Services Knowledge Platform to Facilitate Deeper Integration in Services Trade Sjamsu Rahardja The World Bank Presentation at Policy Group Meeting of ILO/EU Project Jakarta, July 12 th 2012
Synopsis of my talk Despite potential benefits of opening up services for competition, there is a wide variation of restrictiveness across countries and across services sector Range of policies/regulation are still restrictive for services trade There are typically non ‐ tariff like instruments and often imposed by different agencies Difficult to address by multilateral or preferential services agreement as these agreements tend only to “lock in” subset of policies that had already been implemented unilaterally Success in integrating services would depend on involvement of key stakeholders Understanding the political economy Setting up complementary policies to address market failures Services knowledge platform can help facilitate the process of integrating domestic services sectors with the global market place 2
The evidence: services reform can promote better performance in manufacturing industries Evidence from Indian manufacturing sector suggest that services reform not only boosted services exports but also promote downstream manufacturing P e rc e n t P e rc e n t G a i n s in A n n u a l T F P G r o w th A ft e r S e r v i c es R e fo r m G a i n s in A n n u a l T F P G r o w th A ft e r S e r v i c es R e fo r m 4 4 3 3 2 2 1 1 0 0 in d u s tri es w ith in d u s tri es w ith in d us trie s w ith in d us trie s w ith in d u s tr ie s w i th in d u s tr ie s w i th in d u s tr ie s in d u s tr ie s lim i ted lim i ted h ig h h ig h li m ite d li m ite d w i th h i gh w i th h i gh de p e n de n c e de p e n de n c e d ep e n d e nc e o n d ep e n d e nc e o n d e pe n d e n c e o n d e pe n d e n c e o n de p e n d e nc e de p e n d e nc e o n ba n k in g o n ba n k in g ba n k i ng ba n k i ng tel ec o m m s tel ec o m m s o n te l ec om m s o n te l ec om m s Source: Arnold, Javorcik, Lipscomb and Mattoo (2010). 3
The evidence: services reform can facilitate trade Restrictive transport policies are associated with more expensive and poor logistics quality Availability of competitively priced logistics Quality of logistics services services Partial regression graph Partial regression graph LPI_quality_logistics2009: IV estimation LPI_comp_priced2009: IV estimation DRC 1 1 e( LPI_quality_logistics2009 | X ) LBN SWE KGZ FIN e( LPI_comp_priced2009 | X ) SWE BEL AUS IRL TUN .5 MDG AUT IRL .5 PHL MYS JOR NLD DNK DEU CAN SEN KGZ AUT UGA NZL ZAF NZL FIN KAZ DNK MOZ UGA LTU FRA RWA GBR DRC THA DEU AUS MYS CZE ROM VNM NLD HND MDG THA ZAF VNM LAO MUS BGR ETH KEN SEN TZA GBR IND KHM UZB PRT JPN PRY GTM ITA CHN NIC PHL GEO CIV UZB ARG ESP ARM CHN NIC PAN POL LAO PAN PRY KOR GEO MOZ MNG IND VEN NPL JPN HND BEL TUR PAK CRI 0 CZE TZA EGY CMR YEM URY FRA ECU 0 JOR POL SAU GHA ETH CMR LBN CAN KWT KOR TUR MLI BHR NGA BRA PRT ALB IDN LTU BGR MNG USA ALB BOL ITA BGD ESP DZA KEN UKR PER URY CHL CRI BOL CIV QAT BRA ZMB ARG HUN ECU CHL MEX GRC DOM GHA RWA ZMB MEX KWT BHR ARM HUN USA KAZ SAU NPL KHM COL EGY IDN LKA DOM PER ROM TUN UKR BGD MLI YEM NGA -.5 NAM COL -.5 PAK LKA NAM RUS IRN GRC MUS BWA DZA OMN GTM IRN OMN VEN QAT RUS -1 -1 BWA -.1 0 .1 .2 -.1 0 .1 .2 e( agI_m0_tra | X ) e( agI_m0_tra | X ) coef = -1.4153001, (robust) se = .53648491, t = -2.64 coef = -1.613734, (robust) se = .58220632, t = -2.77 Source: Borchert, Gootiiz, Grover and Mattoo (2010) 4
The evidence: wide variation of services restrictiveness across countries Country-level STRI and per-capita income: Services Trade Restrictiveness Index (STRI) ETH 80.0 ZWE 60.0 IND IRN QAT PHL DRC KWT EGY BHR IDN PAN CHN THA OMN MYS TUN 40.0 BGD SAU NPL JOR LBN VNM LKA DZA BWA NAM BLR VEN UGA ZAF MWI YEM TZA KEN CRIMEX MLI URY PAK NGA LSO UKR ITA CIV CMR FRA TUR RUS FIN RWA 20.0 KHM UZB CHL JPN KOR MAR BEL PRT BRA CAN ZMB HND DNK SEN AUS ALB COL MOZ MDG GHA GTM GRC USA HUN DEU AUT KAZ MUS ARG PER CZE ESP PRY SWE KGZ BGR ROM MNG BOL NIC LTU IRL DOM GBR NLD POL GEO ARM TTO NZL ECU 0.0 5 6 7 8 9 10 11 12 Log of GDP per capita EAP All other regions Linear trend EAP Linear trend all countries 5
The evidence: wide variation of services restrictiveness across sector STRI by sector and region: 70 Services trade restrictiveness index 60 50 40 30 20 10 0 GCC SAR MENA EAP AFR LAC OECD ECA Financial Telecom Retailing Transportation Prof.Services Note: 103 countries included. 6
The evidence: commitments under GATS are generally less than the actual policies had already been implemented 100 Services trade restrictiveness index BHR IND CRI CRI U RY U RY GTM TTO HND HND GTM LKA TUN 80 TUN THA C OL TTO BHR KEN KEN EGY EGY PAK ID N IND PHL PHL NIC PRY C OL NGA NIC PRY ID N M AR LKA MYS MYS CH L CH L THA MU S PAN BOL BOL MU S PAN 60 NGA DOM IND TUR M AR BRA PAK DOM TUR PER ID N PHL THA MEX FRA EGY MYS ITA DN K BHR MEX KOR BRA PAN PRT C HN C HN BEL C HN OMN BGR BGR 40 POL F IN ARG ARG OMN OMN KOR JOR Z AF FRA TUN Z AF ITA SWE LKA DN K PRT DEU BEL GRC PER USA USA IR L HUN E SP JPN GB R CAN NLD POL JOR F IN AUT JOR Z AF CZE CAN CRI CZE FRA AUT AUS MEX HUN KEN U RY DEU JPN SWE ITA F IN NGA LTU GRC BEL PRT IR L CH L E SP 20 DN K GB R NLD TUR M AR AUT LTU KOR DEU PAK ALB ALB ALB HUN CZE AUS CAN GTM GRC NZ L NZ L HND JPN PER BRA ARG USA PRY C OL E SP AUS SWE IR L GB R DOM POL BOL MU S LTU NIC NLD BGR NZ L TTO 0 0 10000 20000 30000 40000 GDP per capita,PPP Restrictive n ess of GATS commitment Fitted va lues Restrictive n ess of DOHA Offers Fitted va lues Restrictive n ess of actua l policy Fitted va lues STRI for 61 countries, excluding Qatar and 31 countries that did not submit offers Source: Borchert,Gootiiz, Mattoo 2010 7
Challenges in further integrating domestic services sector with the global market place International services trade negotiations might becoming less effective to serve as an “anchor” for domestic policy reform Less “market opening” effect, more focus on less important trade barriers Restrictions in mode 4 abroad reinforce beliefs at home that it should restrict its services from international competition Domestic downstream industries are already demanding more competitive services Often there is no “Ministry of Services” and this makes coordinating sectoral policy reforms challenging Concerns over market failure due to the absence of regulation E.g . quality, safety, abuse of market power, cream skimming etc. Political economy in services reform Fear over impact of domestic income distribution from opening up services to international competition 8
How can Services Knowledge Platform help? A platform for exchange in information among key stakeholders in particular sector in services What are lessons learned from reform process and greater international competition in other countries? A platform to generate evidence ‐ based policy dialogue to Promote better regulations in certain service sector to allow for more competition and greater trade Establish an inclusive process to design and implement regulatory reform Identify complementary policies to ensure 9
How the Platform can help shape policy debate • Government • Consumers (industries or individuals) Regulatory certainty and oversights to Demand for ensure standards quality services and market contestability Incentive to Incentive deliver quality deliver quality services to services to • Potential • Incumbent consumers consumers entrants in providers domestic or international market 10
Stages in operationalizing Services Knowledge Platform Identification of stakeholders & facilitation of information exchange Framework for action Address knowledge plan and and information gaps implementation Design of reform and complementary Data validation policies 11
Example from World Bank’s engagement: professional services in Sub-Saharan Africa Skills shortages • Most severe shortages of engineering and accounting professionals • Shortages of middle ‐ level professionals (such as technicians or paralegals) and • shortages of experienced professionals Skills mismatches • Jobless professionals despite scarcity • Underdevelopment of professional services markets • Professional services are less efficient, more costly and less widely available than • in many other comparable countries (for example, poor quality of auditing and reporting systems, poor enforcement of property rights) Foreign accountants are less than 3% of total in Malawi and Zambia and less than 10% • of total in Kenya, Tanzania and Uganda but 60% in Rwanda Foreign engineers are less than 5% of total in Malawi and Mozambique and 6% of total • in Tanzania Virtually no foreign professionals in legal services in any of the Eastern and Southern • African countries 12
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