Services in Doha:

What is on the Table?

Aaditya Mattoo

(based on research with Ingo Borchert and Batshur Gootiiz)

ICTSD-World Bank-WTO2 November 2010

Three questions:

• Where are we today?

• Where would we like to be?

• How do we get there?

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Low income

Lower middle

Upper middle

High-OECD

High-nonOECD

No data

Services trade database coverage

Financial, telecommunications, transport, retail, professional

Restrictiveness of services trade policy in 102 countries

Source: Borchert, Gootiiz and Mattoo (2010)

New World Bank services policy database showssubstantial but uneven unilateral liberalization

ECU TTOGEONIC DOM NLDPOLARM LTUBGRMUSMNG IRLKGZ GBRMDG NZLROMPERCOLPRY AUS USASWEHND KAZGTM JPNARGBRA ESPGHASEN GRCCZEHUN DEUKHMZMB CANPAK ALB AUTMAR UKR TURRWA CHL KORRUS DNKUZB BELPRT FINBOLCMR ITANGACIVMLI URY MEXKEN CRI FRAYEMTZA ZAFMOZUGAMWI BLRVENNAMLSO DZATUNLKAJOR BWABGDVNMNPL LBN SAU

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Re

str

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of s

erv

ices

tra

de

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0 10000 20000 30000 40000GDP per capita, 2007

Note: GDP per capita, PPP (constant 2005 internat US$)Kuwait and Qatar excluded

Services trade restrictiveness index (STRI) by regions and sectorsServices trade restrictiveness index (STRI) by regions and sectors

020

40

60

80

Res

tric

tiveness

of se

rvic

es

trade p

olic

y

SAR MENA EAP World LAC AFR ECA OECD

Financial Transportation

Telecom Professional

Retailing

Source: Borchert,Gootiiz, Mattoo 2010

Transportation and professional services are among the most protected sectors everywhere

Uruguay Round Commitments and Actual Policy

SENNGA

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MLI

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MUS

MDG

LSO

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0 10000 20000 30000 40000 50000GDP per capita (2007)

Restrictiveness of UR commitment Fitted values

Restrictiveness of actual policy Fitted values

UR and applied policy -92 countries

Source: Borchert,Gootiiz, Mattoo 2010

Uruguay Round Commitments, Doha Offers and Actual Policy

ZAF

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KOR BEL

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CAN

GBR

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02

04

06

08

01

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ervi

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trad

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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

Source: Borchert,Gootiiz, Mattoo 2010

Comparison of UR commitments, Doha offers, and actual Comparison of UR commitments, Doha offers, and actual policies by regionpolicies by region

Source: Bochert, Gootiiz, Mattoo 2010

02

04

06

08

0S

erv

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ade

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stri

ctiv

en

ess

ind

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SAR GCC LAC AFR MENA EAP OECD ECA

Binding gap, offer gap and applied policy for 93 countries

Actual Policy

Offer gap (Doha Offer-Actual policy)

Offer Improvement (Uruguay Round commitment-Doha Offer)

Comparison of UR commitment, Doha Offers, and policies Comparison of UR commitment, Doha Offers, and policies by Sectorby Sector

Source: Bochert, Gootiiz, Mattoo 2010

010

2030

4050

6070

80S

ervi

ces

trad

e re

stric

tiven

ess

inde

x

Financial Telecom Retailing Maritime shipping Professional Overall

Offer Improvement (Uruguay Round commitment-Doha Offer)

Offer gap (Doha Offer-Actual policy)

Actual Policy

Mode 3/FDI: Actual policies in services trade (2008-2009)          Open    Restrictive

          Closed

Countries Banking Telecom-Fixed RetailingMaritime Shipping Int. Accounting

China          

India          

Malaysia          

Indonesia          

Philippines          

Thailand          

Cambodia          

Argentina          

Brazil          

Chile          

Colombia          

Mexico          

Jordan          

Morocco          

Ghana          

Nigeria          

South Africa          

Kenya          

Australia          

Denmark          

Japan          

Korea, Republic          

United States          

Mode 3/FDI: GATS commitment and Doha Offers    Open

    Restrictive

          Closed

Countries Banking Telecom-Fixed RetailingMaritime Shipping Int. Accounting

China          

India     NC   Unbound

Malaysia     NC    

Indonesia     NC   NC

Philippines     NC   NC

Thailand          

Cambodia       Unbound  

Argentina       NC  

Brazil          

Chile     NC NC  

Colombia     NC NC  

Mexico          

Jordan          

Morocco          

Ghana     NC Unbound NC

Nigeria     NC    

South Africa       Unbound  

Kenya     NC NC NC

Australia          

Denmark       Unbound  

Japan       Unbound  

Korea, Republic          

United States       NC  

Source: Bochert, Gootiiz and Mattoo (2010)

Mode 1: Actual policies in services trade (2008-2009)    Open

    Restrictive

          Closed

Countries Bank: Loans Life insuranceMaritime Shipping Accounting Law (domestic)

China          

India          

Malaysia          

Indonesia          

Philippines          

Thailand          

Cambodia          

Argentina          

Brazil          

Chile          

Colombia          

Mexico          

Jordan          

Morocco          

Ghana          

Nigeria          

South Africa          

Kenya          

Australia          

Denmark          

Japan          

Korea, Republic          

United States          

Source: Bochert, Gootiiz and Mattoo (2010)

Mode 1: GATS commitments and Doha Offers    Open

    Restrictive

          Closed

Countries Bank: Loans Life insuranceMaritime Shipping Accounting Law (domestic)

China Unbound Unbound     NC

India Unbound Unbound     NC

Malaysia Unbound Unbound     NC

Indonesia   Unbound   NC Unbound

Philippines CP req CP req   NC NC

Thailand Unbound     Unbound Unbound

Cambodia   CP req Unbound    

Argentina Unbound Unbound NC    

Brazil Unbound Unbound     NC

Chile Unbound Unbound NC Unbound NC

Colombia Unbound Unbound NC Unbound NC

Mexico Unbound Unbound     NC

Jordan   CP req     NC

Morocco   Unbound   Unbound NC

Ghana   Unbound   NC NC

Nigeria   Unbound   Unbound NC

South Africa Unbound Unbound Unbound Unbound  

Kenya   Unbound NC NC NC

Australia Unbound Unbound      

Denmark Unbound Unbound      

Japan Unbound Unbound      

Korea, Republic Unbound Unbound     NC

United States Unbound Unbound NC    

Source: Bochert, Gootiiz and Mattoo (2009) “CP req”: commercial presence required; NC: no UR Round commitments and Offer reflects the commitment.

Where would we like to be?

• to harvest unilateral liberalization.

– Difficulty of making the required legislative changes in negotiating context

– Blistering technology cycle versus ponderous negotiating cycle

• to advance liberalization beyond unilateral levels.

Two levels of ambition for multilateral services negotiations

Mode 1: Shared interest in cross-border trade in business services

Source: WTO “International trade statistics 2010”, Tab. III-9

Regional distribution of other commercial services exports, percentage shares, 2000 and 2009

Average growth rate 1998-2008 of other commercial services exports, selected countries, percent,

1.52.4

10.110.6

11.411.812.0

15.216.3

17.518.2

19.522.322.723.0

26.427.9

28.832.0

0 10 20 30(%)

NigeriaJamaicaMalaysia

New ZealandUnited States

MauritiusUnited Kingdom

IsraelNorway

BrazilSpain

SwedenFinland

ChinaIreland

MoroccoArgentina

MaltaIndia

Romania

Source: WTO Trade in Services Database,Other Commercial Services.

Exports, Selected Countries, 1998 - 2008Average Growth Rate of Commercial Services

Source: WTO Trade in Services Database, Other commercial services

More restrictive transport policies are associated with more expensive and poorer quality logistics services

Source: Borchert, Gootiiz, Grover and Mattoo (2010)

UZBLAO

RWAKAZ

MUS

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e( L

PI_

com

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| X

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-.1 0 .1 .2e( agI_m0_tra | X )

coef = -1.4153001, (robust) se = .53648491, t = -2.64

LPI_comp_priced2009: IV estimationPartial regression graph

UZBLAO

RWAKAZ

MUS

URY

NIC

NLD

CRI

CHLLTUALB

NZLDNK

PHLPAN

LBN

GBRIND

BGR

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PI_

qual

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coef = -1.613734, (robust) se = .58220632, t = -2.77

LPI_quality_logistics2009: IV estimationPartial regression graph

Availability of competitively priced logistics services

Quality of logistics services

Land-locked or policy-locked? Restrictive services policies deepen economic isolation

Source: Borchert, Gootiiz, Grover and Mattoo (2010)

• In air transport and telecommunications services, applied trade policies in landlocked countries are almost twice as restrictive as in coastal countries.

More restrictive policies lead to higher market concentration and more limited access to services even after taking into account the influence of geography and incomes

55

33

43

23

020

4060

Air mode 1 Telecom

Overall STRI for air transport and telecom

Landlocked Coastal

Services reform vital for trade facilitation

• “Trade-facilitating” investments will earn a poor return unless they are accompanied by meaningful services reform.

• But countries (including the landlocked) cannot unilaterally reform international transport. The policies in other countries, industrial and developing, also limit competition.

• The de jure and/or de facto exclusion of transport would be a serious omission from a “development round”.

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)

Mode 2: Example: the US could save over $1.4 billion annually even if only one in ten US

patients chooses to undergo just 15 types of low-risk treatment abroad

Mode 3: Example: India’s reform of services sectors

Newly created index of services reform

0

0.5

1

1.5

2

2.5

3

3.5

4

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Banking Insurance Telecom Transport

Newly created index of services reform

0

0.5

1

1.5

2

2.5

3

3.5

4

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Banking Insurance Telecom Transport

0

5

10

15

20

25

30

35

40 Growth Rate (CAGR)

36%

20%

FDI in Services*

FDI in Non-services

India: FDI in services sector is growing faster than in non-services . . .

(1992/93 values are indexed to 1; Unit: US$)

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

0

5

10

15

20

25

30

35

40 Growth Rate (CAGR)

36%

20%

FDI in Services*

FDI in Non-services

India: FDI in services sector is growing faster than in non-services . . .

(1992/93 values are indexed to 1; Unit: US$)

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

…has boosted not only productivity and exports in services, but also the

performance of downstream manufacturing industries

Gains in Annual TFP Growth After Services Reform

0

1

2

3

4

industries withlimited

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 withlimited

dependence on banking

industries with high

dependence on banking

industries with limited

dependence on telecomms

industries with high

dependence on telecomms

Percent

New study based on panel data for 4,000 Indian firms for the 1990-2005 period finds that

banking, telecommunications and transport reforms all have significant positive effects on the productivity of manufacturing firms

Source: Arnold, Javorcik, Lipscomb and Mattoo (2008).

 

   

Mode 4: Shared global interest in greater mobility of individual service providers

•Stong intuitive and empirical evidence of large gains from labor mobility, skilled and unskilled (e.g. Winters, et al.).

•A 10% increase in the number of foreign graduate students would raise patent applications by 4.5%, university patent grants by 6.8% and non-university patent grants by 5.0%. Increases in skilled immigration also have a positive, but smaller, impact on patenting.

Chellaraj, Maskus and Mattoo (2008)

What should we aim for in a services agreement?

• To lock in existing openness, especially on cross-border trade (mode 1) and consumption abroad (mode 2)

• To gradually phase out barriers, especially in transport and foreign investment (mode 3), consistently with development objectives

• To at least begin to allow and facilitate the movement of individual service providers (mode 4)

III. How do we get there?

First, diminished government willingness because of three concerns:

• Loss of regulatory freedom• Regulatory unpreparedness• Lack of regulatory cooperation

The crisis has enhanced these fears.

Why have countries been reluctant to commit multilaterally?

Market access negotiations need to be supported by greater regulatory cooperation

Because while services are increasingly globalized, regulation remains national

•More coherent assistance to developing countries to build regulatory institutions and institute access-widening policies: “aid for services trade” and a “services knowledge platform”

•More cooperation on prudential regulation (e.g. on finance and data flows) and pro-competitive regulation (e.g. on transport and information services)

•More cooperation between host and source countries on mode 4 (as in bilateral labor agreements)

Some of this cooperation will necessarily be bilateral and regional

Second, diminished business interest because of:• Unilateral and bilateral/regional liberalization, • Growing economic interdependence has reduced

likelihood of policy reversal• Negotiating pessimism

Has the crisis vindicated or dispelled complacence?

How can we break out of the low-level equilibrium trap lo low expectations and limited engagement?

Why have countries been reluctant to commit multilaterally?

Achieving parity of ambition for services: can we break the negotiating stalemate?

Proposal: Instead of incremental, sectoral or modal negotiations, is it possible to define a final package which is balanced, developmentally desirable and commercially relevant?

Would a critical mass of countries consider committing to:

• No new restrictions, especially on cross border trade in business services, and more open transport

• Precommitment to reform, especially on FDI, and to greater regulatory cooperation and assistance

• Greater scope for temporary migration with source country obligations