Aaditya Mattoo

April 25, 2018

Services Globalization in an Age of Insecurity: Rethinking Trade Cooperation

Services are different from goods but also from each other BANKING TRANSPORTATION

COMMUNICATION TOURISM

• Services transactions often require face-to-face contact. • There is a risk of market failure, especially because consumers are not well-informed about suppliers

Either producers must to move to consumers or vice versa…

PERSONAL SERVICES MEDICAL SERVICES

CONSTRUCTION SERVICES RETAIL SERVICES

…and regulation is often needed to protect consumers

Of course, services markets are changing DIGITIAL COMMUNICATION

RIDE SHARING MOBILE BANKING

TELEMEDICINE

• Technology is reducing, but not eliminating, the need for face-to-face service delivery • “Over-regulation” is leading to the emergence of new services

Services “trade” has a wide scope and potential impact

1. Cross-border

Trade

Outsourced IT and back-office services

International transport International communication

4. Movement of

Natural Persons

Construction workers Doctors and nurses Performers

2. Consumption

Abroad

Tourism Education abroad Health care abroad

3. Commercial

Presence

Retail distribution Banking Telecommunication Education

Preview of findings

I. Digitization and aging are driving services trade but “divergent globalization”

II. Much unilateral liberalization, but still big barriers and big unrealized gains

III. Better regulation the basis for success in both reform and exporting

IV. Greater tax and regulatory cooperation the key to sustaining openness and successful trade negotiations

Goods trade stumbles, but services trade does not fall

100

150

200

250

300

350

400

-15

-10

-5

0

5

10

15

20

World Import Volumes of Goods and Services

Goods: Growth rates Services: Growth rates

Goods (1993=100, RHS) Services (1993=100, RHS)

Source: IMF World Economic Outlook

Services trade declined less during the crisis and has grown faster after the crisis

Source: Constantinescu, Mattoo and Ruta (2016), work in progress, building on “The global trade slowdown: cyclical or structural?,” World Bank Policy Research Working Paper 7158.

China’s rebalancing and demographics are already shifting demand towards services

80

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180

2011

Q1

2011

Q2

2011

Q3

2011

Q4

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2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

China: Imports of Goods and Services, bill. USD (index 2011Q1=100)

Services Imports

Goods Imports

Source: IMF Balance of Payments Statistics

10

12

14

16

18

20

22

24

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

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2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

China: Share of Services in Total Imports (percent)

Source: IMF Balance of Payments Statistics

Source: Constantinescu, Mattoo and Ruta (2016), work in progress, building on “The global trade slowdown: cyclical or structural?,” World Bank Policy Research Working Paper 7158.

Who is participating in services trade?

Comparative advantage in services is determined by the interplay between :

• Endowments, especially of skills

• Infrastructure, especially telecommunications

• Institutions, especially regulatory

Direct and indirect value added exports of financial services, share of GDP, 1995-2009

New value added trade data reveals evolution of comparative advantage and structural change

Source: Liu, Mattoo, Wang and Wei (2015)

IND

IDN

CHN

BGR

ROMBRA

RUS

LVA

MEXLTU POL

EST

HUN

SVK

CZE

MLT

SVNKOR

PRT

GRC

CYPESP

ITAAUSDEUFRA

JPN CAN

BEL

AUT

FIN

GBR

NLD

SWE

USA

DNK

TUR

0

.05

.1.1

5

Indir

ect V

alu

e A

dd

ed

Expo

rts/G

DP

0 .05 .1 .15

Direct Value Added Exports/GDP

Countries Turkey

Indirect and Direct Value Added shares of GDP (in constant 2005 USD) - Financial Services

Note: Does not include Ireland and Luxembourg

IND

IDN

CHNBGR

ROM

BRA

RUS

LVA

MEX LTU

POL

EST HUN

SVK

CZEMLT

SVN

KOR

PRT

GRC

CYPESP

ITA

AUS

DEU

FRA

JPN

CAN

BEL

AUTFIN

GBR

NLD

SWE

USA

DNK

IRL

LUX

TUR

0.1

.2.3

.4.5

Indir

ect V

alu

e A

dd

ed

Expo

rts/G

DP

0 .2 .4 .6

Direct Value Added Exports/GDP

Countries Turkey

Indirect and Direct Value Added shares of GDP (in constant 2005 USD) - Business Services

Direct and indirect value added exports of business services, share of GDP, 1995-2009

Binding constraint on job-creation is not high skill intensity of services production but low availability of skills

The surprisingly high unskilled labor value added in services exports

Source: Joint work with Alen Mulabdic based on Cali et al (2016), "The Labor Content of Exports Database."

Labor value added (LVA) in $1000 of exports

II. What are the barriers to trade and how big are the gains from reform?

The Services Trade Restrictions Database World Bank Services Trade Restrictions Database covers 103 countries (of which 79 are developing)

Source: Borchert, Ingo, Batshur Gootiiz and Aaditya Mattoo (2014) “Policy Barriers to International Trade in Services: Evidence from a

New Database,” World Bank Economic Review, 28:162-188.

010

20

30

40

50

60

70

Serv

ices tra

de r

estr

ictiveness index

GCC SAR MENA EAP AFR LAC OECD ECA

Note: 103 countries included.

Financial Telecom Retailing

Transportation Prof.Services

STRI by sector and region

Source: Borchert, Ingo, Batshur Gootiiz and Aaditya Mattoo (2014) “Policy Barriers to International Trade in Services: Evidence from a New Database,” World Bank Economic Review, 28:162-188.

The persistence of protection

India’s services reform boosted performance of downstream manufacturing industries Gains in Annual TFP Growth After Services Reform

0

1

2

3

4

industries with

limited

dependence

on banking

industries with

high

dependence on

banking

industries with

limited

dependence on

telecomms

industries

with high

dependence

on telecomms

Percent Gains in Annual TFP Growth After Services Reform

0

1

2

3

4

industries with

limited

dependence

on banking

industries with

high

dependence on

banking

industries with

limited

dependence on

telecomms

industries

with high

dependence

on telecomms

Percent

15 Source: Arnold, Jens, Beata Javorcik, Molly Lipscomb and Aaditya Mattoo (2014) “Services reform and manufacturing performance:

Evidence from India,” Economic Journal, vol. 126, 1–39.

Gains from reform (mode 3): Services reform as industrial policy

Modi to refresh ‘Make in India’ manufacturing drive February 14, 2016

More open bilateral air service agreements could lead to more traffic on existing routes and more cities being served

Source: Cristea, Hillberry and Mattoo (2015), 2015 Open Skies over the Middle East, forthcoming in the World Economy.

Gains from reform (mode 1)

Services reform as trade facilitation

Existing flights in 2010

Counterfactual flights in 2010

Potentially big gains from the international fragmentation of education • Need for education to be fragmented between:

– Standardized components which poor would have a comparative advantage in providing and

– Specialized components which would continue to be provided in rich world

• Cost-saving from even 2 years of education abroad could be $90,000 or 40% of the cost of a 4-year US medical education

• Quality is probably not a serious problem. Why? – About one-quarter of doctors, medical faculty, and nurses are already foreign

trained

• Mobility is already rising: – Post-secondary US students studying abroad jumped from 65,000 in 1987-88

academic year to 260,000 in 2008-09. – US students studying in developing countries increased from around 2,500

students in 1987-88 to 57,000 in the 2008-09 academic year.

• But again lack of portability of qualifications and scholarships is a problem

Source: Mattoo and Subramanian (2013)

Access to markets (mode 4) The regulatory tax on foreign professionals in the US

P ro fess io n

N um ber o f Indian pro fess io nals

co m ing to the US annually

(average fo r the 1995-2000

perio d)

Visa, exam inat io n

and licens ing fees

paid per

pro fess io nal

A verage inco m e

fo rego ne per

pro fess io nal due to

dif ferent ial requirem ents

To tal Inco m e/ fees paid o r lo s t

by Indian pro fess io nals due to

regulat io ns (US$ in m illio n)

(A ) (B ) ( C ) (D )

Physicians and Surgeons 1092 $4,640 $100,000 114

Civil and Mechanical Engineers 683 $2,270 $60,000 43

Accountants 518 $5,600 $30,000 18

Architects 350 $3,030 $25,000 10

Total for all professionals 10234 614-768$60,000-$75,000

Source: Mattoo and Mishra (Working paper, 2006; published 2009) Foreign Professionals in the United States: Regulatory Impediments

to Trade, with Deepak Mishra, Journal of International Economic Law, vol. 12, 435-456.

Access to markets (mode 1)

Privacy regulation - a European Damocles sword

11%

33%

22%

11%

6%

Below 1 million

1 million - 10 million

10 million - 100 million

100 million - 500 million

500 million - 1 billion

Estimation of Opportunity Loss (in USD)

33%

67%

No

Yes

Non-fructification of deals because of data protection related concerns

Source: NASSCOM-DSCI Survey (2013)

NASSCOM-DSCI Survey of the Impact of EU Privacy Regulation on India’s Services Exporters

The US could save over $1.4 billion annually even if only one in ten US patients chooses to undergo treatment abroad.

Procedure US inpatient

price ($)

US

inpatient

volume

US outpatient

price ($)

Estimated US

outpatient

volume

Foreign price

including travel

cost ($)

Savings if 10% of

US patients

undergo surgery

abroad instead of in

the US ($)

Knee surgery 10,335 399,139 4,142 60,000 1,236 380,604,366

Shoulder Arthroplasty 5,940 23,300 7,931 N/a 2,204 8,704,809

TURP 4,127 111,936 3,303 88,064 2,385 27,581,317

Tubal Ligation 5,663 78,771 3,442 621,229 1,248 171,065,574

Hernia Repair 4,753 40,553 3,450 759,447 1,608 152,655,706

Skin lesion excision 6,240 21,257 1,696 1,588,884 812 151,952,860

Adult Tonsillectomy 3,398 17,251 1,931 102,749 1,010 13,588,218

Hysterectomy 5,783 640,565 5,420 N/a 1,869 250,704,845

Haemorrhoidectomy 4,945 12,787 2,081 137,213 781 23,160,663

Rhinoplasty 5,050 7,265 3,417 N/a 1,906 2,284,315

Bunionectomy 6,046 3,139 2,392 41,507 1,487 5,186,290

Cataract extraction 3,595 2,215 2,325 1,430,785 1,133 171,078,116

Varicose vein surgery 7,065 1,957 2,373 148,043 1,393 15,618,521

Glaucoma procedures 3,882 - 2,292 75,838 1,017 9,670,440

Tympanoplasty 4,993 754 3,347 149,246 1,261 31,408,685

Total savings 1,415,264,725

Source: Mattoo and Rathindran (2006), How Health Insurance Impedes Trade in Healthcare, Health Affairs, vol. 25, 358-368.

Access to markets (mode 2)

How health insurance inhibits trade in health care

And addressing inequality requires more not less globalization of essential services

III. How is reform best implemented?

Elements of services trade policy reform

3 goals

• efficiency

• stability/reliability

• access

3 instruments

liberalization – ownership, competition

regulation

policies to improve access

3 issues • Sequential epiphany on importance • Tension between goals • Sequence of implementation

Services trade matters for the least developed countries: Zambia

And produced some clear benefits • Mobile telephony: dramatic growth since

competition and foreign entry in 1995

• Tourism: investments by Sun International have created jobs

• Insurance: improved access since liberalization in 1992

But despite openness, access to services in Zambia was limited and unequal

National air carrier liquidated and sector opened; but domestic traffic declined 5 per cent per annum.

Foreign banks dominated but credit to the private sector only 8 per cent of GDP - lower than in 1990

Only 5,000 people held 90 percent of loans.

Even by poor country standards, access to telecommunications is low.

80 percent of fixed lines in Lusaka and the Copperbelt, where only 30 percent of the population is

Source: Carsten Fink, Aaditya Mattoo and Randeep Rathindran (2003), An Assessment of Telecommunications Reform in Developing Countries, Information Economics and Policy, vol. 15, 443-466.

Where Zambia could have liberalized unconditionally, it did not

Why? Understanding the political economy of liberalization

Zamtel’s de facto monopoly in the international telecommunications gateway deprived households of access to telephones.

“When fee was reduced from $12m to $350,000, international and local call charges fell by more than 50%.” -Darlington Mwape, Zambia’s Ambassador to the WTO:

February 12, 2016 “After a bilateral open-skies deal, fares between South Africa and Zambia fell by almost 40 % and passenger numbers rose nearly as much.”

Denial of Fifth Freedom rights by Zambia and South Africa undermined competition and hurt horticulture and tourism.

Burdensome licensing in tourism (74 licenses and a year’s wait) cost Zambia nearly 300,000 more tourists every year. And Zambia’s tax system discriminated against services, the small firm and the poor regions

Where other reform’s were first needed, liberalization was rushed

Zambian Govt Caused Meridien Bank

Closure, Reveals SardanisLusaka —

…former chairman of Meridien BIAO

International Andrew Sardanis has denied

ever siphoning US $90 million to the

Bahamas.

Banking liberalized before strengthening regulation. 1991-1994, ten new bank licenses issued; 1995-2001: nine bank failures, causing estimated losses equivalent to 7 percent of GDP. Durable effect on financial development.

Agricultural output markets liberalized before the development of markets for services inputs. Durable effect on agricultural development.

Regulatory inadequacy persists and undermines the benefits of openness

Weakness: The Communication Authority of Zambia The Pensions and Insurance Authority The Civil Aviation Authority Competition Authority of Zambia

Inappropriateness: In banking, burdensome “Know Your Customer” rules, In accounting, demanding International Financial Reporting Standards (IFRS)

Absence: After independence, clumsy instruments to widen access; after liberalization, none

Why? Understanding the political economy of regulation

FROM COLONIALISM TO KAUNDA’S SOCIALISM

FROM CONDITIONALITY

Should we reinstate NAMBOARD?

Yes - according to National Farmers Union president Jarvis Zimba:

THE ZAMBIAN ECONOMIST Government will soon revive the national airline-Commerce Minister Mwanakatwe

The PF government will renationalise ZAMTEL-Opposition leader Michael Sata

TO STATE CAPITALISM?

If we cannot implement efficient instruments to widen access to services

Elements of successful services trade policy reform

• Emphasis on competition

• Effective but appropriate regulation

• Efficient instruments to widen access to services

In appropriate combination and sequence

IV. Why have services trade negotiations disappointed, and can we do better?

What does international cooperation on services trade offer?

Key policy question - where can and should these gains be realized: in a regional or multilateral context?

31

• Regulatory cooperation

• Deeper liberalization at home and abroad through reciprocity-based market access negotiations

• Enhanced credibility of o current trade regime o commitment to future reforms

Multilateral negotiations have struggled to eliminate protection

ZAF

KENNGA

MUS

PHL

CHN

IDNMYS

THA

ALB

CZE

TUR

LTU

HUN

POLBGR

BHR

OMN

DOM

MEX

CHL

BRAPE R

BOL

TTOGTMHND

ARG

URY

PAN

CRI

COLNIC PRY

JOR

MAR

TUN

EGY

NZL

USA

DNK

AUS

GRC

FIN

JPN

PRT

AUTIRL

SWEDEU

NLDCANGBR

KOR BEL

ESP

ITAFRA

LKA

IND

PAK

ZAF

KEN

NGAMUS

PHL

CHN

IDN MYSTHA

ALB

CZE

TUR

LTU

HUNPOL

BGR

BHR

OMN

DOM

MEX

CHL

BRA

PE R

BOL

TTOGTMHND

ARG

URY

PAN

CRI

COLNIC PRY

JOR

MAR

TUNEGY

NZL

USADNK

AUS

GRC

FIN

JPN

PRT

AUT

IRLSWEDEU

NLD

CAN

GBR

KOR

BEL

ESP

ITA FRA

LKAIND

PAK

ZAFKENNGA

MUS

PHL

CHN

IDN

MYSTHA

ALB CZETUR

LTU

HUN

POLBGR

BHROMN

DOM

MEX

CHL

BRAPE R

BOL

TTO

GTMHND ARG

URY

PAN

CRI

COL

NIC

PRY

JOR

MAR

TUN

EGY

NZL

USA

DNK

AUSGRC

FIN

JPN

PRTAUT

IRLSWE

DEU

NLD

CAN

GBR

KORBEL

ESP

ITAFRA

LKA

IND

PAK

02

04

06

08

01

00

Serv

ice

s tra

de r

estr

ictiveness inde

x

0 10000 20000 30000 40000GDP per capita,PPP

Restr ictive ness of GATS co mmitment Fitted values

Restr ictive ness of DOHA Offers Fitted values

Restr ictive ness of actual policy Fitted values

STRI for 61 countries, excluding Qatar and 31 countries that did not submit offers

Uruguay Round Commitments, Doha Offers and Actual Policy

Ingo Borchert, Batshur Gootiiz and Aaditya Mattoo (2011), Services in Doha: What is on the Table?, in Will Martin and Aaditya Mattoo (eds.), Unfinished Business: The WTO’s Doha Agenda, CEPR and World Bank, London.

The TPP too has delivered credibility but not much liberalization 0

2550

7510

0

Ser

vice

s tr

ade

res

tric

tive

ness

inde

x

BRN MYS CHL SGP MEX VNM CAN USA PER JPN AUS NZL

Note: For Brunei, applied policy information is missing.Absense of a bar means the score is zero

Overall STRI

Doha TPP Policy

Services Trade Restrictiveness Indices for TPP Countries Doha Offers, TPP Commitments and Applied Policy

Source: Batshur Gootiiz and Aaditya Mattoo (2016), Does TPP Bring More Openness in Services?

Example: 1. “The US reserves the right to adopt or maintain any measure…” • Transport: “…relating to the provision of maritime

transportation services …”

• Cross-Border Trade: “…that is not inconsistent with the US’ obligations under the GATS….”

Mode 4: “the United States is not undertaking any commitments in this area.”

• MFN: “…that accords differential treatment to countries under any bilateral or multilateral international agreement in force or signed prior to the date of entry into force of this Agreement.”

2. Malaysia: licenses based on “prudential considerations and “the best interest of Malaysia.”

Security is a growing concern in an insecure world

• Automation, job insecurity and shrinking state support • Digital trade and privacy violations • Financial internationalization and financial instability • Labor mobility and illegal migration • Monopoly power and consumer exploitation

• Tax and regulatory externalities –action or inaction in one state can impose costs on workers and consumers in another state.

• Key nation states are now more responsive to internationally immobile labor and consumer interests than to “firms and citizens of the world.”

Impact of globalization on tax structures makes it harder to tax the winders and compensate the losers

Source: Peter Egger, Sergey Nigai, Nora Strecker (2016).

Corporate tax rates and personal labor income tax rates for top 1% and median workers in 65 economies over 1980-2007

In 1994-2007, middle-income workers experienced a globalization-induced rise in their personal income tax rate of around 1.5, whereas the top 1% of workers faced a reduction of approximately 1.5 percentage points.

Is the current US tax proposal driven by ideology, influence or the imperative of globalization?

In parallel, the growth of “intangibles” – footloose and hard to measure

36

Routes to international tax cooperation

• OECD initiatives to deal with base-erosion and profit shifting

• But strong resistance to the idea of fiscal harmonization

• Destination-based taxation? Not just US Congress but increasingly favored by the EU and India to deal with new services.

37

Needed: a mechanism to protect consumers from international market failure

Conventional approach: negotiations about exchange of market access commitments by importers Does not work for services

The problem of international market failure

Inability to protect consumers leads to: • Protection as precaution (esp on modes 1 and 2) or • burdensome requirements (esp on modes 3 and 4). The Costs of Data Localisation:

A Friendly Fire on Economic Recovery

For services to be global, regulation cannot be national

Towards a solution to the problem

Import liberalization

Exporter regulatory commitments (govt. or pvt.) in return for

Import policy

Reciprocal Liberalization

Import policy

Regulation Regulation

Regulatory cooperation

Harmonization, MRAs, equivalence

Country 1 Country 2

Proposed: regulatory commitments by exporters to protect foreign consumer interests in return for market access commitments by importers

How exporting country regulatory commitments work: data flows

The problem

Exporting country commitments to adhere to importer standards of privacy in return for free data flows

The necessary bargain

•EU-US Safe Harbor Agreement; renegotiated as EU-US privacy shield;

•TPP provisions on data flows matched by provisions on protecting privacy and preventing fraud

Examples

Enshrining regulatory cooperation in a trade agreement – the TPP innovation

• Article 14.11: Cross-Border Transfer of Information by Electronic Means

• 2. Each Party shall allow the cross-border transfer of information by electronic means, including personal information, when this activity is for the conduct of the business of a covered person.

IN RETURN FOR

• Article 14.7: Online Consumer Protection • 2. Each Party shall adopt or maintain consumer protection laws to proscribe fraudulent and

deceptive commercial activities that cause harm or potential harm to consumers engaged in online commercial activities.

• Article 14.8: Personal Information Protection • 2. To this end, each Party shall adopt or maintain a legal framework that provides for the

protection of the personal information of the users of electronic commerce.

• 3. Each Party shall endeavour to adopt non-discriminatory practices in protecting users of electronic commerce from personal information protection violations occurring within its jurisdiction.

How exporting country regulatory commitments work: labor flows

Source country commitments to certify character and qualifications, facilitate repatriation, combat illegal migration in return for freer labor mobility

The necessary bargain

• Bilateral labor agreements between Spain-Ecuador; Korea-Philippines;

• APEC Business Travel Card

Examples

The problem

How exporting country regulatory commitments work: financial services

The problem

Dodd-Frank ends

capital

exemptions for

European banks

Financial crisis: Banks reduce credit supply in emerging Europe

Exporting country commitments to protect interests of foreign consumers, financial stability, and avoid “financial nationalism”, etc. in return for market opening

The necessary bargain

• EU efforts to preserve the internal financial market EU-US markets

• EU-US discussions under the TTIP, UK-EU negotiations on Brexit

• Vienna Initiative, for macroeconomic stability in emerging Europe

Examples

How exporting country regulatory commitments work: competition policy

The necessary bargain

Exporting countries to enforce competition rules to protect interests of foreign consumers in return for market opening

The problem

• EU-US cooperation on price rigging by financial institutions,

• EU-US action on collusive arrangements in air and maritime transport;

• APEC initiatives on competition policy;

Airlines Come Under EU-US Cargo Cartel Probe

European Commission - Press release

Competition: EU and US celebrate 20 years of cooperation; agree to advance cooperation

further

Examples

Rigging of Foreign Exchange Market Makes Felons of Top Banks

EU, US tensions on treatment of digital giants EU, US exemptions from competition policy for export cartels

-0.5

-0.2

0.1

0.4

0.7

1.0

Harmonization Mutualrecognition

with restrictiveROO

Mutualrecognition

withoutrestrictive

ROO

Percent

Impact on trade volumes with non-members

Recognition without restrictive rules of

origin promises the greatest benefits to

third countries

The importance of GATS Article VII on

recognition agreements

Source: Chen, Maggie Xiaoyang, and Aaditya Mattoo (2008), Regionalism in Standards: Good or Bad for Trade, Canadian Journal of Economics, vol. 41, 838-863 Notes: ROO = Rules of origin.

Watching out for the risk of excluding developing countries Risk of trade based on mutual trust rather than comparative advantage

Resisting the tyranny of harmonization to avoid exclusion within countries

Source: Xavier Faz (2013), Mexico’s Tiered KYC: An Update on Market Response, CGAP

In Mexico, the introduction of simplified bank accounts with less burdensome information requirements is associated with an increase in the number of deposit accounts

Three concluding suggestions

• Addressing the risk of exclusion

• Reaffirm relevant WTO MFN-related provisions (GATS Article VII).

• Restrain use of exclusionary rules of origin

• Support development of appropriate standards in developing countries.

• Strengthening national regulation • Identify sectors where regulation matters for trade liberalization • Diagnose and remedy regulatory inadequacies • Country- and sector-specific advice and assistance on sequence of regulatory reform and liberalization

• Advancing International regulatory cooperation • Identify sectors where absence of regulatory cooperation matters for trade liberalization • Facilitate cooperation and ensure coherence with trade negotiations; developing country participation. • Country- and sector-specific advice on sequence of regulatory cooperation and liberalization.

Options for incorporating regulatory commitments into agreements 1. Importer unilaterally specifies conditions (e.g. as Additional Commitments under GATS Art. XVIII) and unilaterally determines conformity

2. Importer unilaterally specifies conditions but recognizes exporter’s conformity assessment procedures (Recognition under GATS Art. VIII) – e.g. authorized operator (WTO TFA Art. 7:7.1), safe harbor/privacy shield

3. Importer conditions are also internationally standardized (WTO TFA Art 7:7.4; “Authorized Operator Reference Paper” or WCO standards

4. Conditions are bilaterally/multilaterally agreed and legally binding on the exporter – TPP data provisions

Drivers of services trade 1: Demographic Change Young and old have different patterns of demand, e.g. USA

0 10 20 30 40 50

other

services

manuf. goods

housing

food

Broad expenditure categories

0 5 10 15 20 25

utility

transport

social security

personal service

hotel

health

finance

recreation

education

domestic service

catering

Expenditure on services

Housing includes interest on mortgage and property tax

(USA, 2012)

Average of consumption shares. by HH types (in %)

Two Adults Two 65+

Source: Work in progress with Erhan Artuc, Zovanga Louis Kone, Maggie Liu and Caglar Ozden

Therefore, demographic change is influencing services trade

Shifting dependency ratios…

30

3540

4550

5560

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Japan South Korea China Malaysia Indonesia

Working Age Population Ratio: Japan, South Korea and China

vs. Malaysia and Indonesia

by affecting the demand and supply of services

Drivers of services trade 2: Digitization The international fragmentation of goods production

Driven by, and boosting demand for, information, communication and transport services

HR and payroll management

Accounting Software development

Product design

includes both goods parts and services tasks

In parallel, the international fragmentation of services production

Call Centre for customer service, etc. Medical transcription services

Web hosting and webmaster services

Outsourced consultations and diagnostics

is creating new opportunities for trade