Answer to Chapter06

Problems

1.What are the sources of preferential treatment?

2. In which condition will the preferential liberalization be welfare-enhancing?

3.How do sunk costs in service industries influence new entry?

4. How to understand the optimum regulatory areas?

5. What are the key disciplines governing trade and investment in services and areas of greatest rule-making convergence between the multilateral and regional levels?

6.Why does RTAs provide for a right of non-establishment in its generic investment disciplines?

7. How to understand “the rule of origin” adopted by RTAs in its investment disciplines? 8．What are the two major approaches in services liberalization manifested in RTAs or in the WTO?

9.What is the positive list or ‘‘bottom-up’’ approach or hybrid approach in services liberalization?

10.What is the negative list or ‘‘top-down’’ approach in services liberalization?

11.What are the distinguishing features of negative listing?

12. What are the potential pitfalls arising from the use of negative listing?

Problems

1.What are the sources of preferential treatment?

Answer: Preferences depends on the instrument of protection in use. By imposing a quantitative restriction on services output or on the number of service providers, a country can allocate a larger proportion of the quota to a preferred source. Examples of the former abound in air, land and maritime transport, where countries often allocate freight and passenger quotas on a preferential basis, and in audiovisual services, where preferential quotas exist on airtime allocated to foreign broadcasts. Examples of the latter include restrictions on the number of telecommunications operators, banks or professionals that may be allowed to operate.Another common means of restricting access to service markets that lends itself to preferential treatment concerns limitations on foreign ownership. Preferences can also be granted through taxes and subsidies and another form of preferential treatment occurs through domestic regulations pertaining to technical regulations, licensing and qualification requirements.

2. In which condition will the preferential liberalization be welfare-enhancing?

Answer:When the protectionist instrument is a regulatory barrier that imposes a cost on the exporter without necessarily yielding a corresponding revenue for the government or any other domestic entity. In such circumstances, preferential liberalization will necessarily be welfare-enhancing. A country is likely to benefit from eliminating, even on a preferential basis, any excessive fixed costs of entry by removing unnecessary or needlessly burdensome qualification, licensing and local establishment requirements in professional and financial services.

3.How do sunk costs in service industries influence new entry?

Answer:Sunk costs matter because they have commitment value and can be used strategically by first movers to deter new entrants. The commitment value is stronger the more slowly capital