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Info Service on WTO and Trade Issues (Jul23/03) New Delhi, 5 Jul (D. Ravi Kanth) — A joint report issued on 3 July by the World Trade Organization and the World Bank on “trade in services for development” has urged developing countries to embark upon “services-led export diversification”. However, several services negotiators from developing countries apparently questioned the underlying rationale of the report and its seemingly false narrative that is replete with the adverse implications of limited liberalization of trade in services for both developing and least-developed countries, said people, who asked not to be quoted. The report could potentially undermine the flexibilities provided for under the General Agreement on Trade in Services (GATS), said people, suggesting that it has become a “new mantra” that the removal of all trade barriers, as well as the continuation of the current moratorium on levying customs duties on electronic transmissions, is good for rapid digital trade. Further, while the report shows that only 2.9 percent of trade in commercial services takes place via Mode 4 (movement of natural persons), where the developing countries have a comparative advantage, it does not recommend any liberalization of trade in services via this mode in its conclusions. JOINT WTO-WB REPORT The 97-page report issued by the heads of the WTO and the World Bank on 3 July says, “Improved access to high-quality modern services is also critical to the operation of the cross-border production network and fundamental to economy-wide productivity.” It claims that high-value services and services exports are creating new well-paid jobs for young people and professionals in developing countries. The report apparently made some rather sweeping statements such as that advancing the United Nations Sustainable Development Goals “requires effective access to a host of services, ranging from health and education to financial, transport and logistics services”, suggesting throwing open these markets to services providers from the developed countries. It calls for “policy measures governing trade and investment in telecommunications and computer services”. In the same breadth, the report maintains that “trade in environmental services strengthens efforts to combat climate change and improve environmental stewardship,” an argument also advanced by the major industrialized countries. In her comments during the launch of the report on 3 July, the WTO Director-General Ms Ngozi Okonjo-Iweala said that “the future of trade is services, digital and green – and it must be inclusive.” “This new publication,” according to Ms Okonjo-Iweala, “translates that conviction into a call for action,” suggesting that the report “documents how services trade has become a key ingredient in our members’ growth and development strategies … including by helping countries diversify and expand their export baskets, making them more resilient to external shocks.” The new President of the World Bank, Mr Ajay Banga from the United States, suggested that “the single best way to drive a nail into the coffin of poverty is by giving people a job.” “And in today’s world – and in tomorrow’s economy – delivering jobs means a very sharp focus on services,” said Mr Banga, emphasizing that: “We need to build the tracks for the services train to run on, to run smoothly, quickly and at scale.” The report calls for rapid liberalization of trade in services in several sectors, especially digital and environmental services, but seems to remain silent on the growing restrictions on trade in services via Mode 4 imposed by the Western countries, especially the United Kingdom, as well as the European Union. It argues that the “sheer diversity of the services sector suggests that policy reforms need to pay close attention to – and be informed by – differences in the nature and roles that various services play, in the multiple ways they are traded, in the intensity of the regulatory scrutiny they command, in the broad range of public policy aims their supply pursues and in the political economy forces they put in play.” These remarks, however, are not backed up by concrete evidence or data. Although the report suggests that a one-size-fits-all approach would not be beneficial, it subtly suggests a “top- down” approach without spelling out the flexibilities that are much needed for any market opening in services trade. KEY MESSAGES The joint report issues six key messages, including: 1. Services trade is highly dynamic and offers important opportunities for developing economies. The report said services trade promotes “greater inclusiveness, particularly for female and young workers and entrepreneurs as well as micro, small and medium-sized enterprises (MSMEs).” The report makes some rather hyperbolic claims by suggesting that today, “the services sector generates half of employment worldwide and two-thirds of global GDP – more than agriculture and industry combined.” It, however, fails to recognize the role played by the informal sector in agriculture and manufacturing in providing employment in developing countries. Further, with more open trade in services, especially those where developed countries have a comparative advantage, higher imports of services can have serious adverse implications on employment in developing countries. 2. The growth in services trade is a result of mutually reinforcing factors. The report said the growth in services trade has resulted from the interplay of a number of mutually reinforcing factors. These include not only policy reform efforts to make domestic service markets more contestable (e.g. competitive) but also the accelerating pace of technological change. “Intermediate services (i.e. inputs in the production of other goods and services) play an increasing role in sustaining trade growth through economy-wide improvements in efficiency and facilitating cross-border production.” 3. Trade in services has become more digitalized. However, trade in digitalized services seems to be growing rapidly in Mode 1 of cross-border services, including the flow of goods through Mode 1. The report fails to mention that these digitalized services exported via Mode 1 are where the developed countries’ export interests lie. The flow of goods via Mode 1 is what is being exported without the imposition of any customs duties due to the current moratorium on levying customs duties on electronic transmissions. The report also fails to acknowledge that the higher the growth in the trade of goods and services via Mode 1, the higher is the potential loss of tariff revenues for the developing countries. 4. Services are central to tackling the most pressing global challenges. The report said significant opportunities in the services sector still remain to be seized by developing countries. Barriers to trade remain an obstacle in different sectors and modes of supply. However, services trade policy has an important role to play in reducing trade costs, improving the performance of services, attracting FDI (foreign direct investment), boosting supply-chain resilience, and increasing manufacturing productivity and exports. Here again, the report fails to provide any concrete data or evidence. The report said there is a growing acceptance that services – and services trade – will prove central to tackling the most pressing global challenges. “These include the benefits offered by a rapidly digitalizing global economy, facilitating timely access to critical goods and services in response to pandemics and natural disasters, addressing food security by adopting the latest technology in agricultural practices, facilitating the transition to a decarbonized global economy, and designing and deploying green technologies.” But the fact that these green technologies come at a much higher cost due to the existing patent regime appears to be totally ignored in the report and there is no mention of the need to revisit the WTO’s TRIPS Agreement. 5. Improved commitments on services trade can bring key benefits. Essentially, the report seems to be plugging for the narrative that developing countries must undertake substantial reforms, saying that while services trade barriers impose significant costs, uncertainty stemming from the absence or relative paucity of binding commitments carries additional costs. “Improving the level of binding commitments in services trade can send positive signals to investors about one’s business and investment climate.” It said that encouraging WTO members to “bind their best commitments from preferential trade agreements could provide a major boost to multilateral trade diplomacy – without requiring any additional liberalization undertakings – as commitments undertaken in preferential settings are typically implemented on a non-discriminatory (i.e. most-favored-nation treatment) basis.” However, it is not clear why the developing countries would “bind their best commitments from preferential trade agreements” at a multilateral level, knowing that they lack a competitive advantage in services trade vis- a-vis the developed countries. 6. An Aid for Trade roadmap for services can help tackle key challenges. The report said adapting international cooperation to the new realities of services trade calls for increased levels of Aid for Trade. This support should be directed to strengthening the capacity of developing economies to design and implement services trade reforms and supply competitive services to global markets. DOUBTFUL CLAIMS On page 53, with respect to India, the report states: “The experience of India highlights how reforms to facilitate FDI in services can ignite positive growth dynamics by boosting participation in foreign manufacturing value chains. In the 1990s, policy changes bringing about better regulation and greater openness to FDI in services provided manufacturing firms in India with access to better, more reliable, and more diverse business services.” “This allowed manufacturing firms to invest in new business opportunities and better technology to organize production more effectively and reap economies of scale and manage inventories and coordinate with consumers and suppliers more efficiently. “Empirical studies lend support to the positive impact of liberalizing services FDI on manufacturing value chains. In the Czech Republic, for example, services reforms generating greater FDI inflows were seen to result in productivity gains of domestic firms involved in downstream manufacturing.” However, India has very limited liberalization in services, going by India’s GATS commitments,” said a services trade analyst, who asked not to be quoted. “Domestic business services in India are very strong and imports of these are extremely limited,” the analyst said. The report seems to rely heavily on the findings of the Paris-based Organization for Economic Cooperation and Development (OECD). The OECD has argued that other business services are included in electronic transmissions. It appears to be spreading the narrative that it is good to continue with the current moratorium on customs duties on electronic transmissions on a permanent basis. The WTO-WB report also supports the issue, which allegedly goes against the core principles of the WTO and is a non-mandated issue in the trade body, vis-a-vis the Joint Statement Initiatives. On page 95, the report says, “Important steps are being taken through ongoing plurilateral talks held by WTO members on services domestic regulation, e-commerce, investment facilitation, and MSMEs”. It remains to be seen whether the WTO will be able to disentangle itself from the World Bank’s narratives in the future or will likely become “the World Bank’s spokesperson.” +
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