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Trade Policy and Trade Promotion Projectwww.smedsep.ph

Services Trade as a Catalyst for Regulatory Reform

November 2006 Bangkok Conference on Business Enabling Environment

Anja Gomm and Ceferino Rodolfo

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Introduction

Strong link between Services trade negotiations and businessenvironment regulatory reform.

Trade in Services negotiations can be utilized for focusedanalysis and Public Private Dialogue (PPD) on urgentregulatoray issues

Role for Technical Assistance (TA) to foster this link.

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Services and Competitiveness

Services are deeply imbedded in the whole economy, providing critical support to other sectors.Cross-sectoral impact of services make it critical to the competitiveness of the whole economy

End-user type of Services: Developing Human Capital

Educational servicesHealth-related and social servicesRecreational, cultural & sporting servicesTourism and travel-related services

Sustaining GrowthEnvironmental services

Basic Services: Provide Basic Infrastructure and Facilitate Transaction Flows

Construction servicesCommunication servicesFinancial servicesDistribution services Transport servicesBusiness services

Agriculture & Industry

Over-all National Competitiveness

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Unique Characteristics of Services

Services are invisible and intangible; non-storable.produced and consumed at the same time.service provider and consumer need physical proximity

Technological advance-ments made Services internationally tradeableGlobalization intensified competition in industrial and agricultural products.

Requires physical proximity between service provider and

consumer

Requires simultaneous production and consumption

Non-storable

Invisible Intangible

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Drivers for International Trade in Services

Services Trade is a rapidly growing sector.As countries seek to be more competitive, the importance of having a very efficient services sector—as an enabler and as a stand-alone sector—is highlighted.

Patient stays in Country A; Doctor travels to treat the Patient in Country A.

4Movement of

Natural Persons

Doctor stays in Country B; invests in hospital in Country A

Patient stays in Country A; visits hospital owned by Doctor from Country B.

3Commercial

Presence

Patient travels to see Doctor in Country B

2Consumption

Abroad

Doctor retrieves digitized X-ray in Country B and sends diagnosis to patient

Patient takes X-ray in Country A; digitized X-ray result is sent via the internet

1Cross-border

Trade

Country B: DoctorCountry A: PatientMODE

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How is International Trade in Services regulated?

Restrictive immigration laws applied to foreign service providers

Foreign Equity Limitations

Foreign Exchange Restrictions on Tourists

Data Privacy Laws disallowing personal information to be transmitted out of the country.

Nature of Regulation (examples)

4Movement of

Natural Persons

3Commercial

Presence

2Consumption

Abroad

1Cross-border

Trade

MODE

Domestic Regulation of Services

Rationale:Public interestPrivate (group) interest

Coverage:Standard settingPrice controlsEntry controlsPublic / private monopolies

Regulation of Trade in Services refer to sameregulations, applieddifferently to foreignproviders.

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Trade in Services negotiations and Domestic Regulation

Services Trade negotiations request and offer of barriers.

Requires: (a) Introspection and (b) Cross-sectoral Public and Private Consultations.

SERVICES REGULATION cover:Investment PolicyImmigration Rules and RegulationsQuality and Performance StandardsBanking and Financial Regulations, including Foreign ExchangeE-Commerce LawsCompetition PolicyPrice Setting and RegulationOthers

These are cross-sectoralrules that impact on the Economy, as a whole.

Consultations / Public-Private dialogues necessary for understanding of national strategic interests and to pinpoint regulations that pose impediments.

Introspection to understand own strategic interests (offensive and defensive).Analysis of the Competitiveness of the specific Services sector, including its Strengths and Weaknesses; The sector’s linkages with the whole Economy.The impact of virtually all relevant cross-sectoral and sector-specific policies.

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Trade in Services negotiations and Domestic Regulation

Overwhelming complexity of such tasks and the of developing countries capacity gap

Negotiation provide the Focus, the Analytical Framework for Capacity Building, Analysis and Research;

Private group interests dominating policy making Negotiations provide a sense of Urgency for decision making, action

and public-backingPublic-private dialogue contextualize the issues regarding country

competitiveness

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Lessons from the Project

Need for cross-sectoral ConsultationsIntrospective analysis of the impediments is not enoughBacking of negotiating positions is needed from public and private stakeholdersWider perspective required, due to

Cross-cutting nature of servicesSectoral nature of Agency mandates

Cross-sectoral approach:Supports transparencyAllows for understanding of relevance and nature of issuesOpportunity to extend beyond the limits of existing structures

Role of Technical Assistance in supporting Public-Private Dialogues

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Conditions for a successful process

Domestic Situation dictates pace and path of liberalizationThe Role of the State

Balancing interests and Implementing reforms

The Role of the Private Sectorcompensate for a weak state as driverresponse to vested interests can be leveraged

Applicability - a function of:the importance of Servicesthe degree of inter-linkagesthe extent of regulation, and dominance of vested intereststhe capacities of the institutions for policy review and change

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Conclusion

Services trade negotiations offer urgency for such reformsentail helpful focus AND the GATS a framework for cross-cutting analysis, give the process the necessary guidance.

Introspective process must weigh options for services trade carefully. The aim is for policy makers to balance prevailing private interests with broader public interests greater benefit of whole economy and society.