Some 80 percent of GDP in the US and the EU originates in services. Together they account for over 60 percent of world services exports. While industrial countries are still the largest exporters of such services, developing countries are among the most dynamic. Since the mid-90s, the business services exports of 20 developing countries - including India, Brazil, Mauritius and Costa Rica- have grown by over 15 percent per annum.
Developing countries benefit considerably from openness at home and from greater foreign participation in their own services market. Liberalization has enhanced the availability and quality of a wide range of services and helped improve manufacturing performance. Recent firm-level studies from Africa, Asia and Eastern Europe show that industries with a higher dependence on services inputs have seen significant increases in total factor productivity after services reform.
Services markets are far less integrated internationally than goods markets. Existing openness to cross-border trade cannot be taken for granted because as services outsourcing grows, adjustment costs in importing countries could unleash protectionist pressures. And the current political climate in many OECD countries has become more resistant to allowing entry of foreign services providers. Developing countries too maintain barriers to international integration of services markets that deprive households and firms of more, better and a greater variety of services.
The gains from services integration realized so far are dwarfed by the potential benefits. Research suggests that even limited reform of financial, telecommunications and transport services in developing countries could enhance their growth performance by up to one percentage point.
According to the Handbook, if high-income countries were to allow temporary immigration of foreign services providers equal to just 3 per cent of their labor force, the global gains would be over $150 billion – more than three times total development assistance flows.
Even exploiting the opportunities arising from goods trade liberalization will require better services. Sub-Saharan African exporters today pay transport costs five times greater than the tariffs they face in industrial country markets. Indian horticultural producers receive on average only one-sixth of the price consumers pay because of inefficient storage, transport and distribution.
Doha services negotiations offer WTO members a golden opportunity to secure access to foreign markets and to spur domestic reforms, the Handbook argues. A balanced, development-friendly “bargain” would require negotiators to accept four elements:
1. A promise not to impose new restrictions on trade in services, including outsourcing,
2. A commitment to phase out barriers to foreign direct investment,
3. A promise of international assistance where needed for complementary reforms, and
4. An agreement to allow temporary migration of individual service providers to fulfill services contracts.
Regarding complementary reforms of domestic policies, the Handbook calls for:
- Sound and appropriate prudential regulations, especially in the financial services sector, to avoid costly disruptions that retard financial development.
- Effective pro-competitive regulation in services like telecommunications, transport and distribution.
- Efficient policies to widen access to services for the poor and remote, to ensure sustainability and ownership of reform, along the lines of competitively allocated universal access funds in telecommunications.
