The Discriminatory Effect of Domestic Regulations on International Services Trade

In order to develop trade in services, the GATS aims to eliminate progressively discriminatory regulations, which apply to foreign suppliers. This paper looks instead at the trade effect of domestic regulations, which apply to all firms indifferently and do not intend to exclude imports. We propose a theory-based empirical test to determine whether or not these domestic regulations affect more foreign suppliers than local ones, through the sign of their effect on the trade margins. We then apply it on French firm-level exports to OECD countries in professional services. Our econometric results show that domestic regulations in the importing markets do matter significantly for trade in services. They reduce both the decision to export and individual exports. A 10% percent increase in regulations reduces services export values by more than 7% and the probability of exporting with respect to that of not exporting by 2.8%. This result tends to prove that domestic regulations are discriminatory de facto even if they are not de jure.