Trade in Services and the Doha Development Agenda World Bank Institute
10 October , 2006
OVERVIEW Will Martin World Bank
Three questions: I. What is trade in services? II. What are the barriers and how big are the gains from liberalization? III.What are the priorities for services negotiations in a development round?
2
What are Services? 1. 2.
3.
4.
5.
6.
Business services Communication services Construction services Distribution services Educational services Environmental services
7. 8.
9.
10.
11.
Financial services Health-related and social services Tourism and travelrelated services Recreational, cultural and sporting services Transport services
3
A Wide Definition of Trade MODES 1. Cross-border Trade
EXAMPLE Software, insurance or telediagnosis from country B into A
2. Consumption Abroad
A’s resident obtains hospital treatment or education in B
3. Commercial Presence
Bank, telecommunications firm or hospital from B sets up foreign direct investment (FDI) subsidiary in A
4. Movement of Natural Persons
Engineer or doctor from B provides services in A
4
Services are becoming more important Figure N° 1: Trade in services has grown faster than trade in goods(compound growth, 1985=1) 4.0 3.5 3.0
Goods Services
2.5 2.0 1.5 1.0 1985
1987
1989
1991
1993
1995
1997
1999
2001
-and developing countries share in world exports have increased, 1986-2002 P er c ent
28.2
30.0
GOODS 25.0
20.0
18.0 14.2
15.0
17.9
SERVICES 21.9 21.3 17.6
18.1
22.7
24.6
24.6 19.9
16.8
17.4
17.4
13.6
10.0 1986
1990
1995
1998
1999
2000
2001
2002
5
Regional Distribution of Business Services Exports 600 1990
1995
2000
2001
515
531
In Billion US Dollars
500
400
375
300
266
200 130 114 91
100
58
21 19 11 14
3
4
14 17
6
11 16 15
0 Africa and the Middle East
South Asia
LAC
East Asia and the Pacific
OECD
Source: IMF Balance of Payments Statistics; Note: -The “Business Services” category includes Total Services minus Transportation, Travel and Government Services. Alternatively, Business Services consist of: Communication, Construction, Insurance, Financial, Computer & info, Other business, Personal, cultural and recreational services, as well as Royalties and License fees. 6
Average Growth Rate of Exports of Business Services for Selected Countries, During 1995-2000 India
43% 28%
Israel Do minica
20% 20%
Brazil
19%
M auritius Nicaragua
15%
Estonia
14% 14%
Nigeria Romania
13%
Australia
11%
China
11% 11%
United States Canada
11% 8%
Barbados
7%
Jamaica P eru
6%
Euro Area
6% 5%
Argentina
4%
Ghana Japan
1%
Source: IMF Balance of Payments Statistics
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II.
Barriers and Gains F ig u r e 1 : s e r v ic e s
S e r v ic e s lib e r a liz a tio n in d ic e s :
T e le c o m s a n d f in a n c ia l
S o u th A s ia ( 3 ) E A P
(5 )
F in a n c ia l In( 1 developing countries, significant liberalization 7 ) S e r but v i c e san uneven E C A (3 ) pattern… L A C (1 8 )
S S A /M N A
H ig h In c o m e ( 2 6 )
S S A /M N A
(4 2 )
E C A
(3 )
S o u th A s ia ( 5 ) E A P L A C
T e le c o m s
(8 )
(2 1 )
H ig h In c o m e ( 2 1 )
0
S o u rc e : M a tto o , R a th in d ra n &
2
4
6
8
1 0
S u b ra m a n ia n . (2 0 0 1 ).
8
Successful Reform in Services is Associated with More Rapid Growth
L in e a r p r e d ic t io n G U Y
.0 5 9
D N K
SSWL G B N UO S
IS L
G ro w th ra te (a d ju s te d fo r o th e r fa c to rs )
N IC B R A
IN D
D O M
C R I
M O L TZ M C O L
T H A U R Y
P E R
T U N JZ AA MF C Y P H NMD W I V E N
K E N E C U
M Y S
C A N B E L F R A U A T F IN E S P A U S IT A
N L D
E BG O Y L K O R P R T
L K A M A R T U R
S G P A CR P AH G NL
G R C P H L
M E X
E V R R A
N Z L C H E
ID N
A G O
-.0 2 4 1
C o m p o s ite s e r v ic e s lib e ra liz a tio n in d e x
8 .5
Source: Mattoo, Rathindran and Subramanian (2005) 9
Services policy also affects the size and pattern of trade in goods…
2.00
High Cost of Telecommunications Penalizes Trade, Especially in Differentiated Goods 1.80
1.80 1.60 1.40 1.20 1.00 0.80
0.78 0.64
0.60 0.40 0.20 0.00 homogeneous
reference
differentiated
Note: The chart is based on 1999 data and uses the Rauch classification of goods.
10
Welfare Gains from a 3% Increase in Developed Countries' Temporary Labor Quota
Unskilled Labor
Skilled Labor
100,000 80,000 60,000 40,000 20,000 0 Developed
Rest of the world
Note: Data in million US$ Source: Walmsley and Winters (2005) 11
International Engagement: Trade Negotiations
Three benefits: •Deeper liberalization through reciprocal exchange of concessions •Credibility through binding commitments •Regulatory cooperation
12
GATS: General rules
The key general (“unconditional”) obligations are: Most-Favoured-Nation (MFN) treatment Transparency obligations
13
Degree of market opening Limitations on MA and NT
Limitations on market access (MA) Quota-type and similar restrictions (e.g., limitation on the number of foreign hospitals; limitation on foreign capital participation)
Limitations on national treatment (NT) Less favourable treatment granted to foreigners (e.g., subsidies reserved for national hospitals) 14
Format of GATS Schedules of Specific Commitments Modes of Supply Sector or subsector
Limitations Limitations Additional on Market on National Comments Access Treatment
1. Cross border 2. Consumption abroad 3. Commercial presence 4. Presence of natural persons 15
The State of WTO Services Negotiations • Ambitious requests • Disappointing offers • Stagnant rules negotiations • Limited developing country participation
16
Harnessing International Negotiations for Development
Domestic reform priorities must inform liberalizing commitments Market access priorities must shape negotiating proposals
17
Domestic Reform Priorities must Inform Liberalizing Commitments
Identifying the reasons for deferring liberalization
Regulatory inadequacies Adjustment costs
Versus
Political economy (e.g., in legal and retail)
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Domestic Reform Priorities must Inform Liberalizing Commitments
Designing the reform program
Emphasizing competition and not just a change of ownership
Ensuring effective regulation to remedy market failure and achieve social goals
19
Effective Regulation I. To remedy informational problems (e.g., in financial and professional services) •
To remedy market power (e.g., in transport and energy services)
•
To achieve social objectives (e.g., universal access in transport, telecom, financial and health services). 20
Regulation to Protect Consumer Interests
Port liberalization and Breakup of Private Carrier Agreements: Estimated Reductions in Liner Transport Prices equivalent to savings of $2,063 million
25 20 15 10 5
equivalent to savings of $850 million
20.05
8.27
0
Liberalization of port services
Breakup of private carrier agreements
21
Questions that remain •How far should trade liberalization be conditioned on strengthened regulation? •How much is to be gained from eliminating all barriers to entry/ownership when some is already permitted? •Would liberalization improve access to essential services for the poor, and if not, what must be done? 22
Precommitment can Enhance Credibility… COUNTRY
PRECOMMITMENT TO TELECOM LIBN LATIN AMERICA
Argentina
No restrictions as of November 8, 2000
Venezuela
No restrictions as of November 27, 2000. AFRICA
Cote d’Ivoire
Monopoly until 2005, no restrictions thereafter,
Mauritius
Monopoly until 2004, no restrictions thereafter.
South Africa
Monopoly until 31 December 2003: thereafter duopoly and authorities will consider the feasibility of more licenses ASIA
India
Review the subject of opening up of national long-distance service in 1999, and international services in 2004.
Korea
Will raise foreign equity participation in facilities based suppliers.
China
Foreign investment limit from 35% to 49% in 2004. Geographic restrictions removed by 2006
23
Market Access Priorities and Negotiating Proposals
Cross-border trade
Presence of natural persons
24
Inadequate GATS Commitments in Mode -1 Mode 1 commitments in various services (as a percentage of total WTO Membership) Audio Visual
6% 3%
R&D
14 %
Medical & dental
13 %
Distribution services
90% 3% 9%
10 %
Financial data processing softw are
78%
17 % 24%
73% 3%
2 1%
Advertising Data Base Legal
83%
73%
11%
26%
67%
9%
9%
Full
65% 65%
26%
P artial
Accounting Architectural
16 %
19 %
25%
64% 11%
64% No ne
Computer hardw are consultancy
29%
8%
Management consulting
28%
10 %
Data processing
28%
12 %
30%
Softw are Implementation Online info & data base retrieval Tourism
16 %
63% 62% 60%
12 %
59%
26% 38%
57% 13 %
49%
25
Options to Secure Openness of CrossBorder Trade in Services Option 1: Targeted Commitments for Cross-Border Trade in IT and BPO Services Option 2: A Horizontal Commitment To Liberalize Cross-Border Trade in all Except a Narrow Range of Services
26
Options for Liberalizing Mode 4 Emphasis in multilateral negotiations on intra-corporate and contract-based movement of the skilled Contract-based movement Likely to be more desirable, because temporary And may be easier to liberate from restrictive immigration and labor market regulations (Streamlined visas and no quotas). Unskilled movement through bilateral cooperation
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Why has Reciprocity not Worked?
Inherent difficulty in negotiating services liberalization
Inadequate regulatory reassurance
Inertial negotiating process
28
Inadequate Regulatory Reassurance
Regulatory freedom, e.g., mode 1: gambling
Regulatory strengthening, e.g., mode 3:
financial services
Regulatory cooperation, e.g., mode 4
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Inertial Negotiating Process
Three inter-related issues
What services sectors do Members schedule?
Sector
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Three inter-related issues 1. 2.
What services sectors do Members schedule? What obligations do they assume?
Sector
Limitations on Market Access
Limitations of National Treatment
31
Three inter-related issues 1. 2. 3.
What services sectors do Members schedule? What obligations do they assume? How do they negotiate commitments?
Sector
Limitations on Market Access
Limitations of National Treatment
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Example of how Elements of I, II and III may be Combined
Existing approach Intermediate
Advanced
What services Specified services
What obligations Variable
Negotiating process Request and offer
Specified NonCollectively services + discrimination agreed only model selected “other” All services Full market Collectively agreed model except agreed access and exceptions national treatment 33
Example of a Model Schedule for Modes 1 and 2
What services? A range of services, ideally at the 2-digit level, excluding financial services that involve capital mobility and transport services
What commitments? Non-discrimination
34
Example of a Model Schedule for Mode 3
What services? A range of services, where regulatory inadequacy would not undermine gains from opening: business services, distribution, environmental, … Plus phased commitments where regulatory inadequacies can be remedied in a predictable time-frame Provision for diagnostics and remedial assistance
35
Example of a Model Schedule for Mode 4
What commitments? Access + facilitated entry commitments linked to: Source compliance with conditions (screening, repatriation, curb illegality) Level of unemployment in host
What types of movement? Contractual service providers and intracorporate transferees for one year
36
Complementary Global Efforts
Devising sound policy Strengthening the regulatory environment Enhancing developing country participation in international standard setting Ensuring access to essential services in the poorest areas
37
Conclusion
No new restrictions, especially on cross border trade
Precommitment to reform and regulatory assistance
Greater scope for temporary migration with source country obligations
38
