TRADE IN SERVICES

Aarti khanna

Jubinder singh

TRADE IN SERVICES

ECONOMIC IMPORTANCE

BASIC CONCEPTS

SERVICES: GENERAL PERCEPTION NOT TRADABLE AND NOT STORABLE

- Simultaneity of production and consumption- Role of local establishment

STRONG GOVERNMENT INVOLVEMENT

- Natural monopolies, public service obligations, etc.- Infrastructural importance (transport, telecom, etc.)- Role of non-economic objectives (social, cultural, safety)

INTANGIBLE- Quality criteria for services providers rather than for

products

NO TARIFFS- Access conditions determined by regulation, quotas etc

… BUT:

Certain services - international transport and communication -

have been traded for centuries

Services are supplied in conjunction with goods (finance,

insurance, marketing, etc.)

Services have become tradable as a result of:

- technical progress (e-banking, distance learning)- government retrenchment- market liberalization and regulatory reform

SERVICES: ECONOMIC IMPORTANCE Share in Production and Employmentdepending on resource structure and level

of development of an economy

Share in Total World Trade more rapid expansion than merchandise trade

CHART I: SHARE OF SERVICES IN PRODUCTION (GDP, 2000)

0%10%20%30%40%50%60%70%80%90%

100%

United

Sta

tes*

Franc

e

United

Kin

gdom

Poland

Argen

tina

Colom

bia

Peru

Philip

pines

India

Mal

aysia

Ugand

a

Camer

oon

Angol

a

Services Industry Agriculture

CHART II: WORLD EXPORTS OF GOODS AND SERVICES (1980 - 2000)

0

50

100

150

200

250

300

350

400

1980 82 84 86 88 90 92 94 96 98

2000

(19

80

=1

00

)

0

1500

3000

4500

6000

7500

9000

10500

12000

Bill

ion

$

Goods Services

Services

GDP

Goods

SERVICES EXPORTS BY ECONOMIC GROUPS

26%

74%

DEVELOPING COUNTRIES

Developed countries

SERVICES TRADE AND DEVELOPMENT: EXPECTATIONS

“The gains from liberalizing services may be substantially greater than those from liberalizing trade in goods, because current levels of protection are higher and because [there would be] spill over benefits from the required movement of capital and labour.” (World Bank, 2001).

Infrastructural services such as telecommunications, finance and transport are crucial determinants of overall economic efficiency and growth.

SERVICES TRADE AND DEVELOPMENT: NECESSARY CONDITIONS Appropriate sequencing of reforms [(re-

)regulation/liberalization/privatization] Contestable markets (effective competition) Effective regulation, including prudential rules, to protect consumers and the public interest

GENERAL AGREEMENT ON TRADE IN SERVICES:

MAIN FEATURES

GATS: OBJECTIVES

Expansion of services trade Progressive liberalization through

successive rounds of negotiations as a means of promoting growth and development

Transparency of rules and regulations Increasing participation of developing

countries

GATS CLASSIFIES TRADE IN SERVICES INTO FOUR MODES OF SUPPLY:

Mode 1: Cross-border supplyMode 2: Consumption abroadMode 3: Commercial presenceMode 4: Presence of natural persons

UNIVERSAL COVERAGEAll Services (except those provided in the exerciseof governmental authority

Business andprofessional

Finance and insurance

Communications

Health and social

Construction Tourism Distribution Recreation, culture,

sports Education Transport Environment Other

BASIC OBLIGATIONS UNDER THE GATS(a)General obligationsMFN TreatmentTransparency

(b) Specific CommitmentsMarket AccessNational Treatment

INFORMATION IS CONTAINED IN SERVICES “SCHEDULES” Each WTO Member is required to have a

Schedule of Specific Commitments which identifies the services for which the Member guarantees market access and national treatment and any limitations that may be attached.

SPECIAL PROVISIONS FOR DEVELOPING COUNTRIES In particular, the objective of facilitating the

increasing participation of developing countries in services trade has been enshrined in the Preamble to the Agreement and underlies the provisions of Article IV.

This Article requires Members, inter alia, to negotiate specific commitments relating to the strengthening of developing countries' domestic services capacity; the improvement of developing countries' access to distribution channels and information networks; and the liberalization of market access in areas of export interest to these countries.

Trade in ServicesINDIA

INDO-US TRADE IN SERVICES The Indo-US services trade is likely to

grow to an ambitious $150 billion in the next six years, says a CII estimate.

At present, the country's total engagement with the US is over $60 billion, out of which about $40 billion are accounted for by the merchandise trade. Last fiscal, the services exports to the US touched $22 billion.

LIMITATIONS/BARRIERS

"It’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York "

- Mr Obama

PROTECTIONISM APPROACH

Discriminatory access to distribution and communications system (TELECOMMUNICATION ,INSURANCE)

Quantitative-restriction (QR)-type policies

Price-based barriers

(visa fees, entry or exit taxes, discriminating airline landing fees, port taxes, tariffs)

Limits on foreign share-holding in individual companies or by sector

Qualification and licensing requirement