“Harnessing Services for Sustainable Development:

Opportunities and Challenges for Jordan”21-22 September 2010

Amman ------------------------

Offah Obale,obale@southcentre.org

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Outline

IntroductionServices in the global economy

Nature of Services: Scope & coverage What is a service, some differences from goods, role and kinds of

services, trends in the global services trade

Services in Developing Countries – Areas of interestFeatures, key areas for development (UA, case of water) Services trade and developing countries (outsourcing, tourism)Role of Regulation

Services liberalization and development Pros and Cons, South-South Potential

Way Forward: Considerations for future planning

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Background: kinds of services?

ServicesServices

Trade-Trade-AbleAble

Business, Business, tourism, tourism,

constructiconstructionon

IntermeIntermediatediate

Comm, Comm, transporttransport, financial, financial

InfrastrInfrastructureuctureWater, Water,

health,edhealth,educationucation

-key role in infrastructure, competitiveness, trade facilitation, employment, GDP

-key role in poverty reduction (MDGs)

-Regulation important tool for harnessing benefits and development

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Modes of Supply

Mode 1: Only Service Moves

Mode 2: Consumer goes to where service is

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Modes of Supply

Mode 3: service provider sets up commercial presence

Mode 4: Service provider Moves

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Why is it important for Governments to know about services?

Importance of a conceptual understanding for governments:

national level – data and statistical collection

– national policy making to determine areas of strategic importance, and areas of potential trade interest

– foreign exchange – balance of payments regional and multilateral level

– classification purposes for trade negotiations

– understand implications of modal and sectoral commitments

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Services Trade: Its Growing Importance World service exports in 2007

- 3.3 trillion USD, 18.1 % growth- 70 % of GDP in developed countries

Developing countries’ share in world services export stands at 25.4 %

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Services Trade: Its Growing Importance However DC trade in services heavily concentrated on few countries and

regions

-Top five exporters 50% all DC services exports (China, India, China-

Hong Kong SAR, Singapore, Republic of Korea)

- Services exports per region:

Asia 75 % per cent of DC exports

Latin America 13 % of DC exports

Africa 10 % of DC exports

Concentrated on sectors

-Travel and transport: 2/3 of DC services exports

-Business, information and communication, financial and insurance services: 1/3 of DC services exports

Tourism

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Services Trade: Its Growing Importance South – South services trade is continuously

growing 45 % of DC services exports directed to other DCs- 11 % of world services trade- Strong bias towards intra-regional exports Share of South – South services trade per region- Africa 57 %- Latin America 71 %- Asia 94 %

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Services & Poverty Reduction

Services ….

•…cover a broad range of activities; …have a key role to play in:

•building infrastructure & competitiveness;

•facilitating trade;

•reducing poverty (basic services) &

promoting gender equality;

offering employment;

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Services & Poverty Reduction

Services are key for achieving the MDGs: •Achieving universal primary education (MDG 2)•Reducing child mortality (MDG 4)•Improving maternal health (MDG 5)•Promoting gender equality and women empowerment (MDG 3)•Eradicating extreme poverty (MDG 1)•Developing a global partnership for development (MDG 8)

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Tools for Poverty Reduction

Liberalizing services trade can also help:

•Exporting through Mode 4, outsourcing, & in

tourism sector

•Importing to make services more efficient &

increase choice

•However: size of benefits are far from clear&

they are country/context specific

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Tools for Poverty Reduction : Mode 4 Exports

Remittances: •are a major stable source of capital inflows•improve ability to finance development objectives (lower

school drop out, better health outcomes) Employment opportunities: •decent work for youth & gender empowerment: Challenges: •how to ensure brain gain instead of brain drain •how to overcome reluctance in receiving countries •how to channel remittances into productive capacities? GATS potential?

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Tools for Poverty Reduction:

Tourism Services Among top five export revenue generator for 75 countries Benefits from:

•employment, foreign exchange earnings, taxation, multiplier & spillover effects

Challenge:

•benefits depend on: degree of integration of domestic sector tourism, global business practices, access to

distribution networks, degree of leakage, vulnerability to

external shocks

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Tools for Poverty Reduction:

Universal Access UA to services:

•significant, strong and manifested relationship with poverty

reduction, inequalities based on wealth & location; important infrastructural & social function. e.g., water,

education, health, financial, telecom UA policies:

•are diverse & include: public & private provision & many

options in-between (publicly-funded, private services provision, USOs, subsidies, microfinance, community-based & other innovative options

•no one size fits all –need for policy space & flexibility

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Tools for Poverty Reduction:

Universal Access: the Case of Water 1.1 billion people lack access to water; •millions of women spend up to 4 hours a day collecting water; •loss of 443 million school days each year caused by water-related illnesses; •almost 50 per cent of all people in DCs are suffering at any given time from a health problem caused by water/sanitation deficits; •Implications for human/economic development & MDGs.

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Tools for Poverty Reduction: GATS & Universal Access Concerns voiced •that liberalization may negatively affect access/equity;therefore careful pacing & sequencing of liberalization & regulation;•building appropriate institutional & regulatory frameworks, ensuring that certain preconditions are in place before opening services markets GATS potential? •limited commitments, Art I carve out, subsidies, UA language in WPDR negotiations

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The Importance of Regulation

Role of regulation widely accepted (market failures: externalities, information asymmetry, imperfect competition etc.) also social & ethical considerations

UA: variety of policy options FS: numerous FS policies: prudential (viability &

stability of financial system), competition & social policy (UA & microfinance)

Regulatory reform: •proper pacing, sequencing & content of reform; need for best policy mix for particular situation; requiring regulatory flexibility

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International Trade Negotiations Multilateral GATS

•Market access & rule making track

•limited progress on development priorities

(Modes 2 & 4), S&D, special priority for

LDCs Instead focus on:

•binding existing level of openness, national,

treatment & domestic regulation

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International Trade Negotiations Multilateral: Domestic Regulation

Art. VI:4 mandate: to develop any “necessary” disciplines for measures relating to QR, QP, LR, LP, TS

•with a view to ensuring that measures… do not constitute unnecessary barriers to trade in services…

Challenge for DCs: to strike a balance between •preserving domestic policy flexibility & right to regulate; •specific & clear disciplines to underpin their MA opportunities (e.g., Mode 4)

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Way Forward

Proper content, pacing & sequencing of reform (including appropriate regulatory and institutional framework) are crucial for reaping development benefits from the services sector & its liberalisation

There is no one-size fits all solutions Need for flexibility & policy space in international trade agreements &

negotiations Need for a multi stakeholder approach involving the private sector and

civil society Need for services assessments to make informed choices in services

trade negotiations Need for commercially meaningful commitments in sectors of priority

interest to developing countries and modes 4 and 1 to deliver on DDA

.

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The end

Thank you