An Assessment of Services Trade Policy Reform: Some Evidence Aaditya Mattoo

Three questions: How large are the gains from services liberalization? What are the elements of successful reform? What role can the GATS and international support play?

1. How big are the gains from liberalization? Strong intuition but weak evidence Three examples: a. Dynamic benefits b. The link with trade in goods c. Temporary movement of individuals

1a. Successful services reform is associated with more rapid growth Source: Mattoo, Rathindran and Subramanian (2001)

1b. Services trade policy affects the size and pattern of trade in goods

1c. Gains from liberalizing mode 4

1c. Mode 4: Some preliminary estimates Increase in developed countries quotas on skilled and unskilled temporary labour movement equivalent to 3% of their labour force could lead to an estimated $156 billion increase in world welfare (which is greater than the estimated gains from complete liberalization of goods trade).

2. The elements of successful reform a. Emphasis on competition b. Effective domestic regulation c. Appropriate sequencing

2a. The pattern of reform in basic telecommunications

2a. Questions that remain Are there good reasons to limit entry/ownership? Why is entry/ownership restricted? How much is to be gained from eliminating all barriers to entry/ownership when some is already permitted?

2b. Effective regulation (i) To remedy informational problems (e.g. in financial and professional services) (ii) To remedy market power (e.g. in transport and energy services) (iii) To achieve social objectives (e.g. universal access in transport, telecom, financial and health services; and alleviation of adjustment costs).

2b(i) Regulation to remedy informational problems (e.g. in financial and professional services): – As a precondition for successful liberalization – As an impediment to trade

2b(i) Regulation as a precondition: an example

2b(i) Regulation as an impediment? Three examples: Qualification requirements Offshore financial services Privacy

2b(ii) Regulation to remedy market power (e.g. in transport and energy services) As a precondition for market access As a guarantor of consumer interests

2b(ii) Regulation to protect consumer interests

2b(iii) Regulation to achieve social objectives Universal service Adjustment costs

2c. Sequences matter Source: World Bank/ITU Telecommunications Policy Database & Fink, Mattoo, Rathindran (2001), forthcoming.

3. International engagement: trade negotiations Three benefits: Deeper liberalization through reciprocal exchange of concessions Credibility through binding commitments Regulatory cooperation

3. Complementary global efforts Devising sound policy Strengthening the regulatory environment Enhancing developing country participation in international standard setting Ensuring access to essential services in the poorest areas