The Economics and Political Economy of Going beyond the GATS

This paper addresses the economic and political economy factors explaining why countries agree upon services commitments in regional trade agreements (RTAs) going beyond the General Agreement on Trade in Services (GATS), what we call the `commitments gap’. Using a unique dataset comprising of detailed schedules of services commitments disaggregated by sub-sectors and covering almost all countries that are members of a services RTA, we are able to quantify the extent to which geographical, systemic as well as economic and institutional forces drive countries to commit further in RTAs than in a multilateral setting. Strong explanatory factors are asymmetries between negotiating partners and market size, together with endowments in mid-skilled labour and institutional governance. Whereas some of these forces explain why countries commit beyond GATS, others are significant determinants that lead countries to withhold commitments in their RTAs. We also find strong differences between services industries providing evidence that not all economic and political economy factors are of equal importance for all services. For instance, financial and construction services often diverge significantly from our general pattern of explanations.