Trade Rules in Services: Issues and Problems Carsten Fink, The World Bank EU-LDC Network Annual Conference Trade and Poverty Reduction Rotterdam, 30 and 31 May 2001

Services Trade and Overall Economic Performance Financial services are key to an efficient transformation of savings into investment Transport services contribute to the efficient distribution of goods domestically and internationally Telecom services are at the heart of the dissemination of information and knowledge in the economy  Well functioning service industries contribute to overall economic efficiency and growth. Ceteris paribus, the poor are likely to benefit.

Gains from Services Liberalization Traditional gains due to comparative advantages Many services are inputs into production. High costs of producer services can lead to negative effective rates of protection Services liberalization is often accompanied by the breakup of public monopolies Service providers can reap economies of scale and scope (especially important for small economies)

Gains from Services Liberalization (#2) To be trade internationally, many services require the movement of production factors (FDI, temporary movement of individual service providers) Services liberalization and growth: –Increased investment –Greater diffusion of knowledge –Risk of brain drain –Empirical evidence points to positive link

Accomplishing Successful Reform: Domestic Liberalization Eliminate barriers to cross border trade Remove barriers to establishment trade –Greater benefits from competition than change of ownership –Are there good reasons to limit entry by policy? Credibility of services reforms Strengthen domestic regulations to address market failures and advance social objectives Develop competition policy to address private abusive practices

Accomplishing Successful Reform: Foreign Liberalization Movement of individual service providers –Quotas –Visa requirements –Qualification and licensing requirements Consumption abroad –Example: health services, need portability of health insurance

Managing Conflicts Between Equity and Efficiency Services liberalization often lowers prices and improves the poor’s access to services (e.g., telecoms) Service reform may entail elimination of (cross-) subsidies. Private firms may “cherry pick”.  Need for universal service regulation: –Universal service funds, subsidy schemes, vouchers –Services roll-out obligations in licenses (beauty contests)?

Other Effects of Services Liberalization on the Poor Need to “locate” the poor. –Consumption effects –Employment effects –Income effects Effects on government revenues and spending

How Can the GATS help? Unleash liberalization through an exchange of specific commitments –So far, limited use has been made of reciprocal negotiations Pre-commit to future reform Gain credibility by binding policy Disciplines on regulatory measures to ensure effective market access  Specific regulations that enhance poor people’s access to services are largely the domain of domestic policy