Trade Negotiations Insights • Volume 9 • Number 9 • November 2010

Cross-border trade in services: Barriers and opportunities in EU services markets for ACP exporters

Leonor v. Limburg

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African, Caribbean and Pacific (ACP) countries are increasingly interested in trade in services, and for good reason. From 1990 to 2006, world exports of services more than tripled to over US$ 2.8 billion. Expanding services sectors are typically associated with higher merchandise exports and increased productivity. The EU, a long-time close trading partner of the ACP, is the world’s largest exporter and importer of services. In 2007, the EU imported more than US$ 400 billion of services from the rest of the world.

Trade in services is notoriously difficult to measure and monitor. Identifying barriers to services exports can be equally challenging. Impediments to trade in services usually come in the form of non-tariff barriers instead of simple tariffs. Some of these barriers are embedded in domestic laws and regulations. Such legal impediments to cross-border trade in services are often overlooked in discussions on market access because they do not directly and specifically discriminate against foreign providers; instead, they are designed to protect existing providers from both domestic and foreign newcomers.

Taken together, all of these factors help foster the mistaken perception that markets for services are relatively open. In truth, it was only recently, after the adoption of the EU Services Directive in 2006, that the EU internal services market really started to open. For services providers outside the EU, however, most of the existing barriers remain in place.

Legal and non-legal barriers to trade in services in the EU

Barriers to trade in goods within the EU were dismantled much more quickly than barriers to trade in services, a consequence of the high level of sensitivity in many services sectors. Some of the EU’s most important legal barriers to trade in services include restricted access to distribution channels; quotas governing the number of providers in a market; territorial restrictions; nationality and residency requirements; lengthy and complicated authorisation and registration procedures; restrictions on real estate purchases; and difficulties in the recognition of professional qualifications.

Not all of the barriers to trade in services in the EU are related to laws and regulations, however. Demands and requirements on the side of buyers, although not legally binding, can also pose serious obstacles to services exporters. In consumers’ perception, the quality of a service is highly linked to the image and reputation of its provider. Consumers want to make sure that their needs and demands are well understood. De facto barriers thus exist when foreign services providers are unable to effectively demonstrate their capabilities in a market or communicate with their potential customers. These market-determined or “soft” barriers can be as serious impediments to cross-border trade in services as legal ones, yet they are often taken lightly by exporters and trade support institutions. Examples of these barriers include: lack of credibility and profile; insufficient language competences; cultural distance; difficulties to travelling travel to the market; and a lack of access to relevant networks and information channels.

Obtaining information about EU services markets

ACP countries have repeatedly stressed that their services exporters and trade support institutions need help understanding the intricacies of European services markets. Information and resources available online are growing but remain limited in number and scope.

The World Trade Organization (WTO) provides ample information about trade in services via its WTO - Services Gateway Page but the information there is targeted toward policymakers, negotiators and researchers - not exporters.

In accordance with the WTO’s General Agreement on Trade in Services (GATS), every EU member country has established a GATS enquiry point to provide direct support to services exporters and facilitate access to information for services providers from developing countries. For this support to be effective, however, potential exporters have to be able to formulate specific information requests. Moreover, the enquiry point has to have the capacity to provide highly detailed, sector-specific information in response. This is not always the case. In various EU countries the GATS enquiry points are staffed by a single person within the trade or economic ministry; that person, who likely has other duties to attend to as well, often does not have time to respond to each request comprehensively. In the best-case scenario, in which specific requests do receive a comprehensive answer, the responses are not systematically documented and made public. Thus, other potential exporters cannot profit from the information.

Many EU member states directly offer information of interest to services exporters via the websites of their trade and investment agencies, their ministries of economics and their institutions that deal with the recognition of professional qualifications, among others. Yet, to find and systematise all of the relevant data in order to assess opportunities and constraints requires a good deal of time and effort since the information is scattered across various sources and is often provided only in the national language.

Another potential source of information, the EU Export Helpdesk, was established by the European Commission as an online resource for developing country exporters looking to tap into the EU market. But while the site provides information and assistance to exporters of goods, it does not address the needs of services exporters

Thus, for ACP services exporters and support institutions it remains difficult to obtain specific, structured and ready-to-use information. Although online resources are rapidly expanding, they mostly provide general information about different aspects of trade in services. Only recently have studies on sector-specific opportunities and constraints in EU services markets become available.

Examples of such studies include reports commissioned by the ACP Business Climate Facility for the sectors of business professional and audiovisual services, as well as the reports provided online by the Centre for the Promotion of Imports from Developing Countries for the sectors of engineering, business processes outsourcing and information technology services. Additionally, the International Trade Centre (ITC) provides online access to some tools and resources for services exporters, including publications on quality standards for services, as well as tools to assess export readiness and to design services export strategies.

To truly close the information gap, however, will require greater effort. One way to do this would be to encourage an ACP trade support umbrella organisation to establish an online information portal comparable to the EU Market Access Database. Through easy access to a user-friendly information centre, potential service exporters could evaluate market access conditions and requirements by sub-sector in the different EU countries. While in the initial stages the tool might not be able to answer all requests, in time it could become a well-visited reference centre. Its success will largely hinge on whether it can effectively compile the rapidly expanding body of information aimed at assisting service exporters that is currently scattered in different places. Another possibility would be to expand the EU Helpdesk to address services exporters. These two possibilities are not necessarily mutually exclusive, but coordination would be required to avoid duplicating efforts and to ensure broad coverage.

Issues and trends in selected EU services sectors

Healthcare related professional services

ACP countries have identified professional healthcare services as one of the sectors in which they would like to focus the development of their services export capacities. Yet access to the EU healthcare services market is difficult for non-European professional healthcare providers, especially if they aim to provide services under mode 4 of the GATS (temporary movement of natural persons). The restrictions are partly grounded on ethical concerns (policymakers do not want to encourage the emigration of professionals from developing countries that face much more severe shortages of healthcare providers). Another important reason is the now-challenged view that the growing demand for healthcare services in the European Union could be more than sufficiently serviced by EU nationals, thanks to both the surge in the number of healthcare professional graduates in recent years as well as the EU’s expansion.

In France and Germany, the exercise of healthcare occupations is in principle reserved for European citizens (that is, nationals of EU countries, of the enlarged European Economic Area, or of Switzerland). A restricted permit can be obtained in the case of a demonstrated shortage that cannot be filled by a European, provided that the candidate demonstrates comparable qualification to that of a national graduate and proficiency in the national language. In the UK, work permits for healthcare providers can only be granted to non-EU nationals if the enquiring person’s profession appears in the national occupations shortage list. The person also must have a concrete job offer, have registered at the corresponding professional body, have demonstrated the equivalence of their qualification to those of UK graduates, and be a proficient English speaker. The recognition of professional qualification in the healthcare sector is a lengthy and demanding process in most EU member states.

Computer-related professional services

The services market for computer-related professional services was relatively open during the booming economic periods in the mid-1990s and mid-2000s. Many EU countries easily granted special waivers and work permits to IT specialists to help solve the perceived “skills gap.” The situation changed drastically in response to massive job losses in the IT sector resulting from the 2008 economic crisis. But the barriers determined by the market are more serious than the barriers currently imposed by the unfavourable economic landscape. EU firms looking to contract IT services abroad consider language proficiency and cultural closeness a must. They also want their contractors to keep close personal contact with clients and to maintain a Western business style.

Maritime-related professional services

The services market for maritime-related professional services has traditionally been one of the most fiercely protected, and not without reason. Almost 90 percent of EU trade with the rest of the world and 40 percent of intra-EU trade is transported by sea. One quarter of the world’s shipping tonnage is registered under EU flags and around 40 percent of the global shipping fleet is owned by EU nationals. Yet, market conditions might be inducing the opening up of this sector. Of particular concern is the serious and growing shortage of EU seafarers, as fewer and fewer young people are choosing a maritime profession. Besides making strong attempts to build up the EU seafarers’ pool, EU authorities are also increasingly encouraging worldwide compliance with international labour, social and environmental standards. If current trends continue, they will need to consider how to best integrate non-EU seafarers into EU maritime operations.

Looking ahead

The constraints and opportunities that shape the trade landscape change over time, sometimes rapidly. New economic circumstances can trigger non-legal, market-driven barriers that can discourage foreign services providers in sectors in which they used to enjoy easier access. On the other hand, changing economic circumstances can also create opportunities in sectors traditionally closed to services exporters. Domestic regulation and trade agreements respond, albeit slowly, to shifting market and economic conditions. Therefore, in addition to seeking improved market access, developing countries should also enhance their ability to track and react to market and economic developments. By identifying and addressing the supply-side constraints in their services sectors, developing countries can take an important step in that direction.

Leonor v. Limburg is an international trade consultant. This article summarises the main findings of a study commissioned by GTZ on behalf of the German Ministry for Economic Cooperation and Development (BMZ) and conducted by Dr. Leonor v. Limburg. The study can be accessed at http://www.gtz.de/en/dokumente/gtz2010-en-eu-services-markets.pdf

For more on trade in services, please see the article by Paul Brenton on page x of this issue, as well as our TNI Reader on Trade in Services, a compilation of articles published on this topic in TNI from 2006 to present. It can be accessed at: http://www.ecdpm.org/wb