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Contents Introduction

This paper examines welfare effects of preferential access to a service sector by a preferential trade agreement (PTA) in services. The analysis is conducted with a model wherein the domestic service market is assumed to be imperfectly competitive. This paper also investigates the incentive for the service providers from the partner country of the PTA to compete with or collude with the domestic monopolist. The results indicate that the pro-competitive effects of the PTA cause the total profits of the partner country based firms to increase and makes the domestic consumer better off. In addition, even in situations where collusion with the domestic monopolist is permitted, the partner country’s service provider usually opts for competition with the domestic monopolist if there exist few restrictions for the supply of service in the domestic market.