Services in Doha: What is on the Table? Aaditya Mattoo (based on research with Ingo Borchert and Batshur Gootiiz) ICTSD-World Bank-WTO 2 November 2010

Three questions: Where are we today? Where would we like to be? How do we get there?

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 shows substantial but uneven unilateral liberalization

Services trade restrictiveness index (STRI) by regions and sectors Source: Borchert,Gootiiz, Mattoo 2010 Transportation and professional services are among the most protected sectors everywhere

Uruguay Round Commitments and Actual Policy Source: Borchert,Gootiiz, Mattoo 2010

Uruguay Round Commitments, Doha Offers and Actual Policy Source: Borchert,Gootiiz, Mattoo 2010

Comparison of UR commitments, Doha offers, and actual policies by region Source: Bochert, Gootiiz, Mattoo 2010

Comparison of UR commitment, Doha Offers, and policies by Sector Source: Bochert, Gootiiz, Mattoo 2010

Mode 3/FDI: Actual policies in services trade ( ) Open Restrictive Closed CountriesBankingTelecom-FixedRetailing Maritime 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 CountriesBankingTelecom-FixedRetailing Maritime Shipping Int.Accounting China India NC Unbound Malaysia NC Indonesia NC Philippines NC Thailand Cambodia Unbound Argentina NC Brazil Chile NC Colombia NC Mexico Jordan Morocco Ghana NCUnboundNC Nigeria NC South Africa Unbound Kenya NC Australia Denmark Unbound Japan Unbound Korea, Republic United States NC Source: Bochert, Gootiiz and Mattoo (2010)

Mode 1: Actual policies in services trade ( ) Open Restrictive Closed CountriesBank: LoansLife insurance Maritime ShippingAccountingLaw (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 CountriesBank: LoansLife insurance Maritime ShippingAccountingLaw (domestic) China Unbound NC India Unbound NC Malaysia Unbound NC Indonesia Unbound NCUnbound Philippines CP req NC Thailand Unbound Cambodia CP reqUnbound Argentina Unbound NC Brazil Unbound NC Chile Unbound NCUnboundNC Colombia Unbound NCUnboundNC Mexico Unbound NC Jordan CP req NC Morocco Unbound NC Ghana Unbound NC Nigeria Unbound NC South Africa Unbound Kenya UnboundNC Australia Unbound Denmark Unbound Japan Unbound Korea, Republic Unbound NC United States 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 of other commercial services exports, selected countries, percent, 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) 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

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.

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: Indias reform of services sectors

…has boosted not only productivity and exports in services, but also the performance of downstream manufacturing industries New study based on panel data for 4,000 Indian firms for the 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