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Thinking aloud about a services trade roadmap for Pakistan Pierre Sauvé World Trade Institute University of Bern

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Presentation on theme: "Thinking aloud about a services trade roadmap for Pakistan Pierre Sauvé World Trade Institute University of Bern"— Presentation transcript:

1 Thinking aloud about a services trade roadmap for Pakistan Pierre Sauvé World Trade Institute University of Bern pierre.sauve@wti.org

2 Key trends Services trade offers enormous potential for welfare gains and economies everywhere are becoming more service- centric Yet, there has been limited negotiating traction so far, especially in the WTO (alongside far-reaching unilateral liberalization and deeper, if uneven, PTA commitments) The political economy of novelty…even after 25 years, we are still in discovery mode and the Uruguay Round is not yet finished in services Novelty breads precaution, especially in a world where many stakeholders seek the protection of regulatory sovereignty

3 On the rise: Services to GDP ratios Source: World Bank, World Development Indicators

4 I NTERNATIONAL T RADE I S N O L ONGER E XCLUSIVELY A BOUT G OODS C ROSSING B ORDERS Source: World Bank, World Development Indicators 1980=100

5 STRI by p.c. income Source: Gootiiz and Mattoo (2009)

6 Services Trade Restrictiveness by Sector and Region

7 SAPTA STRI: Overall

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9 STRI: Cross-country differences STRI/CountryPakistanIndiaChinaUSAEU Mode 1 38.5470.7539.2214.1434.17 Mode 3 26.6869.3437.2719.7826.18 Mode 4 55.0070.0075.0070.0060.00 Overall 28.3065.7036.6017.7026.10 Banking 50.00 32.5021.302.69 Insurance 46.745.0038.3021.7013.46 Fixed telecoms 050.00 03.57 Mobile telecoms 25.0050.00 03.57 Retail distribution 075.0025.0007.14 Transportation 25.3062.4019.307.937.10 Air 50.0065.0067.5022.5032.50 Maritime 35.0042.5015.0025.0015.00 Maritime aux. 50.00025.0000 Road 0100.000075.00 Rail 100.00 0050.00 Accounting 27.5090.0045.0052.5040.00 Legal services 61.7085.8080.0055.0041.09

10 Learning from others The overriding importance of human capital – Attracting a leading foreign university – Paying attention to vocational skills The central importance of attracting FDI – MNE R&D centers in India and China – Costa Rica and supply linkages to Intel Three ongoing experiments in services reform – China – Colombia – Mauritius

11 China China 2.0 – the quest for a new growth model A controlled experiment: the Shanghai Free Trade Zone Other zones are being contemplated Internationalization of the renmibi a key parameter Central role of physical infrastructure and education/training No recourse to financial/fiscal incentives but relaxation of existing competition and entry restrictions

12 Colombia Incubation of IT-related start-ups at the municipal level in the city of Medellin through the provision of free office space and high speed internet connections, no corporate taxes for 5 years for incubated start-ups who export beyond agreed threshholds Goal: help insert Colombian start-ups in regional supply chains in various services – IT, BPO, KPO, audio- visual/animation; smartphone applications Parallel work on language training (english) and quality certification of services

13 Mauritius Promotion of IT and education services via a cyber city and the attraction of a leading Indian engineering faculty Active use of fiscal incentives and infrastructural support to attract FDI and foreign talent Building a cyber campus in Port Louis Working with India on diaspora investment Making Mauritius an IT education hub in Southern Africa but also offering scope for insertion in IT-related value chains in three languages (English, French and Hindi) Significant growth in IT and business services exports

14 Challenges in Pakistan Fighting the stigma: adverse investment climate perceptions and important hurdles for skilled worker movement beyond the Gulf region – need to focus on Mode 1 exports and Mode 3 imports Identifying growth bottlenecks and deciding which combination of unilateral reform and external liberalization forms the optimal response As in most other countries, service firms in Pakistan are mostly SMEs, which face particular difficulties in access to finance and show a weaker propensity to export – hence an active role for government to promote trade and FDI, grow a venture capital market and/or designate support programs tailored to SME needs in services (weak collateral, intangible assets) No need to reinvent wheels: updating, reassessing and/or implementing your TRTA-I produced 2007 National Roadmap for Services

15 Needed: a proper trade formulation architecture Two key elements: – A whole of government approach vested in the PM’s office since there is no Ministry of Services able to coordinate inter-agency work and overcome the vertical resistance of specific ministries or regulatory agencies – link wetween domestic and external liberalization – A proper set of consultative mechanisms to seek regular input from the private sector and other key stakeholders (industry associations, academia, consumer groups; need for diversity and representativeness) – Think of nurturing a Pakistani Coalition of Service Industries – you need a horizontal voice for the sector – Take the consultation process on the road, not centralized in Islamabad

16 Benchmark your regulatory regime Performing a trade-related regulatory audit to better understand the source of lingering protection and its underlying political economy rationale Asking the World Bank to run their newly launched Services Competitiveness Toolkit in Pakistan to properly identify sources of export competitiveness in services (ssaez@worldbank.org)

17 Key questions to address in conducting a regulatory audit  What is the policy objective pursued by the relevant regulatory measure?  Is the policy objective pursued by the specific measure still consistent with overall government policy?  How transparent is the regulatory measure and the process to adopt and amend it?  Are private sector stakeholders, domestic and foreign, consulted prior to the enactment or reform of new policy measures?  When was the policy measure, law or regulation enacted?  When was the measure last invoked?  Is it periodically reviewed?  Is the government satisfied that the policy objective is being achieved and has it developed a framework to assess the effectiveness of its regulatory regime?  Can the policy measure be achieved in a manner that might lessen its restrictive impact on trade and investment? 17

18 Identfying priority sectors Islamic finance, with training (learning from Malaysia) Construction and engineering: key role for procurement liberalization in your PTAs, joining the WTO GPA or embedding procurement disciplines in TISA? IT-related services (including in medical, legal and other high value KPO services – key importance of language skills and quality certification)

19 Key need to strengthen trade and investment support institutions SMEDA TDAP Investment promotion also holds a central role Competition policy activism in service industries – promote new entry where feasible and supply pro-competitive regulatory regimes

20 What to make of Pakistan’s participation in TISA Adapting to a novel negotiating architecture Rule-making advances: in what areas? Market access priorities: are they clearly defined and aligned to Pakistan’s key growth bottlenecks? What domestic reforms in services need to command priority attention? Trading more in the hood: what can be done to promote closer trade ties with your neighbours?

21 Thank you! pierre.sauve@wti.org


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