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.

 

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Statistics on services trade liberalization

• 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)

• 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)

• 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)

• Between 1990 and 2000, the growth of exports of commercial services for developing countries (9%) exceeded that for developed countries (5.5%). The 49 least developed countries also experienced particularly strong export growth of commercial services (6.3%). (WTO statistics)

• 25 developing countries depend on the export of commercial services for more than half their total export revenues. (WTO statistics)

  
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)

• Liberalization of services in developing countries could provide as much as $6 trillion in additional income in the developing world between 2005-2015.

• 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.

• 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.

• Bank estimates suggest that countries that have fully liberalized trade and investment in finance and telecommunications grew on average 1.5% fast than other countries over the past decade.

• Practices such as cargo reservation, limits on provision of port services and collective rate setting among shipping lines can increase freight rates by up to 25% on certain routes, the Bank says.

• Inefficient container services in Brazil have raised the price of customs services, warehousing, inland transport and port services to twice the global average.

• 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)

• Gains from a cut of 33 percent in barriers to services trade should raise global economic welfare by $389.6 billion, which exceeds their estimated gains from manufactures liberalization of $210.7 billion.

 

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State-of-play of the services negotiations

• 55 WTO Member Governments have tabled written proposals, either individually or jointly (European Communities, Andean Community, Mercosur, and others).

• Of the 55 governments who have submitted proposals, a majority (32) are governments representing developing countries.

• 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).

• Three of the proposals deal with the education sector.

• Medical and health services have not yet been mentioned at all.

• 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.2n2y.com?

 

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Principles of the services negotiations ?a reminder

• Public services. Governmental services ?i.e. services provided by governments on a non-competitive and non-commercial basis ?are beyond the scope of GATS and not subject to negotiation.

• Liberalization does not mean privatization. The GATS, and the ongoing negotiations, do not require the privatization, commercialization or deregulation of any service.

• A voluntary process. No country is compelled to make any changes to its services regime, in whatever sector, which it is not prepared to concede voluntarily.

• 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 …”

• A democratic process. Most WTO Members are constitutionally required to submit the results of the negotiations for ratification to their Parliaments. In addition, the Swiss Constitution provides for the possibility of popular referendum.

• 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.

• Transparency. All negotiating proposals tabled by WTO Members to date have immediately been put on the WTO Website. They are publicly available at www.2n2y.com.

  
  
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Case studies

• Tunisia

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.

• India

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%).

• Barbados

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.

• Uganda

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.