Regional trade agreements and trade costs in services

Abstract

This paper analyses the relationship between regional trade integration and trade costs in services industries. The empirical analysis relies, on the one hand, on a dataset of theory-consistent bilateral trade costs calculated for 61 countries over the period 2000-2011 and, on the other hand, on an analysis of services commitments in 66 regional trade agreements to which these countries are parties. Despite the proliferation of services RTAs in the past decade, we do not find significantly lower bilateral trade costs among countries having signed such agreements. Several possible explanations are discussed. First, the gaps in services trade data and the difficulty to account for all modes of supply could influence our results. Second, the nature of services trade liberalisation makes it difficult to discriminate between domestic and foreign service providers (thus not impacting the relative costs they face). Third, there is no clear evidence that countries signing services RTAs do intend to create actual preferences for companies in partner countries. Services RTAs are about preferential “bindings”. Regionalism in the case of services seems non-discriminatory and does not lead to trade preferences.