MOBILIZING BUSINESS FOR TRADE IN SERVICES Geneva 2013 ii ABSTRACT FOR TRADE INFORMATION SERVICES ID= 43044 2013 S-15.00 SER International Trade Centre (ITC) Mobilizing Business for Trade in Services Geneva: ITC, 2013. xiv, 142 p. The book providing an analytical and practical explanation of the process and substance of services sector reforms - aims at assisting the business sector in developing countries to engage with governments on strategies for the development of the services sector, with a view to increasing competitiveness and trade; looks at how services can contribute to growth and development; the role of services in trade negotiations; and how business and governments in developing countries can work together towards common aims; reviews individual service sectors such a tourism, transport, communications, computer, audiovisual, business process outsourcing, professional and other business services, construction, distribution, cultural and recreational services; provides key statistical data in services trade; includes bibliographic references (p. 140). Descriptors: Trade in Services, Trade Liberalization, Developing Countries, Services. English, French, Spanish (separate editions) ITC, Palais des Nations, 1211 Geneva 10, Switzerland (www.intracen.org) The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the International Trade Centre concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Digital images on the cover: © Shutterstock, collage by Kristina Golubic, ITC © International Trade Centre 2013 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without prior permission in writing from the International Trade Centre. Links to the website of the International Trade Centre are encouraged as a means to disseminate ITC publications to the widest possible audience. P252.E/DCP/BTP/13-XI ISBN 978-92-9137-412-0 United Nations Sales No. E.14.III.T.1 iii FOREWORD When business leaders in developing countries are asked whether opening trade in services represents a threat or an opportunity, many see a real chance to grow their businesses. In fact many see it as a must. This reflects the dynamism of the services sector for companies based in the developing world, both domestically and in export markets. More and more businesses are taking advantage of these openings, with services accounting for over 50% of gross domestic product (GDP) in many developing countries and over 45% in many least developed countries. Add to this that agricultural products and manufactured goods contain about 35% of value added through services. On the trade front, developing countries’ share in world services exports has trebled to more than 30%. Yet least developed countries only account for less than 0.6% of global services exports, compared with their 1% in world merchandise exports. Clearly, there remains much scope to expand services sectors, improve international competitiveness and increase cross-border trade. No country can be competitive without a vibrant, efficient services sector. Tapping this potential depends on strengthened cooperation between business communities and governments. Opening markets to trade in services is complex, as it also involves domestic or regional regulatory reforms. Business-government cooperation is essential to strike the balance between costly over- regulation and the need to protect consumers and realize other national policy objectives through smart regulation. Just as governments need to base their reform agenda on vision underpinned by strategy, so do businesses. Good policy and regulatory reform can minimize compliance costs, improve competitiveness and allow trade to grow. Government and business need to support each other to achieve the best outcomes for their countries. This book aims to give business coalitions and trade negotiators a foundation to make informed choices, as they collaborate to shape trade in services accords and related regulatory reform. The book outlines how services contribute to development; explains issues specific to the services sector in trade negotiations; and addresses how business and governments in developing countries can work towards common goals. In so doing, this book encourages business coalitions in developing countries to engage with governments on strategies to expand the services sector. By keeping legal technicalities to a minimum, the book enables businesses to improve their understanding of the trade negotiating process in services. At the same time, it helps governments to see trade negotiations and regulatory reform of the services sector through the eyes of businesses in their own countries and regions. This book is part of the work of the International Trade Centre (ITC) to promote the business voice of developing countries in policymaking. ITC fosters public-private dialogue to identify obstacles to export competitiveness and find customized solutions to remove them. We hope this book will contribute to mobilizing the business sector to use trade negotiations and regulatory reforms to expand developing country participation in the global opportunities afforded by the fast-moving services sector. Arancha González Executive Director International Trade Centre iv ACKNOWLEDGEMENTS Malcolm McKinnon, former Head of Trade in Services at the United Kingdom’s Department for Trade and Industry, and former Chief Executive of SITPRO Ltd, the United Kingdom’s trade facilitation body, is the author of this book. He has based it on his 11 years as the United Kingdom’s leading official expert on trade in services (1994-2005), as well as more recent consultancy projects on trade in services, especially in sub- Saharan Africa, and is entirely responsible for the views expressed. This book has entailed much research and consultation with other experts in the field of trade in services. The author is particularly indebted to Hamid Mamdouh, Director of Trade in Services at the World Trade Organization, and his team, including Rolf Adlung, Peter Morrison, Hoe Lim, Dale Honeck and Antonia Carzaniga, as well as the authors of many WTO background documents that have helped with the sector summaries in the second part of the book; Pierre Sauvé, Director of External Programmes and Academic Partnerships, at the World Trade Institute, Berne; and Marta Soprana, a masters student at the World Trade Institute whose dissertation originally inspired ITC to commission this book. Other current or former services experts who gave useful suggestions or whose papers have been particularly useful references included Julia Nielson and Additiya Mattoo, World Bank; Matthew Stern, DNA Economics, South Africa; Pascal Kerneis, Managing Director, European Services Forum, Brussels; John Cooke, Head of International, TheCityUK, London; Peter Dodd, Director of International Economics, Department for Business, Innovation and Skills, London; Dirk Willem te Velde, Overseas Development Institute, London; and Alison Hook, Hook International. Rajesh Aggarwal, Chief, Business and Trade Policy Section, supervised the writing of the book, with Jean- Sébastien Roure, Adviser on Legal Aspects of Trade, Business and Trade Policy Section, ITC, acting as coordinator. Natalie Domeisen was responsible for editorial management and promotion, Julie Wolf acted as editorial consultant and desktop publishing was done by Isabel Droste. v CONTENTS Foreword iii Acknowledgements iv Abbreviations xi Executive summary xii PART I HOW LIBERALIZING SERVICES TRADE CAN HELP DEVELOPMENT 1 CHAPTER 1 THE CASE FOR LIBERALIZING SERVICES 3 REDUCING POVERTY THROUGH TRADE 4 SERVICES PLAY ROLE IN DEVELOPMENT 6 SERVICES, AN ECONOMIC BACKBONE 7 EXPORT SUCCESS VARIES 8 SERVICES EXPORTS WEATHER CRISIS 9 BALANCING REGULATION AND TRADE OPENING 10 ADDRESSING PUBLIC SERVICES 11 CHAPTER 2 WHAT DOES TRADE IN SERVICES MEAN? 15 SERVICES ARE INTANGIBLE … AND MORE 16 A WIDE VARIETY 16 CHANGING COMPOSITION 17 FOUR MODES OF SUPPLY 18 INTERNET BLURS BOUNDARIES 21 RELATIVE IMPORTANCE OF THE MODES OF SUPPLY 26 THE FOUR MODES OF SUPPLY ARE LINKED 26 CHAPTER 3 MANAGING REGULATORY REFORM 29 TRADE BARRIERS: MAINLY REGULATORY 30 REASONS TO REGULATE 30 BETTER REGULATION, NOT DEREGULATION 31 IMPACT ASSESSMENT TEMPERS EXCESS 32 FOLLOWING INTERNATIONAL BEST PRACTICE 33 MUTUAL RECOGNITION AGREEMENTS 33 PRO-COMPETITIVE REGULATION 34 vi ENCOURAGING COMPETITIVE SERVICES 35 SEQUENCING REGULATORY REFORM 37 BUSINESS CONCLUSIONS 38 CHAPTER 4 THE BUSINESS AGENDA FOR LIBERALIZATION 41 BUSINESS PRIORITIES FOR TRADE TALKS 42 TRANSPARENCY AND PREDICTABILITY 45 EFFECTIVE INSTITUTIONS 45 MARKET ACCESS AND INVESTMENT 46 BUILDING CAPACITY 46 CHAPTER 5 TRADE AGREEMENTS AND BUSINESS 49 NEGOTIATIONS ADD CREDIBILITY 50 THE INFLUENCE OF BUSINESS COALITIONS 51 UNDERSTANDING TRADE AGREEMENTS 53 NON-DISCRIMINATORY ACCESS AND TREATMENT 53 Most-favoured-nation treatment 54 Market access 54 National treatment 55 READING A GATS SCHEDULE OF COMMITMENTS 56 OBJECTIVE, TRANSPARENT REGULATION 57 EXCHANGING REQUESTS AND OFFERS 58 THE GOVERNMENT-BUSINESS NEXUS 58 BUSINESS ROLE IN NEGOTIATING STRATEGY 59 CHOOSING PRIORITY MARKETS AND SECTORS 60 LINKING SECTORS, GOODS AND SERVICES 63 BUSINESS ON STAND-BY 63 CHAPTER 6 MAKING TRADE AGREEMENTS WORK 65 MARKET ENTRY CONDITIONS 66 BUSINESS ROLE IN IMPLEMENTATION 66 ROLE OF TRADE