trade in services: some lessons from south africa matthew stern
TRANSCRIPT
Trade in Services: Some Lessons from South Africa
Matthew Stern
www.dnafrica.com
22
Outline
• Trade in services – facts and theory
• Case studies
– Health services
– Construction services
• The gains from trade
• Trade policy implications
33
Trade in services
• 25% of global trade
• Fastest growing sector (trade & FDI)
• Dominated by OECD (70%)
• Highly regulated
• Critical determinant of competitiveness
44
World service exports ($ millions)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
0
100,000
200,000
300,000
400,000
500,000
600,000East Asia & PacificLatin America & CaribbeanMiddle East & North AfricaSouth AsiaSub-Saharan AfricaEuropean Monetary Union
55
Application of trade theory
• Trade in services, in general, display the same characteristics as trade in goods
• The theory of comparative advantage does apply to services trade
• Given high levels of regulation (protection) in the service sector, economic factors alone cannot explain the pattern of trade in services
• The removal or reduction of barriers to trade in services would contribute to major increases in global welfare
66
Developing countries
• 50% of GDP
• Fourfold increase in trade over last 15 years
• Important contributor to economy-wide efficiency and development
• Labour intensive
• More dependent on trade in services than industrialised countries
77
0% 50% 100% 150% 200% 250% 300%
SudanCongo, Rep.
LesothoMalaw iGuinea
Cote d'IvoireSw aziland
FinlandSouth Africa
GermanyCzech Republic
NamibiaHungary
NetherlandsItaly
PolandFrance
LithuaniaBurundi
MadagascarSw eden
GhanaNorw ay
IrelandSw itzerland
PortugalAustria
United KingdomEstonia
DenmarkIceland
SpainUganda
LatviaMauritiusTanzania
CroatiaRw anda
SeychellesEthiopiaGreece
Sao Tome Cape Verde
0% 20% 40% 60% 80% 100%
LesothoLithuania
Sw azilandCzech
NamibiaPolandLatvia
PortugalSouth Africa
HungarySw itzerland
FranceGhanaCroatia
SpainFinlandEstonia
NetherlandsItaly
UnitedGermany
UgandaMalaw iBurundiGreece
MadagascarSw edenMauritiusEthiopia
TanzaniaAustriaSudan
Cote d'IvoireNorw ayIceland
DenmarkSao Tome
Cape VerdeGuinea
SeychellesIreland
Rw andaCongo, Rep.
Service/merch. ExportsWDI:2002
Service/merch. imports
88
Constraints on liberalization
• Domestic opposition
• Lack of expertise and resources
• Unable to improve access for domestic exporters
• Cannot fully address anti-competitive practices of foreign firms
• Inadequate stability or international credibility
99
What is GATS?
• Implemented January 1995
• 140 member countries
• All sectors (except government and air traffic rights)
• Positive list approach
• All modes of supply
1010
GATS: Modes of supply
• Mode 1: Cross border supply
– relatively few bound commitments
• Mode 2: Consumption abroad
– relatively open
• Mode 3: Commercial presence
– market access restrictions prevail
• Mode 4: Movement of natural persons
– most restrictive
1111
GATS: Coverage
• Infrastructure services, capital intensive, scale economies
– Communication
– Transport
Source: Adlung (2000)Source: Adlung (2000)
• Traditionally “liberal” services
– Distribution
– Tourism
• Other
– Environmental services– Recreation– Culture– Sport– Construction
• Strong institutional & regulatory difference between jurisdictions
– Financial services– Business services– Health services– Education
1212
GATS: Obligations
• General
– MFN treatment
– Transparency
• Specific
– Market access
– National treatment
Case Studies
1414
SA exports of goods & services
Exports
0%
5%
10%
15%
20%
25%
1970's 1980's 1990's
Av
era
ge
an
nu
al
gr
ow
th
Merch x
Service x
1515
GATS: South Africa
• Scheduled 9 out of 12 major sectors (education, health and recreational services excluded)
• Relatively liberal commitments in retail, computer, construction, tourism and business services
• Relatively few commitments in transport, life insurance, communications and education services
1616
SA Health Sector
• Well developed private sector
– 55% of total health care expenditure
– 20% of all patients
– High cost and specialised care
• Embattled public sector
– 80% all patients
– 30% all doctors
– HIV/AIDS
• Migration
1717
Exports of health services
• Cross border
– Call and claim centers
1818
Exports of health services
• Cross border
– Call and claim centers
• Consumption abroad
– Health tourism
1919
Provider Country Knee Replacement
Cataract Removal
Hernia Hip Replacement
Cardiac By-Pass
BUPA UK £8,500 to £10,000
£1,800 to £3,000
£1,400 to £1,900
£7,200 to £10,000
£13,500 to £17,500
BMI UK £7,000 to £8,925
£1,850 to £2,755
£1,280 to £2,785
£6,000 to £8,800
£10,645 to £11,500
Panorama Health
South Africa
£6,447 £1,262 £2,749 £6,275 £9,273
Specialized Surgery
South Africa
£5,380 £730 £3,850 £4,900 £9,000
www.medibroker.co.uk
Consumption abroad
2020
Exports of health services
• Cross border
– Call and claim centers
• Consumption abroad
– Health tourism
• Commercial presence
– NHS contracts
2121
NHS health care contracts
• 900 cataracts in Lancaster
– R10 million
– 45 personnel
• 12 000 ENT in Middlesex
• 300 hips and knees in Southport
• 1 000 orthopedics in Gosport
2222
Exports of health services
• Cross border
– Call and claim centers
• Consumption abroad
– Health tourism
• Commercial presence
– NHS contracts
• Movement of natural persons
– Nurses
2323
Nurses registered in UK
Country 1998/99 1999/2000 2000/01 2001/02
Philippines 52 1 052 3 396 7 235
South Africa 599 1 460 1 086 2 114
Australia 1 335 1 209 1 046 1 342
India 30 96 289 994
Zimbabwe 52 221 382 473
New Zealand 527 461 393 443
Nigeria 179 208 347 432
West Indies 221 425 261 248
2424
Constraints—international
• Portability of national health insurance
• Recognition/registration of medical professionals
2525
Constraints—domestic
• National Health Bill
– Certificate of need
• Immigration
– Moratorium on foreign health professionals
• Community service
– 45% plan to emigrate
• Technology/telecommunications
2626
SA Construction Sector
• Large and extremely competent construction firms
• Highly skilled engineers
• Dominated by government expenditure
• Long-term decline in domestic activity
2727
Construction works
0
5
10
15
20
25
3019
65
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
R b
illio
ns
(199
5)
General government Public corporations Private enterprises
2828
Exports of construction services
• Civil engineers
– 20% of turnover offshore
– >90% in Africa
• Consulting engineers
– 10% of turnover offshore
– >80% in Africa
2929
Exports and investment
• Grinaker-LTA
– 50th largest international contractor*
– 5th largest contractor in Africa*
– Operations: Australia, United Arab Emirates (UAE), Angola, Nigeria and Mauritius
• Murray and Roberts
– 54th largest international contractor*
– 7th largest contractor in Africa*
– Operations: Australia, UAE, UK, Botswana, Namibia, Nigeria, Tanzania, Zimbabwe and Indonesia
* Engineering News Record
3030
Constraints - international
• Technical standards and regulations
• Nationality & residency requirements
• Ownership restrictions
• Government procurement
– Tied-AID
– Export credit agencies
3131
Constraints – domestic
• Poor standards
• Poor regulations
• Expertise
– Immigration
Gains From Trade
3333
Gains from exports
• Employment
• Complementary exports
• Foreign exchange
• Knowledge and skills
• Economies of scale
3434
Gains from exports
Mode Health Construction
Cross-border trade High Low
Consumption abroad High Low
Commercial presence Medium High
Temporary movement of people
Medium Medium
Emigration Low Low
3535
Gains from imports
• Knowledge and skills
• Product
– Price
– Quality
• Capital and infrastructure
3636
Gains from imports
Mode Health Construction
Cross-border trade High Low
Consumption abroad Low Low
Commercial presence Medium High
Temporary movement of people
Medium Medium
Emigration High High
Trade Policy Implications
3838
Health services - WTO
• 40% of member countries have made some commitments
– 25% hospital services
– 33% medical and dental services
3939
Health services - SA
Sub-sectors Market access National treatment Mode
Medical and dental services
None None 1
None None 2
None None 3
Unbound except as indicated in horizontal section
Unbound except as indicated in horizontal section
4
4040
Health service strategy
• Remove domestic restrictions on investment and professionals
• Target foreign barriers to health tourism and electronic trade
• Access to the national health systems of importing countries is critical
4141
But first …
• Compulsory community service
• New National Health Bill (certificate of need)
• Restrictive immigration laws
• Poor working conditions in the public sector
4242
Construction & engineering services - WTO
• Construction: between 51% and 64% of countries have made full commitments in modes 1 to 3
• Architectural and engineering: between 46% and 66% of countries have made full commitments in modes 1 to 3
• Within SADC, just South Africa and Lesotho have scheduled both sectors.
4343
Construction services - SA
Sub-sectors Market access National treatment Mode
General construction work for buildings
General construction work for civil buildings
Installation and assembly
Building completion and finishing work
Unbound (technical reasons)
Unbound (technical reasons)
1
None None 2
None None 3
Unbound except as indicated in horizontal section
Unbound except as indicated in horizontal section
4
4444
Engineering services - SA
Sub-sectors Market access National treatment Mode
Engineering services
None None 1
None None 2
None None 3
Unbound except as indicated in horizontal section
Unbound except as indicated in horizontal section
4
4545
Construction service strategy
• Remove domestic restrictions on investment and professionals
• Re-consider GATS exemption for Export Credit Agencies (ECAs)
• Engage in negotiations on government procurement to address tied AID
4646
But first …
• Foreign exchange controls
• Restrictive immigration policies
• Inappropriate procurement rules
• Weak standards and regulations
Conclusion
4848
Conclusion
• Need to understand the economic gains from service liberalisation
• Need to understand the social costs of service liberalisation and protection
• Need to identify actual constraints to trade
– Foreign barriers
– Domestic regulations (or the lack thereof)