Services and development: Finding a way forward for Doha
On October 5, GMF hosted a luncheon discussion on "Services and development: Finding a way forward for Doha." Speakers at the event included Christine Bliss, Assistant USTR for Services and Investment; Bob Vastine, President of the Coalition of Service Industries; and Aaditya Mattoo, Lead Economist of the World Bank's Development Research Group. Randall Soderquist, Director of GMF's Economic Policy Program, moderated the discussion.
As all three speakers pointed out in their presentations, greater liberalization of trade in services could potentially promote significant economic growth in both industrial countries and developing countries. For the United States and Europe, services liberalization is of particular importance because the services sector constitutes two-thirds of both employment and Gross Domestic Product (GDP). For developing countries, the significance of liberalizing trade in services springs from a number of factors, including technology transfer, innovation, economies of scale, productivity generated by investment, and improvements in efficiency.
Looking specifically at the example of India, Bob Vastine pointed out that it were the more liberalized services sectors such as communications, banking, and IT services that drove India's growth in the 1990s. Based on this experience, Vastine was of the opinion that India could see an income gain of close to $300 billion by 2015, which is equivalent to an extra two percent of GDP, if it were to fully liberalize its financial services sector. However, Vastine also stressed that foreign firms still face a lot of impediments when trying to invest in developing countries' markets. These hurdles include foreign equity restrictions, regulatory treatment that discriminates against foreign firms, and restrictions on the kind of entities that can be established in the foreign market, such as branch versus subsidiaries. Vastine said some of the government policies that would address these impediments include increased transparency and predictability of trade regimes, improvement of regulatory policies, and greater competition through increased market access for foreign firms more generally.
Despite the importance of service sectors for both industrial and developing economies, negotiations in the Doha Round to promote greater services liberalization have for a long time taken a back seat to the agriculture and NAMA negotiations. Only recently have services negotiators in Geneva agreed on a draft text that brings the services negotiations on par with the agriculture and NAMA negotiations. The challenge that WTO members now face is setting a date for the next round of revised offers, address the gap between existing openness and increased market access, and help developing countries improve domestic regulations.
Christine Bliss argued that developing countries have to overcome the perception that greater liberalization of Mode 4, which allows for increased movement of temporary workers, will have a significant impact on the economic development of developing countries. Bliss questioned the importance of remittances sent by temporary workers and pointed out that even if the U.S. opened up its borders for more temporary workers, these workers would mainly come from Latin American rather than African countries. She therefore argued that the discussion around Mode 4 is more a South-South than a North-South issue.
Aaditya Mattoo stressed that the package agreed upon at the WTO has to fulfill different criteria. In his opinion, a deal on services must be balanced from a mercantilist perspective, commercially relevant from a business perspective, and offer substance rather than rhetoric from a development perspective. In order to achieve these goals, an agreement has to include the following three elements: First, it would promise not to impose new restrictions on trade in services. Second, it would include a commitment to eliminate barriers to foreign direct investment which would in the end significantly benefit infrastructure services in developing countries. Third, the agreement would allow greater freedom of international movement for temporary workers in order to fulfill specific services contracts in industrial countries. Opposite to Bliss' opinion, Mattoo stressed that remittances sent by temporary workers can have a significant impact of economic growth in developing countries.
However, just as Vastine and Bliss, Mattoo also stressed that for there to be reasonable prospects of achieving these goals, more attention needs to be given to the regulatory context in which liberalization takes place. In Mattoo's opinion, all discrimination against foreign service providers has to be eliminated and foreign countries have to be guaranteed ‘national treatment'. Second, liberalization commitments have to be accompanied by regulatory assistance to reassure developing country policymakers that regulatory inadequacies that could undermine the benefits of liberalization will be remedied before market-opening commitments take effect. Third - and especially important for the current immigration debate in both the United States and Europe - the temporary entry of foreign service providers has to depend on the fulfillment of specific conditions by the source countries. According to Mattoo, immigration authorities in host economies must be assured that source countries will cooperate to screen workers, to accept and facilitate their return and to combat illegal migration.
In the discussion that followed the three presentations, a number of questions were raised regarding the likelihood of a successful conclusion of the Doha Round within the next few months, the lack of mechanisms to legally bind commitments of assistance in return for greater market access, and the need to improve coherence among international institutions involved in the trade debate.