSA). Provided the agreement effectively supports trade in innovation-based services, it has the potential to create a trade environment that would significantly spur global innovation and associated productivity.

The report underscores the need for the United States, the European Union, and other countries to pursue a high-standard agreement that creates a new global framework of rules for services trade. If the ambitious countries behind TiSA cannot do this, then it will become easier for countries, such as China, to erect more barriers to modern services trade. Specifically, a high-standard TiSA should:

1. Provide non-discriminatory and open-market and investment access to a broad range of service sectors.
2. Clarify how countries treat modern services in their market access commitments, as current trade rules use outdated definitions and classifications of service categories. To prevent this happening again, TiSA should include a “future proofing” mechanism that addresses how members treat new types of services.
3. Require members to extend any market-access concessions made in future bilateral and regional trade deals to members of TiSA.
4. Contain new rules to support and protect e-commerce and the free flow of data. Central to this are rules to prohibit barriers to the free flow of data by all service sectors in the agreement and improved access for firms to provide services through whichever process is required (via the Internet, investment, or personnel).
5. Have rules and a process that reduce members’ ability to use discriminatory regulations to target ICT-based service firms.
6. Improve the governance and transparency of regulations that affect services trade.