On Wednesday, May 16, Linda Schmid, an Independent Consultant on International Trade Policy and Development, and Bernard Hoekman, Director of the Development Research Group at the World Bank, spoke at GMF on the importance of cooperation in transatlantic services regulation to the developing world.  The discussion was also joined by a delegation of Geneva-based service negotiators from African nations, part of a GMF-ICTSD sponsored study tour to gain a better understanding of the climate for developing world service issues in the United States. The event was moderated by GMF Transatlantic Fellow Richard Salt.

In her presentation, Ms. Schmid stressed the important role that service markets play in developing countries, which is rarely appreciated in most discussions of development issues. Citing trends that point to growing services markets in the developing world, she pointed out that not only was this a source for growth in an of itself, but services, such as finance, telecommunications and insurance, contributed to a broader and more sound basis for growth in other sectors. She argued that there are ways in which assistance from the EU and the U.S. could be targeted to capitalize on this trend to encourage growth. 

Schmid argued that there are certain, significant, barriers to growth that exist in developing countries.  The essential preconditions to effective regulation of a dynamic services sector include good governance practices (anti-bribery measures, among others), as well as sound and transparent rule of law.  In addition to the difficulty in obtaining these basic conditions, there exist additional complications that confront service businesses when operating in developing countries.  Among these barriers are difficulty assessing credit, substandard telecommunications and inconsistent access to energy as well as opaque regulation.

Schmid argued that the transatlantic partners have considerable expertise and experience to help the developing world, as the service sector dominates the economy both within and between the transatlantic partners.  In this spirit, the relationship is characterized by an increasing amount of cooperation on regulatory issues aimed at helping allow the EU and U.S. to resolve disagreements and disputes with minimal conflict.  The transatlantic partners have not only developed a web of close cooperation but, as importantly, this is coupled with the capacity to effectively regulate complex markets, which would be incredibly useful for development assistance in this sector.

In response, Bernard Hoekman offered views from his perspective at the World Bank.  Agreeing with Schmid's assertion that the service sector offers considerable potential for growth in the developing world, he added some thoughts on how the EU and U.S. could best utilize their expertise to affect development. He also expressed the need to be careful regarding the form that such cooperation took. Simply exporting rich-world regulatory models was cautioned against as being a potentially harmful practice; Hoekman mentioned Zambia's difficulty in adopting International Financial Reporting Standards, suitable for developed-world countries.  Rather, the case was made for capacity building as a means for regulatory development.  Capacity building allows for more effective assistance and creates less potential problems than, "exporting," domestic practices.

In particular, Hoekman argued that there was considerable scope for the EU and U.S. to help developing countries under the umbrella of, "aid for trade." Currently, aid for trade is about a term used almost exclusively for goods: it provides assistance to develop customs and port procedures to help goods trade. However, this ignores the services sector, which may offer opportunities for higher value-added economic activity in the developing world; the link had not been made, in policy terms, between regulation and aid for trade.  In exploring this topic, it became clear that most thought that technical assistance, in the area of trade in services, was a vital key to the development of our world's poorest nations. 

Due to limited capacity and resources in developing countries, the importance of regional regulation was also highlighted as a meaningful vehicle for growth. Hoekman argued that the European experience, wherein regulators operated both to integrate a single regional market as well as develop consumer or investor protection, could be of particular use.  Together, developing nations have a stronger stance to implement effective regulatory policy and can pool resources in order to better regulate the services sector.

Download Linda Schmidt's full policy brief (.pdf)