1. Trade in Services and the Doha Development Agenda
Aaditya Mattoo
April 2005
Two things: the title and “some” evidence
My presentation: not so much an assessment as a description of “how little we know” and “how can we do better”?
An illustration of the questions that need to be addressed rather than a definitive answer.
Title: Kuzents, impostor.

2. Doha and Services Potentially big gains from:
Faster and more credible domestic reform
Improved and more secure market access
Actually little progress because of:
Difficulty in negotiating services liberalization
Failure of reciprocity
Narrow scope of commitments

3. What is being negotiated?
Business services
Communication services
Construction services
Distribution services
Educational services
Environmental services
Financial services
Health-related and social services
Tourism and travel-related services
Recreational, cultural and sporting services
Transport services

4. A wide definition of trade
MODES
1. Cross-border Trade
2. Consumption Abroad
3. Commercial Presence
4. Movement of Natural Persons
EXAMPLE
Software, insurance or tele-diagnosis from country B into A
A’s resident obtains hospital treatment or education in B
Bank, telecommunications firm or hospital from B sets up subsidiary in A
Engineer or doctor from B provides services in A

5. Regional Distribution of Business Services Exports
Source: IMF Balance of Payments Statistics; Note: -The “Business Services” category includes Total Services minus Transportation, Travel and Government Services. Alternatively, Business Services consist of: Communication, Construction, Insurance, Financial, Computer & info, Other business, Personal, cultural and recreational services, as well as Royalties and License fees.

6. Source: IMF Balance of Payments Statistics

7. The comparative advantage of several developing countries is shifting towards a range of business services
Change in RCA
=236%
I will focus on the first but please keep the other two at the back of your mind.

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

9. II. Barriers and gains In developing countries, significant liberalization but an uneven pattern…

10. Successful reform in services is associated with more rapid growth
All possible initial controls: initial gdp, education, investment and macro-stability.
Nothing attracts attention like a number: 1.5 percent, but then if we add all possible candidates for growth enhancement…
To take away: that regardless of the numbers, services openness matters. But mistake to believe gains can be realized through mechanical opening.
Especially in light of subsequent discussion.
Source: Mattoo, Rathindran and Subramanian (2001)

11. Services policy also affects the size and pattern
of trade in goods…

12. Note: Data in million US$
Source: Walmsley and Winters (2002)

13. The state of WTO services negotiations
Ambitious requests
Disappointing offers
Stagnant rules negotiations
Limited developing country participation

14. Domestic reform priorities must inform liberalizing commitments
Identifying the reasons for deferring liberalization
Regulatory inadequacies (banking)
Adjustment costs (telecom vs banking)
Versus
Political economy (e.g. in legal and retail)

15. Poor competitive position of public sector banks: over-manning
Business generated per employee (in Rs. thousand): 2001
But this does not call for mindless and indiscriminatory liberalization. There are sectors like, the financial sector, where the domestic firms find themselves disadvantaged by the legacies of historical policies, which perhaps justify a more cautious approach.
There are also concerns about the employment effect in labor-intensive sectors like retail and construction services.
But such arguments appear less relevant in the case of legal and accountancy services that together account for a meager 0.7 percent of India’s total services employment, primarily employ skilled professionals with relatively high net worth, and are the sectors where India appears to have a competitive advantage over others.

16. Poor competitive position of public sector banks: NPAs
Gross NPAs of SCBs as of March 2002 (% of total lending)
But this does not call for mindless and indiscriminatory liberalization. There are sectors like, the financial sector, where the domestic firms find themselves disadvantaged by the legacies of historical policies, which perhaps justify a more cautious approach.
There are also concerns about the employment effect in labor-intensive sectors like retail and construction services.
But such arguments appear less relevant in the case of legal and accountancy services that together account for a meager 0.7 percent of India’s total services employment, primarily employ skilled professionals with relatively high net worth, and are the sectors where India appears to have a competitive advantage over others.

17. Regulation to protect consumer interests

18. Precommitment to enhance credibility…
Two dimensions of credibility: not reverse; and future liberalization
Failure of infant industry and perpetual infancy
Inability to commit to liberalize
GATS offers a way of striking a balance.

19. Domestic reform priorities must inform liberalizing commitments
Designing the reform program
Emphasizing competition and not just a change of ownership
Ensuring effective regulation to remedy market failure and achieve social goals

20. Market access priorities and negotiating proposals
Cross-border trade
Presence of natural persons

21. Inadequate GATS Commitments in Mode -1

22. Options for liberalizing mode 4
Emphasis on intra-corporate and contract-based movement
Obligations also on source country
Flexible commitments

23. Conclusion No new restrictions, especially on cross border trade
Precommitment to reform and regulatory assistance
Greater scope for temporary migration with source country obligations
Local research a la templates.
Sharing experiences: rail transport in Britain, electricity in California. Clear prescriptions for policy versus humility in advice.
Regulatory cooperation: e.g. in Caribbean on telecom. Assistance, but not hegemonistic.
Internal inadequacies can legitimize external barriers; ecom standards.
Criteria for determining whether assistance should be given would be that there has been comprehensive reform but no private sector response. Manner of assistance a la Chile: global competition for subsidies. End tying – follow UK example.