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> Services
negotiations offer real opportunities for all WTO members and more so
for developing countries
(Word format, 13 pages, 195 KB)
> Director-general
of WTO and chairman of WTO services negotiations reject misguided
claims that public services are under threat
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WTO negotiations on trade in services have progressed to an important
stage as Member Governments submit liberalization requests to their
trading partners. In the coming weeks, important services meetings
will be held which will further advance the negotiations. Governments,
representing countries from all levels of development attach great
importance to these negotiations because services occupy a vital and
growing role in the global economy and because increased trade in
services offers the potential for wide economic benefits in all
countries. Many studies project that developing countries stand to
gain the most from liberalization of trade in services.
These
negotiations have been inaccurately portrayed in certain quarters as
facilitating the liberalization or privatization of government
services including health, water distribution and education. This is
untrue. The facts are that such sectors have rarely been discussed in
the negotiations and that the principal focus of the talks lies in
other services sectors.
The
fact sheet below offers statistics on the importance of services to
the global economy, the state of play in the services negotiations and
projections of the economic benefits that would accrue through further
liberalization.
Statistics on services trade
liberalization
back
to top
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Liberalization
of services in developing countries could provide as much as $6
trillion in additional income in the developing world by 2015,
four times the gains that would come from trade in goods
liberalization. (from the World Bank’s report “Global Economic
Prospects for Developing Countries” 2001)
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Between
1990 and 2000, growth of world services output was 2.9%, double
that of agriculture which was only 1.4%. As a result, the
contribution of the service sector to world gross domestic product
was 64% in the year 2000, compared to 57% in 1990. (from the World
Bank “World Development Indicators” 2001)
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Services
now account for approximately 50 percent or more of output in the
following developing country regions: Europe and Central Asia,
Latin America and Caribbean, Middle East and North Africa, South
Asia and Sub-Saharan Africa. (from the World Bank “World
Development Indicators” 2001)
Studies
on gains from services liberalization back
to top
There
are a number of studies on the impact of services trade
liberalization. Although each of these studies uses a different
scenario to project the gains from liberalization, all show that the
economic gains from services liberalization greatly exceed the gains
from merchandise trade liberalization. Moreover, each of the studies
shows that developing countries would be major beneficiaries of such
liberalization
According
to the World Bank's report “Global Economic Prospects for
Developing Countries” 2001)
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Services
underpin economic development efforts, according to the Bank,
because more efficient provision of services in finance,
telecommunications, transportation and professional business
services have broad linkage effects.
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The
Bank stresses the importance of effective governmental management
of liberalization programmes, including the elimination of
barriers to entry for new competitors, regulatory policies and
removal of export restrictions.
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Liberalization
of services under the General Agreement on Trade and Services can,
according to the Bank, accelerate and lend credibility to domestic
policies as well as increasing access to markets in industrial
countries.
According
to the University of Michigan (1)
State-of-play
of the services negotiations back
to top
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55
WTO Member Governments have tabled written proposals, either
individually or jointly (European Communities, Andean Community,
Mercosur, and others).
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Among
the sectors covered are: professional services (18 proposals
representing 20 Members), tourism (14 proposals),
telecommunications and transport services (12 proposals each),
financial services (11 proposals) and distribution (10 proposals).
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Developing
countries’ genuine interest in these negotiations is not only
reflected in the high number of negotiating proposals, but strong
demand for technical assistance from the WTO Secretariat. In 2002,
the WTO’s Trade in Services Division has received more than 60
invitations from developing and least developed countries to
conduct services seminars and workshops. In addition, two
symposia, one dealing with the assessment of services trade and
one with the movement of natural persons under GATS, have been
organized for WTO Members in Geneva in early 2002. All papers
discussed on these occasions are available on the WTO website at
“www.wto.org”.
Principles
of the services negotiations — a reminder back
to top
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Liberalization
does not mean privatization. The GATS, and the ongoing
negotiations, do not require the privatization, commercialization
or deregulation of any service.
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The
right to regulate: a fundamental premise of the GATS. The
objective of the GATS is to liberalize services trade, not to
deregulate services, many of which are closely regulated for very
good reasons. The Negotiating Guidelines adopted by the Council
for Trade in Services in March 2001, clearly recognize “the
right of Members to regulate, and to introduce new regulations, on
the supply of services". They further state, unequivocally,
that "the process of [services] liberalization shall take
place with due respect for national policy objectives, the level
of development and the size of economies of individual Members …”
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Universal
services. If countries decide to open a service sector to
competition under the Agreement, they retain the right to operate
whatever universal service obligation they deem necessary on
social, regional and other policy grounds. For example, a
government can request a private telecommunications company to
offer its services to all inhabitants of the country and not just
in the capital and big cities.
Case
studies back
to top
From
the World Bank's report “Global Economic Prospects for Developing
Countries” (2001)
Services
liberalization could provide significant gains to Tunisia, with
welfare gains equivalent to 7 percent of GDP. These are twice as large
as the gains predicted for Tunisia from its preferential agreement
with the EU. The largest benefits come from the liberalization of
foreign investment in financial services, communications, and
transportation. Liberalization lifts economic growth by eliminating
inefficiency through increased international competition. Services are
available not only at lower prices but also in greater varieties
through an increase in the number of firms that would operate in
Tunisia. More efficient financial, communications, and transportation
sectors are also likely to attract foreign firms to other industries
in Tunisia.
From
the WTO Trade Policy Review of India (2002)
In
2000/01 India’s services sector accounted for around 49% of GDP and
employed around 19% of the total workforce (in 1999/00), which suggest
that the sector’s labour productivity may be considerably higher
than the national average. Other infrastructure services, such as
electricity, gas and water, accounted for 2.5% of GDP. As a
significant and growing contributor to the economy, an efficient
services sector is crucial for economic growth. Recognizing this, the
Prime Minister’s Economic Advisory Council (EAC), in a recent
report, has noted that the quality of infrastructure services such as
power, telecommunications and transport is not what it might be.
Inefficient transportation, notably roads, maritime services, and
ports, constrain trade and add to the overall costs of doing business.
In addition, the power sector has become a major bottleneck to
economic activity. The Council also noted that India’s
infrastructure required both a massive increase in investment and
greater efficiency in order to support economic growth.
Reform
in infrastructure and other services has been undertaken since the
early 1990s with varying degrees of success. In several services,
including banking and electricity, liberalization began in the early
1990s. The authorities have noted that although the decision to invite
private investment was frequently accompanied by regulatory reforms,
teething problems became impediments to attracting private investment.
In the case of electricity, for example, although private sector
investment has been encouraged since the early 1990s, a major problem
identified was the lack of accompanying regulatory changes, notably to
restructure the existing State Electricity Boards (SEBs) and to
pricing of electricity tariffs. Partly as a result, private investment
in the sector has not been as high as expected.
By
contrast, progress in the telecommunications sector has been more
rapid in recent years, with the sector being opened to private
investment. As a result, the telecommunications infrastructure has
been greatly expanded and tariffs have been reduced significant.
Reform in other key infrastructure sectors, including civil aviation,
maritime services, and ports has been slower, although steps have been
taken to allow private sector investment in ports in recent years to
develop capacity and improve efficiency. The overall efficiency of
these sectors remains low, however, and inadequate for India’s
infrastructure needs. Moreover, as public sector investment in
infrastructure becomes increasingly constrained due to budgetary
considerations, the need to create a competitive and regulatory
environment in which private sector investment can take place becomes
increasingly urgent.
From
the WTO Annual report (2001)
In
India, growth rate of commercial services in the 1990s was 14.5%, more
than double that of world trade (6.4%).
From
the WTO Trade Policy Review of Barbados (2002)
Barbados
has used foreign trade and investment opportunities deftly to maintain
living standards well above those of most developing countries. Its
trade and investment policies have fostered world-class suppliers in a
few areas, particularly tourism and financial services. Based on
Barbados’s natural endowments and on niche activities created by
government policy, these services have become the mainstay of the
economy and the main source of foreign exchange. Of necessity,
however, specialization and the small size of the economy have
resulted in a narrow production base that makes Barbados vulnerable to
external shocks.
The
services sector has been the main engine of growth in Barbados. Its
share of GDP already exceeded 67% of GDP in 1981, and had increased to
71% of GDP in 2000. The largest economic expansion has been in
financial and business services. These recorded a value added in
current terms of BDS$770 million (US$335 million) in 2000, equivalent
to 18% of GDP.
According
to IMF balance-of-payments statistics, total exports of services
reached US$995 million, or over US$3,500 per capita, and 75% of
the value added in the services sector that year. The bulk of exports
are in travel (US$712 million), reflecting activity in the tourism
sector. Exports of financial services reached US$64 million in 2000;
this included financial services supplied by “international”
companies, which by law are not allowed to sell their services in
Barbados (see below). Imports of services reached US$487 million
in 2000, up from US$409 million in 1998, and consisted mostly of
transport services (US$163 million), insurance services, and travel
services.
From
the WTO Trade Policy Review of Uganda (2001)
The
Services Sector shows promise for Uganda with its contribution of
almost 40% to GDP. Growth has lagged behind that of the industrial
sector but performed better than the agriculture sector. In 1999/2000,
services grew by 6.2%, industry by 9.9% and agriculture by 1.6%.
Uganda is traditionally one of the leading providers of high quality
social services in east Africa. In the 1960s, Uganda offered tertiary
educational services that were renowned throughout eastern Africa.
Institutions such as Makerere University and Mulago Hospital provided
training for the region’s aspiring professionals.
Uganda
does not have any overall policy objective for the services sector.
However, under the aegis of the Ugandan Investment Authority, the Big
Push Strategy is to promote specific subsectors, several of which are
in the services sector. The overall objective of the Big Push Strategy
is to transform Uganda from one of the world’s poorest economies
into a world-class provider of services with a widespread impact on
general living standards, as well as a producer of high quality agri-products.
The strategy focuses on eight subsectors in which Uganda has a
potential competitive advantage, most of which are services, namely
education services, medical services, information and communications
technology, printing and publishing, financial services, and air cargo
logistics and an inland port. The emphasis of this strategy is on
streamlining government machinery to promote the growth of the private
sector, promoting confidence among investors in these subsectors, and
other actions.
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Note:
(1) Brown, D., A. Deardorff and R. Stern
(2001), “CGE Modeling and Analysis of Multilateral and Regional
Negotiating Options”, R. Stern (ed.), Issues and Options for U.S.
— Japan Trade Policies, U. of Michigan Press, Ann Arbor. back
to text
Charts:
Chart 1:
Commercial services exports of developed, developing and
least developed countries, 1990-2000
Chart 2: Structure of commercial services of selected regions, 2001
Tables:
Table
1: Growth
in the value of commercial services trade by region, 1990-2001
Table
2: Leading
exporters and importers of commercial services in 2001
Table 3: Dynamic
exporters of commercial services, 1990-2000
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