Services in a development round : three goals and three proposals

The benefits of services trade reform are huge but services negotiations in the World Trade Organization (WTO) are making little progress. A proximate cause is the current negotiating process, based on an inertial request-and-offer approach rather than a set of goals that would give direction and momentum to the negotiations. The paper suggests that WTO members should consider: (1) locking in the current openness of cross-border trade for a wide range of services; (2) eliminating barriers to foreign investment either immediately or in a phased manner where regulatory inadequacies need to be remedied; and (3) allowing greater freedom of international movement at least for intra-corporate transferees and for service providers to fulfill specific services contracts. A deeper problem is that WTO members have sought to negotiate market access in services without adequately addressing concerns that the General Agreement on Trade in Services (GATS) commitments limit regulatory freedom unduly and unpredictably, that regulatory institutions in many countries are too weak to cope with liberalized markets, and that there is no provision for the regulatory cooperation that is necessary for successful liberalization, particularly of temporary labor mobility. Three types of actions are needed: (1) at the current stage of its development, theGATS must focus primarily on disciplines for measures that discriminate against foreign services and providers, rather than on politically sensitive and legally complex rules for nondiscriminatory measures; (2) a credible assistance mechanism must be established to help developing countries make the regulatory improvements needed for successful liberalization; and (3) where necessary, WTO members should make access commitments on labor mobility conditional on the fulfillment of specific conditions by source countries-to screen services providers, accept and facilitate their return, and combat illegal migration.Trade and Services,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade and Regional Integration,Governance Indicators,ICT Policy and Strategies

China's accession to the World Trade Organization - The services dimension

China's General Agreement on Trade in Services (GATS) commitments represent the most radical services reform program negotiated in the World Trade Organization. China has promised to eliminate over the next few years most restrictions on foreign entry and ownership, as well as most forms of discrimination against foreign firms. These changes are in themselves desirable. However, realizing the gains from, and perhaps even the sustainability of, liberalization will require the implementation of complementary regulatory reform and the appropriate sequencing of reforms. Three issues, in particular, merit attention: 1) Initial restrictions on the geographical scope of services liberalization could encourage the further agglomeration of economic activity in certain regions-to an extent that is unlikely to be reversed completely by subsequent countrywide liberalization. 2) Restrictions on foreign ownership (temporary in most sectors but more durable in telecommunications and life insurance) may dampen the incentives of foreign investors to improve firm performance. 2) Improved prudential regulation and measures to deal with the large burden of non-performing loans on state banks are necessary to deliver the benefits of liberalization in financial services. And in basic telecommunications and other network-based services, meaningful liberalization will be difficult to achieve without strengthened pro-competitive regulation.Payment Systems&Infrastructure,Public Sector Economics&Finance,ICT Policy and Strategies,Banks&Banking Reform,Environmental Economics&Policies,Trade and Services,ICT Policy and Strategies,Banks&Banking Reform,Public Sector Economics&Finance,Health Economics&Finance

Shaping future GATS rules for trade in services

The new round of negotiations has begun with a mechanical sense of"since we said we would, therefore we must,"says the author. To make the General Agreement on Trade in Services (GATS) more effective ay liberalization, the author suggests improving the agreement's rules, countries'specific commitments, and the negotiating methodology: 1) Wasteful regulations, and entry restrictions pervade trade in services. Unlike the GATT, the GATS has created no hierarchy of instruments of protection. It may be possible to create a legal presumption in favor of instruments (such as fiscal measures) that provide protection more efficiently. 2) Many countries have taken advantage of the GATS to create a more secure trading environment, by making legally binding commitments to market access. The credibility of reform would increase with wider commitments to maintain current levels of openness, or to increase access in the future. 3) Multilateral rules on domestic regulations can help promote, and consolidate domestic regulatory reform, even when the rules are designed primarily to prevent the erosion of market access for foreign providers. The pro-competitive principles developed for basic communications, could be extended to other network-based services sectors, such as transport (terminals and infrastructure), and energy services (distribution networks). The"necessity test"instituted for accounting services, could be applied to instruments in other sectors (so that doctors judged competent in one jurisdiction, wouldn't have to be retrained for another, for example). 4) Anticompetitive practices that fall outside the jurisdiction of national competition law, may be important in such sectors as maritime, air transport, and communications services. Strengthened multilateral rules are needed to reassure small countries with weak enforcement capacity, that the gains from liberalization will not be appropriated by international cartels. 5) Explicit departures from the most-favored-nation rule matter most in such sectors as maritime transport, audiovisual services, and air transport services - which have been excluded from key GATS disciplines. Implicit discrimination can be prevented by developing rules to ensure the non-discriminatory allocation of quotas, and maintaining the desirable openness of the GATS provision on mutual recognition agreements. 6) Reciprocity must play a greater role in negotiations, if the GATS is to advance liberalization beyond measures taken independently.Environmental Economics&Policies,Economic Theory&Research,Decentralization,ICT Policy and Strategies,Payment Systems&Infrastructure,Trade and Services,Environmental Economics&Policies,ICT Policy and Strategies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Economic Theory&Research

Services in Doha : what's on the table ?

Services trade reform matters, but what is Doha doing about it? It has been hard to judge, because of the opaqueness of services policies and the opaqueness of the request-offer negotiating process. This paper attempts to assess what is on the table. It presents the results of the first survey of applied trade policies in the major services sectors of 56 industrial and developing countries. These policies are then compared with these countries'Uruguay Round commitments in services and the best offers that they have made in the current Doha negotiations. The paper finds that at this stage, Doha promises greater security of access to markets but not any additional liberalization. Uruguay Round commitments are on average 2.3 times more restrictive than current policies. The best offers submitted so far as part of the Doha negotiations improve on Uruguay Round commitments by about 13 percent but remain on average 1.9 times more restrictive than actual policies. The World Trade Organization's Hong Kong Ministerial had set out ambitious goals for services but the analysis here shows that much remains to be done to achieve them.Transport Economics Policy&Planning,Public Sector Corruption&Anticorruption Measures,Corruption&Anitcorruption Law,Trade and Services,Emerging Markets

Currency undervaluation and sovereign wealth funds : a new role for the World Trade Organization

Two aspects of global imbalances - undervalued exchange rates and sovereign wealth funds - require a multilateral response. For reasons of inadequate leverage and eroding legitimacy, the International Monetary Fund has not been effective in dealing with undervalued exchange rates. This paper proposes new rules in the World Trade Organization to discipline cases of significant undervaluation that are clearly attributable to government action. The rationale for WTO involvement is that there are large trade consequences of undervalued exchange rates, which act as both import tariffs and export subsidies, and that the WTO's enforcement mechanism is credible and effective. The World Trade Organization would not be involved in exchange rate management, and would not displace the International Monetary Fund. Rather, the authors suggest ways to harness the comparative advantage of the two institutions, with the International Monetary Fund providing the essential technical expertise in the World Trade Organization's enforcement process. There is a bargain to be struck between countries with sovereign wealth funds, which want secure and liberal access for their capital, and capital-importing countries, which have concerns about the objectives and operations of sovereign wealth funds. The World Trade Organization is the natural place to strike this bargain. Its General Agreement on Trade in Services, already covers investments by sovereign wealth funds, and other agreements offer a precedent for designing disciplines for these funds. Placing exchange rates and sovereign wealth funds on the trade negotiating agenda may help revive the Doha Round by rekindling the interest of a wide variety of groups.Emerging Markets,Debt Markets,Economic Theory&Research,Trade Law,Currencies and Exchange Rates

Does health insurance impede trade inhealth care services?

There is limited trade in health services despite big differences in the price of health care across countries. Whether patients travel abroad for health care depends on the coverage of treatments by their health insurance plan. Under existing health insurance contracts, the gains from trade are not fully internalized by the consumer. The result is a strong"local-market bias"in the consumption of health care. A simple modification of existing insurance products can create sufficient incentives for consumers to travel. For just 15 highly tradable, low-risk treatments, the annual savings to the United States would be $1.4 billion even if only one in 10 patients who need these treatments went abroad. Half of these annual savings would accrue to the Medicare program alone. The authors examine how measures by destination countries to improve and credibly signal the quality of health care can enhance the scope for trade.

Criss-Crossing Globalization: Uphill Flows of Skill-Intensive Goods and Foreign Direct Investment

This paper documents an unusual and possibly significant phenomenon: the export of skills, embodied in goods, services or capital from poorer to richer countries. We first present a set of stylized facts. Using a measure which combines the sophistication of a country’s exports with the average income level of destination countries, we show that the performance of a number of developing countries,notably China, Mexico and South Africa, matches that of much more advanced countries, such as Japan, Spain and USA. Creating a new combined dataset on FDI (covering greenfield investment as well as mergers and acquisitions) we show that flows of FDI to OECD countries from developing countries like Brazil, India, Malaysia and South Africa as a share of their GDP, are as large as flows from countries like Japan, Korea and the US. Then, taking the work of Hausmann et al. (2007) as a point of departure, we suggest that it is not just the composition of exports but their destination that matters. In both cross-sectional and panel regressions, with a range of controls, we find that a measure of uphill flows of sophisticated goods is significantly associated with better growth performance. These results suggest the need for a deeper analysis of whether development benefits might derive not from deifying comparative advantage but from defying it.foreign direct investment; globalization; skill flow; economic development

Pre-empting protectionism in services - the WTO and outsourcing

Cross-border trade in services is growing rapidly, with both industrial and developing countries among the most dynamic exporters. Despite the substantial global benefits from such trade, the adjustment pressures created in importing countries could provoke a protectionist backlash-some signs of which are already visible in procurement and regulatory restrictions. The current negotiations under the Doha Development Agenda offer an opportunity to lock in current openness and preempt protectionism. This paper describes how a bold initiative under the General Agreement on Trade in Services can help secure openness.Decentralization,Enterprise Development&Reform,Payment Systems&Infrastructure,ICT Policy and Strategies,Banks&Banking Reform,ICT Policy and Strategies,Banks&Banking Reform,Governance Indicators,Health Economics&Finance,Knowledge Economy

Multilateralism beyond Doha

There is a fundamental shift taking place in the world economy to which the multilateral trading system has failed to adapt. The Doha process focused on issues of limited significance while the burning issues of the day were not even on the negotiating agenda. This paper advances five propositions: (i) the traditional negotiating dynamic, driven by private sector interests largely in the rich countries, is running out of steam; (ii) the world economy is moving broadly from conditions of relative abundance to relative scarcity, and so economic security has become a paramount concern for consumers, workers, and ordinary citizens; (iii) international economic integration can contribute to enhanced security; (iv) addressing these new concerns - relating to food, energy, and economic security - requires a wider agenda of multilateral cooperation, involving not just the WTO but other multilateral institutions; and (v) despite shifts in economic power across countries, the commonality of interests and scope for give-and-take on these new issues make multilateral cooperation worth attempting.Emerging Markets,Environmental Economics&Policies,Economic Theory&Research,Debt Markets,