March 2011
Ministry of East African Community Affairs (MEACA)
1.0 INTRODUCTION
1.1 What is a Service?
Services, though hard to define, are present in every part of our lives. Services contrast with the goods we buy, which are physical, tangible items, such as a piece of fruit, a table, a car or the petrol to put inside it. A service on the other hand, we also pay for, and can include among other things:
i. A haircut
ii. A ride in a taxi
iii. A night in a hotel
iv. A class at school or University
v. A loan from a bank
vi. An operation in a hospital
vii. Airtime minutes on a mobile phone; or
viii. Representation by a lawyer in court.
All of the above are purchased by a customer/user with money, or are provided by Government and paid for through taxation. They contrast with goods in that they do not leave the customer with an object in their hands afterwards – they are intangible.
Services are often intrinsically tied to goods. For example the food we buy in the market consists of goods, but the transportation of the food to the market is a service, and the retailer selling to us the good is also providing a service. As a result, services in our economy are of great value, constituting the same proportion of total output or gross domestic product (GDP) as goods. Around half of Uganda’s GDP is from services, compared to around a quarter from Agricultural goods, and a quarter from Industrial goods.
1.2 How is trade in services defined?
Trade in services refers to a situation where the provider and consumer of the service are from different countries. This trade is different from trade in goods, mainly because the service provider usually needs to be in the same place as the customer – for example both the hairdresser and a woman having her hair cut must be in the same room, haircuts do not pass across borders in the way that traded Maize or Televisions do. However, the hairdresser may be a Kenyan working in Kampala, or the Ugandan woman having the haircut could have gone to Nairobi to have it done. In such cases, trade in services is taking place.
Since services are so diverse, trade in services can be a difficult concept to define. Therefore, rather than define services or trade in services, we can define the means/modes of provision of services. According to the World Trade Organization (WTO), there are four modes for provision of services. These are as follows:
1. Cross – border supply:
This mode of provision of services is most similar to trade in goods, in that the service crosses over national boundaries. This could include a Ugandan television station purchasing a Tanzanian TV programme to play on the national channel; the programme constitutes a service import for Uganda and an export for Tanzania. It could also include a Ugandan taking a flight from Kampala to Mombasa on a Kenya Airways plane; the payment to the airline is a service export.
2. Consumption abroad:
Under this mode, nationals of one country travel to another country to receive the service. This could be a tourist coming to Uganda. Staying in hotels, visiting National Parks and taking transport around the country – in this case the tourist is importing services from Uganda. It could also include a Ugandan student going to a University in Burundi, and thus importing educational services from that country. It could also include a Rwandan coming to Uganda to have an operation in hospital; in such a case Uganda would be exporting health services to Rwanda.
3. Commercial presence:
This mode involves the presence of the supplier within the importing country. This is where a service provider, a business, moves to another country to set up and export its services. This could include a branch of Kenya Commercial Bank (KCB) in Uganda, in which Kenya would be exporting financial services to Uganda. It could include a Ugandan construction firm going to Tanzania to build a road, in which case Uganda would be exporting construction services to Tanzania.
4. Presence of natural persons:
This mode involves the temporary presence of people who are themselves service suppliers, or are employees of businesses that are service suppliers. This could include a Ugandan Information Technology (IT) expert who travels to Rwanda to provide his services for a client based there, in which case Uganda would be exporting IT services to Rwanda. It should be noted that this mode refers to temporary movement and not permanent immigration.
1.3 What is the classification of services?
Services can also be classified into 12 key sectors, which are subsequently divided into further sub- sectors. These sectors show the variety of services that are provided. The 12 sectors are:
1. Business services
2. Communication services
3. Construction and Engineering Services
4. Distribution services
5. Educational services
6. Environmental services
7. Financial services
8. Health – related services
9. Tourism and travel related services
10. Recreational, cultural and sporting services
11. Transport services
12. Other services not included elsewhere.
2.0 WHY IS TRADE IN SERVICES PART OF THE EAC COMMON MARKET?
Services play an important role in terms of production, investment, employment and trade within our economies. This includes for EAC Partner States of Uganda, Kenya, Tanzania, Rwanda and Burundi. In Uganda, services make up half of the economy. Uganda currently spends approximately shs 16 trillion on trade in services. Three service sectors make up over half of the total; they are: wholesale and retail trade, real estate, and education.
EAC Partner States recognize the importance of services to their respective economies and the benefits to be gained from increased competition, efficiency, and economies of scale from trade. They have therefore undertaken to liberalize trade in services. Greater trade in services could result in increased overall growth. A Common Market for trade in services allows the EAC to develop into a single market by leading to harmonization of rules and regulations and thus increasing the size of the market, making it more attractive for domestic and foreign investors.
3.0 WHAT DOES THE EAC COMMON MARKET PROTOCOL INCLUDE ABOUT TRADE IN SERVICES?
3.1 General
The EAC Common Market Protocol lays down the rulebook for the economic integration of EAC Partner States. Part F of the Protocol contains the obligations with respect to trade in services. The Protocol guarantees that Partner States will progressively remove all barriers to trade in services and shall not introduce any new restrictions.
The Protocol provides for a guarantee of National Treatment whereby each Partner State shall give service providers from other Partner States the same treatment as service providers from their own country. This effectively will mean free competition for service providers across the EAC.
The Protocol commits Partner States to guarantee the free movement of services supplied by nationals of Partner States, and the free movement of service suppliers who are nationals of the Partner States within the Community – this is a broad commitment to free movement of all service suppliers in all sectors in all Partner States.
3.2 Domestic Regulation
The liberalization of a service sector does not mean that the sector will not be regulated. The Protocol allows for regulation of service sectors in accordance with national policy as long as they are consistent with the Protocol and do not constitute barriers to trade in services. Regulation will therefore still apply to many service sectors, for example, regulation of education services to ensure that the quality of education is maintained.
3.3 Schedules relating to trade in services
Each EAC Partner State has its own set of commitments with respect to trade in services, which are contained within Annex V to the Protocol. This means that not all sectors are to liberalize at the launch of the Common Market in 2010, but that certain sectors are to be liberalized at certain times up to 2015.
The initial round of service liberalization has focused on some core service sectors. Each Partner State has agreed to liberalize sub-sectors within seven initial sectors:
1. Business services
2. Communication services
3. Distribution services
4. Educational services
5. Financial services
6. Tourism and travel related services
7. Transport services.
4.0 WHAT DOES THIS MEAN FOR SERVICE PROVIDERS AND CONSUMERS IN UGANDA?
4.1 Increased opportunity and increased efficiency through competition
For Ugandan service providers, the main benefit of liberalization is that they can now compete in the service sectors of other EAC Countries. To take advantage of the liberalization of services and the Right of Establishment, businesses will need to take some steps to ensure they are eligible to supply services in other Partner States. These include:
1. To establish a business in another Partner State firms must register their business and obtain the relevant travel documents.
2. Explore whether the Protocol provides opportunities for your particular business in the target country. Refer to the protocol, or visit the MEACA website (http://www.meaca.go.ug).
The main concern of many service providers in Uganda is that there will be a flood of competition from Partner States as the Common Market moves forward. However, for many businesses there will be little change as in Uganda many sectors have been open for some time (for example, telecommunications and banking). In some other sectors businesses will have to prepare for increased competition as firms from other Partner States enter the Ugandan market. In such cases, businesses should focus on increased efficiency while improving the quality of the services thy offer, and therefore their competitiveness.
4.2 More options for Ugandan consumers
A Common Market for trade in services will allow service providers from other Partner States to access the Ugandan market. This will result in more competition and better services for consumers. Consumers will have more options and competition should help to bring down prices for services. Competition should also help improve customer service and provide access to EAC best practice in service provision. This in turn will help develop Uganda’s productivity and boost the economy.
5.0 SERVICE SECTORS LIBERALIZED BY EAC PARTNER STATES
Tables exist of all the service sectors liberalized by each Partner State and the date by which they should be liberalized. Detailed information can be accessed from the contact: meaca@meaca.go.ug
Uganda’s Ministry of East African Community Affairs (MEACA)
2nd & 9th Floor, Postel Building
Plot, 67/75 Yusuf Lule Road, Kampala
P. O. Box 7343, Kampala
Tel : +256 414 340100
Fax : +256 414 548171
Email : meaca@meaca.go.ug
Website : http://www.meaca.go.ug
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