Regulatory harmonization is important for the long-term profitability of the Asia-Pacific services sector. Photo: iStock
Regulatory harmonization is important for the long-term profitability of the Asia-Pacific services sector. Photo: iStock

Preliminary research has found that it is in the best interest of Asia-Pacific services trade partners in emerging sectors to access the largest possible legal framework, and from within that framework raise the standards of membership in terms of domestic regulation harmonization.

As the World Trade Organization (WTO) member states have not agreed on an exhaustive list of sectors to be covered under the General Agreement on Trade in Services (GATS), economic integration in the emerging services sectors lags behind the global needs of corporate supply chains.

Not surprisingly, service-oriented economies in the Asia-Pacific markets are moving away from the sluggish WTO system to seek further avenues of trade liberalization at the mega-regional level, in particular through the Trade in Services Agreement (TiSA) proposed by the European Union. However, adding yet another regulatory layer to the intricate framework of global trade in services may have the unintended consequence of encumbering the economic integration process of service-oriented markets.

To assess the costs and benefits of the TiSA, and thus to formulate priorities and objectives in negotiations, it is necessary to understand the normative and economic implications of the regulatory adjustment of multilateral trade in services for the Asian economies involved in the TiSA negotiations.

The purpose of such evaluation is to analyze whether these countries should either embrace the EU-inspired framework of trade in services, insist on the existing WTO-GATS system, or circumscribe their services trade regulation efforts within legal environments of regional economic integration, such as the Regional Comprehensive Economic Partnership (RCEP). Evidence-based analysis of this kind requires empirical models of emerging service sectors, particularly those with network properties, such as resources distribution, waste disposal and telecommunications.

In particular, the mobile telecommunication industry’s situation within the potential TiSA environment shows empirical relevance to identify whether domestic market regulation and/or market access influence the profits of firms operating within the Asia-Pacific jurisdictions covered by TISA.

In this perspective, preliminary findings of an empirical model developed with Dr David Treisman of Monash University in Melbourne are evidence that restrictiveness in terms of domestic regulation and market access contributes to profits of firms providing mobile telecom services.

However, domestic regulation maintains a positive coefficient, whereas market access maintains a negative coefficient.

The next relevant question therefore is whether the TiSA initiative is better suited than the existing WTO-GATS framework to regulate this ever increasingly complex economic environment at the multilateral level across the Asia-Pacific region.

However, creating a split system of services trade liberalization would further unsettle the WTO system at a time when it is struggling to keep relevant to emerging business sectors that both produce and distribute a homogenous type of service internationally. On this basis, Asia-Pacific economies should look at the formation of a regional trading area under the TiSA only to the extent that it can produce scale effects and, in turn, enhance trade.

Another condition should be that further gains can be achieved through the creation of common higher standards, in line with empirical evidence and cost-benefit analysis showing greater profits in networked services crossing borders harmoniously.

In essence, for emerging services firms with networked operations across Asia-Pacific markets it is more profitable to enter the largest possible services trade “club” (be it GATS, TiSA or a regional partnership) and, once they are in, it is in the new members’ interests (that is, more profitable) to raise the standards of membership in terms of domestic regulation harmonization, provided that the normative crossover with other trade instruments does not offset the economic gains with increased transaction costs of participating in a larger regulatory environment.

Dr Giovanni Di Lieto teaches international trade law in the International Business program at Monash University in Melbourne, Australia, and engages in expert analysis on the geopolitics of trade and investment for media, industry and government outlets. His professional career developed as a commercial law practitioner in Italy, and then as a global value chain specialist across the US, Europe and China.