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GETTING A GRIP ON THE GATS
Keeping up on global trade developments, how they affect businesses
and the economy at large, is a tough job these days. The agreements
are complex, the implications far-reaching and the availability
of reliable information, scarce. That’s why the AmCham Trade
Related Assistance Center (TRAC) is here to help, and I’d
like to remind our members and subscribers why its resources are
so vital.
The world has changed since the agreement establishing the World
Trade Organization (WTO) was signed in 1994, along with several
annexed agreements: the General Agreement on Tariffs and Trade (GATT)
and the Trade-Related Aspects of Intellectual Property Rights Agreement
(TRIPS). We are somewhat familiar with the GATT and the TRIPS, which
have been under widespread discussion in government, the business
community and the press for a while.
But there’s a third agreement that has as much if not greater
importance, namely the General Agreement on Trade in Services (GATS),
which is often confused with the GATT. To simplify matters, the
GATT focuses on trade in goods, while the GATS focuses on trade
in services. But whereas there have been many trade agreements for
goods in the past, there is no equivalent to the GATS. It’s
the first multilateral agreement applied to services, so it raises
new issues that will affect local legislation and the direction
of many enterprises.
So what exactly are the services affected by the GATS, and why are
they so important?
For one thing, services account for a whopping 68 percent of global
GDP and 50 percent of the GDP of developing nations, including Egypt’s
(approximately 52 percent). So what are they?
The GATS uses a classification system of 12 core service sectors
and around 166 sub-sectors. The 12 core sectors are professional
services (i.e. accountants, lawyers), computer services, communication
services, construction and engineering related services, distribution,
educational, environmental, financial, health, tourism, recreational
and transport services. No wonder the service sector represents
such a large block of our economies – it’s practically
everything we do. But the point is that now, all these activities
will come under the global WTO umbrella. What does that mean to
us? Plenty.
Services, more than industry, are labor intensive. They provide
jobs for over 54 percent of Egypt’s work force (developing
countries average 40 percent) as compared to industry’s 14
percent. Tourism, a single service in the GATS classification, represents
11 percent of our GDP. Egypt has a trade deficit in goods of around
$5 billion, but a trade surplus in services of over $6.6 billion.
In fact, approximately 70 percent of our exports are in services.
Now consider that service-related investment accounts for more than
60 percent of all global FDI, and has increased at a stunning rate
from around $5 billion in 1990, to $5 trillion within the last 15
years. Clearly, services are a growth industry, one in which Egypt
has a big stake, and one where our human resources, if well-managed,
are an outstanding asset.
The future of our service sector, however, hinges on the GATS, how
it is negotiated and the conditions applied. Just as trade agreements
involve establishing quotas and tariffs on goods, GATS must be negotiated
to protect our service sector interests while maximizing our export
capabilities. With the GATS, foreign commercial entities can set
up shop in Egypt, and we have to decide where, and how, and what
we have to win or lose by their presence. In short, the GATS will
impact levels of market access and of national treatments (treating
foreigners like Egyptians under certain business laws).
If Egypt’s stated objective is to improve economic growth,
then the service sector is key. Handled with care, the GATS can
create much-needed new jobs, upgrade local standards, provide training,
technology and knowledge exchange – all the tools we need
to improve our competitiveness. But we need to know the rules and
develop strategies, because like all global trade agreements, the
GATS can cut both ways.
Private sector decisionmakers have a lot of work ahead if they’re
to benefit from the GATS. They need to study the situation, reach
a consensus within their particular area of service on how much
they are willing to open up, and appoint representatives to lobby
their positions with government. The government, in turn, must vet
its decisions with the business community. As the driving force
of our economy, the private sector has to participate in the GATS
process to make sure we can live with whatever conditions are negotiated.
Once commitments within the GATS framework are made, they are binding,
and breaches carry penalties.
Establishing TRAC was a campaign promise and one of my goals as
AmCham president because these trade agreements will change our
lives. TRAC is here to help make the change positive and I encourage
everyone to take advantage, and participate.
TAHER HELMY
President, AmCham Egypt
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