International Trade in Services Public Disclosure Authorized NEW TRENDS AND OPPORTUNITIES FOR DEVELOPING COUNTRIES (GLWRUV 2OLYLHU&DWWDQHR0LFKDHO(QJPDQ6HEDVWLiQ6iH] 5REHUW06WHUQ Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized International Trade in Services International Trade in Services New Trends and Opportunities for Developing Countries Olivier Cattaneo, Michael Engman, Sebastián Sáez, and Robert M. Stern, Editors Washington, D.C. ©2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 13 12 11 10 This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. 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Engman, Michael, 1976 - HD9989.D44I588 2010 382'.45—dc22 2010017084 Cover image: “Purple Door,” by Ahmed Abushariaa, 2005, courtesy of the World Bank Art Program. Cover design by Tomoko Hirata/World Bank. CONTENTS About the Editors and Contributors xiii Foreword xv Acknowledgments xvii Abbreviations xix 1 Assessing the Potential of Services Trade in Developing Countries: An Overview1 Olivier Cattaneo, Michael Engman, Sebastián Sáez, and Robert M. Stern 2 Increasing Labor Mobility: Options for Developing Countries 29 Sherry Stephenson and Gary Hufbauer 3 Legal Services: Does More Trade Rhyme with Better Justice? 67 Olivier Cattaneo and Peter Walkenhorst 4 Health without Borders: International Trade for Better Health Systems and Services 99 Olivier Cattaneo 5 Market Structure, Liberalization, and Trade: The Case of Distribution Services 141 Julian Arkell 6 Building Empires Overseas: Internationalization in the Construction Services Sector 177 Michael Engman 7 Exporting Information Technology Services: In the Footsteps of India 219 Michael Engman v vi Contents 8 Accounting Services: Ensuring Good Governance, Financial Stability, and Economic Growth through Trade 263 Olivier Cattaneo and Peter Walkenhorst 9 Engineering Services: How to Compete in the Most Global of the Professions 293 Olivier Cattaneo, Linda Schmid, and Michael Engman 10 Understanding Trade in Environmental Services: Key Issues and Prospects 319 Nora Carina Dihel Index 349 Contents vii Boxes 2.1 Extent of Temporary Labor Migration 31 3.1 Some Key Facts about Legal Services 69 3.2 Growth and Investment Have Created a Viable Market for Legal Services in Developing Countries 70 3.3 The Four Modes of Supply for Legal Services 72 3.4 Using Foreign Legal Consultants to Facilitate Trade 78 3.5 Self-Regulation Often Results in Cartelization of the Legal Profession 81 3.6 Professional Bodies Play a Prominent Role in Legal Skill Development 82 3.7 Cost Pressures Force Clients to Rethink Their Approach to Legal Services 86 3.8 Negotiating Mutual Recognition Agreements Can Facilitate Trade in Legal Services 87 3.9 Negotiating Fast-Track Visa Procedures to Facilitate Crossborder Movement 89 4.1 Case Study: Remedying Health Shortages through Trade under Modes 4 and 2, Oman 105 4.2 Case Study: Remedying Health Shortages through Trade under Mode 3, India 108 4.3 Case Study: Travel and Health Industries Commingling, Thai Airways 114 4.4 Case Study: Exports of Offshore Medical Transcription Services, the Philippines 115 4.5 Case Study: Exports under Mode 2, ASEAN 118 4.6 Case Study: Exports under Mode 4, Tunisia 122 4.7 Case Study: Mitigating the Distributive and Other Adverse Effects of Trade in Health Services, Thailand 124 4.8 Case Study: SWOT Analysis, Health Services Trade, Morocco 127 4.9 Case Study: Regulatory Audit for Health Services, Tunisia 129 4.10 Seizing Opportunities in the United Kingdom: The Case of South Africa 131 4.11 Case Study: A Successful Government-Led Strategy to Develop Medical Tourism, Cuba 132 5.1 Principal Activities in the Distribution Sector 142 5.2 Estimates of the Economic Scope of the Distribution Sector 143 5.3 Selected Developing-Country Experiences in the Distribution Service Sector 146 5.4 Examples of Multinational Retailers with Foreign Affiliates 148 5.5 Regulatory Reform in the Retail Sector 156 6.1 The Main Characteristics of the Construction Service Sector 178 6.2 What Do Construction Services Cover? 180 6.3 Facilitating the Administration of Building Permits 197 viii Contents 6.4 Chinese Construction Companies Dominate the Infrastructure Market in Africa 198 6.5 Enhancing Transparency: World Bank Guidelines on Notification and Advertising 199 6.6 Initiatives to Prevent Corruption in Construction Projects 201 6.7 Homegrown Champions Exporting Construction Services 208 7.1 Egypt as an Emerging Offshore Location for IT Services 224 7.2 The Value of Securing an Anchor Investor 227 7.3 Raising Internet Connectivity in Africa 233 7.4 NIIT: A Private Initiative to Train Personnel for IT Service Careers 236 8.1 The Four Modes of Supply of Accounting Services 266 8.2 Affiliations of Developing-Country Accounting Firms with the Big Four 268 8.3 Examples of Domestic Regulations That May Impede Trade in Accounting Services 271 8.4 Price Controls: Legitimate Policy Objectives and Adverse Effects 272 8.5 International Accounting and Auditing Standards 274 8.6 Reports on the Observance of Standards and Codes 277 8.7 An Example of a Regional Agreement on the Mutual Recognition of Qualifications 279 8.8 Investing in Education to Meet International Standards: The Case of Zambia 280 9.1 Definition of Engineering Services 294 9.2 The Four Modes of Supply of Engineering Services 298 9.3 An Example of Trade Success: Tunisian Engineering Firms 300 9.4 The Contribution of Regionalism to Integration in the Engineering Service Trade 308 9.5 Addressing the Fears Associated with Trade Opening: Accompanying Measures 309 9.6 Articulating Microstrategies and Macrostrategies 311 10.1 What Do Environmental Services Cover? 320 10.2 Explaining the Growth Potential of Environmental Markets: The Environmental Market Development Model 325 10.3 Case Study: Trade in Environmental Services, Mexico, 2001–06 327 10.4 The Participation of Developing Countries in Environmental Services 328 10.5 Market Challenges Faced by Environmental Service Firms at Home 336 Figures 1.1 The Expanding Role of the Trade in Services in the World Economy, 1977–20073 1.2 Trade, by Region, 20074 1.3 Trade in Services, by Region, 20075 Contents ix 1.4 Worker Remittances Received, by Region, 20075 2.1 Provisions on Mode 4 in FTAs between Developed and Developing Countries 55 3.1 Exports of Legal Services from Selected Countries, 2001–07 79 4.1 Foreign Professionals Working in the Public Health Sector, Oman, 2003 105 4.2 Omani Patients Treated Abroad, 2006 106 4.3 Health: A Sector with Strong Potential for Outsourcing 114 4.4 A Definition of Medical Travel 116 4.5 Relative Size of Medical Traveler Segments 117 4.6 Mergers and Acquisitions in the Health and Social Services Sector 120 6.1 Construction Services: Mean Gross Value Added in GDP, 75 Countries 178 6.2 Construction Services: Market Share by Sector 179 6.3 Exports of Construction Services, Selected Economies 184 6.4 Commercial Presence of Large International Contractors in Foreign Markets 186 6.5 Number of Procedures Involved in Dealing with Construction Permits 189 6.6 Number of Days Required to Deal with Construction Permits 190 6.7 Cost of Dealing with Construction Permits 191 7.1 Offshoring ϭ International Insourcing ϩ International Outsourcing 221 7.2 A. T. Kearney’s Global Services Location Index 228 7.3 Indian IT Workers in the United Kingdom 238 8.1 The Rising Global Revenues of Accounting Firms 264 9.1 Top 500 Engineering Design Firms by Revenue and Type of Work, 2008 297 9.2 Comparative Student Enrollments