Setting priorities for services trade reform

Aims

Services are a significant share of economic activity in all economies, so inefficiency in service delivery impedes overall economic performance. Trade barriers are an important source of inefficiency. They do not just restrict cross-border transactions. Most barriers are regulations that operate behind the border. Many of these do not explicitly discriminate against foreign suppliers, but also affect local service firms. So barriers to services trade potentially have much greater leverage on economic performance than do barriers to goods trade. Indeed, the research suggests that liberalising services trade could yield gains that exceed those from liberalising agriculture and manufacturing. Further, at least 75 per cent of those gains would come from liberalising the non-discriminatory restrictions that also affect local service providers (Dee and Hanslow 2001).

Services trade barriers are currently the subject of trade negotiations as part of the Doha Development Round. The services negotiations have been the most disappointing aspect of the Round so far. The developing world in particular is deeply sceptical. Where offers have been made, they are largely limited to binding the status quo. These developments reflect a lack of understanding about the economic effects of the regulatory barriers affecting services trade, and a lack of empirical basis for evaluating services offers against each other, and against offers in non-services areas.

Services could be a ‘deal maker’ rather than an irrelevance. This is suggested by the recent EU proposal for developing countries to make significant offers in services in return for EU concessions on agriculture. But this is unlikely to happen until policy-makers, particularly in the developing world, better understand the consequences of making services trade policy commitments, and better understand where their own policy priorities lie.

Research to date has been useful in identifying situations where developing countries’ policy caution might be warranted, and pointing to where win-win outcomes might occur. One policy message is that services trade reform needs to encompass the non-discriminatory measures that impede local service suppliers, not just those measures that explicitly discriminate against foreigners. If it does so, local firms can also benefit from reform. But beyond that, policy priorities depend crucially on which trade barriers are rent-creating and which are cost-escalating. This project aims to provide a firm empirical base for making that distinction.

Unlike previous research, the project will use more than one measure of economic performance to determine separately the effects of trade barriers on both rents and costs. It will differ from earlier work by using a structural rather than a reduced form framework, so avoiding the possible underestimation of economic impacts. It will develop a new set of empirical estimates of barriers to services trade that are able to address policy priorities. And it will develop a new time-series of qualitative information about the evolution of regulatory structures, which will be of use in its own right in showing where and how rapidly services trade liberalisation (mostly unilateral) has been occurring.

Dee, P. and Hanslow, K. 2001, ‘Multilateral liberalisation of services trade’, in Stern, R. (ed.), Services in the International Economy, University of Michigan Press, Ann Arbor, pp. 117–39.

Links:

Home
Background
Aims
Approach
Industry partner organisation
National benefit
Personnel
Conference program and papers — 2009
Conference program and papers — 2008
Conference program and papers — 2007

[back]