gains from global linkages: trade in services and movements of persons
TRANSCRIPT
GAINS FROM GLOBAL LINKAGES
This study has been prepared with the financial support of the International Organization for Migration. The opinions expressed herein are those of the author and do not necessarily reflect the views of 10M or its member-states.
Gains from Global Linkages Trade in Services and Movements of Persons
Bimal Ghosh
Forewords by
J ames N. PureeIl, J r Director General International Organizationjor Migration Geneva
and
Renato Ruggerio Director General World Trade Organisation
~ ~ociation with Palgrave Macmillan
First published in Great Britain 1997 by
MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS andLondon Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 978-1-349-25424-8 ISBN 978-1-349-25422-4 (eBook) DOI 10.1007/978-1-349-25422-4
First published in the United States of America 1997 by
ST. MARTIN'S PRESS, INC., Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y. 10010
ISBN 978-0-312-16235-1
Library of Congress Cataloging-in-Publication Data Ghosh, Bimal. Gains from globallinkages : trade in services and movement of persons / Bimal Ghosh ; forewords by James N. Purcell, Jr and Renato Ruggiero. p. cm. Includes bibliographical references and index. ISBN 978-0-312-16235-1 I. Service industries-Developing countries. 2. Labor mobility-Developing countries. 3. Developing countries-Emigration and immigration. 4. International trade. 5. General Agreement on Trade in Services (Organization) I. Title. HD9989.D44G5 1996 382'.45-dc20 96-17551
© International Organization for Migration 1997
Softcover reprint of the hardcover 1 st edition 1997
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CIP
Contents
Acknowledgements . ........ .... ........ ........ ..................... ........... ................. viii
List of Abbreviations.................................................................. ............ ix
Notes ......................................................................................................... x
List of Tables, Boxes, Figures and Appendices...................................... xi
Forewords by James N. Purcell, Jr, Director General, International Organization for Migration and Renato Ruggiero, Director General, World Trade Organization ....................................... xiii
Introduction ............................................................. ,............................... 1
1 Growth of the services sector and its role in the national economy ........................................................................................... 6 1.1 Issues of definition and measurement............ ............................ 6 1.2 Trends in developed countries ................................................... 9 1.3 Developing countries as hesitant players: some
contrasting features .................................................................. 13 1.4 Development of the services sector and migration
management ..... ........... ........ .................................................... 24
2 Trade in services and the global economy ...... ............................ 29 2.1 Characteristics and definition ...... ............................................ 29 2.2 Developing countries in international trade in services ........... 31 2.3 Movement of persons as service providers .............................. 38 2.4 Migration vis-a-vis trade-related labour mobility.................... 42 2.5 Importance of labour mobility in services transactions ........... 45 2.6 Types of trade-related labour mobility .................................... 49 2.7 Policy issues concerning temporary movements of
labour ....................................................................................... 51
3 Enhancing developing country participation in trade in services...................................................................................... 57 3.1 The issue of comparative advantage ........................................ 57 3.2 Licensing requirements and market access ............................... 58
v
vi Contents
3.3 National treatment and temporary movement of service-providing persons .............. ...... .............. .................... ........ ...... 62
3.4 Coping with other restrictions and constraints: commercial presence and telecommunications services .......... 64
3.5 Need for an organized approach to labour-intensive services exports..... ............................................ ...... ................ 70
3.6 Movement of consumers ......................................................... 72
4 The General Agreement on Trade in Services (GATS) and movement of natural persons ........................ ....................... 82 4.1 GA TS: an overview ................................................ ................. 82
Scope and coverage ....................................... ................ ...... 84 Basic principles of liberalization ......................................... 85
4.2 General provisions of relevance to developing countries ........ 86 4.3 Implications of general provisions and opportunities for
developing countries.................... .... ........ ....... ....... .... .............. 90 4.4 The salience of specific commitments ............................... ...... 92 4.5 National schedules: extent and depth of negotiated
commitments ......... ................................ ........ .... .... .... .............. 94 4.6 Horizontal commitments on commercial presence:
effects on developing countries .... ............................ ............. 104 4.7 Movement of natural persons ................................................ 106
An analysis of the relevant provisions.... ................ ........... 106 Nature and extent of commitments on liberalization ......... 108 Impact on developing countries ......................................... 111
5 Prospects and areas of international co-operation .................. 116 5.1 Strengthening developing country capabilities in
services industry and trade ...... ................ ................ .............. 117 Policy issues and framework ...... .............. .............. ........... 117 Information flows on market access and on
trade barriers ............................................................... 120 Strengthening service export strategies ............................. 122
Structured mechanisms for services exports .................. 122 Goods-services linkages and externalization ................. 123 Telematic services and infrastructures........................... 124
5.2 Trade-related foreign direct investment ................................ 126 5.3 Aid through preferential agreements with developed
countries: the Lome Convention ............................................ 128 5.4 Co-operation among developing countries ............................ 129
Contents vii
5.5 Movement of natural persons as service providers and consumers: trade-related migration regime ........................... 132
Movement of service-providing natural persons . ........ ...... 132 Movement of consumers .... ............ .... ....... ... ....... .............. 136
6 Services, trade-related temporary movements and migration management: some concluding remarks ................. 141
Appendices ............................................ ............................................... 146
Bibliography ........................................................................................ 156
Index .................................................................................................... 159
Acknow ledgements
The completion of this book within a very Iimited time, since the conclusion of the Uruguay Round trade negotiations, would have been impossible without the valuable and timely support that the author received from a number of organizations and individuals.
The author is pariicularly grateful to David Woods, Mario Kakabadse and Alice Enders of the GA TT/WTO secretariat, who showed a keen interest in the study and provided generous assistance to hirn, sharing information and statistical data on several relevant issues. Thanks are also due to Murray Gibbs of UNCTAD, and Swati Ghosh of the World Bank, for making available some latest documentation on the subject of the study.
Valuable assistance was received from several officials of the International Organization for Migration (10M), notably Robert Paiva, Reinhard Lohrmann, Regina Boucault and Lisa Pelaprat, at different stages of processing the project.
The author is deeply indebted to James Purcell, Jr. and Renato Ruggiero, Directors General of 10M and WTO, respectively, for their forewords to the book.
viii
List of Abbreviations
ACP ASEAN CACM CPC ECIEU ECOWAS FDI G-7
GATT GATS GCC IMF ILO 10M ISIC ITC ITU LAFTA LAIA MERCOSUR MFN NAFTA OECD PTA
UNCTAD UNIDO UNDP UNESCO
World Bank
WHO WTO
African, Caribbean and Pacific countries Association of Southeast Asian Nations Central American Common Market Central Product Classification European CommunitylEuropean Union Economic Community of West African States Foreign Direct Investment Group of seven most industrialized countries (Canada, France, Germany, Italy, Japan, United Kingdom and United States) General Agreement on Tariffs and Trade General Agreement on Trade in Services Gulf Cooperation Council International Monetary Fund International Labour Organisation International Organization for Migration International Standard Industrial Classification International Trade Centre International Telecommunications Union Latin American Free Trade Association Latin American Integration Association Southern Cone Market (South America) Most Favoured Nation treatment North America Free Trade Agreement Organization for Economic Cooperation and Development Preferential Trade Area for Eastern and Southern African States United Nations Conference on Trade and Development United Nations Industrial Development Organization United Nations Development Programme United Nations Educational Scientific and Cultural Organization International Bank for Reconstruction and Development (including International Finance Corporation and International Development Association) World Health Organization World Trade Organization
ix
Notes
• Dollar($) refers to United States dollars, unless otherwise indicated. • One billion is 1,000 million. • One trillion is 1,000 billion. • Country groups: Economies are divided into four groups using World
Bank figures for GNP per capita. The groups are: low income; lower middle income; upper middle income; and high income. Unless otherwise indicated, developed or industrial countries refer to high income economies, while the term 'developing countries' is used generically for the remaining countries/economies. The designations of country groups are used solely for statistical or analytical convenience and do not necessarily reftect a judgement about the stage of development reached by a particular country or area.
• The cut-off date for GATS-related data is July 1995, unless otherwise indicated.
x
List of Tables, Boxes, Figures and Appendices
TABLES
1.1 Rates of growth of production for selected economies by sector 1.2 Percentage share of employment by sector and country/economy
1950. 1965 and 1980 2.1 Participation of developed and developing countries in exports of
merchandise and commercial services, 1970 and 1990 2.2 Leading exporters and importers in world trade in commercial ser
vices, 1975, 1980 and 1990 2.3 Direction of labour remittance flows, 1980-1990 2.4 Labour services net earnings and merchandise exports for selected
developing countries, 1993. 4.1 Sectoral coverage of schedules: Commitments within sub-sectors 4.2 Nature of commitments by services sector 4.3 Limitations to market access and national treatment 4.4 Horizontal (applicable to all sectors) commitments on commercial
presence 4.5 Horizontal (applicable to all sectors) commitments on the presence
of natural persons 5.1 General characteristics and the treatment of services in selected
regional trade arrangements in developing countries 6.1 Estimates of market size for long-distance services exports from
developing countries, 1990
BOXES
2.1 Trade-related labour mobility and migration for employment 4.1 The structure of the General Agreement on Trade in Services 4.2 Example of GATS schedule of commitments 4.3 The unfinished agenda and the ongoing work
FIGURES
1.1 Contribution to value added by economic activity, 1988/1990
xi
xii List ofTables, Boxes, Figures and Appendices
APPENDICES
Sectoral breakdown of gross domestic product for selected economies
2A Composition of commercial services exports by selected economies, 1990
2B Composition of commercial services imports by selected economies, 1990
2C Leading exporters and importers in world trade in commercial services, 1994
3A Commitments in service activities by major country group 3B Commitments on service activities of individual participants
Forewords
The services sector is opening up new frontiers in the global economy, the impact of wh ich can be as profound and far-reaching as the industrial revolution in the mid-19th century. It now accounts for more than half of marketed world production and stands out as a most dynamic component in both trade and foreign direct investment. With the spectacular advances in information technology, which make services increasingly tradable across borders, the sector seems poised to lead the next phase of economic globalization. It is important that all nations - developed, developing and those that are now in economic transition - can fully and equitably benefit from the process.
The General Agreement on Trade in Services (GA TS), concluded as an integral part of the Final Act of the Uruguay Round trade negotiation, is a significant step in this direction, in as much as it provides for the first time a rules-based multilateral framework for liberalization of trade in services through all modes of delivery, including movement of natural persons, both as service providers and as consumers.
The growth of the services sector in developing countries and their increased participation in trade in services have far-reaching implications for migration management. In a rigorous, and yet extremely lucid, manner the present study brings out these implications in the context of increasing global co-operation. It highlights how these trade-based links, including movement of persons, can be better used to enhance the efficiency of the world economy from which all trading nations can gain and how this can contribute to better management of migratory movements.
Specifically, from the migration management perspective, the study makes several extremely interesting points. To recapitulate:
• it shows the importance of the services sector (hitherto largely neglected) in creating more and better jobs in labour-surplus developing countries and reveals its potential contribution to increased orderliness in migratory movements (by reducing pressures for disruptive movements, whether caused by unemployment or lack of better opportunities);
• it brings out the challenges and new opportunities opened by the liberalization of trade in services for the developing countries, underlines the importance of freer movement of persons as an essential require-
xiii
xiv Forewords
ment of the process and speils out the enormous potential it holds for creating new employment (up to 30 million jobs) and generating additional income (over $210 billion) over time.
• it explains how trade-related, temporary movements of persons can be a partial substitute for longer-term migration, especially skill migration in the form of brain drain, and can serve the interest of both developed and developing countries in a more efficient global economy;
• it highlights the need for initiating an internationally harmonized special visa and migration regime to facilitate, monitor and manage trade-related movements (of service producers and consumers) as distinct from longer-term migration (for example for employment and permanent settlement).
As the author notes, there are at present few studies on trade in services in the context ofinternational migration. The publication, which convincingly brings out the nexus between trade in services, development and migration management, is one of the first initiatives of its kind. The concern over the mounting pressure for disruptive migration, on the one hand, and the new challenges and opportunities presented by the globalization of trade in services, on the other, make the study particularly timely.
The 10M has an abiding interest in migration-related development issues which sterns from its basic mandate. By publishing this stimulating study at this juncture 10M intends to offer some elements which should be of value both in. ensuring an effective follow-up of the International Conference on Population and Development (ICPD), held in Cairo in September 1994 and as an input into the preparation of a possible global conference on migration and development, envisioned in the General Assembly resolution 49/127 of 19 December 1994.
Concurrently, the ideas put forward in this valuable study will, I firmly believe, help in preparing for the future rounds of negotiations on liberalization of trade in services in general and movement of persons in particular. I envisage a wide interest in the study among governments, international organizations, chambers of commerce and industry, trade unions and various professional and research institutions.
Professor Ghosh has highlighted a number of specific areas and ways in wh ich international organizations can make their distinctive contributions to strengthening global links as they affect trade in services, trade-related mobility and international migration so that all countries, including the least developed ones, can benefit from them, and none falls by the
Forewords xv
wayside. The 10M stands ready to play its part in concert with its member states and sister international organizations concerned.
James N. Purcell, Jr. Director General
International Organization for Migration
xvi Forewords
As a result of the Uruguay Round of trade negotiations, the services sec tor - for too long an afterthought on the international trade agenda -has moved to the front and centre of the trade policy stage. International trade is increasingly services trade covering sectors such as telecommunications and data processing, banking and insurance, construction and engineering, travel and tourism as weIl as the myriad professional services supplied by companies and individuals around the worid.
Now for the first time a set of binding multilateral rules contained in the General Agreement on Trade in Services or GATS apply to the conduct of services trade and create a framework for a continuing process of Iiberalization. Suppliers of commercial services - whether juridical or natural persons - from both developed and developing country members of the WTO can expect to gain directly from the new services agreement and from the broad trade Iiberalization achieved in the Uruguay Round.
Orie of the main benefits of the new and improved WTO trade rules and market opening commitments in both the services and manufacturing sector will be to help developing countries diversify their trade and economic base, attract investment and increase employment and income in their domestic economies, thereby reducing press ures for outward migratory movements. An important lesson from this study is that developing countries will derive advantages from the GATS through their ability to offer secure access to their markets for high-quality imported services inputs and know-how. This, in turn, means an opportunity to increase the economic efficiency and upgrade the export capacity of both their services and manufacturing sec tors.
In this timely, thoughtful and thought-provoking study, Prof~ssor Ghosh puts into a broad international economic context a number of key issues that emerged during the services negotiations in the Uruguay Round, among them being the paucity of statistics in this area and what that means, the need to increase developing country participation in services trade, the identification and exploitation of market opportunities where developing countries have a comparative advantage, and the importance of distinguishing between trade liberalization under the GATS and immigration issues.
Professor Ghosh rightly underiines the fact that GATS rules do not only cover cross-border and investment-based trade - itself no mean achievement - but also possibilities for the entry and temporary stay in foreign markets of individual services suppliers and services personnel. His analysis brings the reader right up to date with the national commitments made in the movement of personnel area and provides a much-needed frame-
Forewords xvii
work for understanding current and future efforts to progressively liberalize international trade in services.
The WTO is committed to going further along the road of liberalization of services. In 1999 we are committed to a new round of negotiations across-the-board. During 1996 we have to conclude negotiations aimed at securing new rules and market access commitments in telecommunications and maritime transport while, shortly afterwards, we hope to see a consolidation of the financial services agreement reached this year. We are, in other words, at the beginning of a process which is designed to promote trade, investment and jobs throughout the world in the fastest growing, most promising sector of economic activity. It is a process to be welcomed and encouraged and one in which all countries have the potential to be winners.
Renato Ruggiero Director-General
World Trade Organization
Introduction
The growth of services as an economic activity is not an entirely new phenomenon. Even as early as 1900 the United States and the United Kingdom had more jobs in the services sector than in industry. But its expansion over the past quarter century has been most spectacular, marking a profound structural change in the global economy. Although the change has been particularly discernible in industrial countries, it would be wrong to assume that its significance is confined to them alone. The increasing ascendancy of services in the economy affects all countries, irrespective of the stage of development; and from all indications it will increasingly do so in the years to come.
Commercial services are now valued at $10,000 billion world wide or around 50 per cent of marketed world production. In the industrial world services are now the most important source of new job opportunities. They account for three-quarters of all workers employed in the United States. In most rich economies they represent a large and growing share of the gross domestic product: 72 per cent in the United States and more than 60 per cent in Canada, France, Germany, Italy, Japan and the United Kingdom.1
Trade in services, currently valued at more than $1200 billion a year, accounts for some 20 per cent of world trade. For more than a decade, and until 1994, services have also been the fastest growing part of international trade.2 Despite a meagre growth in 1993, services trade showed a better performance than merchandise trade. The value of trade in services rose by 8 per cent in 1994, although the rise, in contrast with the experience of the past decade, was smaller than for merchandise trade (which rose by 13 per cent). In 1995, the value of world trade in services increased by an impressive 14 per cent, although, as in 1994, it lagged behind the growth of merchandise trade which recorded a rise of 19 per cent.3 Services represent around 27 per cent of US exports and occupy an important place in the total exports of a large number of countries including France and the United Kingdom.4
These figures will substantially increase if account is taken of those services that are not traded across borders but are delivered by subsidiaries or affiliates set up in foreign markets. Services were the largest component of the foreign direct investments of major trading nations, accounting for between 46 per cent and 66 per cent of the total stock in the early 1990s, contrasted with between 35 and 53 per cent in the mid-1980s.s Despite ftuctuations in the annual sectoral outftows, the shift towards the services
1
2 Gains trom Global Linkages
sector, which accounted for 50 to 55 per cent of the total outflows from these countries during the late 1980s, is Iikely to continue.6
Trade in services will certainly receive a further boost in the coming years as the General Agreement on Trade in Services (GA TS), an integral part of the Uruguay Round multilateral trade accords, opens up prospects of new markets through Iiberalization and by bringing the trade under a rules-based multilateral system.
At present, however few migrant-sending developing countries are major actors in the services sectors. With the exception of a small group of countries or areas such as Singapore, Hong Kong and the Republic of Korea, which have already brought (economic) pressures for mass migration under control, few of them are important producers or suppliers of services in the world market. Several developing countries - Mexico, the Philippines, Uganda and Venezuela, for example - saw a decline in the relative importance of the services in the gross domestic product during parts of the period 1965-90.7 As a group, developing countries ' contribution to trade in services has been mainly confined to tourism and labour services.
A rational and dynamic development of the services sector in laboursurplus countries, based on their current and potential comparative advantage and their enhanced capacity to export services, will boost economic growth and create more and better jobs. At the same time this would lead to a more efficient international division of labour in trade in services and enhanee the efficieney of the world economy, from which both developed and developing countries could gain. Could this also reduee the pressures for disruptive migration, bring more orderliness in migratory movements and make them internationally more manageable?
There are few comprehensive studies on trade in services in the context of international migration. One of the few aspects that have received some attention is the so-called 'project-tied work' aeross countries, mainly focusing on the construction sector. However, the development of the services sector in labour-surplus countries and their increased participation in world trade in services present a whole range of challenges and opportunities, with wide and variegated implieations for migratory movements, incIuding the so-called 'brain drain'.
Given the comparative advantage of low-cost labour, it will be natural for the labour-surplus eountries to seek opportunities to export labour to eapital-rich eountries. Many developing countries (as countries in Central and Eastern Europe), are in a position to supply a wide range of labourand skill-intensive services at a competitive price. Delivery of such services across countries often depends largely on movement of natural
lntroduction 3
persons as service providers or as consumers. International trade in services can therefore hardly flourish, nor can labour-surplus countries fully benefit from their low-cost labour in such trade, if people could not move from one country to another for temporary periods. Restrictive immigration laws and regulations in the potential receiving (importing) countries are now a major obstacle to such movements and thus to services trade.
But trade in labour and skill-intensive services does not necessarily involve longer-term migration; nor should trade-related temporary movements be equated with international migration for longer-term employment or permanent settlement which raises issues of a different order. There are indications that the resistance to more liberalized trade-related movement is partly due to the confusion that now exists between such movement and Ion ger-term migration. Sensitivity attaching to the latter contributes to the confusion. Could a special migration regime (or subregime) governing trade-related movements - the rudiments of which already exist in the migration legislation of a significant number of countries - be an answer to the problem?
The framework part of the agreement on trade in services under the Uruguay Round has opened up meaningful opportunities in this direction. Clearly, however, much would depend in the near-term on the actual commitments by nations on market access, including opportunities for temporary movements of natural persons and on implementation of rules against discrimination. Equally important are the formulation of policies and measures by labour-surplus countries themselves to take advantage of market access opportunities. These measures range from improved export strategies to the development of the human and physical infrastructure for the telecommunication and information systems. In many of these areas developing countries will need external assistance just as they will find it useful to promote regional and inter-regional co-operation among themselves, consistent with, and as aprelude to, further multilateralliberalization.
Given the current concern over increasing pressures, both real and perceived, for international migration, a critical analysis of the relationship between trade in services and international migration could be rewarding. More so, since the negotiation process initiated under the Uruguay Round agreement for liberalizing trade in services is a continuing one, making it possible to improve international co-operation for greater participation of migrant-sending countries in such trade, including through more Iiberalized movement of natural persons, in the years ahead.
Against this background, the present study examines the role of the services sector, including trade in services, in promoting economic and social development and reducing the impact of both push (or supply-side
4 Gains jrom Global Linkages
pressure) and pull (or the attraction of better opportunities abroad) factors that encourage emigration from labour-surplus countries. In doing so, it analyses the importance of temporary movements of natural persons as service suppliers and as consumers in international transactions in services, differentiating such mobility from long-term or permanent migration.
The structure of the study is as folIows. Chapter 1 examines the main charaeteristics of the services sector and the contribution it can make to economic growth, employment creation and job upgrading in developing countries. It thcn discusses the implications of services sec tor development from the perspective of orderliness in migratory movements and better management of international migration. Chapter 2 discusses trade in services, focusing on market access opportunities and highlights the importance of movement of natural persons in supplying services across countries. It provides an analysis of such trade-related labour mobility, contrasted with, and as a partial substitute for, longer-term migration for employment. Chapter 3 examines the main constraints including those concerning movement of natural persons as service providers and as consumers that impede increased participation of developing countries in world trade in services and discusses some of the ways in which these could be overeome.
Chapter 4, devoted to the General Agreement on Trade in Services (GATS) negotiated in the Uruguay Round, analyses the general provisions and the specific commitments made by the trading nations under the agreement and their implications for developing countries. Special attention is given to the issues connected with movement of natural persons as service providers and as consumers. Chapter 5 identifies a number of strategie areas in which the use of international aid and regional and subregional co-operation could help developing countries in enhancing capabilities in services industry and trade. As part of the approach, it highlights the need for initiating an internationally harmonized, special visa and migration regime to streamline and facilitate trade-related temporary movements of persons, as distinct from other types of migration.
Finally, Chapter 6 briefly recaptures the earlier discussion on the contribution that increased participation by developing countries in services trade can make to improved income and employment opportunities and greater orderliness in migration, and incIudes a (partial) quantitative estimate of such economic gains. It concludes by suggesting that, in future negotiations on the liberalization of trade-related temporary movements of persons, nations should take into account not only the importance of such Iiberalization in enhancing economic gains through increased trade in services but also thc potential impact of these gains on migration management.
Introduction 5
Notes and references
1. These figures are taken from GA TT/WTO secretariat sources. For a more detailed discussion, and comparable figures for several years see Chapter 1. GATT figures for 'commercial services' are usually higher than those based on IMF balance of payments data due to (a) adjustments for the discrepancy between total reported imports and exports of shipment services; and (b) the GATT's use of estimates based on growth trends in case of missing observations. See, in this connection, GA'rr, Imernational Trade 90-91, 11 (Geneva: GATT 1992) p. 3.
2. Estimates based on IMF balance of payments data (covering coulltries reporting to it) reveal that the share of commercial services grew from 17 per cent in 1980 to more than 22 per cent in 1993, with an annual average growth of 7.7 per cent during the period, compared with 4.9 per cent for merchandise trade, in nominal terms. See World Bank, Global Ecollomic Prospects and the Developillg Countries (Washington DC: World Bank, 1995), p. 47. It is worth noting that the statistics for commercial services and for merchandise trade are not directly comparable because (i) the country coverage of available data on commercial services is less comprehensive than that for merchandise trade, and (ii) the data on commercial services are subject to a significant over-all downward bias. See GATT, International Trade: Trends and Statistics 1994 (Geneva: GATT, 1994) p. 3 and Technical Notes.
3. WTO, 'Overview of World Trade in 1995 and Outlook for 1996'. PRESS/44, March 1996.
4. 1993 figures. GATT,lnternational Trade 90-91. op. cit. Für a more detailed discussion see Chapter 2.
5. The percentage figures for the individual countries concerned were as follows: Japan: 66 per cent (1993); Germany: 59 per cent (\ 992); USA: 51 per cent (1992); France: 47 per cent and the United Kingdom: 46 per cent (1991). UNCTAD, World Investment Report, 1994 (New York and Geneva: United Nations 1994) 1.7, p. 8.
6. United Nations, World Investment Report, 1992, (New York: 1992), p. 17. 7. See Chapter I, also Table I.\.
1 Growth of the Services Sector and its Role in the National Economy
The services sector is heterogeneous and its configuration extremely complex. Hair dressing, hotel accommodation and public services to innovation, commercial Iicensing and intermediation of goods, services and information can all be lumped together in the services sector. The panoply of divergent definitions currently used to delineate the services sector brings out both its complexity and the inadequacies of the prevalent methods of conceptualizing service activities. The conceptuallacuna probably accounts for the use of such cryptic, and not-so-scientific definitions as: 'A service is something you can buy or seil but cannot drop on your foot'. Not surprisingly, the conceptual and definitional ambiguity gives rise to problems of measurement and comparabiIity, reflecting differences in national practices and the contexts in which the term 'services' is used, whether the transactions are within or across countries.
A fuH discussion of the conceptual and definitional issues surrounding service activities is beyond the scope of the present study. Nevertheless, to appraise the salience of the services sector in the domestic economy and international trade and its relationship with movement of persons, it is important, indeed essential, to begin by c1arifying the definition of services as used in this study and reviewing their current and potential role in the domestic economy. This is attempted in the present chapter.
1.1 ISSUES OF DEFINITION AND MEASUREMENT
Some definitions note the intangible and indivisible nature of service activities; others are based on the concept of non-storabiIity of services -that is, they must be produced and consumed at the same time and at the same pI ace. Still other definitions emphasize the residual nature of services in the context of industrial classification or balance-of-payments accounts. For instance, services are sometimes identified as economic outputs other than those associated with agriculture, mining and manufacturing and, in some cases, construction.
6
Growth 0/ the Services Sector and its Role in the National Economy 7
But none of these definitions fully captures the essential characteristics of the services sec tor. Services cannot, for example, be adequately defined simply by contrasting them with material goods and their characteristics: immateriality, non-storability and simultaneity of production and consumption are only relative and can be partially or wholly changed by technological developments. 1 For example, services such as musical concerts, engineering and architectural designs and data processing can be stored and delivered over distance through video cassette recording, computerized storage of data flows and modern telecommunication system, and consumption can thus be deferred. Automated teller systems in banks may avoid face-to-face contact between service providers and consumers. Even such services as repairs of cars and ocean-going vessels or the effects of a surgery have an element of tangibility and permanence.
Likewise, the concept of residuality presents practical problems. Construction, for example, is sometimes regarded as a goods-producing sector like agriculture and manufacturing, but it is also treated as a services sec tor activity. When the supply of goods and services is combined in a single transaction - as in the case, for example, of the sale of a computer system that includes services such as installation, training and maintenance - difficulties could arise in separating the goods component from the service component. A similar, but distinct, problem of unbundling may arise when tangible goods are used as a medium for the delivery of intangible services. For example, in the case of a consultant's report the fee for consultancy would be treated as a service, regardless of the fact that a tangible medium may have been used for printing and transmitting it.
The problem of classification and measurement of services is also made complicated by the growing interdependence of manufacturing and service activities (further discussed below). The need for specialized and sophisticated service inputs has led many manufacturing companies to develop service activities. Services performed internally - by and for the same company - are generally treated as part of the manufacturing production; but when their production is externalized, they are included in the services sector.
These problems of definition2 and measurement become further complicated when services are traded across countries (further discussed in Chapter 2). For example, when used in the balance-of-payment context, the residual nature of services should normally suggest the inclusion of all current account transactions other than merchandise trade and unilateral transfers. In reality, however, transactions in certain goods such as
8 Gains from Global Linkages
low-value postal packages and purchases of goods by foreign tourists are regarded as trade in services. On the other hand, certain factor incomes - such as returns on invested capital - are not always included under services trade, although they are not unilateral transfers.3 Books shipped from one country to another are normally included in merchandise trade, while subscriptions to periodicals are treated as part of trade in services.
The distinction between goods and services becomes particularly blurred in the case of processing of goods across countries - or transactions in which goods owned by a non-national enter a country to have value added to them and are re-exported without a change of ownership. This is typical of transactions in export processing zones. In some countries' balance of payments accounts such processing is treated as a service, while others include the goods processed in merchandise trade on a gross basis. When the production or delivery of goods and services are intertwined, the problem of unbundling, as discussed above, becomes even more complicated in the case of transactions across countries.
Finally, as noted in the Introduction, many services are sold or delivered through establishments located within the consumer country. For instance, in 1990 the overseas affiliates of the United States companies sold services amounting to $118.6 billion. Despite their importance as a source of receipts from foreigners such transactions are outside the balance of payment statistics and are not included in the statistics of cross-border sales of services as the affiliate is regarded as a resident of the host country.4
Many of these conceptual and definitional issues continue to be under debate. Meanwhile, national accounts are used in practice as the main framework for determining activities in different sectors of the national economy, including the services sector, and ensure the comparability of data relating to them. Despite differences in national approaches to services data (which tend to limit their comparability across countries) most national accounting systems currently rely on International Standard Industrial Classification (ISIC), which identifies 138 service activities in the following broad categories: wholesale and retail trade, restaurants and hotels; transport, storage and communications; financial, insurance, real estate and business services; personal, community and social services; and government services.s However, in the absence of an agreed definition of services, existing international standard industrial classification (ISIC) leaves numerous ambiguities in the distinction between activities that produce goods and those that provide services. As discussed above, this applies in particular to cases where goods and services are sold jointly,
Growth 0/ the Services Sec tor and its Role in the National Economy 9
where tangible goods are used as a medium for the delivery of intangible services or where service activities of a manufacturing enterprise are externalized. Much depends on the demarcation of boundaries between goods and services, between the secondary and tertiary sectors. The frontiers are sometimes blurred: to illustrate, the provision of public utilities (gas and electricity supply), construction and repair activities (of cars and household appliances) are sometimes included in the secondary sector, and sometimes in the tertiary sec tor.
A more detailed disaggregation of the services sector, covering 600 service products, is available in the Central Product Classification (CPC). Developed recently by the United Nations Statistical Office, the CPC is based on a classification of service products rather than activities. The CPC was used by the GATT secretariat to prepare a reference list of service activities for purposes of trade negotiation under the Uruguay Round.6 The list includes the following broad categories: business services, construction and related engineering services; distribution services; education services; environmental services; financial services; health and social services; tourism and travel related services; recreational, cultural and sporting services; transport services. Unless otherwise indicated, the present study follows the same broad classification. A more detailed breakdown of the classification is provided in Appendix 3A.
1.2 TRENDS IN DEVELOPED COUNTRIES
As noted in the Introduction, in many developed countries services account for a large share of both national output and employment; in most cases their importance has increased during the past three decades. In 1965 the share of services in OECD countries' gross domestic product at current prices was 54 per cent; it rose to 61 per cent in 1990. The increase for the developing countries was from 40 per cent to 47 per cent.1 The overall increase in the share of services was of the same order for both groups of countries, but it masks divergent trends at the individual country level. As shown in Appendix I, nine of the developing countries listed in it recorded a decline in the share of services between 1965 and 1990, but all the seven (OECD) industrial countries showed a larger share for services in 1990 than in 1965.
These data are based on a sectoral classification which includes construction and public utility under 'industry' and thus underweights the relative importance of the services sector. Under a broader definition of services8 as used in this study, the contribution of services to GDP was 72 per cent for developed economies and 58 per cent for developing
10 Gains trom Global Linkages
Figure 1.1 Contribution to value added by economic activity, 1988/90
Minins 1.0%
M ining 6.0%
Conlribulion 10 valoe addcd (developcd coun,rics)
Ag' .. Fo, .. & Flsh 3.0%
Conlrihulion 10 y3100 addcd dcvcloping counlric.\
Services 58.0%
Agr .. Fo, .. & Fish 16.0%
CowibUlian '0 value .ddcd whhin services (developed tounlries)
Whole& Re,.iI Tnde 20.8%
Transpon& Comm. 9.7%
Fin. In •• REs,.,. 23.6% Sod.1 Services 15.3%
Conlribulion 10 value addc.d wi'hin setviees (<leveloping eounlrlcs)
Trampon &. Comm. 12. 1%
Fin. Ins. R E." .. c 11.4<J.
ion 12.1%
Sodal Services 10.3%
Sourees: United Nations Conference on Trade and Development and the World Bank. Based on United Nations accounts data, Statistical Yearbook, several years. A verages are weighted by the country share in world GDP.
economies in 1988-90 (Figure 1.1). An overview of the contribution of different economic sectors and that of major groups of service activities is provided in Figure 1.1.
In most industrial countries the services sec tor is the largest provider of jobs (Table 1.2). Even more significant, services are now, as already noted in the Introduction, the most important source of new employment opportunities in industrial countries. For example, recent studies show that between 1985 and 1992 business services alone as a group made the largest contribution to employment across the European Union, accounting for almost one in five of the net addition to jobs.9 In the decade 1981-91, employment in services in the European Union increased by 14.9 million, contrasting with a loss of 3.1 million jobs in industry and 3.3 million jobs in farming. Between 1960 and 1993 industrial countries witnessed a rise from 42 per cent to 65 per cent in the average share of services in total employment. IO And on a net basis every new job in OECD countries in the past decade has been created in the services sector. 11
Growth of the Services Sector and its Role in the National Economy 11
Looking into the future, arecent study estimates that in industrial countries a continual shift of the economy towards service activities (albeit at a slower pace than in the past three decades) might raise the average level of the sector's share in total employment to around 75 per cent by 2010.12 Responding to this trend a white paper issued by the Japanese Ministry of Labour in 1995 urged the government to promote service industries such as information technology in order to compensate for the jobs being lost in manufacturing. 13
But, both in the developed and developing countries, the currently available figures clearly understate the importance of the services sector in total employment and national income. This is because household activities and those that take place in the informal or underground economy remain largely unrecorded in standard official statistics, although they are a dominant feature of the services sector in many countries. In the developed countries, where most of the recorded female employment is in services, increased fern ale participation rates in the formal labour market will increase the share of services in both employment and output. This in turn will lend additional importance to the services sec tor as some of the unrecorded household activities will need to be undertaken by others in the recorded services sector.
Manufacturing vis-a-vis service industries: a false dichotomy
The spectacular growth of the services sector throughout the industrial country economies in recent years has given rise to considerable debate on its significance and longer-term implications. The phenomenon has often been described as 'service revolution', 'post-industrial economy' or even the 'final frontier' .
The falling share of manufacturing in the GDPs of these countries is perceived by some as a sure sign of inexorable economic decline that needs to be corrected by a more vigorous industrial policy. Some others take the view that given the service-oriented shifts in demand and widespread deregulation of service industries, manufacturing will lose its past pre-eminence - just as farming had made room for factory production. In reality, however, the two are largely interrelated and in many areas mutually supportive - so much so that the distinction between them often becomes blurred or even meaningless.
This interdependence can be viewed from different angles. To iIlustrate, telecommunications and data-based services cannot be produced and sold without modern technical equipment and telematic infrastructure. ConverseIy, many goods will be of little value without the provision of
12 Gains from Global Linkages
related services. A car is useless if there are no petrol stations; nobody will buy computers in the absence of software. The inter-relationship also arises from the fact that services often generate demands for new industrial products. Most of today's demands for sophisticated and hightechnology industries spring from the services sector, serving as the main driving force for the production of new goods. Health services shape the research and product development of the pharmaceutical companies; the communications services create the demand for fax machines and cellular phones and the transport sector drives aerospace development,14 Not surprisingly, in the Uni ted States service industries accounted for 85 per cent of the total investment in information technology hardware during the past ten years. 15
Services also serve as critical inputs into production of goods. Indeed, the efficiency and competitiveness of the manufacturing sec tor now increasingly depend on the sophisticated inputs and support activities of the service sector. It is estimated that about one-fourth of services sector output serves as an input into goods production. And, if services produced in-house are taken into account, the importance of producer service inputs increases substantially since much of such service inputs are produced within the firm, although they are usually excluded in the input-output calculations.
Finally, the growth of the services sector often leads to the generation of new services, which in turn are used as direct or indirect inputs into industrial production. To take a simple example, education and training provide the main knowledge base of research and innovation which plays a key role in enhancing the efficiency of the manufacturing sector. In industrial countries over 80 per cent of the output of producer services (for example, accounting, engineering, advertising, equipment ren tal, detective and security services, computer and data processing, freight forwarding, and pipelines and air transport services) provide inputs into production of goods and other services.16
No wonder that in rich countries today over half the workers in a typical manufacturing company do service-type jobs - design, distribution, financial planning; only a minority work on the factory floor. 17 In the United States, for instance, between 65 and 75 per cent of employment in manufacturing is probably associated with services sector activities.18 Indeed, many large manufacturing companies derive a substantial part of their income from their services sector activities. General Motors' financial and insurance services, together with its computing operations, account for a fifth of total revenue. Half of Sony's business relates to service activities and a fifth of its revenue comes from film and music businesses.19
Growth 0/ the Services Sector and its Role in the National Economy 13
The need for specialized and sophisticated service inputs has also led many manufacturing concerns to contract out some of the jobs - ranging from legal assistance to plant location surveys, engineering, accounting, advertising, data processing, janitorial services and hiring of executives -rather than doing them internally.2o Such externalization of service production has taken place at two levels. In some cases in-house services have been replaced by the purchase of specialized services and hightechnology intermediate inputs (for example, computer-aided design) from other firms. In other instances, the externalization process has led to the establishment of subsidiaries which would then seil the service back to the parent firm and on the open market. The process has had the further result of making the essential service inputs more easily available to small and medium-sized manufacturing firms, stimulating the growth of the services sector.
These various methods for manufacturing firms to derive support from service inputs are not mutually exclusive. Depending on the nature of its operations, a manufacturing firm may continue to do some of the service jobs internally, while externalizing others either through the establishment of subsidiaries or outright purchase from specialized firms.
1.3 DEVELOPING COUNTRIES AS HESITANT PLA YERS: SOME CONTRASTING FEATURES
The services sector, as noted above, contributes significantly to national production and employment in both developed and developing countries, although comparative figures reveal that it plays a less important role in developing economies (Figure 1.1 and Table 1.2). Available data seem to suggest that as a country economically advances, the share of services in its total employment and production also rises.
The difference in the relative importance of services for developed and developing countries needs careful analysis and interpretation. First, in most developed countries the gain in the share of services was accompanied by a declining importance of agriculture and industry (manufacturing, mining and utilities). By contrast, the developing countries as a group (with a few exceptions at the country level) showed an increasing importance of both industry and services, in most cases the growth in manufacturing industries out-performing the growth in services. Second, the increase in the share of services at current prices in the GDP of developed countries is partly a reflection of the higher prices of many services in these countries as compared to the prices in developing
-~ Ta
ble
1.1
Rat
es o
f gro
wth
of
prod
ucti
on f
or s
e1ec
ted
econ
omie
s by
sec
tor
(ave
rage
ann
ual g
row
th r
ate,
per
cent
age)
GD
P
Agr
icu1
ture
In
dust
ry
Man
ufac
turi
ngb
Serv
ices
c
Eco
nom
y 19
65-
1980
-19
65-
1980
-19
65-
1980
-19
65-
1980
-19
65-
1980
-C
)
1980
19
90
1980
19
90
1980
19
90
1980
19
90
1980
19
90
~ S· '" ~
Low
-inc
omea
<:
) ;: N
epal
1.
9 4.
6 1.
1 4.
8 C
) B
angl
ades
h 1.
7 4.
3 0.
6 2.
6 1.
5 4.
9 2.
8 2.
8 3.
6 5.
8 S"
U
gand
a 0.
6 2.
8 1.
2 2.
5 -4
.3
5.5
-3.7
5.
2 1.
1 3.
3 Il"
-~
Nig
eria
6.
0 1.
4 1.
7 3.
3 13
.1
-1.2
14
.6
-1.0
5.
9 2.
7 t"-o
In
dia
3.6
5.3
2.5
3.1
4.2
6.6
4.5
7.1
4.4
6.5
S·
Chi
na
6.8
9.5
2.8
6.1
10.0
12
.5
8.9
14.4
11
.9
9.1
fr OQ
K
enya
6.
8 4.
2 5.
0 3.
3 9.
7 3.
9 10
.5
4.9
7.2
4.9
fI> '"
Pak
ista
n 5.
2 6.
3 3.
3 4.
3 6.
4 7.
3 5.
7 7.
7 5.
9 6.
9 G
hana
1.
3 3.
0 1.
6 1.
0 1.
4 3.
3 2.
5 4.
0 1.
1 5.
7 T
ogo
4.3
1.6
1.9
5.4
6.8
0.3
0.7
4.7
-0.2
Sr
i Lan
ka
4.0
4.0
2.7
2.3
4.7
4.6
3.2
6.3
4.6
4.7
Indo
nesi
a 7.
0 5.
5 4.
3 3.
2 11
.9
5.6
12.0
12
.5
7.3
6.7
Hon
dura
s 5.
0 2.
3 2.
0 1.
8 6.
8 2.
4 7.
5 3.
7 5.
7 2.
4 E
gypt
7.
3 5.
0 2.
7 2.
5 6.
9 4.
3 13
.7
6.7
Tab
le 1
.1
Con
tinue
d ~
~ ~ So
GD
P A
gric
ultu
re
Indu
stry
M
anuf
actu
ringb
Se
rvic
es·
~
So
(\
Eco
nom
y 19
65-
1980
-19
65-
1980
-19
65-
1980
-19
65-
1980
-19
65-
1980
-~
1980
19
90
1980
19
90
1980
19
90
1980
19
90
1980
19
90
~ ~.
~
Low
er m
iddl
e-in
com
ea
~ B
oliv
ia
4.4
-0.1
3.
8 1.
9 3.
7 -1
.7
5.4
-0.9
5.
6 -0
.4
<:) .,
Zim
babw
e 5.
0 2.
9 2.
4 2.
4 2.
8 3.
4 \:
)
Phili
ppin
es
5.7
0.9
3.9
1.0
7.7
-0.8
6.
8 0.
1 5.
0 2.
6 i
Nic
arag
ua
2.5
-2.2
3.
8 -2
.6
4.2
-4.4
5.
1 -4
.3
1.0
-1.0
-. 1;1
'
Mor
occo
5.
7 4.
0 2.
4 6.
4 6.
1 2.
8 3.
8 7.
1 4.
1 ~
EI S
alva
dor
4.3
0.9
3.6
-0.7
5.
3 -0
.6
4.6
4.1
1.7
~
Peru
3.
9 -0
.3
1.0
2.8
4.4
-1.2
3.
8 -0
.5
4.2
-0.4
S·
C
olom
bia
5.7
3.7
4.5
3.0
5.7
5.1
6.4
3.4
6.3
2.9
So
Tha
iland
7.
3 7.
6 4.
6 4.
1 9.
5 9.
0 11
.2
8.9
7.4
7.8
(\
Tun
isia
6.
5 3.
6 5.
5 2.
3 7.
4 2.
6 9.
9 6.
0 6.
4 4.
5 ~
.... Ja
mai
ca
1.4
1.6
0.5
0.8
-0.1
2.
2 0.
4 2.
4 3.
1 1.
1 es·
Tur
key
6.2
5.1
3.2
3.0
7.2
6.2
7.5
7.2
7.6
5.2
§.
Rom
ania
1.
2 0.
1 0.
7 2.
4 ~
Cos
taR
ica
6.3
3.0
4.2
3.2
8.7
2.9
3.1
5-9
3.
1 C
)
Chi
le
1.9
3.2
1.6
4.2
0.8
3.4
0.6
3.5
2.7
2.9
;::
C)
Mal
aysi
a 7.
4 5.
2 3.
8 7.
1 8.
8 4.
2 ~
Arg
entin
a 3.
4 -0
.4
1.4
1.1
3.3
-1.1
2.
7 -O
.6d
4.1
-0.1
U\
..-
0\
Tabl
e 1.
1 C
onti
nued
GD
P
Agr
icul
ture
In
dust
ry
Man
ufac
turi
ngb
Ser
vice
sc
Eco
nom
y 19
65-
198~
1965
-198~
1965
-198~
1965
-198~
1965
-198~
1980
19
90
1980
19
90
1980
19
90
1980
19
90
1980
19
90
C'}
t:I
Upp
er m
iddl
e-in
com
ea
S· '"
Mex
ico
6.5
1.0
3.2
0.4
7.6
1.0
7.4
1.4
6.5
1.1
~
Uru
guay
2.
4 0.
3 1.
0 0.
0 2.
9 -0
.2
0.4
2.3
0.8
~ SI
Ven
ezue
la
3.7
1.0
3.9
3.1
1.5
1.5
5.8
4.2
5.8
0.5
C'}
Bra
zil
9.0
2.7
3.8
2.8
10.1
2.
1 9.
8 1.
7 9.
4 3.
4 B"
H
unga
ry
5.7
1.3
2.7
1.6
6.4
-0.5
6.
2 2.
8 I::
t-t:I
Kor
ea, R
epub
lic
of
9.9
9.7
3.0
2.8
16.4
12
.2
18.7
12
.7
9.6
9.2
- t"-< S
audi
Ara
bia
10.6
-1
.8
4.1
14.6
11
.6.
-4.4
8.
1 8.
8 9.
8 -0
.3
S· ~
Hig
h-in
com
ea
OQ
~
OE
CD
U
nite
d K
ingd
om
2.3
3.1
-3.1
1.
3 4.
8 3.
0 It
aly
4.3
2.4
0.8
1.9
2.7
2.9
Fra
nce
4.0
2.2
2.0
0.6
0.2
2.9
Can
ada
4.8
3.4
0.7
0.2
3.5
3.2
3.8
3.4
6.4
3.5
Uni
ted
Sta
tes
2.7
3.4
1.0
3.2d
1.
7 2.
9d
2.6
3.8d
3.
3 3.
3d
Ger
man
y·
3.3
2.1
1.4
1.6
2.9
0.4
3.3
0.9
3.7
2.7
Japa
n 6.
4 4.
1 -0
.6
1.3
7.1
4.5
7.8
5.3
6.8
3.8
Eco
nom
y
Oth
er
Sin
gapo
re
Hon
gKon
g K
uwai
t
GD
P
1965
-19
80
10.0
8.
6 1.
6
1980
-19
90
6.4
7.1
0.7
Tabl
e 1.
1 C
onti
nued
Agr
icul
ture
1965
-19
80
2.8
1980
-19
90
~.2
18.8
Indu
stry
1965
-19
80
11.9
1980
-19
90
5.4
1.0
Sour
ees:
U
NC
T A
Dfl
'he
Wor
ld B
ank
(The
Wor
ld B
ank
data
base
)
Man
ufac
turi
ngb
1965
-19
80
13.2
1980
-19
90
6.6
4:>.
2
Ser
vice
s"
1965
-19
80
9.1
1980
-19
90
7.2
0.6
a L
ow i
ncom
e ec
onor
nies
are
thos
e w
ith
a 19
90 G
NP
per
cap
ita
of $
610
or
less
. L
ower
rnid
dle
inco
me
econ
orni
es a
re th
ose
with
a
1990
GN
P p
er c
apit
a o
f m
ore
than
$61
0 bu
t les
s th
an $
246
5. U
pper
rni
ddle
-inc
ome
coun
trie
s ha
ve a
GN
P p
er c
apit
a o
f m
ore
than
$
2465
but
less
tha
n $
7620
. H
igh-
inco
me
econ
orni
es a
re t
hose
wit
h a
1990
GN
P p
er c
apit
a gr
eate
r th
an $
762
0.
b B
ecau
se m
anuf
actu
ring
is g
ener
ally
the
mos
t dyn
arni
c pa
rt o
f th
e in
dust
rial
sec
tor,
its
perf
orm
ance
is s
how
n se
para
tely
. c
In th
e W
orld
Dev
elop
men
t Rep
ort d
ata
used
her
e, s
ervi
ces
enco
mpa
ss v
alue
add
ed in
tran
spor
t in
com
mun
icat
ions
, tr
ade,
ban
king
, dw
elli
ng, p
ubli
c ad
min
istr
atio
n, o
ther
ser
vice
s, i
mpu
ted
bank
-ser
vice
cha
rges
, im
port
dut
ies
as w
en a
s an
y st
atis
tica
l dis
crep
anci
es
note
d by
nat
iona
l com
pile
rs.
d B
ased
on
the
peri
od 1
980-
89.
e D
ata
refe
r to
the
Fed
eral
Rep
ubli
c o
f Ger
man
y be
fore
uni
fica
tion
.
c;J ~ §. ~
So
~ ~
~ ~. ~ es- .., t:l
~
~. E? ~ S·
So
~ ~ - [ ~ J ..- -..
.I
Tab
le 1
.2
Perc
enta
ge s
hare
of e
mp1
0ym
ent b
y se
ctor
and
cou
ntry
/eco
nom
y, 1
950,
196
5 an
d 19
80
00
Agr
icul
ture
In
dust
ry
Serv
ices
Cou
ntry
/eco
nom
y 19
50
1965
19
80
1950
19
65
1980
19
50
1965
19
80
Low
-inco
mea
Nep
al
96
94
93
2 2
1 3
4 6
c:J
Ban
g1ad
esh
88
84
75
5 5
6 7
1 19
I:l
S·
Uga
nda
94
91
86
2 3
4 4
6 10
'"
Nig
eria
77
72
68
8
10
12
15
18
20
~
<::)
Indi
a 78
73
70
8
12
13
14
15
17
:= C
hina
88
81
74
5
8 14
7
11
12
c:J
Ken
ya
89
86
81
4 5
7 7
9 12
B"
<:
:)-
Paki
stan
69
60
55
14
18
16
18
22
30
~
Gha
na
71
61
56
9 15
18
18
24
26
t-<
Togo
82
78
73
7
9 10
11
13
17
S·
ir
Sri L
anka
58
56
53
12
14
14
30
30
33
1)
0:)
Indo
nesi
a 79
71
57
6
9 13
15
21
30
(1:
> '" H
ondu
ras
72
68
61
9 12
16
19
20
23
Eg
ypt
60
55
46
12
15
20
27
30
34
Low
er m
iddl
e-in
com
ea
Bol
ivia
61
54
46
20
20
20
19
26
34
Zi
mba
bwe
84
79
73
6 8
11
10
13
17
Phi1
ippi
nes
67
58
52
12
16
16
21
26
33
Nic
arag
ua
68
57
47
15
16
16
17
28
38
Mor
occo
71
61
46
9
15
25
20
24
29
Tabl
e 1.
2 C
ontin
ued
C') Cl ~
. Agr
icul
ture
In
dust
ry
Serv
ices
~
~
~
Cou
ntry
/eco
nom
y 19
50
1965
19
80
1950
19
65
1980
19
50
1965
19
80
~ f(l
~ EI
Sal
vado
r 65
59
43
15
16
19
19
26
37
~.
Peru
58
50
40
18
19
18
24
32
42
f(l
C
olom
bia
57
45
34
18
21
24
25
34
42
~
Tha
iland
86
82
71
3
5 10
12
13
19
S "'
I
Tun
isia
68
49
35
14
21
36
18
29
29
\:
)
Jam
aica
47
37
31
23
20
16
30
43
52
::s ~
Tur
key
87
75
58
6 11
17
7
14
25
~.
Rom
ania
72
57
31
15
26
44
13
18
26
::t
l C
osta
Ric
a 58
47
31
17
19
23
26
34
46
~ ~
Chi
le
34
27
17
30
29
25
36
44
58
S·
Mal
aysi
a 67
59
42
10
13
19
23
29
39
~
Arg
entin
a 25
18
13
32
34
34
43
48
53
~ ~
Upp
er m
iddl
e-in
com
ea
I· M
exic
o 60
50
37
17
22
29
23
29
35
-
Uru
guay
24
20
16
28
29
29
48
51
55
~
Ven
ezue
la
43
30
16
21
24
28
36
47
56
g B
razi
l 60
49
31
17
20
27
24
31
42
~
Hun
gary
52
32
18
24
40
44
24
29
38
~
Kor
ea, R
epub
lic o
f 77
55
36
6
15
27
17
30
37
Saud
i Ara
bia
76
68
48
9 11
14
15
21
37
-\0
IV
0
Tabl
e 1.
2 C
onti
nued
Agr
icul
ture
In
dust
ry
Ser
vice
s
Co
un
try/
eco
no
my
1950
19
65
1980
19
50
1965
19
80
1950
19
65
1980
Hig
h-in
com
e(a)
~
S·
OE
CD
'"
Uni
ted
Kin
gdom
6
3 3
50
47
38
45
50
59
~
~
Ital
y 44
25
12
31
42
41
25
34
48
::i
F
ranc
e 31
18
9
35
39
35
34
43
56
c;"}
Can
ada
20
10
5 36
33
29
44
57
65
S"
U
nite
d S
tate
s 12
5
4 37
35
31
51
60
66
g- -
Ger
man
y<b)
23
11
6
43
48
44
34
41
50
t"-
Japa
n 49
26
11
24
32
34
28
4
2
55
S·
Oth
er
! S
inga
pore
8
6 2
20
27
38
71
68
61
~ H
ongK
ong
12
6 2
56
53
51
32
41
47
Kuw
ait
2 2
2 34
34
32
64
64
67
Sour
ees:
U
NC
T A
D/W
orId
Ban
k, I
nter
nati
onal
Lab
our O
ffic
e, L
abou
r For
ce E
stim
ates
and
Pro
ject
ions
, 19
50-2
000
(Gen
eva,
IL
O,
1986
) an
d W
orld
Dev
elop
men
t Rep
ort d
atab
ase.
(a
) F
or a
def
initi
on o
f the
cou
ntry
gro
ups
see
Tab
le 1
.1
(b)
Dat
a re
fer
to t
he f
orm
er F
eder
al R
epub
lic
of G
erm
any
Growth 01 the Services Sector and its Role in the National Economy 21
economies. Studies indicate that the prices of services tend to rise as income increases.
Finally, a most important point to note is the difference in the composition of the services sector in developed and developing countries. It is not just the size of the services sector but also its composition that unfolds the significance of the sec tor in the economy. As shown in Figure 1.1, wholesale and retail trade activities account for a larger relative share of the developing economies. The share is likely to be even higher if the retail trade activities in the informal sector of these economies can be fully taken into account. By contrast, the relative share of producer services and to some extent government services tend to be more important in the developed economies. Evidence suggests that producer services increase in importance as the economy grows both as a cause and as a consequence of such growth.
Increased complexity in production and targeted marketing (for example, shorter life cycles of products, widening of product lines and increased product differentiation, special financial packaging and postdelivery servicing), combined with the externalization of specialized service firms, has increased both the need and scope for the use of producer services in developed economies. As for government and other nonmarket services, their relative importance in the developed economies stemmed from several factors linked to promotion of economic welfare and growth. These include: the demands for a better distribution of the fruits of economic advancement, the need for human capital development and an increasing recognition of the importance of an invigorating technological environment and an efficient institutional framework as conditions of economic growth. The importance of the relative share of government services in these countries is also partly a reflection of the higher compensation paid to public sec tor employees. Despite the recent policies in a number of developed economy countries to cut back on social services expenditure, and a concomitant shift towards deregulation, government services will continue to be an important part of the social and economic structure of these countries.
The rapid growth of the services sector in developed countries has also led to changes in the employment structure, marked by an increase in white collar jobs both because of the predominance of such jobs in skilland knowledge-intensive services and the trend in the goods-producing sec tor towards wider use of managers, engineers, technicians and other white collar workers. According to OECD estimates, in 1970 blue-collar workers outnumbered white-collar workers in all twelve EC states except Germany, Holland and the Uni ted Kingdom. Twenty years later, in 1990,
22 Gains from Global Linkages
white-collar workers were in the majority in every state except Spain. This in turn has meant a growing demand for a better educated labour force and a continuous upgrading of its skills. At the same time many lowproductivity and low-wage service jobs are now attracting more women, as many male workers shun these jobs and employers look for a more flexible labour force; higher fern ale participation has helped ensure such flexibility through increased part-time employment and gender-based paydifferentials even for the same jobs.21
In industrial countries the rapid growth of the services sec tor has been a most dynamic factor 'in advancing the efficiency and productivity of their economies and enhancing their competitive position in the world market. The latter has been helped by several, largely interrelated, developments including the emergence of a powerful group of producer services and their externalization, the increased tradability of services and a dominant position in telecommunication and information-related services. The development of some of these key services is now recognized as an important determinant of overall economic growth rather than a result of it. An important point to be noted is that the service inputs are now contributing significantly to the value added of each unit of manufacturing output. In some cases, they account for half of the sales price of manufacturing goodS.22 Limited time series evidence suggests that the importance of producer services as inputs into manufacturing is increasing in most industrial economies.23 If in-house provision is included, this relative importance of producer services as inputs increases even further, as in many cases only a fraction of such inputs is purchased from outside.
The trend is not limited to manufacturing. A growing number of private and public service organizations, including governments, in almost all developed countries are now relying on service inputs to enhance their efficiency. At the same time, many service industries themselves are showing important productivity gains. Until recently, such gains were generally harder to obtain in services mainly due to restrictive practices and lack of competitive pressures. As services are being liberalized and exposed to competition, increased competition is now forcing them to become more efficient. In the Uni ted Kingdom, for example, much of the job loss in British Telecom or in retait banking in 1992 has been attributed to productivity gains through technological improvements. In particular, those service activities that make intensive use of communications and information technology are witnessing high rates of productivity growth. To illustrate, over the per iod 1979-93, total factor productivity (TFP) in transportation and communications in industrial countries rose annually
Growth 0/ the Services Sector and its Role in the National Economy 23
by 2.4 per cent, compared with an overall growth rate of 0.8 per cent during the same years.24
By contrast, in most developing countries the infrastructure and producer services are still at a low stage of development. Services in these countries are largely associated with low-productivity activities in the informal sector, devoid of human capital and infrastructural support. True, with the rapid expansion of the informal sec tor, alongside chaotic urbanization, they have become an important source of labour absorption, growing rapidly in terms of employment. But they inadequately contribute to the creation of high value-added jobs and the improvement of productivity of other sectors. It is the composition of the services sec tor, dominated by 10w-skiIled and low-productivity jobs, that also largely explains the weak competitive position of many of these countries in the world market. The inputs of a number of the key services -finance, insurance, real estate and business services - that contribute to the high value added of manufactures are about three times more important in developed than in developing countries.25 The proportion may even be higher if services produced in-house as inputs are taken into account. Two largely interrelated factors mentioned in this chapter -rising service-intensity of manufacturing production and increased outsourcing of service inputs - mainly account for the rapid growth and expanding share of the services sector in industrial economies. Both are much less conspicuous in developing countries.
As discussed in the next chapter, in a significant number of developing countries services trade is heavily dependent on tourism and labour services. The relative weakness, incIuding lack of diversification, of the domestic services sector, is largely responsible for current account deficits in the services trade in these countries, exacerbating the debt servicing burden in many cases. The small number of developing economies - such as Singapore, Hong Kong, and Taiwan (China) and to some extent the Republic of Korea - that have a relatively strong position in trade in services other than the two items have folIowed a coherent strategy for the services sec tor, with due emphasis on human capital and infrastructural support; and, significantly, they have also been able to develop a strong competitive position in selected manufactures.
The conclusion that emerges from the above analysis is that the services sec tor can be a dynamic factor for rapid growth of the domestic economy of developing countries and their increased participation in the world market. More specifically, it can contribute to (a) increased output and exports of service products through a systematic development and upgrading of the service industries; (b) enhanced efficiency, productivity
24 Gains trom Global Linkages
and international competitiveness of manufacturing and primary goodsproducing sectors; (c) improved employment and earning opportunities, through the creation of both additional and higher-grade jobs and (d) promotion of health, education and social welfare of the general population and eloser social and economic integration of the marginal groups.
1.4 DEVELOPMENT OF THE SERVICES SECTOR AND MIGRATION MANAGEMENT
The situation has some elear implications for migratory movements from developing countries. As explained above, an inefficient services sec tor acts as a drag on the entire economy of a country, thereby inhibiting economic growth and creation of gainful employment. For many laboursurplus developing countries this means both a worsening of their unemployment and underemployment situation and an increasing inability to narrow income disparities with rich countries. When this happens the pressures for outward movements, caused by unemployment as weIl as by search for better opportunities, tends to increase.26 Whether or not they lead to actual movements (this depends on several domestic and external factors), the explosive social and political situation created by mounting pressures for migration - or the build up of a huge migration potential -must be seen as an issue of serious domestic and international concern, deserving urgent attention.
The potential contribution of an efficient services sector to migration management - or increased orderliness in movements of persons - needs to be assessed in a dynamic and overall context. First, in addition to creating job opportunities in the service and other sectors of the economy, many service activities generate new demands for both manufactured and service products as revealed by the experience of developed countries. These dynamic, second-round effects significantly enhance the employment-creating potential of the services sector. Secondly, as many of the producer and information-based services are skill- and knowledgeintensive, the development of such service industries implies creation of additional skilled and professional employment, ineluding upgrading of jobs in manufacturing. The opening up of new high-level job opportunities in developing countries might induce many of the potential opportunity-seeking mi grants to stay at horne, attenuating large-scale skill migration in the form of 'brain drain', or could even encourage return f1ows, as exemplified by several East Asian countries. Some of the
Growth ofthe Services Sector and its Role in the National Economy 25
service activities such as technological innovation and assistance, training, accounting and management can be used for improving the performance of micro-enterprises and upgrading low-productivity jobs in the urban informal sector wh ich now serve as potential pressure points for external migration.
Thirdly, improved efficiency of public utilities and basic services can contribute, both directly and indirectly, to the productivity of individual enterprises and the overall growth of developing economies through human capital development and a more invigorating economic environment. The combined effect of these potential contributions of the services sec tor can help improve the pessimistic perceptions of the future of the horne country economy which often serves as an important factor in enhancing migration - or at least the potential for migration - from developing countries.27 True, enhanced economic development, helped by the services sector, may encourage some new, albeit limited, flows of opportunity-seeking migration. But many more of those who might have been otherwise inclined or forced to mi grate are likely to stay at horne. On balance, the pressures for migration, especially disorderly movements, will be reduced.
Trade lends an additional dimension to the potential role of the services sector in the management of migration through increased employment and income in developing economies. As already noted, by providing critical intermediate inputs into manufacturing many producer services can enhance the efficiency and competitiveness of domestic firms in the world market and secure economic gains from increased trade. These gains in the form of growth in income and employment can be further increased by a wider participation of developing countries in trade in services in a liberalized trade environment, given that many developing countries, as will be discussed in the next chapter, have a wide potential for exporting labour and skill-intensive services at competitive prices.
Clearly, all developing countries will not be in a position to reap fully these potential benefits overnight; some will be obliged to continue to rely mainly on traditional services, notably tourism and labour services. But wider access to the world markets, including freer movement of persons as service providers and consumers, is an essential condition for both groups of countries to optimize gains from the development of the services sector and their participation in trade. The issues involved are discussed in detail in the next chapters. Suffice it to note at this stage that without a coherent strategy for the development of the services sec tor none of the developing countries wh ich are newcomers in the world market can be expected to
26 Gains trom Global Linkages
make much progress and the present vicious circle that impedes both
domestic growth and participation in trade will persist.
Notes and references
I. It is of interest to note that an abstract definition suggested by T. P. Hili seeks to avoid characterizing services as intangible or transient by defining a service as a change in the status or position of a person or of goods as a result of a productive activity by some other economic unit. Under this definition a distinction is made between the production process (which can be transient) and the output (which need not necessarily be transient) of a service. Although the definition has certain obvious merits, critics have argued that it fails to capture all the characteristics of a service. All service activities do not involve change in the status or condition of the beneficiary, some (for example, security or accident prevention services) are in fact designed to prevent such change. Also the condition of 'prior agreement' of the service consumer, included in HiIl's definition, cannot be fully met in the case of all services. See in this connection T. P. Hili, 'On goods and services, Review of Income and Wealth (December 1977), pp. 315-38; T. P. Hili, The Economic Signijicance of the Distinction between Goods and Services (Paris: OECD, 1987) and Dorothy I. Riddle, Service-led Growth: The Role of the Services Sector in World Development (New York: Praeger, 1986).
2. Another way of defining services is to look at the nature and characteristics of the use and provider. By using this criterion the United Nations has classified six different types of services: (i) Non-traded services that are provided and consumed by residents of the same country (for example, public services and hairdressing); (ii) services provided within national borders but to non-nationals (for example, hotel accommodation to non-nationals and air and seaport services to non-nationals); (iii) services provided by resident individuals and firms across borders to firms and individuals abroad (air and sea freight, telecommunications and computer assisted services; (iv) services provided through contractual relationships (royalties, licences, franchises); (v) services provided through overseas affiliates of a parent company (commercial banking subsidiaries); (vi) services provided through direct export. See United Nations/UNCTAD, Production and Trade in Services: Policies and Their Underlying Factors bearing upon International Service Transactions (New York: United Nations, 1985).
3. UNCTC, Transnational Corporations, Services and the Uruguay Round (New York: United Nations, 1990) p. 3.
4. Bernard Ascher, 'Presenting the Top 254 Service Exports'. The Service Economy, 7: I (Coalition of Service Industries, Washington DC: January 1993).
5. International Standard Industrial Classijication of All Economic Activities, series M, No. 4, Rev. 3 (New York, United Nations 1990). See also UNCTADI The World Bank, Liberalizing International Transactions in Services (New York: United Nations, 1994).
Growth 0/ the Services Sector and its Role in the National Economy 27
6. GATT, 'Services Sectoral Classification List' document MTN.GNS/W/l20 (Geneva: 1991) mimeo.
7. UNCTAD/World Bank 1994 op. eit. World Development Report data base. 8. Using this definition UNCTAD estimated that, in 1980, services accounted
for about 64 per cent of the world GDP. Their share was 67 per cent in developed countries and 51 per cent in developing countries. See UNCTAD, Production and Trade in Services: Policies and Their Underlying Factors Bearing Upon International Service Transactions (United Nations publications, 1984, Sales No. E 84.II.D.2).
9. European Commission. Sixth report on Employment in Europe (Brussels: 1994).
10. Edward Wolff, 'Productivity Growth among OECD Countries: Historical Records and Future Prospects' (Washington DC: World Bank, International Economies Department, 1995) Figures cover all OECn countries except Greece, Mexico, Portugal, Spain and Turkey.
11. GATT, Address by the Director-General (Peter Sutherland) to the Forum de L'expansion, Paris (Geneva: GATT document NUR 070, 20 October 1993), mimeo.
12. Edward Wolff, 'Productivity Growth among OECD Countries: Historical Records and Future Prospects' (1995) op. eit.
13. Financial Times (London: 28 June 1994). 14. Richard Brown and Deanne Julius, 'Is Manufacturing StilI Speeial in the
New World Order?' in Richard O'Brien (ed.), Finance and the International Economy, no. 7. (Oxford, England: Oxford University Press, 1993).
15. NRC (National Research Couneil), Information Technology in the Service Society (Washington DC: National Academy Press, 1994).
16. GATT, International Trade 1988-89, I (Geneva: 1989) p. 26. 17. The Economist (20-26 February 1993) p. 14. 18. James Brian Quinn, Intelligence Enterprise. (New York: The Free Press.
1992). 19. OECD, Industrial Policy in OECD Countries, Annual Review 1992 (Paris:
OECD 1992). 20. UNCTAD, Trade and Development Report 1988 (New York: United
Nations 1989) p. 144. 21. Ibid. p. 146. 22. In the Uni ted States, over half of the purchaser's price of durable household
furnishings and nearly half of the sale price of apparel is attributed to trade and distribution services. US Department of Commerce, 'The Input-Output Structure of the US Economy, 1977', Survey of Current Business (1977) p.46.
23. According to one study, between 1975 and 1981 the expenditure on external soureing of services as a proportion to the value of manufacturing output rose 20 per cent on average in the Federal Republic of Germany, Italy and the United Kingdom. See M. Green, 'The Development of Market Services in the European Community, United States and Japan'. European Community (September 1985).
24. World Bank, Global Economic Prospects and the Developing Countries, 1995. op. eit. p. 49.
25. GATT, International Trade 88-89. op. eit. p. 26.
28 Gains from Global Linkages
26. For a diseussion of different motivations and types of migration see Bimal Ghosh, 'Migration, Trade and International Co-operation: Do the InterLinkages Work?' International Migration, XXX:3/4 (1992) pp. 378-79; also, Foreign Direct Investment, Trade and Migration (1994). Study prepared for the Uni ted Nations and the International Organization for Migration (Restrieted).
27. For a eritieal diseussion of the eomplex linkages between development and migration see Bimal Ghosh, Foreign Direct Investment, Trade alld Migration. op. eit.
2 Trade in Services and the Global Economy
2.1 CHARACTERISTICS AND DEFINITION
The special characteristics of services influence their mode of delivery and the manner in which they are measured and identified in international trade. The discussion in Chapter 1 has revealed that the provision of most services demands elose proximity, in terms of both time and space, between the provider and the consumer. The need for such direct interaction between production and consumption implies that in most circumstances the delivery of services across countries cannot be completed without the movement of persons. In such cases the service provider, or the consumer, 'carries the border with hirn or her'.
There are however two major categories of exceptions: services that can be embodied in a material object and treated as goods - for example, a musical concert recorded on a video cassette or computer software on a diskette; and services that can be transmitted over distance through modern telecommunication and computer systems - the results of a medical test electronically transmitted to a major medical centre abroad for analysis and treatment or banking services provided abroad using the telecommunication system.
But, as further discussed below, even in the case of such 'separated' or 'long-distance' services (not requiring proximity between the provider and the consumer) the delivery of the service output often remains incomplete without some movements of persons to, or some form of commercial presence in, the importing country, or possibly both. Computer software may be sent on a diskette or an architectural design could be transmitted using modern means of telecommunication but their effective use, tailored to the needs of the foreign clients, will in many cases demand temporary movements of the service providing persons to complete the process of production and delivery.
In the ca se of material goods the process of delivery is straightforward: they can be shipped from a distance or produced and supplied abroad through foreign direct investment. The two modes of supply are thus usually viewed as substitutes for each other. By contrast, for international transactions in services, although the different modes of supply sometimes (as in the case of 'separated' services) may act as substitutes, the relation-
29
30 Gains from Global Linkages
ship among them is more often one of complementarity. In the case of business and professional services, in particular, there is an increasing trend towards the use of different modes of supply in combination - movements of persons, cross-border supply through the use of telecommunications and computer system and commercial presence in the importing country - to complete the delivery process and ensure effective support services following deli very.
The balance-of-payments accounts capture international transactions in services (and goods) and provide a convenient framework for appraising and measuring trade in services. In such ac counts the cross-border trans actions are identified as exchanges between residents and non-residents, whether a person or a firm. The concept of non-residency, which includes temporary movement or presence (usually less than a year), is important in the context of services trade since, as further discussed, it underpins two essential characteristics of service transactions - time-specificity and discreteness of the activity. The framework provided by the balance-ofpayments accounts thus permits the inclusion of all service transactions -cross-border shipment of separated services and provision of services by temporary movements of persons as service providers or consumers (as in the case, for example, of tourism and health care).
International transactions in services can include both factor and nonfactor services. Factor services (those that cross borders as factors of production) include items such as investment income - defined as returns to tangible and non-tangible (royalties and license fees) assets - and labour income (wages paid to non-resident workers). Examples of non-factor services are: shipment, other transportation, travel, official services and other private services (excluding labour and property income). It is doubtful however whether in the context of trade in services the distinction between factor and non-factor services is a very useful one. In fact, as already noted, in much of the recent literature on trade in services international flows of investment income - which is an important factor income - are not included as services.!
Given the growing importance of services trade in the world economy, the fifth (1993) edition of the IMF's Balance of Payments Manual provides, for the first time, an explicit and expanded list of service transactions as folIows: transportation; travel; communications services; construction services; insurance services; financial services; computer and information services; royalties and license fees; other business services; personal, cultural and recreational services; and government services, (not included elsewhere). Although royalties and Iicense fees are included, neither labour income (compensation of employees) nor investment
Trade in Services and the Global Economy 31
income (other than royalties and license fees) is shown in the list as service items; they are separately identified as components of income ftows under current account.2
In the context of the Uruguay Round negotiations the GA TI evolved a pragmatic listing of commercial services wh ich includes both non-factor services (other than official transactions ) and a subset of factor services (Iabour and property income). The GATT list of 'commercial services' includes shipment, other transportation; travel; and other private goods, services and income.3 1t is important to note that 'other private goods, services and income' include payments for certain goods (subscription to periodicals) and income from non-financial assets such as royalties and license fees and labour compensation. For the sake of consistency, this study, wh ich focuses on the new perspectives opened by the General Agreement on Trade in Services under the Uruguay Round, uses, as al ready mentioned in Chapter 1, the GATT list of commercial services (Appendix 3A), unless specifically indicated otherwise.
2.2 DEVELOPING COUNTRIES IN INTERNATIONAL TRADE IN SERVICES
As al ready noted, despite their growing importance in world trade and economy, developing countries as a group playa relatively minor role in international transactions in services. In 1990 developed countries accounted for 87 per cent of the world export of commercial services, slightly exceeding their relative share in merchandise trade (Table 2.1). And judging by the weight of commercial services in their export trade, which is above the world average, they seem also to be relatively more specialized in exports of services.
The ranking of the 40 leading exporters and importers in world trade in services, as shown, on the basis of the 1990 figures, in Table 2.2, highlights the predominant position of individual developed countries. (For the ranking of countries in 1994 see Appendix 2C.) In 1990 Singapore, Hong Kong, Mexico and the Republic of Korea were the four major exporters of services in the developing regions, but the combined total of their exports accounted for no more than 6 per cent of the world trade in services.
This however does not mean that the developing countries do not have the potential to increase their participation in world trade in services. In fact, during the past two decades (1970-90) the developing countries as a group have seen a faster rate of growth in trade in commercial services than the developed countries (Table 2.1). Their share in the world total
Tab
le 2
.1
Par
tici
pati
on o
f dev
elop
ed a
nd d
evel
opin
g co
untr
ies
in e
xpor
ts o
f mer
chan
dise
and
com
mer
cial
ser
vice
s, 1
970
and
1990
(p
erce
ntag
e)
Mer
chan
dise
C
omm
erci
al
Shi
pmen
t P
asse
nger
and
T
rave
l L
abou
rand
O
ther
ex
port
s se
rvic
es
othe
r tr
ansp
ort
prop
erty
inc
ome
serv
ices
Reg
ionl
coun
try
1970
19
90
1970
19
90
1197
0 19
90
1970
19
90
1970
19
90
1970
19
90
1970
19
90
Dev
elop
ed
89.7
86
.3
90.8
87
.0
95.6
88
.6
90.5
88
.4
84.8
83
.1
95.4
92
.4
92.2
88
.2
regi
onsl
coun
trie
s A
ustr
alia
and
2.
5 1.
8 1.
8 1.
9 1.
2 0.
7 4.
2 3.
4 1.
1 2.
3 0.
6 1.
5 1.
4 1.
2 N
ew Z
eala
nd
Can
ada
7.1
4.9
3.9
2.2
2.2
0.8
1.4
0.3
7.2
3.1
5.3
3.4
Japa
n 8.
0 10
.6
4.4
6.2
7.9
11.7
6.
0 7.
6 1.
4 1.
7 1.
0 6.
0 4.
9 7.
6 E
urop
ean
46.2
47
.6
53.2
49
.6
54.8
49
.4
49.4
46
.8
50.9
45
.9
43.0
48
.6
62.5
54
.8
Com
mun
ity
EF
fA
6.2
6.0
9.1
8.2
119
.6 16
.2
4.6
4.2
8.9
9.3
1.2
2.1
6.3
7.5
Uni
ted
Stat
es
18.0
14
.7
16.5
17
.7
8.8
8.3
22.4
24
.6
14.4
19
.6
45.3
31
.3
9.8
12.8
Othe~
1.7
1.3
1.9
1.2
1.1
1.3
2.6
1.3
1.4
1.2
4.4
2.9
2.0
0.8
t..l
IV
~ S· "" ~
~ 3 C) es- <
;)-
~ - t-- S· ~
Ot)
~
TabL
e 2.
1 C
onti
nued
Mer
chan
dise
C
omm
erci
al
Shi
pmen
t P
asse
nger
and
T
rave
l L
abo
ura
nd
O
ther
ex
port
s se
rvic
es
othe
r tr
ansp
ort
prop
erty
inc
ome
serv
ices
Reg
ionl
coun
try
1970
19
90
1970
19
90
1197
0 19
90
1970
19
90
1970
19
90
1970
19
90
1970
19
90
Dev
elop
ing
10.3
13
.2
9.1
12.9
4.
3 11
.4
9.5
11.6
15
.2
17.0
4.
6 10
.4
7.8
11.9
re
gion
slco
untr
ies
Afr
ica
1.5
1.2
1.2
0.9
0.9
0.8
1.1
1.0
2.0
1.6
0.2
1.1
0.6
Asi
ab
3.7
7.5
2.4
7.1
1.4
7.3
3.9
6.7
2.5
7.9
0.6
6.2
2.4
6.8
Lat
in A
mer
icab
4.
8 4.
0 5.
2 3.
6 1.
9 2.
3 4.
1 3.
5 10
.3
5.3
3.8
1.5
3.8
3.0
Oth
er"
0.3
0.5
0.3
1.3
0.1
1.0
0.4
0.4
0.4
2.2
2.7
0.5
1.5
Tot
ald
100.
0 10
0.0
100.
0 10
0.0
1100
.0
100.
0 10
0.0
100.
0 10
0.0
100.
0 10
0.0
100.
0 10
0.0
100.
0
Sour
ees:
U
NC
TA
DlT
he W
orld
Ban
k, B
ased
on
IMF
and
Wor
ld B
ank
data
base
s.
a Is
rael
and
Sou
th A
fric
a b
In o
rder
to g
ain
bett
er c
over
age,
198
9 va
lues
wer
e us
ed in
stea
d o
f m
issi
ng 1
990
data
for
som
e co
untr
ies.
c
Cyp
rus
and
Tur
key
d In
this
tab
le, t
he 't
otal
' is
the
aggr
egat
e o
f tho
se c
ount
ries
for
whi
ch a
ll r
elev
ant b
alan
ce-o
f-pa
ymen
ts d
ata
have
bee
n re
port
ed to
th
e IM
F, o
r, in
som
e in
stan
ces,
col
lect
ed b
y W
orld
Ban
k st
aff.
Aft
er th
e ad
just
men
ts in
dica
ted
(in
this
not
e a)
thi
s 'to
tal'
cove
rs 5
3 co
untr
ies
repr
esen
ting
bet
wee
n 85
and
99
per
cent
of t
he e
stim
ated
wor
ld to
tals
of t
he tr
ansa
ctio
ns a
ggre
gate
s sh
own.
~
~ f}
S· ~
~ ;::;.
~
tl 5. S- (l
>
C) B- a ~
c ;:
c ~
w
w
\.>l
Tab
le 2
.2
Lea
ding
exp
orte
rs a
nd im
porte
rs in
wor
ld tr
ade
in c
omm
erci
al s
ervi
cesa
197
5, 1
980
and
1990
.;:
.
(Bill
ions
of d
olla
rs a
nd p
erce
ntag
e)
Ran
k 19
90
Ran
k 19
90
1975
19
80
1990
E
xpor
ter
Val
ue
Shar
e 19
75
1980
19
90
Impo
rter
V
alue
Sh
are
1 2
1 U
nite
d St
ates
11
9.1
15.8
1
1 1
Ger
man
yb
90.1
11
.7
C)
tl
2 1
2 Fr
ance
80
.8
10.7
3
3 2
Japa
n 88
.6
11.5
S·
c.
,
4 4
3 G
erm
anyb
57
.7
7.7
2 4
3 U
nite
d St
ates
C
87.6
11
.4 ~
3 3
4 U
nite
d K
ingd
om
54.6
7.
3 4
2 4
Fran
ce
65.5
8.
5 <::
:> ~
7 6
5 Ja
pan
41.6
5.
5 5
5 5
Uni
ted
Kin
gdom
43
.5
5.6
C)
6 5
6 It
aly
40.8
5.
4 6
7 6
Ital
y 38
.0
4.9
(5"
5 7
7 N
ethe
rlan
ds
30.9
4.
1 7
6 7
Net
herl
ands
28
.8
3.7
~
tl
8 8
8 B
elgi
um-
30.1
4.
0 9
9 8
Bel
gium
-- t"-<
Lux
embo
urg
Lux
embo
urg
27.7
3.
6 5·
9
9 9
Spai
n 29
.2
3.9
8 10
9
Can
ada
22.7
2.
9 ~
11
10
10
Aus
tria
22
.9
3.0
10
12
10
Swed
en
17.8
2.
3 O
Q
<1:>
c.,
13
12
11
Switz
erla
nd
17.6
2.
3 14
13
·11
Sw
itzer
land
16
.8
2.2
17
15
12
Sing
apor
e 15
.6
2.1
17
17
12
Spai
n 16
.4
2.1
12
14
13
Can
ada
15.1
2.
0 29
13
Y
ugos
lavi
a 15
.0
1.9
31
21
14
Hon
gKon
g 14
.4d
1.9
29
19
14
Tai
wan
Pro
vinc
e 14
.4
1.9
ofC
hina
14
13
15
Sw
eden
14
.2
1.9
11
14
15
Aus
tral
ia
13.9
1.
8 10
11
16
N
orw
ay
12.4
1.
7 19
16
16
A
ustr
ia
13.4
1.
7 16
17
17
D
enm
ark
12.2
1.
6 21
8
17
Saud
i Ara
bia
12.7
1.
6
Tab
le2.
2 C
ontin
ued
Ran
k 19
90
Ran
k 19
90
1975
19
80
1990
E
xpor
ter
Val
ue
Shar
e 19
75
1980
19
90
Impo
rter
V
alue
Sh
are
;?
s:s 15
18
18
M
exic
o 11
.2
1.5
12
11
18
Nor
way
12
.5
1.6
~
3 20
19
K
orea
, Rep
ublic
of
10.9
1.
4 36
25
19
K
orea
, Rep
ublic
of
11.1
1.
4 S·
18
23
20
A
ustr
alia
10
.2
1.4
22
21
20
Den
mar
k 10
.2
1.3
~
26
30
21
Tai
wan
Pro
vinc
e 7.
3 1.
0 18
15
21
M
exic
o 10
.1
1.3
~ of
Chi
na
~.
43
33
22
Tha
iland
7.
3 1.
0 31
22
H
ongK
ong
9.4d
1.
2 \::I
::s 36
57
23
T
urke
y 7.
0 0.
9 31
32
23
Si
ngap
ore
9.2
1.2
l:I..
20
22
24
Gre
ece
6.6
0.9
26
35
24
Finl
and
7.8
1.0
So
19
25
Yug
osla
via
6.4
0.9
41
41
25
Tha
iland
6.
4 0.
8 n:.
C
) 28
26
C
hina
5.
7 0.
8 35
28
26
M
alay
sia
5.9
0.8
es-27
31
27
Po
rtug
al
5.2
0.7
27
30
27
Indi
a 5.
8C
0.8
~.
\::I
32
29
28
Egy
pt
5.1
0.7
24
27
28
Indo
nesi
a 5.
8 0.
8 - ~
24
27
29
Finl
and
4.9
0.7
25
36
29
Isra
el
5.6
0.7
g 22
25
30
Is
rael
4.
7 0.
6 16
22
30
B
razi
l 5.
1c
0.7
c 47
41
31
M
alay
sia
4.1
0.6
15
20
31
S
outh
Afr
ica
5.0
0.6
~
28
26
32
Indi
a 4.
1c
0.5
40
32
C
hina
4.
1 0.
5 33
35
33
Ph
ilipp
ines
4.
1 0.
5 47
33
Po
rtug
al
3.7
0.5
19
24
34
Sout
h A
fric
a 3.
5 0.
5 4
0
33
34
Kuw
ait
3.6c
0.
5 32
35
Po
land
3.
2 0.
4 32
44
35
N
ewZ
eala
nd
3.6
0.5
25
34
36
Bra
zil
3.1c
0.
4 46
42
36
Ir
elan
d 3.
5 0.
4 34
39
37
Ir
elan
d 3.
0 0.
4 33
37
37
E
gypt
3.
4 0.
4 I.
»
Ul
Tabl
e 2.
2
Ran
k 19
90
1975
19
80
1990
E
xpor
ter
Val
ue
Sha
re
21
16
38
Sau
di A
rabi
a 2.
9 0.
4 37
39
C
zech
oslo
vaki
a 2.
6 0.
3 29
50
40
N
ew Z
eala
nd
2.4
0.3
Tot
al
734.
7 97
.8
Wor
ldf
751.
6 10
0.0
Con
tinu
ed
Ran
k
1975
19
80
1990
Im
port
er
39
46
38
Gre
ece
37
26
39
A
rgen
tina
38
40
P
olan
d
Tot
al
Wor
ldf
Val
ue
2.9
2.9
2.8
752.
8
771.
2
1990
Sha
re
0.4
0.4
0.4
97.6
100.
0
W
0\ ~
S· "" ':;>
I::) =
Q
C- I:!- ::=.
t"-
o So
uree
s:
UN
CT
AD
fThe
WO
rld B
ank.
Bas
ed o
n IM
F a
nd W
orld
Ban
k da
taba
ses.
~
a L
iste
d ac
cord
ing
to 1
990
rank
ing.
For
199
4 ra
nkin
g se
e A
ppen
dix
2C.
~
b In
clud
es tr
ansa
ctio
ns o
f the
for
mer
Fed
eral
Rep
ubli
c o
f Ger
man
y an
d th
ose
of t
he f
orm
er G
erm
an D
emoc
rati
c R
epub
lic
mad
e af
ter
~
1 Ju
ly 1
990.
c
Maj
or c
hang
es in
the
rec
ordi
ng o
f Uni
ted
Sta
tes
serv
ices
dat
a in
198
1, 1
984
and
1986
-88
had
the
effe
ct o
f in
crea
sing
the
repo
rted
im
port
figu
res.
d
GA
TI
esti
mat
es.
e 19
89 f
igur
e us
ed.
f 'W
orld
' is
defi
ned
as a
ll c
ount
ries
for
whi
ch d
ata
on 1
990
trad
e in
com
mer
cial
ser
vice
s ex
ist i
n th
e IM
F a
nd W
orld
Ban
k da
taba
ses.
For
the
purp
ose
of g
aini
ng b
ette
r cov
erag
e, h
owev
er,
1989
val
ues
wer
e us
ed i
n li
eu o
f mis
sing
199
0 va
lues
for
som
e co
untr
ies.
Aft
er th
is a
djus
tmen
t, d
ata
on
alt
oget
her
144
coun
trie
s w
ere
incl
uded
in th
e w
orld
tota
l fo
r co
mm
erci
al s
ervi
ces.
Trade in Services and the Global Economy 37
has increased from 9.1 per cent in 1970 to 12.9 per cent in 1990 - an increase of 3.8 per cent, compared to an increase of 2.9 per cent in merchandise exports. During the same period the share of the developed countries in exports of commercial services fell by more than 3 per cent - from 90.8 per cent in 1970 to 87 per cent in 1990.
But these aggregate figures do not reveal the whole story. As with merchandise exports, much of the increase in the service exports of developing countries in recent years has been concentrated in a few dynamic Asian economies. During the past 20 years the shares of both Africa and Latin America have gone down: in 1990 Africa's share, for example, was an insignificant 0.9 per cent, down from 1.2 per cent in 1970.
An equally important consideration is the composition of the trade in commercial services. 'Other goods and services' (other services, for short) - which include trade in financial services, communications, nonmerchandise insurance merchanting, processing and repair, cultural services (films and videos), leasing, construction, and engineering, consulting, advertising and other professional services - are among the fastest growing components in commercial services just as they are a most dynamic part of the world economy. For the developed countries, other services and income were the most important component of their exports of commercial services, and in 1990 they represented 88.2 per cent of the world export of that category of services (Table 2.1).
The developing countries as a group have considerably improved their position in the export of these services in recent years. And, at least for some of the upper middle income countries, these services were the most important item in their export of commercial services. Nevertheless, in 1990 the share of all developing countries in the world export of this category of services was only 11.9 per cent, less than their percentage share in total world export of commercial services. For the developing countries as a whole travel or tourism is the most important services export item, with several developing countries deriving more than half of their services export earnings from this source.
The absence of more detailed information on the composition of exports of commercial services (Appendix 2A) and statistical deficiencies concerning country comparability preclude clear judgments on the performance of developing countries regarding specific components of their services exports. But, not surprisingly, they seem to have concentrated, by and large, in labour-intensive items (including tourism which is also helped by climatic and other natural factors). While in the last few years some of the more dynamic developing countries have made important strides in higher-value added, skill-intensive items, unskilled labour
38 Gains from Global Linkages
services continue to be a most important export item for many low-income countries - for example, those in sub-Saharan Africa.
2.3 MOVEMENT OF PERSONS AS SERVICE PROVIDERS
Movement of persons should occupY an important place in the discussion on liberalization of trade in services. This is because, as al ready noted, in most cases international transactions in services cannot be separated from the movement of service providers or of the consumer across countries. Thus in all such situations any restrictions on movement of persons as a mode or sub-mode of delivery also constitute an impediment to trade in services. The issues connected with the movement of consumers are taken up in Chapter 3 (section 3.5); the present sec ti on deals with movements of persons as service providers or, in other words, with trade-related labour mobility.
International transactions involving movements of labour (including service providers) are captured in the balance of payments statistics under three different categories: labour income, workers' remittances and migrants' transfers. Labour income includes wages, salaries and other compensation received by individuals working abroad for less than one year. The categorization assurnes that these workers would retain their residence in their horne country. Workers' remittances are defined as transfers by workers staying abroad for one year or more and are treated as a sub-item of 'private unrequited' transfers. The assumption in this case is that a change of residence has occurred and that the workers are therefore non-residents in their horne country. Migrants' transfers, another component of unrequited transfers, records the f10ws of goods and financial assets linked to international migration. In the fifth (1993) edition of the IMF's Balance of Payments Manual, workers' remittances are shown under current transfers and migrants' transfer under capital and financial account, while, as mentioned earlier, compensation to employees (labour income) is listed as current income.
Taken together, the credits relating to these cross-border movements of persons represent at the global level a significant amount of money, averaging more than $60 billion a year. As shown in Table 2.3, in 1990, the developing countries, had a total labour-related credit f10w of about USo $46 billion; the net f10w (adjusted against debits) amounted to nearly $37 billion. This compares with a net disbursement of $54 billion as official development assistance by OECD countries in the same year. For so me developing countries, labour-related remittances constitute
Tab
le 2
.3
Dir
ectio
n of
labo
ur re
rnitt
ance
fio
ws,
198
0-90
(Mill
ions
of d
olla
rs)
Reg
ion
1980
19
81
1982
19
83
1984
19
85
1986
19
87
1988
19
89
1990
Net
wor
kers
' ~
rern
ittan
ces
t:i
Dev
elop
ing
2011
0 19
325
1923
9 19
444
2046
1 19
387
2165
0 24
195
2425
1 27
958
3373
7 f}
econ
omie
s s-
Cre
dit
2533
6 24
698
2468
2 24
787
2488
2 23
444
2542
0 27
898
2799
0 31
884
3859
9 V
:l ~
Deb
it 52
25
53
74
54
43
5343
4
42
2
40
57
37
71
3703
3
74
0
3926
4
86
2
~ <=i- ~
Dev
elop
ed
(10
607)
(1
1 05
7)
(110
26)
(106
31)
(103
66)
(10
107)
10
840
(11
955)
(1
3682
) (1
4 90
0)
(18
230)
I:l
econ
omie
s ;:s
~
Cre
dit
37
60
32
10
3140
29
23
2846
29
41
3455
38
77
42
74
4
62
6
5213
So
D
ebit
1436
7 14
268
1416
6 13
554
13
211
13
047
1429
5 15
832
1795
6 19
526
2344
2 ~
C') C'
Net
mig
rant
s'
[ tr
ansf
ers
~
Dev
elop
ing
(147
) (1
76)
(189
) (1
97)
(145
) (9
4)
(46)
38
20
8 13
0 43
Cl
ec
onom
ies
;:s
Cl
Cre
dit
230
247
182
151
155
131
205
254
437
346
212
~
Deb
it 37
7 42
4 37
1 34
8 30
0 22
5 25
1 21
6 22
8 21
6 16
8
Dev
elop
ed
1092
13
85
1 19
5 1
156
936
804
1264
17
79
2507
3
40
0
33
26
ec
onom
ies"
C
redi
t 19
46
2281
20
98
1957
19
08
1807
23
23
3261
4
08
8
5197
52
25
Deb
it 85
4 89
7 90
3 80
0 97
2 10
03
1059
-14
82
1581
17
97
1899
w
\Q
~
Tabl
e 2.
3 C
ontin
ued
0
Reg
ion
1980
19
81
1982
19
83
1984
19
85
1986
19
87
1988
19
89
1990
Net
labo
ur
inco
me
Dev
elop
ing
1 16
1 16
93
20
16
2
36
0
21
30
17
56
2001
22
22
25
02
2
91
0
2923
ec
onom
ies
~ C
redi
t 37
13
40
19
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Trade in Services and the Global Economy 41
significant proportions of GDP, exports and imports, and provide an important source of foreign exchange earnings. To iIlustrate, in 1993 labour-related net ftows surpassed the value of Egypt's total merchandise exports; for Jordan they were two-thirds as important as merchandise exports and for Morocco more than half as important (Table 2.4). It is also widely recognized that labour-related remittances (wh ich must not be
Table 2.4 Labour services net earnings and merchandise exports for selected developing countries, 1993
COUNTRY Labour-Income Merchandise Labour Income (LI) Exports (ME) (LI)
value in value in as %ofME millions of $, millions of $
1993 1993 LATIN AMERICA Argentina 17 13 117 0.12 Bolivia 4 608.4 0.65 Brazil 72 38783 0.18 Chile 1 9202 0.01 Colombia 646 7263 8.89 EI Salvador 795 731.7 108.65 Mexico 3026 30033 1O.ü7 AFRICA Algeria (1991) 269 12330 2.18 Egypt 5682 3243 175.20 Morocco 1959 3682 53.20 Tunisia 598 3804 15.72 Benin 101 332.7 30.25 Ghana (1992) 15 986.4 1.52 Mali 134 343.6 38.99 Senegal 96 722.6 13.28 ASIA Bangladesh 1004 2277.9 44.07 China 948 75659 1.25 India (1990) 2384 18286 13.03 Philippines 2588 11375 22.75 Sri Lanka 632 2785.7 22.68 WEST ASIA Jordan 1040 1246.3 63.44
Source: UNCT AD: Handbook of International Trade and Development Statistics United Nations, New York and Geneva. 1995 Note: Labour services income (LI) includes labour income, migrants' transfer and workers' remittances
42 Gains from Global Linkages
equated or confused with capital ftows that are meant to be used exclusively for investment purposes) can make a contribution to the economic development of labour-surplus countries, although the nature and extent of such a contribution continues to be a subject of debate.4
For a fuller understanding of the significance of labour-related remittance ftows, some additional points need to be noted. First, as is weil known, official estimates of remittances suffer from serious inadequacies. An important reason for this is that in many developing countries a high proportion of the funds is transferred through non-official channels and is not reftected in official statistics. In some Asian countries such as Pakistan, the Philippines, India, Indonesia and Sri Lanka perhaps as much as 30 per cent of remittances do not get recorded in official accounts. An extreme case is that of the Sudan where, according to one estimate, only 11 per cent of remittances ftowed into the country through official channels.
Second, data are not reported for all countries and the reporting requirements and procedures vary widely between countries, making international comparisons difficult and in some cases even misleading. Third, these financial ftows which represent payments made by nationals working in a foreign country (whether as a resident or as a non-resident) are not an adequate measure of the full significance of movements of labour. This is because many services provided by persons on a temporary basis in a foreign country are compensated in the form of payments to that person's firm when this is present in the market (importing) country. In many other cases, the movement of persons is only a component of the total or final service package, and is not separately recorded or included in the labourrelated remittance ftows. This leads to an issue wh ich is of primary importance to the present study. Can all types of cross-border movements of labour (and related remittance ftows) be treated as part of trade in services?
2.4 MIGRATION VIs-A-VIS TRADE-RELATED LABOUR MOBILITY
In the discussion above the three types of financial ftows Iinked to crossborder movements of labour - labour income, workers' remittances and migrants' transfers - have been treated together. However, the distinction between labour income and the other major labour-related item so far included in balance of payments under the current account - namely, workers' remittances - is not always very c1ear. In many cases neither the host government nor even the migrant may know in advance the duration of the actual stay. Short-term movements may lead to longer-term or permanent
Trade in Services and the Global Economy 43
migration. Recently the IMF, for example, recIassified as workers' remittances an amount of $5 billion that had originally been reported as labour income by member countries.5 Conversely, temporary movements linked to the delivery of specific projects of a Iimited duration (for example, South Korean companies moving workers for temporary assignments in the Gulf states to fulfil a well-defined service contract) are sometimes lumped together with longer-term international migration. Given these difficulties some analysts have even suggested that all the three categories of transactions involving movements of labour should be added in estimating the value of international transactions in labour services. It is tempting to follow such an aggregative approach - not just because it is convenient to do so but also because it highlights the economic importance of movements of labour for developing economies and, more importantly, of the potential they hold for enhancing their foreign exchange earnings. Arecent UNDP report, for example, underscores the point that in the absence of immigration restrictions in industrial countries the movement of 2 per cent of the developing country labour force each year could yield a total earning of at least $220 billion a year, of wh ich between $40 and $50 billion would be sent horne a year. Over a 5-year period it could imply a total flow of between $200 billion and $250 billion to labour-sending countries (supplementing the remittances from the existing stock of migrants). This incremental income, with its multiplier effect, could significantly boost their economies, even when account is taken of the opportunity cost implicit in such movements, especially in the form of loss of skilIed workers in the sending country.6
In the context of trade in services, however, a distinction needs to be made between permanent or longer-term migration for employment and temporary movements of labour as a mode of, or directly related to, deli very of services. It is not just the temporariness of the movement but also the nature of the task to be performed - provision or supply of a specijic service across borders - that is at issue. The distinction between the generalized nature of a regular employment abroad and the discreteness of a trans action or the specificity of a service to be delivered across borders assurnes importance in this context. The notion of a specijic employment for a defined period of time, as used in the UN Convention on Protection of All Migrant Workers and Members of their Families, adopted in 1990, (see Box 2.1) is useful, although the Convention does not seek to define trade-related labour mobility as such.
Viewed from the above perspective, permanent or employment seeking migration, however important on other grounds, falls outside the scope of any discussion on trade in services. By contrast, all types of temporary labour movements - short-term entry and temporary residence - need to
44 Gains from Global Linkages
Box 2.1
Trade-related labour mobility and migration ror employment
Few will question that temporary movements of service providing persons - or trade-related labour mobility - are central to liberalization of trade in services, but many find it difficult to define such temporary movements. Three elements would seem to be important in cJarifying the concept: limited duration of the stay. discreteness of the trans action and specificity of the purpose. Aside from the difficulty in determining the time span as 'temporary'. the problem lies in identifying the nature of specific assignment related to service transaction, as distinct from migration for employment.
Although it does not seek to define trade-related labour mobility or temporary movements of persons as service providers, the UN Convention on Protection of All Migrant Workers and Members of their Families helps in cJarifying the notion of the discreteness and temporary nature of the types of employment that are of relevance to trade in services. The Convention, adopted in 1990, defines a worker on a temporary and specified employment as someone:
• Who has been sent by his or her employer for a restricted and defined period of time to aState of employment to undertake a specific assignment or duty; or
• Who engages for a restricted and defined period of time in work that requires professional, commercial, technical or other highly specialized skills; or
• Who. upon the request of his or her employer in the State of employment, engages for a restricted and defined period of time in work whose nature is transitory or brief (ArticJe 2g).
In addition. the UN Convention provides a general definition of a temporary project-tied migrant worker as:
• Amigrant worker admitted to aState of employment for adefinite period to work solelyon a specific project being carried out in the State by his or her employer.
It is worth noting that while project-tied work as defined in the Convention is normally incJuded under trade-related labour mobility, the latter is wider in the sense that the movements need not necessarily be tied to a specific physical project such as the construction of a road or the building of an airport, but that they must relate to a service - nursing, legal advice or any other service activity - which is discrete. specifically identifiable and temporary in nature. At least part of the contract workers engaged in labour importing countries under temporary or short-term arrangements to carry out pre-determined, specific jobs should come under this category, but not those whose movements are of an indeterminate duration and are associated with transactions that are neither discrete in nature nor sufficiently specific in purpose.
Trade in Services and the Global Economy 45
be inc1uded provided that they are linked to trade, whether as a mode of cross-border delivery of services or as a component of the services to be delivered or as an essential ancillary to it. This should embrace skilled as weil as non-skilled workers, intra-farm transferees and self-employed service providers, as further explained below.
The present study follows this approach. As indicated in Chapter 4, the framework agreement on trade in services under the Uruguay Round is, broadly speaking, based on a similar approach. Clearly, however, the importance of such trade-related movements, relative to other types of migration, depends largely on the actual commitments made (and those to be made in future) by the main trading nations and on how effectively they are applied (further discussed in Chapter 4).
2.5 IMPORTANCE OF LABOUR MOBILITY IN SERVICES TRANSACTIONS
For labour-surplus countries, cross-border movement of personnel constitutes a particularly important means of increasing their participation in the services trade, even if, as discussed above, employment linked to longerterm migration is exc1uded from trade in services. Taking advantage of their low-cost labour (including certain types of skill) and making a dynamic use of them, these countries can promote organized export of labour services at competitive prices.
A distinction may be made between two categories of exports of labour services. The first category concerns the tradition al labour exports, in which workers reside, work and are paid abroad, being engaged on assignments which are both specific and time-bound. At least some of the contract workers engaged in labour-importing countries under short-term or fixed-term arrangements to carry out pre-determined, specific jobs should come under this category.
There is a second category of labour- and skill-related services exports. Under these arrangements exporting firms normally combine management, know-how or technology and personnel and provide their service as a package to the importing country. Personnel assigned to the project remain on the payroll of the exporting firm and their stay in the importing country is linked to the duration of the service contract; they could be recruited from the exporting country or from a third country, and in some cases from the importing country itself.
Such organized export of labour services is not new; ship-owners, for example, have long rented the services of their vessels, together with
46 Gains from Global Linkages
crews, to foreign firms. But the globalization of the market, outsourcing of services and progress in transport and communication have now considerably widened the possibilities for such export flows. Construction has been an important sec tor in which firms in several developing countries including China, Egypt, the Republic of Korea, Morocco and India have penetrated external markets. Korean firms, for example, made an impressive perfonnance in exporting to the Gulf states construction services, combining in a single package project management, engineering expertise and less skiIIed construction workers, many of whom were recruited from other Asian countries with lower labour cost. Despite its more recent entry in the labour service market, China has expanded its construction and labour service exports to a number of countries in different regions, notably in Asia and Africa. By the end of 1991, it had signed contracts with 157 countries, with a total value of $19 billion, of which $12 billion worth of projects had been completed.7
In Latin America, Mexican firms have been successfully exporting construction and related management services, including subway systems; now even to some areas of the United States such as Florida. There is a wide range of labour- and skill-intensive services - from cIeaning and security to health and computer-related services - in which developing countries can make better use of their comparative advantage by using a similar strategy of organized export. For example, since the 1980s a number of labour-surplus countries, such as India, the Republic of Korea and the Philippines, have made significant progress in exporting computer software and data processing services in the United States and Japan. The delivery of such services involves temporary movements of personnel at different levels of skill within the framework of specific contracts.8
There are also situations where, unlike the cases cited above, temporary movements of persons may not be the main mode of delivery of services, but have nonetheless an important, 01' even essential, function as a submode. This relatively new development is largely the result of technological progress in telecommunications and computer systems. The latter makes it possible for countries with low labour cost to export at competitive prices different types of services, while reducing the need for movement of persons across borders as service providers. Data processing and software services are typical examples of such services. Experience over the past few years has shown that these services can be performed in many labour-surplus countries and the output electronically transmitted on a cost-effective basis to finns in industrial countries. Credit card vouchers 01'
air line ticket coupons are being increasingly processed in low labour-cost
Trade in Services and the Global Economy 47
countries and the resulting tabulations returned to the clients in this fashion.
Although more recent technological developments such as optical scanning techniques have tended to make some of the data processing services obsolete or less cost-effective, developing countries can still have a market niche for data processing activities that involve higher levels of skills. This is reflected, for example, in arecent decision of Swissair to relocate its accounting operation to Bombay. However, the upgrading of data processing services would also normally imply an increased need for occasional direct interaction between foreign clients and service providing (or producing) persons. In other words, although technology may reduce the need for relocation of persons providing services, some shoTt visits by them, for purposes of contract negotiation or technical consultation, may be indispensable to complement the cross-border delivery of the processed data.
In the case of software technologies, apart of the production process often remains embedded in the direct relationship between clients and producers. In customized software and turnkey projects, system analysts and programming managers must spend at least a minimum amount of time with foreign clients, on their premises, to identify and design the system that they demand; and in the case of customized software, programmers must work directly on the equipment of the client. The same holds for systems integration providing customized configuration of hardware and software to meet the specific needs of end users and for professional services such as software development.9 Clearly, in all such cases direct interaction with the clients through temporary visits of the professional staff of the exporting firm should be regarded as part of the mode of delivery. If such movements are restricted or prohibited, labour-surplus countries, irrespective of their technical and export capability, would be unable to take full advantage of the possibilities in the export market.
Many other business and professional services in which labour-surplus countries may have an actual or potential comparative advantage are in the same situation. The scope for pure cross-border trade in such services has no doubt been considerably widened by modern telecommunication and computer systems. A service in this category can in principle be provided abroad via electronic mait, software diskette, video cassette records or a similar means. In practice, however, there are limits to which transactions across countries can take place in this fashion. When they do, it is often in conjunction with other modes of delivery - such as the crossborder movement of consumers or of service providers. And since for a number of business and professional services the movement of consumers
48 Gains trom Global Linkages
is not an option, the possibilities are narrowed to the movement of service providers (in the form of labour and/or capital). Further, the fact that most of these services are skill-intensive, rather than capital-intensive, gives a differential edge to the movement of skilled personnel as a complementary mode of deli very .10
For business and professional services, the relative importance of such temporary movements of persons and their duration are largely influenced by the exact type of the service activity. For example, a good part of the work involved in several types of architectural and engineering services may be performed in the exporting country, and electronically transmitted abroad; but even in these cases on-site visits to have a first-hand knowledge of the physical layout and other conditions are often indispensable. For a second group of business services such as auditing, legal services, tax expertise and real estate brokerage, visits of a longer duration or temporary residence may be necessary. This is because in these cases professionals must acquire a certain amount of essential country-specific knowledge before they can provide their services effectively and in conformity with the regulatory requirements ofthe country.
FinaJly, for certain service activities such as advertising, the importance of adapting the service product to local markets may make it essential for the exporting firm to have local links or a local presence in the importing country. When trade in services requires a longer-term customer-provider relationship, the service-providing firm may find it difficult to have full access to, and compete in, the market of the importing country unless it is allowed to have a commercial presence in that country. Additionally, for services such as legal, tax and auditing, which can be provided only under license, the question of Iicensing requirements assumes special importance for service providers (discussed in Chapter 3, section 3.2).
There is a third set of circumstances where movements of labour, though not the principal mode or an important sub-mode of delivery of a particular service or a service package, serve as an essential ancillary to the transaction. For example, a service provider in the exporting country may need to assess the market possibilities abroad and to negotiate with foreign clients and secure contracts prior to the delivery of aservice. This is particularly important for the service suppliers in developing countries since they are relative newcomers in the world service markets. In order to meet this pre-requisite some temporary movements of market specialists and sales representatives could be essential. Temporary movements of persons mayaiso be extremely important as a follow-up to the sale of a service - maintenance and training specialists moving abroad following the sale, for example, of computer software. The availability of such
Trade in Services and the Global Economy 49
services may even be a precondition of the original service contract. Restriction on such temporary movements will obviously circumscribe the service provider' s access to the export market.
2.6 TYPES OF TRADE-RELA TED LABOUR MOBILITY
As can be surmised from the above discussion, temporary movements of natural persons as service providers can take various forms and be of varying duration. These are regulated in the importing country through its laws and regulations concerning visas, and work and residence permits. Although the practice differs widely between countries, a distinction is generally made between two broad categories: short-term visitors and temporary working residents.
Short-term or business visitors
This category concerns persons seeking authorization to enter a country for a short duration, typically covering a few days or several weeks, but sometimes a few months, while retaining residence in the country of origin. They are normally non-gainfully employed in the host country. In the context of trade-related labour mobility this would imply that such visitors should continue to be paid in the country of residence. Restrictions applied to short-term business visitors are usually based on two criteria: (i) that they are prevented from accepting any salaries or incomes from a source in the importing country; and (ii) that they can be engaged only in certain specific types of activity such as participation in a business meeting, negotiation of a contract and attending a trade fair.
Temporary working residents
This category concerns persons who seek authorization to enter and reside in a country for several months or years (normallyon the basis of periodic renewals) with the purpose of having againful activity in the country: in other words, they can have their salaries or earnings from a source in the importing country. For trade in services that require Ion ger-term customerproducer relationship this type of movement is particularly important. The groups typically covered in this category include the following: company transferees, corporate trainees, individual service contractors, service seilers and specialists on specific assignments. Visas or residency permits for this broad group of service providers is usually Iinked to the granting
50 Gains from Global Linkages
of work permits. The main characteristics of the different sub-groups covered under this category of service providers are indicated below. 11
Intra-company transferees
These movements serve two main purposes. An exporting service firm may need to have a commercial presence in the importing country to conduct its business. The authorization to have a commercial presence should entitIe the firm to transfer its employees from one of its offices to that located in the importing country to ensure its effective commercial representation. Second, inter-company transfers may incIude employees who work for the local representatives of such a company. In both cases, the transferees establish temporary residence - for periods ranging from several months to several years - in the importing country and are paid there.
Most industrial countries allow relatively liberal access for persons holding managerial or executive positions and personnel with special knowledge or expertise. Such personnei, often known as essential or independent workers, are typically allowed to stay for up to several years. But the access for non-essential or dependent personnel is often severely restricted, based on the labour market tests (or labour certification) to prevent competition from foreign workers; the type of occupation; and sometimes on the country of origin.
Corporate trainees
The training of employees of a company in one of its facilities in a country with export possibilities is often of relevance to trade in services. In many skill-and labour-intensive services, the development of skiIIs and knowledge of the staff is a key to building the export capacity of the firm. Exposure to the technical and business environment in more than one country contributes to the enrichment of knowledge and experience of company personnel. This is particularly important for service activities in areas such as legal affairs, taxation and accountancy where a direct knowledge of the law and practice in the importing country is essential in providing service effectively to the cIient abroad. Corporate trainees normally have littIe difficulty in obtaining entry and residence permits in most industrial countries. Some have made specific provision in their immigration legislation for this type of movement
Service seilers or treaty sales people
These are representatives of one or several service providers who need entry and temporary residence permits in a potential importing country for
Trade in Services and the Global Economy 51
the purpose of soliciting contracts. As sales representatives of service providers they are normally not allowed to supply services themselves or to sell services directly to the public.
Individual service providers and specialists on specijic assignments
Self-employed service providers - such as architects. artists. engineers. lawyers. sportspeople. and news correspondents - who are based in the exporting country or in a third country and enter into a contractual relationship with an exporting firm to carry out a specific assignment in the importing country. need visas and res iden ce permits in the importing country. A similar. but not identical. case is that of specialists who may be contracted by a firm in an importing country to be responsible for, or be concerned with, a particular aspect of its operations.
Market access restrictions for service-providing individual persons are generally more stringent than for intra-company transferees. The main exceptions are high-level professionals, artists, actors, musicians and other entertainment personnel and sportspeople. For specialists hired by an employer (and compensated for) in the importing country, the procedure, which generally inc\udes labour market tests or equivalent measures, is often quite rigorous and employer sanction for infringement of the legal provisions is not uncommon.
2.7 POLICY ISSUES CONCERNING TEMPORARY MOVEMENTS OFLABOUR
As previous discussion has revealed, the importance of temporary movements of persons in services trade sterns from several factors. First, for pure labour services the movement is not just the essential mode of delivery but is in a sense inseparable from the content of the service itself; the same largely applies to labour services inc\uded as a component in the organized export of a package of labour-and skillintensive services. Additionally, movement of labour is often used in conjunction with, or as an ancillary to, other mo des of delivery - for example. movements of software consuItants complementing crossborder delivery of computer software and short visits of high-level professionals or technicians to complement delivery through local subsidiaries of transitional corporations. In general, the greater the labour intensity of the service to be traded, the more it is likely to be affected by restrictions to market access through visas and work and residence permits.
52 Gains jrom Global Linkages
Liberalization of movements of labour in services trade (or 'traderelated labour mobility') has certain c\ear advantages. For the industrial countries, facing shortages of skill, such mobility enables them to have access to skills and soft technologies embodied in trained foreign personnel at lower cost. In situations where skilled domestic labour seeks to extract a rent above its normal market price, taking advantage of skill shortages, inward mobility of foreign labour increases competition from which both employers and consumers could gain. As already discussed, many developing countries and countries in Central and Eastern Europe have a comparative advantage in labour services and in a number of labour and skill-intensive services. To the extent that temporary movement of labour enhances the use of such comparative advantage, it contributes to improved efficiency of the world economy and enhances the welfare of both exporting and importing countries.
Temporary inward movements of labour may not however be without some negative consequences for the importing country. Sudden liberalization of such movements could lead to labour market disruptions, depress local wages and cause unemployment, increasing the strain on the social welfare budget: a consideration that weighs heavily in industrial countries at a time when most of them are facing high or even record levels of unemployment. However, as long as the process of liberalization is weil modulated and is backed by adequate anticipatory adjustment, inc\uding retraining programmes linked to economic restructuring, the transitional problems should be manageable. What is more, this should in fact help in placing the economy on an upward swing, with higher productivity and an increased capacity to take advantage of new export opportunities in developing and transition economies. The industrial economies cannot avoid accepting the need for such upward restructuring - or they can do so only at their own peril. As one economic journal put it in a slightly different context: if citizens in Munich and Chicago really want to hold on to jobs that can be done in Monterey and Shanghai, then they should be happy on Mexican or Chinese wages. 12 Over time the structural shift in industrial economies will imply a relative decline of demand for imports of raw materials and other inputs for manufacturing from developing countries and a rising demand for imports of services or service inputs from these countries.
As for the labour-surplus countries, the benefits of increased market access through trade-related labour mobility are obvious. For these countries an expansion of trade in services, running parallel to a rising share of services in the aggregate demand in industrial countries, has several positive effects: greater foreign exchange earnings and increased capacity to
Trade in Services and the Global Economy 53
import essential equipment and production inputs; creation of additional and better jobs; and higher economic efficiency through wider use of the comparative advantage of its low-cost labour and economies of scale. These beneficial effects will not be confined to the services sector but should spill over the entire domestic economy. The reasons, already discussed at length in Chapter I, can be briefly recapitulated as folIows:
(i) Many of the producer and business services are vital for the development and increased efficiency of the manufacturing and primary goods producing sectors.
(ii) As the service sector develops they create new demands for manufactures and machinery, often of higher value added type.
(iii) The externalities associated with the expansion of certaill service activities such as research and training often stimulates innovativeness and a new dynamism benefiting the whole economy over time.
A special set of beneficial effects of trade-related labour mobility, which are of interest to both sending and receiving countries, concerns the trade-off between permanent or long-term migration and import of labour services. By importing labour services industrial countries can tide over short-term f1uctuations in labour demand, or redress longer-term shortage of skills and press ure for wage inflation in specific sectors and occupations. In either situation the countries avoid large inflows of immigrants and the social and economic cost they normally entail (along with benefits). At the same time, to the extent that the organized export of labour and skill-intensive services from developing countries may lead to economic restructuring and upgrading in industrial countries, the demand for cheap and irregular migrant labour from less competitive industries may be expected to fall, discouraging illegal immigration.
As labour-surplus countries gain more opportunities for exporting labour and skill-intensive services, the pressure for migration, whether driven by unemployment and poverty or by opportunity-seeking, tends to decline. 13 A trade-off is thus created between trade-related labour mobility and longer-term migration for employment. Although many of the traded services will be skill and knowledge-intensive, the exporting countries will face little or limited risk of permanent loss of skills and knowledge as implied in 'brain drain', given that the movements are temporary and directly related to time-bound, specific transactions. In other words, for the sending countries the skills remain 'restorable' .14
In fact, in such a scenario an additional gain for the developing countries sterns from the opportunities that would be opened up for their professional and skilled personnel to widen their knowledge and enrich their experience through temporary assignments abroad. In short, instead of
54 Gains trom Global Linkages
causing a depletion of human capital through 'brain drain', the external exposure implicit in temporary labour mobility could contribute to human capital development of the labour-surplus countries. Improved opportun iti es and earnings for skilled and professional workers should make them less inclined to migrate, although a few might still do so. Liberalization of temporary movements of persons as service providers may thus serve as a partial substitute for permanent or long-term migration, whether driven by unemployment or opportunity-seeking.
A practical problem that arises in connection with temporary movements of labour is that they te nd to open the door for permanent immigration, regular and irregular. The experience of Western Europe's guest workers' programme is often cited in this connection. That the problem exists cannot be denied but it should not be exaggerated. In placing the problem in proper perspective several important points need to be noted.
First, the regulatory framework is not the only, or even the major factor that determines the level or nature of inter-country migration. It is doubtful that the regime for trade-related labour mobility, even if restrictive, can significantly change the overall picture of contemporary migration dominated by high emigration pressure; nor does it remove the economic and social constraints in sending countries that now discourage return migration. To achieve this, the root causes or the underlying press ures for longer-term migration from labour-surplus countries need to be addressed through a coherent set of powerful measures. Second, the analogy to Western Europe' s guest workers programme may be misleading in this connection. True, West Europe's guest workers were supposed to be temporary immigrants, but it was a programme which was more in the nature of migration for employment. Neither the regulatory nor the conceptual framework was sufficiendy clear or concise to make it a weIl defined regime for trade-related labour mobility as discussed in this study. To be effective such a regime must also have a monitoring mechanism to ensure its effective implementation.
Third, as already noted, to the extent that liberalization of trade in labour-intensive services (and goods) will lead to replacing or upgrading of less competitive industrial and service activities in developed countries, there will be less inducement for the employers to recruit low-cost, and often irregular, workers from migrant-sending countries, and less scope for temporary service-providing workers to become long-term or permanent immigrants in the developed countries. Finally, by creating new employment opportunities and promoting job upgrading, liberalization of trade in services (and goods) can contribute to a more positive perception of the future performance of the economy of migrant-sending countries. Not only should the temporary migrants as service providers be under less
Trade in Services and the Global Economy 55
economic pressure to become permanent migrants, many of them mayaiso be less inclined to do so.
Notwithstanding the above, the possibility of a metamorphosis of some temporary movements into permanent migration cannot be totally excluded. To avoid or reduce this possibility effective monitoring devices should be incorporated into the national immigration system, and implemented in cooperation with the sending country, as necessary. One possible way of dealing with the problem is to ensure that the temporary workers leave the importing country for a minimum period of time (for example, three or six months) before being allowed to work on a new assignment. When exports of labour services are organized through specialized labour export firms or other corporate structures as discussed below, the exporting firm or unit can be expected to help in ensuring the enforcement of the temporary nature of the movement, given that the absence of such co-operation might prejudice its future business in the importing country.
This could be made even more effective if the exporting firm is required to maintain a legal presence in the importing country, although for small service exporting firms such a requirement could imply an additional administrative and financial strain. When the movement of temporary personnel is restricted to those workers who have al ready been employed by the service supplier for a certain period of time (for example, not less than one year immediately preceding the date of application in the US commitment under the GA TS), it may give the exporting firm a beUer control over its personnel abroad. But such a provision also has its drawbacks on other grounds. The exporting firm may need to hire new staff to execute large, new overseas contracts or may find it convenient and more effective to set up the project team by using a mixture of existing personnel and new recruits, including freelance specialists. The restrictive requirement mentioned above will preclude this possibility.
The employer in the importing country can also be required to play its part in enforcing the law concerning use of temporary labour through penal action in case of its infringement. In the United States, for exampl~, for such infringement an employer engaging foreign professionals in specialty occupations on a temporary basis can be subject to penal action, based on investigation, and may be barred from employing temporary aliens for at least one year.
In short, various measures can be taken to minimize the risk that temporary movements of service-providing persons may turn into permanent immigration. Although the possibility of some 'leakage' cannot be excluded, especially when there is a powerful demand-pull in the importing country and a high emigration pressure in the exporting country, the
56 Gains fram Global Linkages
problem is not unique or exclusive to trade-related labour mobility: it applies to other types of legal inflows as weil. In any case, a cIearer and internationally harmonized definition of trade-related visa regime will help in enforcing the temporary nature of such movements. This is further discussed in Chapter 5, section 5.5.
Notes and References
I. UNCTC, Transnational Corporations, Services and the Uruguay Round. (United Nations publieation, 1990. Sales No. E.90.II.A.11) p. 30.
2. International Monetary Fund, Balance 0/ Payments Manual, 5th edition (Washington DC: International Monetary Fund, 1993) pp. 43-44.
3. See, in this conneetion, International Trade (Geneva: GATT, 1989) p. 29; also UNCTAD/World Bank, Liberalizing International Transactions in Services (United Nations, New York and Geneva, 1994) p. 11.
4. Ghosh, Bima!. 'Eeonomie Migration and the Sending Countries' , paper presented at the 15th Conferenee of the Belgian-Dutch Assoeiation for PostKeynsian Eeonomics, University of Antwerp (Belgium: November 1994).
5. IMF, World Current Account Discrepancy (Washington DC: International Monetary Fund, 1987).
6. UNDP, Human Development Report 1992 (New York and Oxford: Oxford University Press, 1992) p. 58.
7. Zang Ningxiang, Chu Chanbyou and Xu Dansong, 'Labour Service Exports from China: Present Situation and Future Potential' (1992). Cited in UNCTAD, 'Temporary Movements of Persons as Service Providers', TD/B/CN .4124 (September 1993).
8. See, for example, Thierry Noyelle, 'Computer Software and Computer Services in Five Asian Countries' in UNCTAD, Services in Asia and the Pacific: Selected Papers, I, UNCTAD/ITP/51 (New York: United Nations, 1990).
9. UNCTC, Transnational Corporations, Services and the Uruguay Round (1990) op. eit. p. 154.
10. Ibid. p. 154 and p. 164 11. See, in this connection, UNCTAD, 'Studies on Sectors of Priority Interest to
Developing Countries: Issues Relating to the Export of Labour-intensive Services', TD/BI1316 (24 February 1992).
12. The Economist (London, 20-26 February 1993). 13. Für a differentiation between migration driven by unemployment and
püverty (survival migration) and opportunity-seeking migration, see Bimal Ghosh 'Migration, Trade and International Co-operation: Do the Interlinkages Work?' in International Migration, XXX: 3/4 1992; also 'Eeonomie Migration and the Sending Countries' (1994) op. eit.
14. See, in this connection, Bimal Ghosh 'The Future of East-West Migration', p. 241 in Salon Ardittis (ed.), The Politics 0/ East-West Migration (London: The Macmillan Press, New York: St. Martin Press, 1994); and 'Economic Migration and the Sending Countries' op. eit.
3 Enhancing Developing Country Participatlon in Trade in Services
3.1 THE ISSUE OF COMPARATIVE ADVANTAGE
There is a general feeling among the policy-makers in many developing countries, as was revealed, for example, during the earHer stages of the Uruguay Round negotiation, that these countries have Httle comparative advantage in the world market for service industries.1 Although that feeling is probably less strong to-day, it seems to persist, none the less. And this may weH be a reason (aside from those already mentioned in Chapter 1) why promotion of services exports is still not receiving as much attention in the developing countries as a group as it should.
A vailable balance-of-payments data, although incomplete, tend to suggest however that many developing countries have a revealed comparative advantage (RCA) in a number of service industries, especiaHy among those that are labour- and skill-intensive.2 But comparative advantage is not a static phenomenon. As the experience of East Asia's newly industrializing economies (NIEs) in manufactured exports have clearly demonstrated, the comparative advantage of low-cost labour of a developing country can be sustained in a competitive world only when a dynamic use is made of it by constantly upgrading the quality and technical capacity of labour - or, in other words, by developing human capital embodied in labour. Viewed from this perspective, many developing countries would seem to have an ac tu al or potential comparative advantage in a wide variety of service activities including engineering, accounting, legal, management consulting, medical and nursing, software development, data entry and processing and cleaning services.3 In addition to these sec torspecific, mostly skill- or knowledge-intensive services, a large number of developing, including low-income, countries, will continue to have a comparative advantage in low-skilled or unskilled labour services at a horizontal level or across sectors. Beyond certain limits, the comparative advantage of unskilled labour is however bound to be further eroded due to automation and technological change in the coming years.
For the developing countries an important chaHenge in the context of world trade liberalization is to take fuH advantage of its actual and poten-
57
58 Gains from Global Linkages
tial comparative advantage in services trade. In doing so, they can also take, as argued in Chapter 2, a significant step ahead in making migration, including skiII migration, more orderly and productive at both ends of the flow.
Two sets of measures are needed for this purpose. The first relates to removal of restrictions that now impede the market access of developing country service exports to the world market; the second concerns promotional and organizational measures that are required to enhance the competitiveness of developing country service exports. The importance of market access through freer movements of persons as service providers has already been discussed in Chapter 2. This chapter examines some of the additional aspects of such movements, discusses selected organizati on al and promotional measures needed to improve the competitiveness of the services sec tor and, finally, takes up the quest ion of movement of consumers as a mode of delivery of services.
3.2 LICENSING REQUIREMENTS AND MARKET ACCESS
The issue of trade-related labour mobility or access to markets by service providers cannot be isolated from that of Iicensing and certification requirements. Even in the absence of immigration restrictions the service providing persons may not have an effective access to export markets when there are severe and non-transparent restrictions on the Iicensing of foreign professionals and technical personnel. In many countries around the world there are state restrictions defining persons who, for example, may represent a cJient in a court of law, draw up and authenticate contract documents, audit the books of account of companies, apply for approval of building designs, undertake surgical operations and so on.4 Such restrictions obviously have an inhibitive effect on the provision of business and professional services across countries.
The range of service activities covered undcr Iicensing can be wide to incIude high-level professions (for example, lawyers, engineers, architects, accountants, physicians and dentists; technical occupations (for example, nurses and surveyors) and crafts (for example, electricians, automechanics and plumbers).5 In some countries the state serves as the main regulatory and supervisory body while in others professional associations discharge many of the functions involved. In many of those countries where the state has taken over the responsibility for regulating the major liberal professions, private bodies often play a complementary role in laying down rules of ethical conducL
Enhancing Developing Country Participation in Trade in Services 59
Despite differences in national practices, professional services are sometimes classified by the degree of regulation into two main categories: (a) highly regulated; accountants, auditors and tax advisers, medical doctors, lawyers, insolvency practitioners and (b) less regulated; architects, engineers, real estate agents, surveyors, and recruitment agents.6 The reasons for such regulation, whether imposed by the state or by private bodies, are many and varied. But, historically, the development of the regulatory standards has much to do with ensuring levels of professional competence, ethical behaviour and personal integrity and accountability of an identifiable individual so as to safeguard the interest of the client or the consumer who may be unable to assess the quality of the service rendered or its result before it is too late.
In the context of the expansion of trade in services across countries (and autonomous provinces or states within a federal or confederal system) the requirement of local knowledge has become a factor in the regulatory arrangements for a number of services. Depending on the importance of such local knowledge in their substantive content, professional services are sometimes classified into three main categories, although several of them defy rigid demarcation. The first is mainly universal: accounting, engineering, and health-care. The second is mixed: architects and surveyors. The third is mainly local: auditing and taxation advice, legal services, and intermediary services linked to real estate and placement and recruitment business.7
The restrictions on foreign professionals can take various forms such as requirements of nationality and residence, restricted recognition of diplomas, requirements of additional education or training in the host country, denial of access to examinations for completion of qualifications and language proficiency. The host importing country mayaiso restrict the validity of the licenses of foreign professionals or limit the scope of services they may render. For example, in a number of countries such as France and the United States, foreign lawyers are allowed to advise on horne country and international law but not on the national law of the host country. Also, under the industry-regulated system, the granting of Iicenses to foreign professionals to practice in the host country may be subject to certain special conditions such as practical training under the supervision of a fully licensed professional and/or completion of a formal licensing examination; and admission to the membership of an association in the profession.
From the perspective of liberalization of trade in services, much depends on how these regulations and conditions are administered. For example, compulsory membership of a professional association may be
60 Gains from Global Linkages
designed to ensure compliance with a code of ethics or a set of professional standards, applicable to both domestic and foreign professionals. The purpose may be to protect the interest of consumers and to foster the development of domestic knowledge and technology base or, in some cases, to facilitate the transfer of soft technology from foreign professionals. But this mayaIso be used to limit the entry of foreigners and to protect the domestic market and shelter the domestic service providers from external competition. Even more important, the regulations may be cIear and transparent; or they may be kept deliberately vague and obscure.
A clearer definition of the right of practice for foreign professionals would make movement of persons as service providers more meaningful. But the establishment of common standards to ensure equivalencies of professional diplomas, however useful in this connection, cannot be easily attained, as exemplified by the experience of the European Union (EU), which has been seized of this matter for nearly 20 years, but has made little progress in establishing EU-wide common standards or common curricula. Political difficulties apart, one major constraint is that, as already noted, in a number of professional services relevant expertise is cIosely Iinked to country-specific knowledge.
It should nonetheless be possible to develop certain common criteria for reciprocal recognition by different countries of their respective national diplomas and for supplementary local training. The EU, for example, has been more successful in its mutual recognition approach. It has led to reciprocity among member states in recognizing the first three years of uni versity-Ievel education and professional qualifications for architects and health-care personnel. In the case of self-regulating professions, competent societies in different countries can have negotiated agreements 10 recognize each others' qualifications. Such mutual agreements are quite common for accountancy and architectural services. However, when the state plays the role of regulator, bilateral or plurilateral agreements between governments are necessary for mutual recognition of professional qualifications.
The distinction between practising and consulting mayaIso be found useful in designing a regulatory framework for Iicensed professionals without imposing undue restrictions on trade in professional services. Already in many countries that allow foreign lawyers to work in the areas of their horne country law and international law, the services rendered by them may be limited to advising or consulting as distinct from practicing in areas over which the host country has the authority to issue licences. Likewise, foreign engineers, architects and accountants may be allowed to assist and advise in terms of a service contract in the importing country
Enhancing Developing Country Participation in Trade in Services 61
without being licensed in that country; the signing off on the final documents (for example, blueprints, architectural designs and audit reports) may be done by and under the responsibility of a locally Iicensed professional. Arrangements along these lines would imply that foreign professionals will be able to provide services by temporarily moving to the importing country as business visitors or as temporary working residents.
Although, as already noted, ensuring certain levels of professional competence has always been an important factor in the Iicensing system, there is Httle doubt that a highly restrictive regime can make the professional services costly for the consumers and weaken incentives to improve quality resulting from competition. When a main concern is to foster and develop the domestic knowledge base in a particular service area, the importing country should consider whether freer entry of foreign licensed professionals may not be Iinked to arrangements or sub-modes of delivery (for example, commercial presence) requiring or encouraging them to share the expertise with local personnel. The adoption of such an approach - rat her than restricting the entry of foreign licensed professionals - might weil be found more helpful in developing the domestic knowledge base through a systematic transfer of soft technology.
All professional services are not equally affected by restrictions relating to Iicensing and certification. Their importance needs to be assessed in the light of the characteristics of the particular types of professional services. It is not simply a question of the number of persons who need to move to provide a particular service but also the nature of their inputs that maUers. To iIIustrate, in the case of accountancy services, it may be possible to carry out much of the work through local personnel or via cross-border da ta flows, but the movement of some key professionals may be essential at certain stages and at short notice. Restrictions arising from Iicensing and certification of these professionals could create critical bottlenecks in the whole process. For construction and engineering services, the special importance of Iicensing sterns from the fact that, in the absence of professional recognition and accreditation, the exporting firm would be unable to sec ure the contract in the first instance.
Development of multilateral procedures in harmonization and recognition of qualifications is likely to be slow. This makes it especially important for the deve\oping countries (as will be further discussed in Chapter 5) to identify those professional services in which restrictions Iinked to Iicensing and accreditation are a major impediment to trade in services in general and movement of service providing persons in particular. It could provide the basis for Iisting those services which merit priority attention in regard to harmonization and recognition of qualifications. Full involve-
62 Gains from Global Linkages
ment of the professional bodies will be essential in carrying out any such exercise.
3.3 NATIONAL TREATMENT AND TEMPORARY MOVEMENT OF SERVICE-PROVIDING PERSONS
The discussion so far has been confined to restrictions on market access by service-providing persons resulting from regulatory measures concerning entry visas, residence and work permits and Iicensing arrangements. But even when market access has been assured, the foreign service providers may not be able to compete on equal terms with the domestic service providers if there is any discrimination in their treatment in the importing country. This raises the question of 'national treatment', defined as the opportunity to offer services in conditions no less favourable than those accorded to national seilers of Iike services. Restrictions on national treatment which may take various forms include the following. 8
Restrictions on Iiving conditions and civil rights
The main restrictions on Iiving conditions are usually those concerning the location and the type of housing to which foreign workers may be entitIed, as iIIustrated by the practice followed by labour-importing Gulf states, the Central and Eastern European countries under the communist rule and by the previous regime in South Africa for workers from Lesotho. (Many of these workers should however be categorized as labour migrants rather than as service-providing persons, although the distinction, as al ready noted, is often blurred.) In some cases there mayaiso be restrictions on the freedom of movement of foreign workers and their families during their stay in the importing country. Restrictions on civil rights of foreign workers may include: conditions preventing them from bringing in their families; restrictions on the rights of dependants to be gainfully employed; less favourable treatment of foreign workers under the law.
Discrimination against foreign workers in the workplace
Discrimination may relate to restricted access to certain positions or occupations and training, non-entitIement to representation on labour-related bodies and participation in labour unions. Less favourable treatment may also include discrimination in regard to wage and salaries, health care, workers' compensation and other social benefits; restrictions on foreign
Enhancing Developing Country Participation in Trade in Services 63
workers concerning change of jobs, upgrading opportunities and pension funds.
These and other restrictions or types of discrimination can seriously affect the conditions of migrant workers in the importing country. It is important to note however that not all of them (for example, restrictions on upgrading possibilities and change of jobs) are of equal importance or even of relevance to persons engaged under service contracts, given that the latter in principle are, as noted in Chapter 2, job-specific, predetermined and fixed in time. On the other hand, restrictions on access to certain jobs or positions will obviously impede the foreign service from providing persons to compete with the domestic workers.
Equal treatment in the matter of wages and social benefits is important both to safeguard the interest of temporary foreign workers and also to ensure that the latter are not used to wedge an unfair competition against local workers. It remains controversial however (as is presently the case within the European Union) whether persons holding temporary service contracts, especially when the contract is of short duration and has been signed in another country, should be paid at the same rates and be subject to the same conditions as applicable to similar workers in the importing country, given that this would undermine the basic principle of comparative advantage in international trade.9
It is interesting to note in this connection that as far as social benefits are concerned !imitations are often applied to intra-company transferees and foreign specialty personneion their access to benefits such as medical and old age insurance benefits and subsidized educational schemes in the host (importing) country. Also of interest to note is the approach developed by the EU to enforce the compliance of fiscal and social obligations by foreign workers temporarily posted in another member country. Under this approach the temporary worker or his/her employer is required to obtain a certificate issued by the national authorities in the horne country stating that he/she continues to be subject to the nationallaws of that country during the period of temporary posting abroad. These arrangements or approaches would seem to be incongruent with the principle that foreign persons, even when on temporary service contracts, should be paid at the same rate of wages as domestic workers engaged in similar activities. A pragmatic compromise (but less than a perfectly logical solution) may weil lie in determining a threshold period for the application of local wages to foreign persons on temporary service contracts; and/or fixing a minimum wage which, (while being fair enough to avoid hardship to the service-providing persons during the assignment in the importing country) need not necessarily be the same as (can be lower than) the minimum applicable to local workers.
64 Gains trom Global Linkages
Restrictions on remittances by foreign workers and discrimination in taxation
National treatment in working conditions and social benefits is not complete if there are restrictions on overseas remittances due to foreign exchange control or discriminatory practices such as differential exchange rates or discriminatory taxes on financial transfers by foreign service providers. Discrimination in taxation of foreigners providing services, whether independent or dependent, may result from double taxation in the absence of financial treaties or similar bilateral or plurilateral arrangements involving the service importing and exporting countries. 1O
International initiatives such as the model convention elaborated by the OECD for such tax treaties could help avoid such double taxation. Efforts at ensuring national treatment of foreign service providers on these maUers are also being pursued by regional integration schemes such as the European Union and the Common Nordic Labour Market.
National treatment normally relates to the conditions of foreign workers in the importing country. But, aside from the problem of double taxation, some of the other restrictions mentioned above - for example those concerning remiUances - might also be imposed by the exporting country. For example, until recently, all South African employers ofLesotho workers were required to pay 60 per cent of the workers' income to Lesotho's Central Bank which paid interest rates far below the prevailing market rates. I I
Restrictions on access to public procurement markets
Aside from excIusion from certain specific types of sensitive assignments on grounds of national security (for example, computer services for the military command) or consumer protection, foreign service suppliers may have limited or no access to public and semi-public sec tor contracts and government subsidies. Unless there is strong and transparent justification linked, for example, to national security, such discrimination or excIusion constitutes a denial of full national treatment to foreign service suppliers.
3.4 COPING WITH OTHER RESTRICTIONS AND CONSTRAINTS: COMMERCIAL PRESENCE AND TELECOMMUNICA TIONS SERVICES
This study, as al ready indicated, focuses on the movement of natural persons as a factor in liberalizing and expanding trade in services in
Enhancing Developing Country Participation in Trade in Services 65
general and labour and labour-intensive services in particular. However it has also been noted in Chapter 2 that in ensuring effective delivery ofservices, different modes, ineluding movement of persons, may need to be used in combination - and not just in substitution of one another. Viewed from this perspective, movement of natural persons as service providers would seem to be elosely inter-related with a commercial presence of the service provider in the importing country. In many situations liberalized movement of service providers may have only a limited impact on trade in services unless the service providing firm can have a commercial presence and enjoy full national treatment in the importing country.
Market access by a foreign service provider in the fonn of a commercial presence implies the right to open or acquire a business or professional establishment through which it can operate as prime or sub-contractor of services. 12 Even when a service is provided through movement of persons across countries it may be important for the service contractor to have a commercial presence in the importing country, not only for purposes of exploring markets and negotiating contracts but also to complete the deli very or enhance the quality and competitiveness of the service product, for example, by drawing on local expertise or expertise from a third country.
As noted in Chapter 2, local links and presence are particularly important in cases where (a) the service product needs to be adapted to the local market (for example, advertising); (b) the substantive content of the service is intertwined with local knowledge (for example, legal advice, tax expertise, and real estate brokerage); and (c) a elose and longer-term customer-provider relationship is essential (for example, production of customized software technologies and maintenance and training after delivery). If the foreign service providers are prohibited from owning and maintaining a commercial presence - because of foreign citizenship or due to restrictions linked to professional licensing - they will be denied full access to markets of the importing country.
In a number of countries, both developed and developing, there are restrictions on full foreign ownership of commercial presence, in the form, for example, of partnerships (a most common form of commercial establishment in many professional services) and business based on selfemployment. 13 Some of them forbid ownership of private partnerships by foreign professionals even if duly licensed. Others pennit minority foreign ownership of local businesses in the form of joint ventures with local companies and entrepreneurs. Limitations on commercial presence of foreign service providers may inelude restrictions of market access by types of service product and geographical areas.
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Market access for commercial establishments of foreign service suppliers does not necessarily mean that they would be able to compete in the market of the importing country on the same footing as the domestic service suppliers. That depends also on whether or to what extent foreign service suppliers are accorded national treatment. An important limitation on national treatment of foreign commercial establishments, which is of particular relevance to movement of persons, relates to their ability to hire local workers, workers from their own countries andlor from third countries. It has been mentioned above that when foreign service providers need to complement their expertise by drawing on the services of local professionals in the importing country, they may find it convenient tQ do so through their commercial establishments. Also, foreign service providers may in some cases be better off hiring local professionals who can sign off the final documents (for example, audit reports and engineering designs) wben the licensing requirements of the importing country excIude foreigners from doing so. In both these cases foreign commercial establishments need to have the right to recruit local workers. However, should restrictions be imposed on foreign commercial establishments in making local recruitment, they will obviously be at a disadvantage compared with the local service suppliers. A similar situation may arise if local service suppliers are allowed to hire workers from abroad (incIuding third countries), but the foreign establishments are not.
Other restrictions on national treatment may include ceilings on the size of the capital and the staff of the foreign commercial establishments, restrictions on the source of funds to finance projects and on repatriation of income. Measures of this kind can circumscribe the scale of operations of foreign commercial establishments and their capacity to compete in the market of the importing country.
Although some developing countries have set up commercial establishments abroad to promote their trade in services, they are in a much weaker position compared with tbe developed countries. There is no reason, however, why over time developing countries cannot benefit from a more liberal treatment of the presence of foreign commercial establishments in promoting trade in those services for which they have a comparative advantage. For these countries, an essential first step in this direction is to develop a more organized approach to service exports and place them within an efficient enterprise structure, as discussed later in this chapter.
Improving telecommunications and information infrastructure
Increased participation of developing countries in services trade is closely Iinked to the development of modern telecommunication and computer-
Enhancing Developing Country Participation in Trade in Services 67
based information services. Access to rapid and reliable means of communication is a most important factor for the efficiency of the service industries, as indeed for the efficiency of all economic sectors. The role that the telecommunication system plays in this connection has been dramatically enhanced by its convergence with computerized data services: it has led to the 'digital revolution' and opened up vast new capacity and capabilities of the system.14 Telecommunications and computerized data services are now responsible for providing an essential input to a number of major services such as banking and insurance, transport and tourism and business/professional services. Teleconferencing, using satellite links for interaction between teachers and students and on-line access to information are now becoming effective means of selling educational services across countries just as telemedicine, including transmission of ultra-sonic scans for evaluation, is opening up new fron tiers for trade in health services. Indeed, as discussed in Chapter 2, much of the strength, dynamism and expanding share of the services sector in industrial economies sterns from its access to, and effective use of, communication and information technology. In the absence of an adequate access to this input it will be difficult for the developing countries to exploit their potential comparative advantage in many labour and skill-intensive services and compete in the world market.
An additional significance of the telecommunication system for the services sec tor sterns from the fact that telecommunications are themselves an important service activity, and with the rapid development of data services, will be increasingly so in the coming years. Equally important is the contribution to increased storability and tradability of other services. As noted in Chapter 2, it is the spectacular growth of the modern telecommunication and computer services that has made many service activities tradable across borders without the movements of service producing persons or consumers. But, it would be wrong to assurne that the telecommunication system serves only as a substitute for movement of persons as a mode of delivery; very often it also acts as a complement to, or is used in combination with the latter. Indeed, as already discussed, in many cases the widening of the tradability of service activities through the telecommunication system would have a limited impact unless the movement of persons as service providers can be liberalized at the same time.
This complementarity between the telecommunication system and the movement of service-providing persons can be seen from different angles. It has already been noted that while many service products such as architectural designs, medical tests and laboratory analyses and software programmes can be electronically transmitted across borders, rarely can this completely replace the need for temporary visits by service-providing
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personnel for purposes of contract negotiation, on-site consultation, customized software programming and the Iike. In many cases the converse is also true. When, for example, professional services are supplied in the importing country through temporary movement of service-providing persons, or through a commercial presence, or both, there may still be a need for the professionals working on the project to have support from, and draw on the expertise and knowledge available at, the horne base in the exporting country. Such two-way feed-back or communication is feasible only when the telecommunication and computer system operates efficiently between the two countries.
But few developing countries have a well-organized and adequately developed telecommunication and computer system. In many of them even the simple telephone system (which is basic to national communications infrastructure) requires considerable improvement, in terms of both coverage and quality of operation, to meet the growing and changing needs of the population and the economy, including the services sector. About 50 countries, according to arecent estimate, have less than one main telephone per hundred citizens; and in more than 110 countries the number of main telephones is less than 10 for every hundred citizens. 15 In 1990-92 the average number of telephones Iines per hundred persons in the developing world was no more than three (compared with 64 in the OECD countries).16 It is estimated that, in Africa, one out of two persons may have never used a telephone.
Not surprisingly, the growth of developing countries' trade in services, inc\uding labour-intensive services, has been seriously constrained by the lack of advanced telecommunication and computer-based data services. Indeed, there is areal and wider danger that new forms of discrimination may emerge between countries that have access to this modern information and communication technology and countries that do not.
Aware of this danger, a number of developing countries have been making a special effort to improve their telecommunication and information infrastructure. But the difficulties are formidable. I?
Telecommunication and information technology is changing fast and the latest equipment and processes are often placed on the world market within weeks rather than months or years. This may be an advantage for developing countries if they can acquire the state-of-the-art technology and use it efficiently. But both human and financial resources often stand in the way. Further, the operational efficiency of the system sometimes suffers due to management deficiencies, absence of sound business practices and undue political intervention. On the other hand, the absence of an efficient and up-to-date infrastructure circumscribes the ability of
Enhancing Developing Country Participation in Trade in Services 69
developing countries to have access to the telecommunication system and information network of developed countries. This creates a vicious circle.
Given the multiple role of the telecommunications and computer system - as a distinct service offered to the general public and commercial entities and as a provider of inputs to other economic activities - it seems important for developing countries to formulate or strengthen a coherent strategy for the development of this sector. As will be further discussed, in designing the strategy the needs of the service activities, including trade in services, must receive due attention. Within the framework of such a strategy the priorities to be given to the development of specific computer-based services should take into account the needs of those service activities for which developing countries have a comparative advantage in the world market.
Developing countries' wider access to on-line database services providing and receiving updated information is extremely important for the expansion of their services trade. Lack of reliable and updated information of interest to foreign tourists. - for example, on domestic airli·ne ftights, hotel reservations and car ren tals - continues to be a major obstacle to the rapid development of tourism, despite its enormous potential, in many developing countries. Conversely, computerized information on market conditions, including the labour market trends, prices and regulations governing temporary immigration in developed countries could be of significant help in planning the expansion of developing countries' trade in a number of labour- and skill-intensive services. However, without an adequate local infrastructure and links with major international data networks, and in the absence of economies of scale, the entry of developing countries into the data base services market will be difficult and expensive. 18
As newcomers in the field, developing countries mayaiso have difficulties in using international telecommunication links for information processing. Experiences in some countries such as India and Jamaica indicate that joint ventures and collaborative arrangements with foreign entities in establishing teleports can be helpful in overcoming some of these difficulties. In India, a joint venture between the Indian Ministry of Science and Technology and Massachusetts Office of International Trade is designed to establish a satellite link between Pu ne in India and Boston in the United States. In Jamaica, the Digiport International, ajoint venture involving Telecommunications of Jamaica, Cable and Wireless and American Telegraph and Telephone (ATT) establishes international telecommunication links with Canada, the United States and the United Kingdom via satellite services and fibre optic cables. Access to such
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teleport facilities enables small infonnation-processing firms to keep the cost of transmission low and target on multi-client markets.
According to arecent estimate, in the past about 15 per cent of total yearly investment on telecommunications in developing countries came from the private sector; that proportion would need to rise to 50 per cent, from $1.5 billion to $20 billion, to meet the investment requirements until the year 2000. 19 This brings out the important role that, given a suitable policy framework, foreign direct investment can play to help developing countries face the formidable chaIlenge.
Aside from coIlaboration with foreign enterprises, regional co-operation among developing countries themselves should help in achieving the benefit of economies of scale and reducing national overhead costs for telecommunications and computer-based services. EquaIly important is the economic and technological support from bilateral programmes and international organizations (discussed in Chapter 5) for the developing countries to make fuIl use of the potential of the modern telecommunication and computer-based infonnation system.
3.5 NEED FOR AN ORGANIZED APPROACH TO LABOUR-INTENSIVE SERVICES EXPORTS
The level of efficiency of the organization handling exports is an important factor in detennining the competitiveness of service activities. The relative success of a number of developing countries in exporting labour and skiIl-intensive services in industries such as construction and computer software reveals the importance of an organized approach through an enterprise or corporate structure in promoting and handling service exports. It has been noted (in Chapter 2) that much of the success of countri es like China and the Republic of Korea, despite being newcomers, in exporting labour services or labour-intensive service packages especiaIly in the construction sec tor can be attributed to the enterprise structure used by them, with direct or indirect government support, to boost such exports.
To sum up the previous discussion, an efficient organization is needed to deal with a whole range of activities that are essential to the promotion of services exports in the world market. These include identification and analysis of potential markets, negotiation of contracts, 'packaging' of service components (setting up the team of service providing personneI), management and monitoring of the project team and folIow-up. By facilitating the process of accumulation of knowledge and expertise an enterprise structure contributes to the competitiveness of services in the export market. Another
Enhancing Developing Country Participation in Trade in Services 71
advantage in organizing movements of service-providing personnel within an enterprise structure is that unskilled labour services can be more easily combined with managerial skills and technical expertise leading to higher value-added than the mere wages and salaries of workers. All the components of a particular service package need not be drawn from the exporting country itself. An enterprise structure makes it easier to make the service package more competitive by recruiting, if necessary, some of the service providing personnel from a third country, including a developing country.
Once the legal regime for protection of workers' rights is clearly defined, the enterprise structure should normally make it easier to enforce the relevant statutory provisions and, as already argued, also to ensure that temporary movement does not become permanent migration. In the Republic of Korea an interesting development in this area is the standardization of labour contracts for all construction firms engaged in export activities, to avoid disputes between the managers and workers abroad.
While the need for an organized approach to trade in services is clear, the most cost-effective way of doing this depends on particular circumstances, including the nature and characteristics of the service activity, the scale of operation and the characteristics of the export market. This can take, as the experience of the industrial countries indicates, various forms: the establishment, within the parent firm, of a specialized department for export of services; externalizing the services to be exported as aseparate or semi-autonomous entity; and promoting independent, specialized firms to deal with exports of labour- and skill-intensive services on a multisectoral or sectoral basis. Service sectors benefiting from such externalizati on have witnessed rapid rates of growth both in the domestic and export markets, regardless of the sophistication of the activities, as exemplified by services ranging from cleaning to software development. 20
Many developing countries have specialized expertise relating to manufacturing and natural resource extraction. When externalized and placed within the structure of an export enterprise, such expertise could find export markets especially in other developing countries. Engineering expertise developed in mining and petroleum in Brazil and in steel and metal working in India has enabled them to build export capability in engineering services. Tunisia's exports of services relevant to phosphate and petroleum industries are built on externalization of expertise which it acquired through production in these industries. An example of such exports through externalization of 'locked-in-knowledge'21 is provided by the Tunisian firm Tunisie Engineering et Construction Industrielle (TECI), which has been engaged in a range of export activities - basic engineering for phosphoric acid plants in Greece, Romania and Turkey, rehabilitation
72 Gains trom Global Linkages
operations for fertilizer plant in Turkey, and feasibility studies for phosphate industry in Indonesia.22
Trade in services can also be facilitated by the movement of serviceproviding personnel recruited by firms headquartered in an importing country, but this is normally allowed when such service-providing personnel has already established a contractual relationship with a subsidiary or an affiliate located in the exporting country. This again implies the need for an organized approach to exports of labour services. Developing countries may find it useful to encourage service firms in developed countries to use joint ventures or similar undertakings in their countries as a base for initial employment of domestic service-providing personnel. At a later stage, such personnel might be transferred to projects of the firm located in developed countries and they might even be recruited subsequently by service enterprises in developing countries.23
3.6 MOVEMENT OF CONSUMERS
Liberalizing the movement of consumers or buyers to the service-providing country and according them national treatment are additional means of expanding trade in services. For some services, such as tourism, this may be the only mode of delivery, given that the climate, scenie beauty or the cultural aroma of a particular area or country cannot be transported across borders. Even for services such as health and medical care or educational services which can be traded through more than one mode, movement of consumers could in many cases be a most convenient or practical mode of delivery. Restrietions on travelling foreign consumers can thus impede trade in services. The restrietions might be imposed by the country of origin of the consumer or by the service-providing (exporting) country or both. However, unlike in the case of other modes of delivery, most restrietions on movement of consumers usually come from the exporting country .24
The limitations may circumscribe foreign consumers' access to the market of the service-providing country; they mayaiso be at a disadvantage due to the absence of full national treatment. Market access restrietions stern from the importinglexporting country's regulations concerning travel documents, exit and entry visas, residence permits and the like. These regulations vary widely between countries and change from time to time in keeping with the country's emigration/immigration policy. In recent years cross border movements for tourism, health and medical care and educational purposes have been generally liberalized, especially among developed countries. The trend has been strengthened by bilateral agreements and provisions for freer travel under regional economic co-operation schemes.
Enhancing Developing Country Participation in Trade in Services 73
Political changes such as the fal1 of the communist regime in Central and Eastern Europe and democratization of regimented political systems in a number of developing countries have meant less restrietion on freedom to travel abroad. There are few countries to-day which use exit visas as a means of restricting the citizens' freedom to travel outside.25
On the other hand, massive East-West movements in 1989-90 and rising pressures for emigration in many developing countries, combined with increasing numbers of asylum-seekers and irregular migrants, have led most developed countries to adopt restrictive immigration policies and tighten immigration control measures. Heavy penalties on air and shipping companies bringing in foreign passen gers without proper travel documents have meant more rigorous, and often time-consuming, methods of checking documents before embarkation. The granting of entry visas and residence permits to nationals from developing countries has also become more restrictive. In the European Union, for example, effort to establish a harmonized visa granting policy has in some cases meant introduction of visa requirements for nationals of non-EU countries who previously did not need entry visas for certain member countries.
Although many of the recent restrictive measures are designed to prevent entry of irregular migrants and non-bonafide asylum-seekers, they tend also to affect movements of tourists and other foreign consumers of services such as health and education. Tourist visas, for example, are more difficult to obtain for nationals of certain developing countries and the duration tends to be shorter and more rigidly fixed. A major concern in many developed countries is that short-term tourists might become economic migrants seeking jobs in the regular or informallabour markets.
In most countries travel for health and educational purposes has traditional1y been less exposed to restrictions. Aside from humanitarian and cultural considerations, these services, like tourism, are important sources of foreign exchange earnings for destination countries; they also provide wider choices for the consumers of the countries of origin. In the healthcare field, the trend has been strengthened by a combination of factors: changing demographic structure and increase in the numbers of elderly persons in developed countries, their relative afftuence and the search for alternative medical treatments and more particularly personalized healthcare services in a pleasant climate, and the establishment in recent years of efficient health-care service centres in a number of developing countries including Colombia, Egypt, India, Mexico, and the Philippines.
Education travel has been facilitated by countries of destination in the light of (in addition to those already mentioned) a number of important considerations. For example, it is often perceived in the destination country as a means of extending cultural and political influence abroad; it
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serves as a source of recruitment of qualified and competent personnel to meet the domestic demand for scarce skills; and it helps, especially in the case of engineering and technical studies, in promoting future export markets for its technology, equipment and machinery.
Despite these favourable trends, travel from developing to developed countries even for health care and educational purposes appears to face constraints resulting from the generally restrictive immigration environment in the countries of destination. Completion of travel documents is often more onerous, and its processing more rigid and time-consuming. In the case of student and educational travel, additional constraints stern from the fact that many developing countries of origin are afraid that such travel might lead to further loss of skiIIed personnel through permanent emigration. In the developed countries of destination, restrietions on educational travel are often Iinked to the prevaiJing perception that this could add to the pressure on jobs, wages and social services wh ich in many cases are al ready under severe strain.
Many of these restrictions, whether imposed by country of origin or destination, reflect concerns wh ich go beyond the issues of movement of consumers as an aspect of trade in services. They raise wider issues of international migration, of economic interdependence and of global economic efficiency and distribution of global wealth. One point is clear, however. In. the absence of a weII-defined and transparent international regime for movements of people, many countries, especially developed countries, have tended to follow restrictive and reactive immigration policies.26 This has almost inescapable, even if largely unintentional, negative repercussions on trade in services, whether through movement of consumers or service providing persons. Leaving aside the wider issue of an international regime for movements of people, it would seem that a clearer identification of travel by foreign consumers under a trade-related visa (preferably divided by sub-types such as tourism, health, and education) on an internationally harmonized basis could faciJitate trade-related movements across countries while making their management easier and more effective.
National treatment
In many countries, foreign consumers do not always enjoy full national treatment in the service-producing country; in other words, the terms and conditions under which they purchase services may be less favourable than those applicable to national consumers. The restrictions can be imposed either by the service-providing (exporting) country or by the importing country. Also, as in the case of market access, the restrictions,
Enhancing Developing Country Participation in Trade in Services 75
whether in the exporting or importing country, are motivated by diverse considerations - economic, political, religious and other.
Restrictions imposed by exporting country
Restrictions in the exporting country may take various forms such as: discrimination of prices; restrictions concerning the recognition of educational equivalence; discrimination and restrictions concerning the use of foreign currency; and restrictions on ownership and employment.
Price discrimination
Discrimination in prices for national and foreign consumers is practised in some countries for specific services. Foreign tourists are sometimes charged higher prices at tourist sites such as public museums and parks and for hotel rooms. Although discriminatory pricing is more often practised by developing countries to increase their foreign exchange earnings, it is by no means limited to them. In many countries, including developed ones, foreign students at educational institutions are charged higher fees than national students; such discrimination mayaiso be practised for students coming from different foreign countries. The underlying objectives may be political, such as fostering or strengthening political and cultural relations with certain countries on a preferential basis. An important economic consideration for discriminatory pricing at public or semi-public educational institutions is to reduce public expenditure by imposing higher fees for foreign students.
Educational equivalence
Foreign students (consumers of educational services) may be handicapped due to non-recognition by the destination country of diplomas obtained by them in their country of origin. The educational institutions in the destination country can have a legitimate concern: safeguarding their educational standards. But in the absence of a mechanism or arrangements for recognition of equivalence of education obtained abroad, foreign students may be exposed to unfair discrimination when, for example, they are required to repeat in the destination country the course they have already completed at horne. The problem particularly affects foreign students from developing countries who intend to pursue studies in developed countries.
Use o/local currency
An exporting country may impose a less favourable rate of exchange to foreign tourists than to its own nationals or may require foreign tourists to
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pay for certain specific items such as hotel bilIs in foreign currency at a lower rate of exchange than the prevailing market rate. In some other cases there may be regulations Iimiting the total amount of foreign exchange tourists can bring into the destination country or convert into local currency.
Restrietions on ownership and employment
In a number of countries, both developed and developing, there are restrictions on land ownership by foreigners. In many such cases the restrictions may not imply a total ban on real estate ownership by foreigners, but specific conditions and Iimitations governing the purchase, such as allowing foreign ownership only in certain pre-selected areas or, alternatively, demarcating zones where foreign ownership of land is prohibited. Some countries fix a minimum number of years of residence in the destination coulltry before a foreigner may be allowed to own real estates or lay down other cOllditions for ownership of land or its possession on a renewable basis. The reasons for these restrictions may relate to considerations of national security and sovereignty, protection against real estate speculation and displacement of local population and conservation of certain pi aces on cultural and ecological grounds.
Foreign tourists, students and consumers of health services are generally not allowed to accept gainful employment in the exporting country. Even when they may be allowed to do so under special authorization, limitations, in terms of types or duration of employment or both, may be imposed upon them. The objectives underlying such restrictions may include the protection of the employment market for the nationals of the country, while reducing at the same time the risk that visiting foreign consumers might turn into lang-term immigrants. Even if the destination country is labour-short, it may prefer that the admission of foreigners based on other criteria does not interfere with, or distort, its policy for labour immigration. From the perspective of trade in services the real issue is whether and to what extent restrictions on employment influence the conditions of purchase of services by foreigners in the exporting country: access to employment per se should not be a concern of trade in services.
Restrietions imposed by the importing country
Restrictive measures applied by the country of origin of the consumer (service importing country) can take various forms such as: restrictions on the use of foreign currency; special taxes and other charges on foreign travel; restrictions on transfer of health insurance and other social security payments and limited recognition of education and training received abroad.
Enhancing Developing Country Participation in Trade in Services 77
Restrictiolls on the use of foreign exchange
Limitations, generally imposed by an importing country facing balanceof-payments difficulties, on the amount of foreign currency a traveller is allowed to take out of the country are a major constraint on the freedom to consume abroad. The exchange control measures mayaiso include restriction on financial transfers abroad through other means such as the use of credit cards and limitations on the amount of national currency a traveller may take out of the country.
Special taxes and other cl/arges onforeign travel
Travellers to a foreign country may be subject to various taxes or levies such as taxes on transport tickets, and airport or maritime port tax es (which are not applicable to domestic consumers). Although these measures are generally aimed at raising revenue, often linked to recuperation of experiditure made on tourism-related infrastructure (for example, construction of an airport and airport buildings), they mayaiso be combined with other policy objectives. For example, advantage may be taken of checks on payment of transport tax es or airport taxes to ensure that the traveller cleared his/her income tax obligations before leaving the country.
Restrictiolls on transfers abroad of health and other social security benefits
These measures could have a particularly constraining effect on consumers seeking medical services in a foreign country. Although foreign !ravel on medical grounds now receives, in most cases, liberal treatment in the country of origin (as in the country of destination), the same may not be true when it comes to the payment of health insurance benefits abroad. Most public sector medical insurance schemes do not cover, or only inadequately cover, medical cases outside the country, except in very special cases. Private insurance companies in developed countries are now offering special schemes for persons travelling abroad, but they are rare in developing countries. Additional complications may arise, and the processing of claims may involve long delays, in a country with foreign exchange control.
A similar difficulty can be faced by retirees seeking health care services or on pleasure tourism in a foreign country if the social security schemes in the country of origin have no provisions for transfer abroad of their pension benefits or if the procedure involves delays or other complications. In the absence of bilateral agreements such problems are
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more likely to arise when the relevant social security schemes are in the public sec tor.
Limited recognition 0/ education obtained abroad
Absence of recognition, or Iimited recognition in the importing country of the education or training obtained abroad can be an important barrier to trade in educational services. There is now an increasing interest among students in developed countries to carry out part of their academic programme in a foreign country, with a preference, in some cases, for a developing country. The latter trend is strengthened by several factors such as the increasing globalization of the world economy, growing recognition of the importance of inter-country exposure to widen knowledge and experience and the availability of high-quality educational programmes in a number of disciplines in some developing countries.
If however students from the country of origin do not get full credit for parts of the programme carried out abroad, and are forced to repeat the same course at horne on return, there can hardly be an inducement for them to travel abroad for educational purposes. Such non-recognition of educational standards and diplomas obtained abroad mayaIso provide grounds for withholding scholarships or educational allowances to students and trainees while they are abroad, just as it may stand in the way of their re-entry into the home-based educational programme or employment on return.
A detailed analysis of the effects of measures, whether imposed by the exporting (or destination) country or by the importing country (country of origin) restricting the national treatment of foreign consumers is beyond the scope of the present study. The discussion above has revealed that these measures are often Iinked to other national policies such as those concerning external finance and foreign exchange management, fiscal revenues, promotion and protection of employment for nationals, maintenance of national standards of education, immigration, national security and conservation of cultural heritage and the environment.
The effects of restrictions on national treatment are, however, not the same on different groups of travelling consumers; nor are the economic and non-economic benefits that can be derived from different types of restrictions. A careful assessment, in the country-specific situation, of the benefits and costs of these restrictions should therefore be helpful in policy formulation. Another point that stands out clearly is that there is consider-
Enhancing Developing Country Participation in Trade in Services 79
able scope for liberalizing movement of consumers through c10ser cooperation between service-pro vi ding and service-consuming countries on matters such as the common recognition of educational standards and transfer of social security benefits under public sec tor schemes.
Notes and references
I. There was also a concern shared by many developing countries that the inclusion of trade in services in the Uruguay Round would link trade and investment policies under the GATT rules, thereby opening the door for possible use of trade-related measures to extract concessions in the investment area, including eventual retaliatory action against their exports in response to some of their investment policies that may not find favour with the industrial nations.
2. The revealed comparative advantage(RCA) index is the ratio of exports of a given export item to a country's total exports divided by a similar ratio for the worId. An RCA index above unity suggests that the country has a comparative advantage in the item resulting from its relative speeialization in it. See Bernard Hoekman and Guy Karsenty, 'Economic Development and Relative Speeialization in Services' Development Policy Review (10 September 1992) pp. 211-236.
3. UNCTAD/World Bank, Liberalizing International Transactions in Services (New York and Geneva: United Nations. 1994) p. 149.
4. UNCTAD, 'Harmonization and Recognition of Professional Qualifications' UNCTAD/SDD/SER/2, (14 September 1993) p. 7.
5. See, in this connection, Thierry Noyelle and Beth Redfield, Trade in Professional and Labour-intensive Services in Mexico, the United Sates and Canada: Barriers and Regulations. Areport to the Government of Mexico, Secretaria de Commercio y Fomento Industrial (New York: Eisenhower Center for the Conservation of Human Resources, Columbia University, 1991).
6. UNCTAD. 'Harmonization and Recognition ofProfessional Qualifications' (14 September 1993) op. eil. p. 5.
7. Ibid. 8. Many of these restrictions are Iisted in the International Labour Conventions
and Recommendations on migrant workers, employment and soeial security, adopted by the ILO. For a synoptic presentation of the relevant provisions see Thierry Noyelle and Beth Redfield, Internationally Traded Labour Se1vices in Africa: Issues for a General Agreement on Trade in Services', (Eisenhower Center for the Conservation of Human Resources. Columbia University, 1991. Also issued as restricted UNCTAD document MTN/RAF/CB, 8'July 1991).
9, Legislation in several EU states such as Austria, Belgium, and France requires foreign service contractors to pay their employees wages at rates similar to those aplicable to the local workers. Germany and Luxembourg were in the process of introdueing analogous legislation. Under the German
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bill, al ready approved by the cabinet, foreign contractors are required to pay their workers wages that at least match the lowest wage rates agreed between unions and employers in the German building industry. Financial Times (2-3 September 1995). In March 1996 the EU ministers decided that local conditions, including wages and paid leave, will apply from the first day of employment to workers posted abroad, although certain exemptions will be allowed. The directive does not apply to companies setting up subsidiaries in other member states, individuals going abroad and selfemployed workers in certain sectors. Finaneial Times (30/31 March 1996).
10. A number of countries have signed double taxation agreements. Some of them follow the OECD model convention, Articles 14 and 15 of which make a distinction between dependent personal service providers (employees) and independent service providers (professionals).
11. Thierry Noyelle and Beth Redfield, Internationally Traded Labour Services in Africa: Issuesfor a General Agreement on Trade in Services (July 1991). op. eil. p.17.
12. Commereial presence is defined under GATS as 'any type of business or professional establishment, including through (i) the constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or representative office, within the territory of a Member for the purpose of supplying a service'.
13. Thierry Noyelle and Beth Redfield (1991) op. eil. p. 42. 14. G. Russell Pipe, 'Telecommunications Services: Considerations for
Developing Countries in Uruguay Round Negotiations' in UNCTAD, Uni ted Nations, Trade in Services: Sectoral Issues (New York: 1989) pp. 49-106.
15. ITU, 'The Changing Telecommunication Environment', Report of the Advisory Group on Telecommunication Policy, (Geneva: ITU, February 1989). See also statements at a conference on telecommunications in Asia and the Paeific (March 1994) and Financial Times, (3 March 1994).
16. UNDP, Human Development Report 1994 (New York and Oxford: Oxford University Press, 1994) Tab1e 37.
17. The ITU Advisory Group on Telecommunication Policy has identified four major problem areas requiring priority attention: human resources development, operational effieiency, need for investment capital and formulation of policy objectives. See Restructuring of Telecommunications in Developing Countries, ITU Centre for Telecommunications Development (Geneva: ITU, May 1991).
18. See, in this connection, UNCTC, Trallsborder Data Flows: Access to the International Database Market (New York: United Nations, 1983) pp. 31-33.
19. Statement by the World Bank, Fillallcial Times, London, 3 March 1994. 20. Sydney Gorharn, 'Deve10ping Countries Enter Data Service Market,' in
Transnational Data and Communicatiolls Report, March-April 1991 (Cambridge, Mass, USA: Pyramid Research) pp. 14-17.
20. A distinction can be made between 'Iocked-in knowledge' and 'footloose knowledge' . The former refers to knowledge acquired from and inextricably Iinked 10 the production of a speeific product or a category of products. The externalization of service production could be seen as a means of facilitating
Enhancing Developing Country Participation in Trade in Services 81
tho export of services based on locked-in-knowledge. See J. Nusbaumer, Services in the Global Market (Bostonl DordrechtlLancaster, Kluwer Academic Publishers, 1987) pp. 51-65.
21. Report of the National Roundtable on the Promotion of Services Exports, organized by the Tunisian 'Agence Pour la Promotion de l'Industrie' (November 1987).
22. UNCTAD, 'Studies on Sectors of Priority Interest to Developing Countries: Issues Relating to the Export of Labour-intensive Services, TD/BI 1316 (24 February 1992) p. 19.
23. For a detailed discussion see UNCTAD/World Bank, Liberalizing International Transactions in Services (1994) op. cit. pp. 129-36.
24. Bimal Ghosh 'Economie Migration and the Sending Countries' (November 1994) op. eit.
25. For a diseussion on a new international regime for migration see Bimal Ghosh, 'Movements of People: The Search for a New International Regime' in Issues in Global Governance, The Commission on Global Governanee, Kluwer International, (London: 1995) pp. 405-424.
4 The General Agreement on Trade in Services (GATS) and Movement of Natural Persons
4.1 GATS: AN OVERVIEW
A major achievement of the Uruguay Round of trade negotiation is the establishment for the first time of a rules-based multilateral system for international trade in services and the initiation of a continuing process of its liberalization in the same way as the GATT has done since 1947 for trade in goods. The agreement, known as the General Agreement on Trade in Services (GATS), forms part of the Final Act of the Uruguay Round, and covers trade in all service sec tors. The basic aims are the expansion of trade in services of all participating nations and the enhancement of its contribution to the world economy.
Aside from the Preamble setting forth the underlying considerations and objectives, the GATS consists of six sections containing 29 articles and six annexes (see Box 4.1), together with the schedules of specific commitments on particular service activities by GA TTIWTO members. The main elements covered in the framework part of the agreement include the following: general concepts, principles and scope, rules and disciplines; specific obligations (commitments) and qualifications applicable to national schedules; institutional provisions concerning consultation, cooperation and disputes settlement; measures and procedures for progressively higher level of liberalization; and a set of Annexes dealing with characteristics of specific service sec tors or modes of delivery. The framework part dealing with the general rules and obligations for services trade is followed by the national schedules of specific commitments undertaken by each member government; these contain the results of the market access negotiations for services under the Uruguay Round. I
The present chapter makes an analysis of some of the main provisions of the GA TS including the first round of commitments or national schedules on services trade liberalization. The discussion provides an indication of the extent to which the GATS addresses the main issues raised in the previous chapters concerning the expansion of trade in services of developing countries, with a focus on movements of persons.
82
The General Agreement on Trade in Services and Movement 83
Box 4.1
The structure of the General Agreement on Trade in Services
PREAMBLE
PART I SCOPE AND DEFINITION Article . I Scope and Definition PART 11 GENERAL OBLIGATIONS AND DISCIPLINES Article 11 Most Favoured Nation Treatment Article 111 Transparency Article IIIbis Disclosure of Confidentiallnformation Article IV Increasing Participation of Developing
Article Article
Article Article Article
Article Article Article Article
Article Article Article
V Vbis
VI VII
VIII
IX X
XI XII
Countries Economic Integration Labour Markets Integration Agreements Domestic Regulation Recognition Monopolies and Exclusive Service Suppliers Business Practices Emergency Safeguard Measures Payments and Transfers Restrictions to Safeguard the Balance of Payments
XIII Government Procurement XIV General Exceptions XIVbis Security Exceptions
Article XV Subsidies PART III SPECIFIC COMMITMENTS Article Article Article PART IV Article Article Article PART V Article Article Article Article Article
XVI Market Access XVII National Treatment
XVIII Additional Commitments PROGRESSIVE LIBERALIZATION
XIX Negotiation of Specific Commitments XX Schedules of Specific Commitments
XXI Modification of Schedules INSTITUTIONAL PROVISIONS
XXII Consultation XXIII Dispute Settlement and Enforcement XXIV Council for Trade in Services XXV Technical Cooperation
XXVI Relationship with Other International Organizations
PART VI FINAL PROVISIONS Article Article Article
XXVII XXVIII
XXIX
Denial of Benefits Definitions Annexes
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Box 4.1 Continued Annex on Movement of Natural Persons Supplying Services under the Agreement Annexes on Financial Services (2) Annex on Telecommunications Annex on Air Transport Services Annex on Negotiations on Basic Telecommunications
Related Instruments Decision on Institutional Arrangements for the General Agreement on Trade in Services Decision on Certain Dispute Settlement Procedures for the General Agreement on Trade in Services Decision on Trade in Services and the Environment Decision on Negotiations on Movement of Natural Persons Decision on Financial Services Decision on Negotiations on Maritime Transport Services Decision on Negotiations on Basic Telecommunications Decision on Professional Services Understanding on Commitments in Financial Services
Appendix List of Schedules of Specific Commitments List of Artide 11 (MFN) Exemptions
Source: GATT Secretariat. The General Agreement on Trade in Services (Geneva, April 1994)
Scope and coverage
As mentioned above, the GATS applies to trade in any service in any industry except those supplied in the exercise of govemment functions (that is, supplied neither on a commercial basis nor in competition with one or more service suppliers). It also covers all modes of supply of services.
Cross border supply is the supply of services from the territory of one member country to the territory of another member country (for example, telecommunications and transportation).
Consumption abroad is the movement of the consumer to purehase services in the territory of another member country (for example, tourism).
The General Agreement on Trade in Services and Movement 85
Commercial presence concerns the sale of services by foreign service providers through the establishment or expansion of a commercial presence in the territory of a member country; (for example, a branch, agency or a wholly-owned subsidiary of a bank).
Presence of natural persons refers to the entry and temporary stay of natural persons in the territory of a member country to supply services (for example, movement of skilled or unskilled persons linked to a specific service contract such as construction or professional consultancy projects).
Basic principles of Iiberalization
The basic principles and obligations of the Services Agreement that apply to all member countries incIude the following.
Mostfavoured nation treatment Under this general obligation any trade concession offered to one member country for the supply of a service must be extended to all other member countries; exemptions are however allowed, subject to certain procedures.
National treatment Treatment for foreign services and service suppliers should be no less favourable than that accorded to its own services and service suppliers. This would not mean that the treatment will necessarily have to be identical; it may weil be different from (for example, more favourable than) the treatment accorded to domestic suppliers, but not less.
Transparency Relevant policies and measures including those presenting barriers to market access and discriminatory restrictions must be published.
Domestic regulation Disciplines are to be developed to ensure that measures relating to authorization of the supply of services - involving technical standards and licensing requirements - are based on objective and transparent criteria. They should not be more burdensome than necessary to ensure the quality of the service. The licensing procedures should not, in themselves, be a restriction on the supply of the service. Pending the entry into force of such disciplines, member countries shall not apply Iicensing and qualification requirements and technical standards in a manner that nullifies or impairs specific commitments made by the country.
Recognition The GATS incIudes principles concerning recognition requirements (for example, educational background and experience) for
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the purpose of authorization, licensing and/or certification in the services area. It encourages recognition of requirements achieved through harmonization and internationally agreed criteria; and excludes recognition in a manner constituting discrimination between countries in applying its standards or criteria for authorization, Iicensing or certification of service suppliers or disguised restrictions on trade in services.
Progressive liberalization Negotiated commitments on the levels of market access and national treatment make the process of liberalization irreversible and pave the way for further liberalization through future negotiation.
Monopolies and exclusive service providers Member countries are required to ensure that monopolies and exclusive service suppliers do not abuse their market power to compete in supplying services that are outside their monopoly rights and are subject to specific commitments.
Business practices The practices that restrict trade in services or restrain competition should be subject to consultations between countries leading to their elimination.
Transfers and payments for current transactions Member countries are required not to restrict international transfers and payments for current transactions related to specific commitments assumed in their schedules. This is subject to certain exemptions and conditions.
4.2 GENERAL PROVISIONS OF RELEV ANCE TO DEVELOPING COUNTRIES
The Services Agreement does not include provisions similar to those in Part IV of the GATT concerning more favourable treatment of developing countries for merchandise trade. In keeping with a more integrated approach to the global economy and trade, the GA TS incorporates development considerations and the needs of countries at different stages of development as constituent elements of the agreement, and not as an additive arrangement. There is another important reason for this approach. Special preferential arrangements for developing economies, similar to those in Part IV of the GATT, are in any case difficult to apply in the GA TS because of the nature of trade in services. Promotion of the economic growth of all trading partners and 'the development of developing countries' are thus among the explicit objectives of the GATS. The
The General Agreement on Trade in Services and Movement 87
Preamble also recognizes the 'the particular need of developing countries' to exercise the right 'to regulate and to introduce new regulation on the supply of services within their territories in order to meet national policy objectives'. More specifically, it expresses the desire of member nations 'to facilitate the increasing participation of developing countries in trade in services and the expansion of their services exports including inter alia through the strengthening of their domestic services capacity and its efficiency and competitiveness'. Also of significance is the collective desire of the participating nations to take 'particular account of the serious difficulty of the least developed countries in view of their special economic situation and their development, trade and financial needs.'
From the perspective of the developing countries, the objectives of the GA TS thus combine and harmonize three basic elements deserving special mention: the collective desire of signatory nations to enhance the participation of developing countries in world trade in services; the recognition of their special needs and conditions as well as their right to regulate on the supply of services to meet national policy objectives; and the incorporation of these elements within a common framework of principles and disciplines for liberalization and expansion of trade in services. The latter is viewed as an integral part of the process of further integration of the world trade and economy. Whether or not the measures envisaged under the GATS, including the negotiated commitments, are adequate to attain these objectives is of course a different matter and raises a different set of issues, some of which will be discussed later in this chapter. A point that merits attention at this stage is that the agreed commitments by all member countries to these objectives provide a certain leverage for the developing countries. They can use it in their ongoing and future negotiations with the more powerful trading nations.
A number of articles in the GATS refer to specific measures that have direct bearings on the developing countries. A major constraint facing the developing countries in their services trade concerns the lack of adequate access to information on the relevant mies and regulations in the exporting country. The absence of transparency of the regulatory regime, including its interpretation and implementation, often makes the situation worse. For example, as already noted in Chapter 3, absence of transparency in immigration regulations or rules concerning licensing of professionals can be a major impediment to effective access of service providers from developing countries to the markets of the importing countries. It has been mentioned above that transparency, under Article III of the GATS, requires each member country to promptly publish all eurrent regulations, guidelines and measures of relevanee to the implementation of the agreement.
88 Gains from Global Linkages
The Article furthermore requires aU member countries to establish, within two years of the entry into force of the agreement, enquiry points in order to provide the above information upon specific request.
Although these provisions are applicable to aU member countries, developing countries can be expected to derive particular benefits from them, given their weaker position as regards access to the relevant information. Also, developing countries are permitted to ask for appropriate flexibility regarding the two-year time limit for the establishment of their own enquiry points, as this may involve a certain financial and administrative burden for many of them.
Of particular importance are the provisions in Article IV dealing specifically with the increasing participation of developing counties in services trade. This should be achieved, inter aUa. through negotiated specific commitments on access to technology on a commercial basis; improvements in access to distribution channels and information networks; and the liberalization of market access in sectors and modes of supply of interest to them. Furthermore, developed countries are specifically asked to facilitate, through the enquiry points mentioned above. access of developing country service suppliers to information related to their respective markets concerning commercial and technical aspects of services; registration, recognition and obtaining of professional qualifications; and the availability of services technology.
By widening the scope of information beyond the regulatory aspects of the supply of services (mentioned under Article III), the stipulation seeks to provide a differential advantage to the developing countries. Finally, the article requires member countries to give special priority to the least developed countries in implementing the measures mentioned above.
In the context of economic integration agreements liberalizing trade in services. the GATS allows considerable flexibility for developing countries. For example. where developing countries are parties to such an integration agreement, flexibility shall be permitted 'in accordance with the level of development of the parties concerned, both overall and in individual sectors and sub-sectors'. This applies particularly to national treatment for services and service suppliers from other parties of the agreement. Also, contrary to the general provision applicable to economic integration agreements, 'more favourable treatment may be granted to juridical persons owned or controlled by natural persons of the parties' concerned, in the case of an agreement 'involving only developing countries. •
The agreement recognizes that subsidies in certain circumstances may distort trade in services and seeks to develop multilateral disciplines to avoid such distortion. At the same time, in carrying out negotiations for
The General Agreement on Trade in Services and Movement 89
this purpose, it requires all parties to recognize the role of subsidies in promoting development of developing countries and the need for flexibility in this area.
The discussion in the previous chapters has indicated that the asymmetry between developed and developing countries in respect of the growth and efficiency of service industries and competitiveness in the world market is likely to continue for many years. In recognition of this asymmetry the agreement provides for a degree of continuing flexibility for developing countries in the conduct of future rounds of negotiation. ArticIe XIX ensures this flexibility for developing countries wishing to open fewer sec tors or to liberalize fewer types of transactions; in other words, it makes explicit their right to extend market access in keeping with their development situation. It also recognizes that future offers of market access by developing countries may be subject to conditions aimed at strengthening their domestic services capacity and their efficiency and competitiveness inter alia through access to technology and an improved access to information networks.
Finally, specific provisions are incIuded in the GATS to facilitate technical assistance to service suppliers from developing countries. In addition to access of service suppliers needing assistance to the enquiry points required under ArticIe IV, technical assistance to developing countries shall be provided at the multilateral level by the (WTO) secretariat and shall be decided upon by the Council for Trade Services. The provision of such assistance may involve other international organizations concerned with trade in services.
The telecommunication system, as discussed in Chapter 3, plays a critical role in services trade - both as a service activity and as a mode of supply. Significantly, the Annex on telecommunications incIudes a specific reference to the interest of the developing countries - the only sectoral annex to do so. The Annex applies to measures that affect access and use of public telecommunications transport networks and services (but not to cable or broadcast distribution or radio and television programmes). It requires developed countries to refrain from imposing conditions on the access to, and use of, these networks and services unless necessary to ensure the availability of services to the general public, protect the technical integrity of networks or excIude the supply of services by countries that have not made specific commitments in this area. Developing countri es are however allowed to impose reasonable conditions on access to, and use of, such networks and services as may be necessary to strengthen their telecommunications infrastructure and service capacity and increase their participation in international trade in telecommunications services.
90 Gains from Global Linkages
The Annex furthermore envisages the provision of technical cooperation to developing countries through increased participation of telecommunications suppliers in the development programmes of competent international and regional organizations. Encouragement and support are to be extended by member countries to promote telecommunications co-operation among developing countries at the international, regional and sub-regional levels. Also, in co-operation with the relevant international organizations, member countries are to ass ist in strengthening the telecommunications services sector of the developing countries by providing information on international telecommunications services and developments in telecommunications and information technology. Finally, as far as the least developed countries are concerned, foreign suppliers of telecommunications are to be encouraged to assist in the transfer of technology, training and other activities for the development of the telecommunications infrastructure and the expansion of the telecommunications services of these countries.
4.3 IMPLICA TIONS OF GENERAL PROVISIONS AND OPPORTUNITIES FOR DEVELOPING COUNTRIES
What then are the implications of the general provisions of the new agreement for the service industries of developing countries and their participation in international trade in services? As al ready noted, a striking feature of the GATS is that it does not confer on developing countries a set of special concessions at the margin of the liberalization agreement; instead, it brings them into the liberalization process as active players. They are not exempt from any of the general obligations of the agreement; nor can they have the benefits of liberalization as free riders. The approach can be considered to be of mixed blessings for the developing countries. On the positive side, the strengthening of the capacity of the service industries of developing countries and their increased participation in services trade are among the explicit goals of the agreement. They are also allowed limited preferential treatment in terms of support and assistance to their services industry and trade and are accorded flexibility to offer less than developed countries. But much of these differential benefits is directiy linked to the process of negotiation on liberalization in which they are expected to participate actively. However given their difficulty in formulating requests for liberalization and their weaker negotiating position, developing countries may be unable to take full advantage of the general provisions of the agreement - a fact that underscores the importance of external technical
The General Agreement on Trade in Services and Movement 91
and other assistance for developing countries (discussed in Chapter 5) in the context of the GATS.
The GA TS opens up some new opportunities to promote trade in services through increased liberalization and competition. The gains of developing countries from the agreement thus depend largely on how and to what extent they make use of the general (open to all countries) opportuniti es offered by the agreement as weIl as the differential advantages accorded to the developing countries in the context of trade liberalization. Participation in the GATS should enable developing countries to enhance the efficiency of their service industries through easier access to imported, lower-cost and new or higher quality service inputs, know-how and networks.2 As consumers the. general public would gain from lower prices and wider variety. The presence in the domestic market of efficient and competitive suppliers of services and their interaction with domestic service industries could contribute to the growth of their service activities from which other sec tors and the economy as a whole may benefit. Offers of market access which are conducive to inward investment by foreign service suppliers may be of particular value in this context.
As developing countries progressively reduce or eliminate distortive effects of domestic regulations affecting service industries and trade, there could also be important gains from better allocation of resources. At the same time, efficient service suppliers in developing countries would benefit from more open and secure markets that the agreement, including the negotiated commitments, may produce. To the extent that professionals and specialists from developing countries travel and temporarily work abroad as service suppliers, they would gain in knowledge and experience; this in turn may contribute to improved performance and greater competitiveness of the relevant services sectors. The provisions concerning transparency in the application of the Agreement and the prompt domestic review of administrative decisions affecting trade in services can also be of some special help to sm all developing nations in avoiding arbitrary treatment by more powerful countries.
Some of the other disciplines and obligations included in the GATS, for example, those concerning monopolies and business practices, are of some special interest to the developing countries. To illustrate, in the case of business practices, developing countries have already shown a growing concern about such practices being used to restrict trade, as was evident during the negotiations leading to adoption of the United Nations Code on Restrictive Business Practices.
The provision concerning international payments and transfers recognizes that balance of payments difficulties may arise in the process of
92 Gains from Global Linkages
economic development and a110ws trade restrictions to redress the situation provided the measures are temporary and are subject to certain conditions including multilateral surveillance. Despite its significance for developing countries, its real value is somewhat circumscribed by the fact that such safeguard measures are also allowed under the GA TI (Article XVIII) for trade in goods. It should also be noted that the GA TS discipline in this area applies only to those services for wh ich a member country has made a specific commitment.
In short, the impact of the agreement on developing countries will be determined largely by their domestic policies conceming services trade and industries, based on the acceptance of the view that, given a framework of multilateral disciplines, increased interaction and competition within and between economies can be conducive to their economic gains. Multilateral technical and economic co-operation3 can play an important role in designing and implementing such policies in the country-specific situation. But the developing country gains will equally be determined by the opportunities in terms of market access, national treatment and other benefits that are actually opened up for them as a result of negotiated commitments.
4.4 THE SALIENCE OF SPECIFIC COMMITMENTS
The specific commitments made by member countries are of particular significance in view of the considerable ftexibility a110wed under the agreement in applying the general principles of liberalization by listing limitations and exemptions to them. The GATS provisions for market access and national treatment follow a 'positive list' approach in the sense that only those service industries that are specifically listed in national schedules come under GATS disciplines. Under a 'negative list' approach, as followed, for example, by the North American Free Trade Agreement (NAFTA), a11 service industries are covered unless specifically exempted. The second approach ensures more transparency and reduces the scope for discretionary administrative practices against service providers from other countries. Also, new services that may come into the market in future are in principle covered under this approach.
In the national schedule, which conforms to a standard format set up for this purpose (Box 4.2), each member country inscribes the service sectors and activities to which it will apply its obligations concerning market access and national treatment under the GATS, indicating at the same time any limitations it intends to maintain for those sectors and activities, including their modes of supply. Such entries in a schedule constitute a
Serv
ice
activ
ities
M
ode
of su
pply
PA
RT
1-
Hor
izon
tal c
omm
itmen
ts
All
sect
ors
I. C
ross
-bor
der
2. C
onsu
mpt
ion
abro
ad
3. C
omm
erci
al p
rese
nce
4. N
atur
al p
erso
ns
PA
RT
11
-Sec
tor-
spec
ijic
com
mitm
ents
C
ompu
ter s
ervi
ces
1. C
ross
-bor
der
2. C
onsu
mpt
ion
abro
ad
3. C
omm
erci
al p
rese
nce
4. N
atur
al p
erso
ns
Insu
ranc
e se
rvic
es
1. C
ross
-bor
der
2. C
onsu
mpt
ion
abro
ad
3. C
omrn
erci
al p
rese
nce
4. N
atur
al p
erso
ns
Sour
ce:
GA
TT
Sec
reta
riat
(199
4)
Bo
x 4.
2 E
xam
ple
of G
AT
S s
ched
ule
of c
omm
itm
ents
Non
e N
one
Lim
itatio
ns
Eco
nom
ic n
eeds
test
Se
nior
per
sonn
el a
nd in
tra-
corp
orat
e tra
nsfe
rs
Non
e N
one
Non
e U
nbou
nd, e
xcep
t as
prov
ided
in th
e ho
rizon
tal s
ectio
n O
nly
rein
sura
nce
Onl
y no
n-st
atut
ory
insu
ranc
es
Bre
eche
s of
fore
ign
insu
ranc
e co
mpa
nies
can
not o
btai
n lic
ence
s 10
pr
ovid
e st
atut
ory
insu
ranc
es
Unb
ound
, exc
ept a
s pr
ovid
ed in
the
horiz
onta
l sec
tion
Non
e N
one
Lim
itatio
ns o
n A
dditi
onal
na
tiona
l tre
atm
ent
com
mitm
ents
Subs
idie
s fo
r R
& D
N
one
Non
e N
one
Non
e U
nbou
nd, e
xcep
t as
prov
ided
in th
e ho
rizon
tal s
ectio
n N
one
Non
e
Non
e
Unb
ound
, exc
ept a
s pr
ovid
ed in
the
horiz
onta
l sec
tion
~ "' ~ "' i:l - ~ O
Q ~ 3 ~ .... § ~
s::i ~
S· ~
~ ;:;.
~ § ~ ~ ~ ~ .... \0
w
94 Gains from Global Linkages
binding commitment for the country to allow the supply of the service in question under the specified terms and conditions and not to introduce any new measures that could restrict its access to the market. The predictability of such terms and conditions is ensured by the stipulation that the commitments cannot be withdrawn or modified until the Agreement has been in force for three years and that the latter should be subject to agreed arrangements with the affected countries on compensatory adjustments.
From the perspective of developing countries, the commitments made by the developed countries on market access and national treatment are of special importance, given that they currently represent 85 per cent of global trade in services. Their interest concerns, more specifically, the extent to which developed country commitments provide market access, national treatment and other benefits for those specific services in which they have or are likely to have a comparative advantage.
However, as will be evident from the previous discussion on specific commitments, in assessing the impact of the national commitments on the developing countries it is important to take into account not only the sector coverage but also the depth of the commitments - that is whether and to what extent they are subject to limitations. Such limitations could be sector-specific, applicable to particular services and service activities, or be 'horizontal' in nature, embracing all service sectors, and may concern one or more modes of delivery.
There is also a third element which is of relevance - it concerns the most favoured nation (MFN) treatment. Although MFN treatment is a general obligation that applies to all measures, whether they are subject to a 'binding' commitment or outside it, affecting trade in services, member countries are allowed to seek exemptions for particular measures inconsistent with the MFN obligation. The exemptions in principle may not be maintained beyond ten years and are subject to review after five years. Another point to be borne in mind is that the application of unconditional MFN treatment can deprive some service suppliers, including those in developing countries, of existing preferences. The assessment of the value of a country's commitment therefore needs to take into account not only its sector coverage and limitations, but the national list of MFN exemptions, if any, and its importance.
4.5 NATIONAL SCHEDULES: EXTENT AND DEPTH OF NEGOTIATED COMMITMENTS
The Final Act of the Uruguay Round contains 95 certified schedules - representing a total of 106 developed, developing and transition countries (the
The General Agreement on Trade in Services and Movement 95
European Union has submitted a common schedule on behalf of its 12 Member States, with relevant indications of specific national commitments).4 The scope of liberalization in terms of sector coverage, as inscribed in these schedules, diverges somewhat widely between different country groups (Table 4.1). The tabulations are based on the list of 161 service activities which, as noted in Chapter I, have been generally used by most participating countries to negotiate and categorize their commitments (Appendix 3A). It is important to note that the figures in Table 4.1 show only the numbers of commitments by different country groups, but do not reveal the wide differences that exist between the 161 service activities in terms of their importance in production, employment and trade.s Nor do they unmask the differences in the scope of commitments within each sub-sector. This is because many of the sub-sectors mentioned in the table cover a wide range of service activities. Professional services, for example, represent eleven different activities. A country may have made a commitment in only one of these eleven activities, but even so it is counted as a commitment for professional services as a whole. A more complete picture of the scope of commitments is available in Appendix 3A, which gives a breakdown of the commitments by each activity within a service sub-sector. Finally, by showing the number of service activities inscribed in each national schedule, Appendix 3B reveals the variations in the level of commitments as between countries within each country group.
Certain broad conclusions can be drawn from these tables. The coverage of sec tors is relatively complete in the case of developed countries, but less so for transition economies and particularly for developing countries. However, the commitments made by developing countries included all the largest developing economies, representing the bulk of the total service output of all developing countries (excluding the transition economies). Most commitments cover tourism and travel services; other sectors with a high degree of coverage include financial services and business services, contrasting with education and health services wh ich have a much lower coverage. It should be noted however that in many countries a significant part of education and health services is supplied by the government, and that government-provided services, as already noted, are excluded from theGATS.
It is not surprising that, alongside developed countries, many developing economies have committed themselves to liberalize trade in tourism and travel (hotels and restaurants, travel agencies and tour operators and tourist guides). Although, as mentioned in Chapter I, it is one of the traditional sectors of their services trade, the liberalization commitments and increased predictability resulting from them should help attract foreign
Tab
le4.
1 Se
ctor
al c
over
age
of sc
hedu
les:
Com
mitm
ents
with
in s
ub-s
ecto
rs (
num
ber o
f cou
ntrie
s)
\0
0'1
DC
LD
C
Tra
nsiti
on
Tot
al
DC
L
DC
T
rans
ition
T
otal
Max
imum
25
76
5
106
Max
imum
25
76
5
106
1. B
usin
ess
6. E
nvir
onm
ent
A. P
rofe
ssio
nal
25
37
4 66
A
. Sew
age
23
7 2
32
B.C
ompu
ter
25
34
4 63
B
. Ref
use
disp
osal
24
7
3 34
C
.R.&
D.
22
15
3 4
0
C. S
anita
tion
23
5 3
31
~
D. R
eal e
stat
e 23
3
0 26
D
. Oth
er
24
6 1
31
S·
E. R
enta
lllea
sing
25
13
3
41
7. F
inan
cial
... ';;>
F.
Oth
er
25
38
4 67
A
. Ins
uran
ce
25
47
4 76
~
2. C
omm
unic
atio
n B
. Ban
king
25
37
4
66
;I
c;)
A. P
osta
l 0
3 0
3 C
. Oth
er
0 0
0 0
<:r
B.C
ouri
er
4 15
3
25
8. H
ealth
2"
C. T
elec
om
4 18
3
25
A.
Hos
pita
l 14
14
1
29
- t---B
asic
2
16
3 21
B
. Oth
er h
uman
hea
lth
2 4
0 6
S·
-V
alue
-add
ed
25
22
5 52
C
. Soc
ial
13
1 0
14
E
D. A
udio
-vis
ual
2 11
0
13
9. T
ouri
sm a
nd tr
avel
(\
E. D
ther
6
0 6
12
A. H
otel
s an
d re
stau
rant
s 25
68
4
97
... 3.
Con
stru
ctio
n B
. Tra
vel a
genc
ies,
tour
ops
. 25
53
4
82
A. B
uild
ings
24
21
3
48
C. T
ouris
t gui
des
23
21
2 46
B
. Civ
il en
gine
erin
g 24
20
3
47
D. O
ther
1
13
0 14
C
. Ins
talla
tion
&
24
19
3 46
10
. Rec
reat
iona
l, cu
ltura
l, as
sem
bly
spor
ring
D
. Com
plet
ion
&
23
13
3 39
A
. Ent
erta
inm
ent
17
16
34
finis
hing
E.
Oth
er
20
15
2 37
B
. New
s ag
ency
22
0
0 22
Tabl
e4.1
C
onti
nued
~
~
DC
L
DC
T
rans
itio
n T
otal
D
C
LD
C
Tra
nsit
ion
Tot
al
~
~
;:s
~ i3
4. D
istr
ibut
ion
C.
Lib
rari
es, a
rchi
ves,
4
3 0
7 - ~
mus
eum
s Cl
Q n; A
. Com
mis
sion
22
2
0 24
D
. S
port
ing
21
16
38
~
agen
ts'
~ ~
B. W
hole
sale
trad
e 25
8
4 37
E
.Oth
er
0 2
;:s -
C. R
etai
ling
2
4
7 2
33
11. T
rans
port
~
;:s
D. F
ranc
hisi
ng
23
5 2
28
A.
Mar
itim
e tr
ansp
ort
5 26
1
32
~
E.O
ther
2
0 0
2 B
. Int
erna
l w
ater
way
s 2
2 3
7 c:s
5. E
duca
tion
C.A
ir
23
17
3 43
~
A. P
rim
ary
18
5 4
27
D.
Spa
ce
2 0
0 2
S·
B. S
econ
dary
19
5
4 28
E
.Rai
l 19
5
3 27
iJ
l ~
C.
Hig
her
18
4 4
26
F.R
oad
25
15
3
43
~ D
. Adu
lt
18
1 4
23
G. P
ipel
ine
3 1
1 5
;:;.
~
E.O
ther
3
2 2
7 H
. A
uxil
iary
ser
vice
s 21
15
1
37
'" 1::1
I. O
ther
14
6
0 20
;:s
I:l
.. ~ So
urce
: G
AT
I S
ecre
tari
at (
1994
) '<:
: ~
Not
es:
(1)
Tbe
thre
e co
untr
y gr
oups
are
dev
elop
ed c
ount
ries
(D
C),
dev
elop
ing
econ
omie
s (L
DC
) an
d tr
ansi
tion
eco
nom
ies.
::! ~
(2)
Tbe
figu
res
coun
t the
twel
ve m
embe
rs o
f the
Eur
opea
n U
nion
indi
vidu
ally
. ;:s
- 10
-...
.I
98 Gains trom Global Linkages
investment with a positive development impact in tenns of both employment and foreign exchange earnings for developing countries.
The wide coverage of the commitments of developed countries for business and especially professional services, (including legal, accounting, architectural and engineering, medical and quasi-medical services, consulting, software development and certain types of data processing activities and security services) is also promising for the developing countries. given that (a) they constitute a significant part of developed countries' markets in services and (b) most of the services are skill-intensive (but not necessarily capital-intensive) activities in several of which many developing countries have an actual or potential comparative advantage.
An important gap in this connection concerns the telecommunications sec tor which as discussed in Chapter 3 is extremely important both as a service and as a mode or sub-mode of delivery in many of those business and professional services in which developing countries have a special interest. Although 52 countries (of which 25 are developed) have made commitments for 'value added' telecommunication services, the number of commitments in 'basic' telecommunications is limited to 21, of which only two are by developed countries. One reason for this is that (as with health and education services) in many countries the supply of basic telecommunication continues to be a government monopoly and is therefore excluded from commitments. An encouraging development is that under a (GATT) Ministerial decision a Negotiating Group on Basic Telecommunications has been set up on a voluntary basis for the continuation of the negotiations until 30 April 1996, wh ich makes it likely that additional commitments will be added to the relevant schedules at a later stage (see Box 4.3). The large number of commitments in the financial services - a total of 76, including 47 by developing countries - reveals the growing interest of many developing countries in opening up their markets for insurance and banking services and their increasing confidence (despite some hesitation in the initial stage of the negotiation) in developing their export capacity in these services. In view however of some of the special characteristics of this sector, participating countries have agreed to continue negotiations on the basis of the existing commitments to achieve further Iiberalization. The negotiations should have been completed by June 1995 (at which point commitments could have been extended or withdrawn), but in view of the complications and differences that had marked the negotiation the deadline was extended to 28 July 1995.
The special efforts made during the extended period led to the conclusion of an interim accord, but without the involvement of the United States which had expected better market access offers from other coun-
The General Agreement on Trade in Services and Movement 99
Box 4.3
The unfinished agenda and the ongoing work
The General Agreement on Trade in Services (GATS), concluded during the Uruguay Round, is the first set of multilaterally agreed and legally enforceable rules and disciplines ever negotiated to cover trade in services. It also foresees, and paves the way for, a progressively higher level of liberalization in trade in services in the coming years through successive rounds of negotiation. The next round of negotiation is scheduled to begin not later than the year 2000.
Meanwhile, it was agreed at the ministerial conference in Marrakech to build on the momentum created by the GATS and continue negotiations in the following specific areas in order to complete the work already initiated during the Uruguay Round.
Basic telecommutlications services: Complexity of the issues in this sector, especiallY those concerning privatization of government monopolies, prevented governments from offering commitments during the Uruguay Round. The negotiations on basic telecommunications was due to end in April 1996, with new national commitments and a set of basic roles for liberalization. As for the sophisticated value-added telecommunications, which are mostly in the private sector, commitments are already included in many national schedules under theGATS.
Maritime transport services: Negotiations would continue until the end of June 1996 in order to improve on the commitments already included in the national schedules covering three main areas in this sector: access to and use of port facilities; auxiliary services; and ocean transport.
Financial services: In the final days of the services negotiation it was agreed that in this sector governments could revise and finalize their schedules and the MFN exemptions within six months after the entry into force of the GATS. Accordingly, negotiations continued within the new time-frame. Dut complications arose as the Uni ted States expressed concern that acceptance of inadequate offers of a number of countries (mostly in Asia) would allow free-riders to benefit from greater liberalization of others.
In order to avoid a breakdown of the negotiations the deadline was then further extended to 28 July 1995. An interim accord was reached on the last day of the extended period, but without the involvement of the United States. Of the 76 countries with commitments in this sector, around 30 (counting the European Union as one) offered improvements in the negotiations leading up to the agreement. The interim accord, described by the WTO Director-General as 'a very good second best', will ron up to the end of 1997. The Protocol covering the new schedules remains open until 30 June 1996 to allow countries time for ratification. Although many of these countries have pledged to do little more (or in some cases even less) than guarantee existing market openness, the accord also contains promises of further liberalization, especially in the east Asian and Latin American markets. Dy 1997. when the negotiations resume, many developing countries might be able to offer more than what has already been pledged.
100 Gains from Global Linkages
Box 4.3 continued Movement 0/ natural persons: A number of offers in this area were al ready incIuded in the schedules submitted under the GATS, but it was agreed that, as in the case of financial services, the negotiations to improve commitments should continue for aperiod of six months after the WTO came into force. The deadline was subsequently extended to 28 July 1995 in parallel to a similar extension for negotiation on financial services, as mentioned above.
Despite the sensitivity of the policy area some limited improvements were achieved through these additional efforts. The European Community (including its member states) has guaranteed opportunities for foreign professionals to work without being apart of a commercial presence on temporary service contract assignments in several professional and business sectors. Similar commitments have been made by Norway and Switzerland, as weil as by India. Australia has guaranteed improved opportunities for foreign service suppliers as business visitors and intra-company transferees, while Canada has added to its previous commitments for foreign professionals, without the requirement that they be linked to a commercial presence of an enterprise. These commitments were expected to come into force in 1996, after they have been ratified by the WTO member states.
Other areas and issues: The GATS has identified several other issues on which negotiations should be undertaken in support of the liberalization process. First, disciplines are to be developed to ensure that qualification requirements and procedures, technical standards and Iicensing requirements do not constitute unnecessary barriers to trade in services. A working party on professional services is required to develop, as a matter of priority, multilateral disciplines in the accountancy sector. Most of these issues, as discussed in this chapter, are of special relevance to movement of natural persons as service providers.
Second, it is foreseen that negotiatiolls will be undertaken to create multilateral disciplines concerning subsidies, government procurement and safeguard measures - areas in wh ich the GATS does not contain any rules. Multilateral disciplines in these areas are however of considerable importance for liberalization of trade in services.
Source: WTO, 1995
tries (Box 4.3.) The interim agreement which covers 90 countries (counting the European Union member states separately) will run up to the end of 1997. True, in most cases the new commitments hardly go far beyond the levels of market access that the countries already allow. But, in binding themselves for the first time at certain levels of market access and by doing so on a non-discriminatory (MFN) basis, the negotiating nations have created a more secure and predictable environment for investors in banking, insurance and other financial services. The
The General Agreement on Trade in Services and Movement 101
commitments will help promote merchandise and service trade where access tOt and the functioning oft financial services are of critical importance. They should also facilitate new financial and capital flows to developing and transition economies.
Construction is another sec tor which is of particular interest to developing (as weil as developed) countries. and its coverage in the commitments of a large number of countries should induce developing countries to take full advantage of more open and secure markets.
It is not surprising that. over all. developing countries' commitments covered fewer service activities than those of developed countries. In their original schedules the latter inscribed 2423 commitments on market access for service activities or 53.8 per cent of the maximum possible. By contrast. commitments by developing countries numbered 2159. representing 17.2 per cent of the maximum possible for the group as a whole. Africa. which made 396 commitments. had the lowest share (9.8 per cent) of the maximum possible for the region.6
But. as already discussed. what maUers is not just the sector coverage of a particular commitment but also the content or depth of liberalization. measured by the limitations on market access and national treatment inscribed in each schedule. Table 4.2 shows the number of such limitations affecting different modes of supply in each of the eleven major service sectors. For most service sectors the number of limitations affecting cross-border supply and consumption abroad is low. The high percentage of exclusion from commitments (unbound) for cross-border supply in such services as construction. environmental and health services is largely explained by the fact that the cross-border supply of these services is either not technically feasible or the scope is extremely Iimited. In the case of supply of services through commercial presence and the presence of natural persons. the high proportion of commitments without limitations could be misleading. Since most of the limitations affecting these two modes of supply are applicable to all service sectors (and only a few of them are sector-specific) they are shown in the horizontal section of the national schedules.
In fact. market access for service-providing natural persons - although virtually covered in all schedules - is subject to limitations in 92 per cent of commitments and is unbound in 6 per cent (Table 4.3). Likewise. while access for commercial presence is covered in most commitments. they are free of limitations in only 30 per cent of cases. The pattern of limitations to commitments however varies substantially between different country groups. For movement of persons. for example. limitations on access are more frequent among developed and transition economies than among
- 0 T
able
4.2
Nat
ure
of c
omm
itm
ents
by
serv
ices
sec
tor
(Per
cent
ages
in e
ach
cate
gory
) IV
Cro
ss-b
orde
r C
onsu
mpt
ion
abro
ad
Com
mer
cial
pre
senc
e N
atur
al p
erso
ns
Sec
tor
No
Lim
its
Unb
ound
N
o L
imit
s U
nbou
nd
No
Lim
its
Unb
ound
N
o L
imit
s U
nbou
nd
lim
its
lim
its
lim
its
lim
its
Bus
ines
s 72
3
25
88
1 11
86
11
4
86
8 7
?? S·
Com
mun
icat
ion
73
10
16
84
2 14
73
20
7
89
2 10
'" ~
Con
stru
ctio
n 17
I
82
83
0 17
80
15
5
91
6 3
~
Dis
trib
utio
n 69
3
28
93
0 7
87
12
1 92
5
3 ;:
Edu
cati
on
81
9 10
92
3
6 77
18
5
90
6
5 ~
0-E
nvir
onm
ent
20
0
80
96
0 4
96
4 0
94
4 2
I:l-
Fin
anci
al
51
19
30
57
17
26
39
56
5
75
15
10
>:) -
Hea
lth
20
0 8
0
89
2 9
76
16
8 89
6
6 t-
- S·
Tou
rism
51
4
45
88
1 11
78
17
5
82
8 10
~
Rec
reat
ion
68
0 31
94
1
5 86
9
5 89
5
6 O
Q "'
Tra
nspo
rt
48
3 49
9
4
0 5
74
13
13
91
3 6
'"
Sour
ce:
GA
TI
Sec
reta
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(19
94).
L. A
ltin
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and
A. E
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s (1
995)
N
otes
: L
imit
atio
ns in
clud
e bo
th m
arke
t acc
ess
and
nati
onal
tre
atm
ent
'No
lim
its'
ind
icat
es t
he a
bsen
ce o
f sec
tor-
spec
ific
lim
itat
ions
. In
nea
rly
all
such
cas
es h
oriz
onta
llim
itat
ions
app
ly. T
he a
bsen
ce o
f sec
tor-
spec
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lim
itat
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is n
ot th
eref
ore
an i
ndic
atio
n o
f rel
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ve f
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om o
f acc
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Unb
ound
mea
ns t
hat a
mod
e o
f sup
ply
is e
xclu
ded.
Per
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ages
may
not
add
up
due
to r
ound
ing.
Tab
le4.
3 L
imit
atio
ns to
mar
ket a
cces
s an
d na
tion
al t
reat
men
t (pe
rcen
tage
of c
omm
itm
ents
on
serv
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acti
viti
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y co
untr
y gr
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) ~
(b
Cou
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gro
up
Cro
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Com
mer
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atur
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C
(b
::s (b
~ N
o L
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s U
nbou
nd
No
Lim
its
Unb
ound
N
o L
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s U
nbou
nd
No
Lim
its
Unb
ound
- )..
lim
its
lim
its
lim
its
lim
its
Oll ~
(b :!
Mar
ket a
cces
s (b
::s ....
Tot
al
56
10
34
80
8 13
30
66
4
2 92
6
g ~
Dev
elop
ed
65
11
25
87
12
2 39
60
1
0 10
0 0
s:::i
Dev
elop
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44
lO
46
70
2 28
20
75
5
5 81
14
f}
Tra
nsit
ion
52
11
37
79
11
lO
37
61
12
0 99
1
S· ~
Nat
iona
l tre
atm
ent
~ ;:;.
Tot
al
63
4 33
83
2
15
11
83
6 3
0
61
9 ~
1::1 ::s
Dev
elop
ed
70
5 25
95
3
2 0
97
3 17
83
1
1:1..
Dev
elop
ing
52
3 45
66
1
33
28
63
9 45
34
21
~
Tra
nsit
ion
70
3 27
93
3
4 0
88
12
51
48
1 ..:
(b
:! (b
::s So
rm:e
: G
AT
T S
ecre
tari
at (
1994
). L
. Alt
inge
r and
A. E
nder
s (1
995)
.... -0 ~
104 Gains trom Global Linkages
developing economies, but the reverse is true for commercial presence where more frequent limitations are placed by developing countries than by developed and transition economies.
4.6 HORIZONTAL COMMITMENTS ON COMMERCIAL PRESENCE: EFFECTS ON DEVELOPING COUNTRIES
There are few horizontal !imitations applicable to trade in services through cross-border supply or consumption abroad, but most schedules include limitations on commercial presence and movement of natural persons as modes of supply.7 The situation regarding horizontal commitments on movement of natural persons supplying services is discussed in the next section.
As concerns commercial presence, 31 governments entered no horizontallimitations on market access. Of the 55 national schedules which include such limitations, 20 impose ceilings on equity participation by foreign investors, 25 require commercial presence to take the form of a specified legal entity and ten allow foreign investment on the basis of an economic needs test. A larger number of governments - 68 out of 87 -have included horizontal limitations on national treatment of foreign service suppliers established in their territories. The two most common types of limitations concern the purchase of real estate and eligibility for subsidies mainly for research and development. Eleven governments have included no limitations on national treatment of foreign establishments supplying services.
The main features of the horizontal commitments on commercial presence are summarized in Table 4.4. An in-depth analysis of these commitments is beyond the scope of the present study. As far as the developing countries are concerned, many of the policy issues involved are in fact closely intertwined with those concerning foreign direct investment (FDI) in general. A few relevant points should none the less be noted. The inclusion of horizontal commitments on foreign commercial presence in the national schedules of a considerable number of developing countries is clearly a reflection of the shift in their policies since the 1980s towards liberalization of FDI inflows. Most developing countries are now anxious to have wider access to foreign capital and technology as a means of accelerating economic development.
True, a continuing concern over national sovereignty and security and general welfare makes the developing countries somewhat hesitant to accept large-scale foreign involvement in the basic or essential service industries, most of wh ich have therefore been traditionally maintained in
The General Agreement on Trade in Services and Movement 105
Table 4.4 Horizontal (applicable to a11 sectors) commitments on commercial presence
Market access Number of National treatment schedules
Total 87 Total Unbound I Unbound No Iimitations 31 No limitations With Iimitations 55 With Iimitations
Authorization subject to 10 Taxation an economic needs test· Legal entity 25 EligibiIity for subsidies Ceilings on foreign 20 Purchase of real estate equity participation
Nationality requirements for directors
Access to local finance
Source: GATI Secretariat (1994) • Executives, managers, specialists
Numberof schedules
87 1
18 68 11
28 41
8
6
the public sector. At least part of the concern is embedded in their historical experience, aIthough, as is weil known, a similar feeling has also long existed in the industrial world. Despite alI this, the majority of developing countries are now opening up a wide range of service sectors to foreign suppliers as they recognize, even if somewhat cautiously, the important role they can play in national development. Significantly, of the 31 horizontal commitments which have placed no limitations on market access through commercial presence, 17 are by developing countries. Also, the !imitations imposed by several developing countries in the form of the requirement of an economic needs test concern job creation, technology transfer and training of nationals: these elements are directly related to their basic strategy and objectives of national development. The actual development impact of these commitments and the future attitude of the countries concerned to further liberalization are likely to depend critically on how the measures are implemented: the policies and organizational behaviour of transnational corporations will be an important factor in this context.
The horizontal commitments on supply of services through commercial presence should be of interest to developing countries also as service exporters. For a number of developing economies the lack of an effective presence abroad serves as a constraint both on securing contracts for
106 Gains from Global Linkages
supplying services and their efficient execution. It should be noted that the potential markets for a wide range of their services (for example, business and professional services, incIuding computer software development, tourism and travel and construction) are not confined to developed countri es but are increasingly extending also to other developing countries. Despite the relatively high levels of limitations on market access and especially on national treatment, the horizontal commitments ensure a degree of transparency and predictability for trade through commercial presence in the service industries which are incIuded in the national schedules. This in turn should induce service suppliers in developing countries to strengthen their commercial presence abroad, while encouraging them to use a more organized enterprise structure for their trade as discussed in Chapter 3.8 But here again much would depend on the efficiency and competitiveness of the concerned service industries, on the one hand, and the manner of implementation of the liberalization measures by exporting and importing countries, on the other.
4.7 MOVEMENT OF NATURAL PERSONS
Previous discussion has shown that in general the services in which developing countries have a comparative advantage are labour- and skill- or knowledge-intensive and that international trade in them in most cases involves temporary movement of natural persons as the principal or complementary mode of delivery. From the perspective of developing country participation in trade in services, it is therefore of particular interest to examine the extent to which the GATS can be expected to facilitate such trade-related movement of natural persons. This is attempted in the present section.
An analysis of the relevant provisions
As al ready mentioned, the GATS embraces all modes of delivery including the movement of natural persons as service providers in all service sectors. ArticIe XVI, which lists a number of measures that are considered inconsistent with market access, includes restrictions on the total number of natural persons as service providers.
Paragraph 2(d) of Article XVI refers to 'limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test' .
The General Agreement on Trade in Services and Movement 107
The Annex on movement of natural persons supplying services provides further details. It specifies that the measures under the agreement do not apply to natural persons seeking access to the employment market of a member country or matters regarding citizenship, residence or employment on a permanent basis. The agreement does not prevent a member country from regulating the entry of natural persons into their territory or their temporary stay in it, provided that any such action does not nullify or impair the benefits accruing to any member under the terms of a specific commitment. It further clarifies that the mere fact of requiring a visa for natural persons of certain member countries and not for those of others does not constitute an infringement of this provision. This is in line with the definition used in this study for trade-related movement of natural persons as service providers.
The GA TS also seeks to preclude the use of the system of licensing and certification (including the method of their recognition) as a barrier to the market access of natural persons supplying services. The agreement thus requires member countries, as already noted, to ensure national treatment for foreign services and service suppliers. Harmonization and mutual recognition of qualifications and certifications is, as discussed in Chapter 3, an important element of this process. Of particular significance in this connection is the ministerial decision, as a related instrument to the agreement, on the establishment of a W orking Party on Professional Services to make recommendations for the elaboration of multilateral disciplines (with priority given to the accountancy services) and the use of technical standards so that these measures do not constitute unnecessary barriers to trade.
The provisions on market access and national treatment and the mostfavoured nation treatment in the agreement are comprehensive enough to take care of most of the constraints that generally impede the movement of persons as service providers. There are however some important caveats. First, market access and national treatment, although in principle unrestricted, could be subject to limitations and conditions explicitly listed in the national schedules for specific modes of supply. Thus within a sector listed in the national schedule a member country may include restrictions on movement of persons as service providers while liberalizing other modes of supply. In other words, the real impact of the movement of persons as service providers is largely determined by the specific commitments made by a member country on (a) their scope or sector coverage; and (b) the nature and extent of limitations imposed on market access and national treatment affecting the movement of natural persons as service providers.
108 Gains from Global Linkages
Secondly, given the permissible exemptions from MFN treatment, a member country may decide not to extend to all countries or in all sectors the provisions liberalizing the entry and temporary stay of service providing foreigners. Thirdly, even if the restrictions listed in the national schedule on market access and national treatment of foreign service providers are applied on a non-discriminatory (MFN) basis, this may not prevent (under Article V bis) a member country from entering into a preferential arrangement with a group of certain other member countries on the basis of full integration of their labour markets. This however is subject to the condition that the citizens of the countries concerned are exempt from the requirements of residency and work permits.
Nature and extent of commitments on Iiberalization
The most important test of the impact of the GA TS on temporary movement of persons lies in the extent and especially the depth of liberalization to wh ich member countries commit themselves in the national schedules. As al ready noted, the majority of national commitments, including those of developed countries, on movement of natural persons are horizontal in nature, applying to all service sectors included in a particular schedule. The entries made in the national schedules are encapsulated in Table 4.5. It should be noted that, as with the financial services, the deadline for completing the national schedules on movement of natural persons was extended to 28 July 1995. The commitments made during this extended period are not reftected in Table 4.5, but are discussed in the text below and in Box 4.3.
The nature and extent of commitments inscribed in the schedules differ widely in detail, but they can be broadly grouped into four categories:
(i) Commitments stipulating limitations on the total number of natural persons who can enter into their territory to supply services. The limitations are expressed either in the form of the requirement of an economic needs (or labour market) test or as a quota in terms of the percentage of foreign personnel employed in an enterprise. The laUer is often accompanied by a percentage restriction on the share of wages or salaries paid to foreign personnel as a group. Limitations linked to an economic needs test entail in most cases the issuance of work permits which give precedence to a suitably qualified national in the process of filIing a particular position.
(ii) Bound commitments specifying the nature and extent of liberalization rather than stipulating the limitation on market access and national treatment. Under this approach liberalization measures are included for
The General Agreement on Trade in Services and Movement 109
Table 4.5 Horizontal (applicable to all sectors commitments on the presence of natural persons
Market access Numberof National treatment Numberof schedules schedules
Total 87 Total 87 Entry of natural persons Unbound 2 is subject to:
an economic needs test 14 No limitations 50 a quota 3 With \imitations, 35
relating to: Binding for intra- 70 Taxation 6 corporate transferees Eligibility for subsidies 23 ofwhich:
Only for senior 66 personnel*
Purchase of real estate 8 Subject to an economic 11 needstax
Other 2 Subject to a quota 14
Source: GATT Secretariat (1994) * Executives, managers, specialists
the entry and temporary stay of some specified categories of natural persons supplying services while leaving other categories unbound.
(iii) Bound commitments specifying liberalization of the entry and temporary stay of certain categories of natural persons as service providers while subjecting other categories to economic needs test or quantitative ceilings.
(iv) Finally, there are some horizontal commitments where the relevant national autborities, either tbe immigration or labour ministry, are given broad discretionary power in granting permission for the temporary entry and stay of (foreign) natural persons supplying services.
The countries making bound commitments diverge in defining different categories of natural persons mentioned in their schedules. They also diverge on points such as whether certain categories are required to comply witb labour market tests and whether the duration of the temporary stay of different categories is stipulated. The main horizontal categories included in the schedules are short-term or business visitors, specified categories of intra-corporate transferees and (in some cases) specialists, including professionals, holding a service contracl.
110 Gains from Global Linkages
Short-term visitors, or 'business visitors' in some schedules, are allowed into a country for a short duration, typically 90 days. Such vi sitors are not based in the host country. They, in general, are representatives of a service supplier and seek entry mostly for the purpose of concluding agreements to seil services or for negotiating for the sale of services but without making sales to the general public or supplying services themselves. In some cases this category of persons is described as service seilers. Some schedules also include, either in the category of 'business visitors' or separately (for example, 'personnel engaged in establishment' in the US schedule), persons already employed by an entity in the horne country entering the territory of another member country for the establishment of a commercial presence in the latter country.
Longer-term service suppliers are gran ted entry and temporary stay (typically between two and five years) and are employed in an organization based in the host country. The most common category of such persons is intra-corporate transferees who are employed abroad to work within the organization structure. Although the national schedules differ in detail, the persons covered as intra-corporate transferees are broadly similar. They typically include: executives and senior management personnel who in most cases are not required to meet the labour market test; and specialists who possess an uncommon knowledge of the organization and its activities or a relevant part of them, and who may be required to undergo the labour market test.
In addition to the business visitors and intra-corporate transferees, some national schedules with bound commitments for specified categories include foreign professionals or specialists employed under contracts for short periods - usually a few months.
As indicated in Table 4.5, out of a total of 87 horizontal commitments on presence of natural persons 70 include bindings only for the entry of intra-corporate transferees, stipulating in most cases that this should be confined to senior personnel such as executives, managers and specialists. In 25 of these cases the entry of specified intra-corporate transferees or certain subgroups of them is nevertheless subject to a quota or an economic needs test. A large number of commitments - 61 per cent - include limitations to national treatment of service-providing natural persons (Box 4.3). The proportion is higher for developed and transition economies - 82 per cent and 48 per cent respectively - than for developing countries. Only 30 per cent of the commitments include no limitations on national treatment of such persons, and the ratio is particularly low for developed countries - 17 per cent. A much higher proportion of develop-
The General Agreement on Trade in Services and Movement 111
ing and transition economy countries - 45 per cent and 51 per cent respectively - have indicated no limitations on national treatment in their commitments.
As concerns MFN exemptions, roughly 350 measures have been listed, mainly involving bilateral and plurilateral agreements, from which certain foreign service suppliers may derive preferential benefits.9 From the perspective of movement of persons, two main areas deserve special mention. The first concerns professional services, in which nine countries have claimed exemptions for bilateral agreements on mutual recognition of qualifications. As al ready noted, under the GATS the existence of a mutual recognition agreement is permissible as long as it does not lead to discrimination against foreign service suppliers in other member countries. Given that the MFN exemptions claimed by countries for mutual recognition agreements may involve an attempt to restrict their scope to existing members, each such exemption needs to be examined to determine its effects on foreign service suppliers from other member countries. However, the number of countries claiming exemptions for professional services is sm all relative to the number of member countries which have made specific commitments in this sector.
The other important area concerns entry and residence visas and work permits, in which 17 countries (the 12 member states of the EU counting as one) have claimed MFN exemptions; these include both developed and developing countries. Here, too, a case-by-case approach is needed to determine the effects on the conditions of competition for foreign service suppliers as natural persons.
Impact on developing countries
What, then, is the expected impact of the negotiated commitments on movement of persons as service providers under the GATS? All or most national schedules of developed countries cover commitments on entry and temporary stay of service supplying foreigners that cover a wide range of service sectors, include those of special export interest to developing countries. The bound commitments for access are however basically limited to specified categories of high-level and skilled (executive, managerial and professional) personnei, and mainly (though not exclusively) confined to movements within a corporate or a similar enterprise structure. Initial offers of most developed countries had
'shied away from lifting the often stringent restrictions on market access and national treatment they apply to the temporary movement of
112 Gains from Global Linkages
personnel so that the depth of their off er towards developing countries is typically far less generous than it may seem'.10
That situation has remained basically the same in the final schedules. In general, the commitments made by the developed countries on move
ments of natural persons are no more than what is already allowed under existing immigration regimes in individual countries. Indeed, at least in some cases, the commitments actually fall short of the provisions in the regimes currently in place. It is worth noting that, although the NAFf A does not deal with free movement of persons in general, the United States has sought to liberalize the movement of Mexican professionals covered under the agreement by introducing 5500 new professional visas (exclusive of renewals and extensions) on an annual basis (pending arrangements for unlimited access). This additionality implies that an eligible Mexican professional can seek entry under the already existing (H-IB) visa regime if the full quota for the year under the NAFfA is al ready reached. By contrast in a number of cases the bound commitments of developed countries under the GA TS provide for liberalization of the movements of persons at a lower level than under existing immigration regulations. 1 1
For example, in several developed countries the statutory definition of business visitors is sufficiently broad to allow them to carry out certain short-term service assignments. But the narrower definition used in bound commitments by many of them (with such exceptions as Canada and New Zealand) excludes the direct provision of any such services by business visitors. Even in the case of intra-company transferees, where the bound commitments come closest to the provisions under existing regimes, the commitments of a few countries require a Ion ger period of prior employment with the firm for an employee to be eligible as an intra-company transferee, compared to the period stipulated in existing regulations. 12
To illustrate further, most developed countries have provisions under existing immigration regimes that allow domestically or foreign-owned local firms to hire for temporary assignment foreign specialist personnei, whether or nor they are already employed by the firm in another country. A few developed countries, such as Australia and the United States, have bound these provisions in their commitments for one or more categories of such personnei, but many of the other developed countries have not. Similarly, immigration regulations in a number of developed countries allow temporary entry and residence of several categories of skilled or specialty personnel (for example, nurses, medical and educational personnei, and entertainers), often each with its own set of rules. Since a number
The General Agreement on Trade in Services and Movement 113
of these ·categories are of relevance to provision of services across countries they could have been bound without any major changes in immigration regulations, and this obviously would have contributed to the deepening of the commitments. Finally, there is the question of transparency. The integrity of specific commitments could have been enhanced through greater transparency in the text of the commitments themselves and in the articulation of their relevance to the related immigration and labour laws and regulations. 13
As in the case of financial services, the deadline for completing national schedules for movement of natural persons was extended to 28 July 1995 (Box 4.3). During this last stage of the negotiation some improvements were made on the earlier commitments, mainly for the entry and temporary stay of foreign professionals. The European Union, Norway, Switzerland and India have guaranteed opportunities for foreign professionals to work on temporary service contract assignments, without requiring that they be part of the commercial presence in the importing country of a business enterprise. Canada has added to its previous commitments for foreign professionals on service contracts under similar conditions, while Australia has provided improved opportunities for foreign professionals as business visitors.
The scope of market access for foreign professionals as well as the conditions governing them vary between these countries. Even within the European Union different member states provide varying levels of access for different groups of foreign professionals. Similarly, the conditions attached to the market access vary. Norway and India require the engagement of foreign professionals by an entity (described as a 'recipient of the service' and a 'juridical person' respectively) in the domestic market. Most of the other countries specify that the foreign professionals must be employees of, or be part of a services contract obtained by, an entity in the foreign (exporting) country. The European Union and Switzerland require, in addition, that the service contracts be concluded with a domestic entity Uuridical person or business enterprise) within their territories. These new commitments open some possibilities for professionals (for example, computer software specialists, accountants, engineers and architects) to sell their services abroad, but in most cases the conditions attached to them leave little scope for self-employed professionals to benefit from market access.
Overall, it would be wrong however to conclude that the negotiated commitments under the agreement do not constitute any progress in liberalizing movement of natural persons as service providers. There are several reasons for this. First, even a binding of the status quo in the multi-
114 Gains from Global Linkages
lateral context has its value in the sense that although the commitments can be withdrawn or modified, this can only be done in return for negotiated compensation and under certain conditions. It should be recalled in this connection that every indication, including any limitations, included in a schedule is 'a binding commitment to allow supply of the service in question on the terms and conditions specified, and not to impose any new measures that would restrict entry into the market or the operation of the service' .14 Second, the present schedules represent a first set of formal commitments, providing a basis on which to build progressive liberalization through successive rounds of negotiations, beginning not later than five years from the date of entry into force of the WTO - or the year 2000. This gives the developing countries a continuing opportunity to prepare for further negotiation, making full use, if necessary, of multilateral technical assistance, as discussed in Chapter 5. Third, since a number of horizontal commitments leave the discretionary authority to the immigration or labour ministry, there is an immediate scope for intensifying bilateral or plurilateral negotiation on further liberalizing the regime for entry and temporary stay of foreign natural persons supplying services. The results of such negotiation can, if appropriate, be multilateralized at a later date, possibly at the next round. Finally, to the extent that the existing restrictions are applied on an MFN-treatment basis, they provide a degree of protection to developing countries against discriminatory treatment in the area of the movement of natural persons.
Meanwhile the more predictable market access opened for skilled personneI, in the form of intra-corporate transfers and otherwise, should induce developing countries to expand the exports of their skill- and knowledge-intensive services to foreign markets. This obviously will depend very much also on the overall efficiency and competitiveness of the relevant service industries. Special attention will need to be given to developing an organized structure for the export of services, both to take advantage of easier market access and on grounds of efficiency in services trade, as discussed in Chapter 3. Since the negotiated commitments of developed countries offer little by way of market access for unskilled workers, the immediate benefits for the least developed from liberalization of the entry and stay of natural persons will remain Iimited. They will therefore need special attention and assistance, both in negotiating wider market access for less-skilled workers as service providers and in enhancing the efficiency and competitiveness of the services industries holding better promise. The discussions in the next chapter include some of the issues involved.
The General Agreement on Trade in Services and Movement 115
Notes and references
I. GAIT Secretariat, GATS: The General Agreement on Trade in Services and Related Instruments (Geneva: April, 1994).
2. See, in this connection, UNCTAOffhe World Bank, Liberalizing International Transactions in Services: A Handbook (New York and Geneva: United Nations, 1994) pp. 144-48.
3. In section I (Policy issues and framework) of Chapter 5 an indication is provided of the challenges and constraints that developing countries opting for liberalization of trade in services are Iikely to face, espeeially during the transition.
4. See, in this connection, GA IT Secretariat, The Results of the Uruguay Round of Multilateral Trade Negotiations (Geneva: November 1994). Much of the statistical information used in this and the following sections is drawn from this document and other GA IT sources.
5. Of the 161 activities, two activities (passenger and freight air transport) are outside the scope of the GATS. The list also includes ten miscelJaneous categories entitled 'other'.
6. The country groupings correspond to those used by the GA ITIWTO Secretariat. The 'maximum possible' is based on the total number of activities multiplied by the number of countries in each grcup. Sources: GAIT 1994; Carlos Primo Braga, 'The Internationalization of Services'. (Washington, OC: World Bank, International Economics Oepartment, 1995).
7. GAIT, Compilation of Horizontal Commitments: All Sectors. Information Note by the Secretariat (Gene va: 21 June 1994). Also: Results of the Uruguay Round of Multilateral Trade Negotiations (November 1994) op. eit.
8. Under the GATS (Article XXVIII) commereial presence means any type of business or professional establishment in the form of a juridical person, or a branch, or a representative office within the territory cf a member country for supplying a service. A juridical person means any legal entity, which may include any corporation, trust, joint venture, sole proprietorship or association. Clearly, any such entity, including a private proprietorship for supplying service, would require a formally constituted enterprise structure for handling the activity effectively.
9. See, in this connection, L. Altinger and A. Enders, 'The Scope and Oepth of GATS Commitments' (1995) mimeo, p. 13.
10. UNCT AOffhe World Bank, Liberalizing International Transactions in Services: A Handbook (1994) op. eit. p. 149
11. See, in this connection, UNCT AO document TO/B/CN4/43 (Geneva: 30 June 1995).
12. Ibid. 13. Ibid. 14. GAIT Secretariat, The Results ofthe Uruguay Round ofMultilateral Trade
Negotiations (November 1994) op. eit. p. 40.
5 Prospects and Areas of International Co-operation
International co-operation, including extern al technical assistance, could be valuable in addressing many of the constraints that most developing countries currently face in strengthening the services sector of their economy and increasing their participation in trade in services.
A number of international organizations and programmes concerned with technical co-operation already offer the possibility for developing countries to draw on their support to strengthen the service industries. The GATS has enhanced both the scope and the importance of extending such international assistance. Access to such assistance should enable the developing countries to make better use of the opportunities presented by the new agreement and meet more effectively the challenges that it entails.
As already noted, the GATS itself is envisaged to offer technical assistance to developing countries. Although the modalities of providing such assistance are yet to be determined, it would be reasonable to expect that the WTO will be called upon to play, in conjunction with other international agencies, an active role in this connection. 1 In several areas there will be the need for initiating new programmes of assistance or extending existing programmes in new ways and directions. For example, given the importance of the movement of natural persons as service providers and consumers in a liberalized regime for trade in services, an important need has now arisen for international technical assistance to streamline and better implement regulatory regimes for trade-related temporary movement of persons and to disseminate information on different nationallaws and practices among the service providers. Similarly, the provision of technical co-operation for the development of the telecommunications sector, as required under the GATS, should lead to new or expanded multilateral and bilateral action, in the form of joint or complementary programmes or both; such programmes could gain from the active involvement of the private sector. Assistance to developing countries may also be needed in the preparation of their requests for, and offers of, trade concessions in the context of future trade negotiation.
The present chapter seeks to identify some of the priority areas in which the use of technieal assistance and regional or sub-regional co-operation could be of strategie value for the development of the serviee industries in developing countries and for their increased participation in services trade.
116
Prospects and Areas 0/ International Co-operation 117
Drawing upon the discussion in the previous chapters abrief indication is also provided of the issues involved, and of the sources of supply of such assistance.
5.1 STRENGTHENING DEVELOPING COUNTRY CAP ABILITIES IN SERVICES INDUSTRY AND TRADE
Policy issues and framework
Until recently most developing countries, as already noted, have given inadequate attention to the development of the services sector, and especially to the enhancement of its efficiency and competitiveness. Political and social considerations have led them to maintain most of the basic services in the public sector as monopolies or quasi-monopolies, while concern about national sovereignty and security contributed to their hesitation to turn to foreign enterprises for improved technology and increased investment. In general, there has also been a lack of adequate awareness of the critical role of the services sector in their economic and social development.
An essential requirement for changing this situation is the formulation of a coherent national policy for the services sector. It should help identify, in a dynamic context, the priorities to be attached to specific service industries on the basis of their development prospects and competitive strength, on the one hand, and the needs or opportunities in the domestic economy and the world market, on the other. The policy must be conceived as an integral part of national development and c10sely geared to its over-all objectives.
Clearly, the creation of more and better jobs will remain an important development objective in almost all developing countries. As al ready noted, the services sector in general and the producer services in particular can contribute to the attainment of these objectives - both directly by creating high-level services sector jobs and indirectly by enhancing the efficiency and competitiveness of the manufacturing, agricultural, and extractive sectors. Unlike the pattern of growth witnessed by the developed countries, the producer services in most developing countries have tended to lag behind the manufacturing industries, and have had weak links with the rest of the economy. An important policy challenge for developing countries is to strengthen these links leading to an upward swing of growth and employment in the economy as a whole, including the services sector itself. A related challenge is the judicious use of technical,
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financial and other support services to upgrade and improve the productivity of the urban informal sec tor which remains an important source of service-related employment, but at a low productivity level, in many developing countries.
On the supply side, the national policy must be capable of addressing the essential prerequisites for developing service industries of high priority. AIthough these may to some extent vary between different service industries or sub-sectors, there is liule doubt that a dynamic development of many of them, especially the high value-added producer services, is largely dependent, as already discussed, on the availability of trained personnet and efficient transport and telecommunications systems and information infrastructures. This underscores the need for full coherence between the services sec tor policy and national policies concerned with human capital development, transport and telecommunications systems, and telematic infrastructures. Services sector development also intersects with policies and regulations concerned with foreign direct investment, technology, government procurement, competition and standards and licensing requirements. Policies and practices in these areas can stimulate the domestic services sector, including the growth of smaller service enterprises, upgrade the technical standards and improve the performance of the service activities. But these can, by design or defauIt, also be applied in a manner that inhibits the growth and competitiveness of the services sector. As developing countries step up their efforts to promote and diversify their services sector they will need to contend with these and other difficult policy issues.
The challenge of these policy options becomes more complex and even formidable when the issues of trade liberalization are added to them. True, there is now an emerging consensus even among the developing countries on the merits of liberalization of trade, including trade in services. The argument is now also gaining ground that, in principle, even unilateral trade liberalization is in the long run a desirable thing. But in practice a developing country may face a host of constraints and pitfalls as it opts for trade liberalization.
Aside from political resistance from domestic import-competing service industries, difficulties may stern from current account deficit and foreign exchange constraint, loss of employment due to its sudden exposure to import competition and related social strains of adjustment before new and more efficient service industries can take hold and export earnings pick up. On the other hand, an import liberalization policy based on limited sectoral coverage or a gradual extension of such coverage does not seem to have an impressive record of success; quite the contrary. Using it as a bargaining
Prospects and Areas 0/ International Co-operation 119
instrument to induce trading partners to open up further mayaiso be of only limited value for a two-fold reason.2 First, barring a few notable exceptions, the Iimited size of the services market in developing countries leaves Iittle possibility for them to influence the policies of larger trading countries. Second, most of the gains from services trade occur in the domestic market through a more efficient use of the local factors of production, whether by domestic or foreign service firms. Given this policy dilemma, could the temporary use of subsidies for nascent but promising service industries provide a way out for the developing countries? Or, will this breed inefficiency by perpetuating the subsidies through abu se of political influence and encourage corruption? The pursuit of liberalization of services trade can rarely be separated from issues of this kind in a developing economy.
The GATS, as already noted, provides the framework for progressive liberalization of trade in services and facilitates the process towards fuH liberalization while offering special flexibility and opportunities for developing countries. The fact that the national commitments of the developed countries provide wide sectoral coverage and that, except in the case of movement of natural persons, the depth of these commitments is quite significant should be an additional inducement (though, as discussed abovc, it need not be the only decisive factor) for the developing countries to move towards further Iiberalization of trade in services. But, even as they decide to do so, the route that individual developing countries may take to reach the goal, and the pace at which they may move, will raise many policy issues such as those mentioned above.
An additional issue that deserves attention concerns the preferential trade arrangements. If unilateralliberalization is not a practicable proposition for the developing countries, at least in the immediate future, and pending the next round of multilateral Iiberalization in trade in services, what should be the attitude of the developing countries towards preferential trade arrangements? Should they use regional and sub-regional trade and economic co-operation agreements among themselves (further discussed later in this chapter) as a means of further Iiberalization of services trade? Will it be useful for them to seek such arrangements with the developed countries; or should they engage themselves in a concurrent exploration of both these possibilities?
Until recently, the opportunities for developing country participation in arrangements among developed countries had remained Iimited. But the situation, especiaHy since the launch of the initiative for the North American Free Trade Agreement (NAFTA), embracing the USA, Canada and Mexico, has been changing rather fast. The United States has
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expressed an interest in considering free trade arrangements with developing countries, especially in Latin America; Chile is already a likely candidate to join an enlarged NAFTA. And, at a summit meeting of the region's leaders (Miami, December 1994), an initiative was launched to create a free trade area across the Americas by 2005. The United States is also canvassing a similar move in East Asia through the Asian and Pacific Economic Co-operation Forum. Meanwhile, the European Union has provided some limited free trade opportunities through its association agreements with a number of developing countries (and transition economies). The issue of whether and under what conditions developing countries should join preferential trade arrangements with developed countries is thus areal, and often a tricky, one for them. This was reftected, for example, in the varying stance of different developing country members of the Asian and Pacific Economic Co-operation Forum during its November 1994 summit meeting in Jakarta, Indonesia.
The discussion in the preceding paragraphs is intended to iIlustrate (and not to give answers to) the wide range of complex policy issues developing countries will be facing, or are al ready facing, on the question of the development of the services sector in general and trade in services in particular. Individual developing countries will need to take their own decisions on these policy maUers taking full account of the specific national situation. But in doing so, many of them may find it useful to draw on the assistance of competent international institutions to analyse the available cross-country experiences, discern the implications of different policy options and have a dialogue with them in the run-up to the final decision. Aside from the World Trade Organization wh ich has a direct concern in the liberalization of trade in services, several international organizations including the World Bank, UNCTAD and UNIOO, may offer co-operation on different policy issues as they affect development of the services sector in developing countries and their participation in services trade. Several studies recently carried out by UNCT AD at the country and sub-regional levels focused on ways to improve the efficiency of the services sec tor in the domestic economy and its competitiveness in the external market. These are designed mainly to assist developing countries in carrying out domestic policy reforms and articulating their position in international negotiation on services trade.3
Information ftows on market access and on trade barriers
Developing countries will continue to be handicapped in exploiting the full export potential of their service industries unless they have within
Prospects and Areas 0/ International Co-operation 121
their reach timely and reliable information on market access as weH as on existing barriers to services trade. Such information is essential not only for taking advantage of existing export markets but also for planning the development of the service industries with high export potential. Information on market barriers and the potential gains from their removal is also valuable for the developing countries in their future trade negotiation both in the bilateral and multilateral contexts.
The importance of such information for developing country service suppliers has been recognized in the GATS which, as already noted, requires the developed countries to facilitate their access to information, through enquiry points, on the regulatory framework related to their respective markets, and through contact points on the technical and commercial aspects of the supply of services, professional licensing and services technology. Information on these maUers, including the regulatory framework for movement of natural persons as a principal or complementary mode of delivery (further discussed below), will certainly facilitate developing countries' increased participation in services trade.
Given however the organizational weakness of the services sector in most developing countries, individual service suppliers may not be in a position to derive maximum benefit from such information exclusively through their own efforts. In many developing countries it may be more useful and cost-effective to establish (or strengthen, where it already exists), with international technical assistance, a permanent centre (or make similar institutional arrangements, as appropriate) for coHecting, classifying and storing the relevant information and disseminating it to interested service providers. This may be combined with the establishment of the enquiry point which under the GATS each member country is expected to organize to provide information on the regulatory framework governing access of foreign service suppliers into their own market (further discussed below in section 5.5)
Aside from the WTO which will certainly have an interest in ensuring the establishment of the enquiry points by 1997 (subject to the ftexibility allowed for developing countries) in each member country, several international organizations, including UNCTAD, and tbe International Trade Centre (ITC, an entity jointly set up by UNCT AD and the GATT) can provide assistance in different organizational and technical aspects of tbe information programme, with eventual financial support from the United Nations Development Programme (UNDP) and the World Bank (see also section 5.5).4
Developing countries can also benefit from international technical assistance in several other related areas. One such area concerns export
122 Gains from Global Linkages
market information and research. Lack of training and expertise, financial constraints and inadequate effective demand largely explain why so far most developing countries have given little or only limited attention to such research affecting markets for services exports. Aside from helping current and future exports of other service products, development of expertise in market research could itself be an important source of export for some developing countries. Finally, as part of the preparation for the next round of global trade negotiation, it would be useful if international assistance can be mobilized to carry out a major study of the barriers, including anti-competitive business practices, wh ich restrict developing country services exports and of the impact of the restrictions imposed by them on service imports.s Such a study should be based on inputs from country reports analyzing the constrains faced by individual countries and the policy measures needed to overcome them.
Strengthening service export strategies
Suitable policy framework and reliable information f10ws on market access and opportunities are essential, but not sufficient, conditions for widening the participation of developing countries in world trade in services. To overcome the manifold difficulties that most developing countries currently face in expanding their services exports, they need to put in place carefully designed specific strategies along the lines indicated below.
Structured mechanisms for services exports
As discussed in Chapter 3, effective market penetration by labour-and skill-intensive services of developing countries will prove elusive unless they are organized as modern business enterprises, as distinct from informal arrangements and less predictable initiatives by individuals or loosely formed groups. A structured mechanism, with the status of a legal entity, makes it easier and more convenient for the service providers to raise funds, secure assistance from government and international sources, enter into business contracts with foreign enterprises, whether located in the horne market or abroad. It also helps, as al ready noted, in combining various service components into integrated, and higher value added service packages for export.
The national commitments made by a significant number of countries under the GA TS make it particularly important for the service providers of developing countries to operate through legally constituted business enterprise structures. While, as al ready noted, the exact legal requirements vary
Prospects and Areas 0/ International Co-operation 123
between national schedules, in most cases market access, whether through commercial presence or through the presence of natural persons, is made easier for service suppliers when they operate as legally constituted business enterprises.
In those developing countries where organizational deficiency is a major obstac\e to the expansion of their services exports it would be worthwhile for the governments to encourage and facilitate the organization of the relevant service activities and their structuring into modern business enterprises. Assistance on such organizational aspects may be avaiIable from several international organizations including the UNIOO, ITC and the ILO.
Goods-service linkages and externalization
Service export strategies of developing countries should aim at making a more effective use of the inter-Iinkages between goods and services.6
Some developing countries have been successful in Iinking the supply of services such as engineering consultancy services with the subsequent export of capital goods. Such a strategy often requires a comprehensive services-goods-financing package. AIthough financial constraints generally place developing country service suppliers at a disadvantage in offering such packages, there is none the less some scope for them to better exploit the potential of the strategy through, for example, better co-ordination of action with financial institutions, including export financing schemes. The reverse Iinkages - export of services following the supply of goods - can also be used particularly in the case of high-technology goods where specialized training and maintenance can be more conveniently provided by the producer of the goods and may weil be covered under the original contracL Since developing countries are generally not important ex porters of high-technology goods the possibility for them to use this strategy is rather Iimited, aIthough not non-existent, especially in the case of intra-service Iinkages (for example, training and maintenance following the sale of software services).
As al ready discussed, a particularly promising line of approach relates to externalizing service export strengths 'Iocked-in' within the manufacturing, agro-industry and extractive sectors in many developing countries. Strategies based on externalizing the various producer services actually or potentially available in other economic sectors can enhance the efficiency of smaller firms in the domestic economy (which are not in a position to develop such producer services on their own). They mayaIso be a means of capturing export markets. The establishment of service centres, combin-
124 Gains from Global Linkages
ing various services and facilities in one locality (for example, teleports, transport for movement of persons and goods and infrastructural facilities) can further help the export of externalized services. Other innovative measures that developing countries can use for service export promotion include: extending tradition al service sectors to cover new service activities and categories of clients - for example, tourism combined with cultural and educational activities and exhibitions, or medical and convalescence services; promotion of exports of service capacity initially developed for domestic markets (for example, construction and civil engineering) or for special categories of domestic groups (for example, medical services and educational programmes).
In strengthening the export capability of the services sec tor through these and other organizational measures, developing countries can draw on the positive experience of the more successful developing countries and benefit from international technical assistance. Such assistance, covering different organizational and related aspects, is available from a variety of sources, incIuding the UNIDO, ITC and the ILO. Several studies recently carried out by UNCT AD at the country and sub-regional levels focused on ways to improve the efficiency of the services sector in the domestic economy and its competitiveness in the external market.
Clearly, as in the case of export of goods, the above service export strategies Iinked to organizational efforts and initiatives need to be supported by policy-related financial and other promotional measures. These incIude policies relating to tax treatment, imports of equipment and inputs, foreign direct investment, access to export financing and risk coverage and provision on services in bilateral and plurilateral trade and economic cooperation agreements.
Telematic services and infrastructures
Discussion in Chapter 3 has indicated how telecommunications and computer-networks can playa key role in enhancing developing country participation in world trade in services. International assistance, including the support of private companies, can be valuable in overcoming current constraints and enhancing their faster development. Attention needs to be focused on the following key areas.7
Articulation of policy objectives National telecommunications systems have multiple economic and social objectives. However, in the absence of a cIear recognition of these objectives, and given the pressure of many competing demands on Iimited budgetary resources, governments in most
Prospects and Areas 0/ International Co-operation 125
developing countries have tended to attach a low priority to the development of sucb systems or have followed a haphazard poliey, often lacking a wider and longer-term perspective. Tbe objectives of tbe telecommunications policy must be part of the overall national objectives and the development of tbe telecommunication system should be congruent with strategy for tbe development of tbe services sector. The wider implications or spill-over effects of different policy options affeeting telecommunications development sbould also be carefully assessed. To illustrate, the government may decide that the domestic telecommunications should be supplied at cost (or with a nominal profit). This will benefit the domestic users of such services - the economy and the general public. However, the pricing policy can cause a deficit in the country's trade account for telecommunications services, given that revenues related to international telephone traffic accruing to domestic suppliers may decline (although this may be partly compensated by greater volume of business) as a result of the pricing policy but the prices charged by foreign counterpart suppliers will remain the same.
Enhancing operational efficiency The operational efficiency of a telecommunications system is to a large extent influenced by the institution al framework within which it functions. Absence of sound business praetices, lack of competition, bureaucratic inertia and undue political intervention have often been detrimental to efficiency and innovativeness in running a system. While there may not be a single model that is ideal for every situation, there is Iittle doubt that the operating unit should have considerable autonomy and flexibility outside the civil service administration. Given the variety of alternative institutional arrangements - ranging from an autonomous government entity to a fully privatized company - that can be used for the purpose, it is important that the exact institutional set-up is determined witb circumspection, due attention being paid to the critical importance of an independent regulatory authority. A number of developing countries, including several in Africa, have embarked on reforming the sector by promoting increased competition alongside sufficient regulation. Some have separated the regulatory functions from the public telecommunications agency and many others are planning to do so.
Development 0/ human resources and increased investment Lack of trained managerial and technical personnel and seareity of eapital are among the other most important reasons for low level of effieiency of the telecommunications system in most developing countries. While a beUer articulation of policy objectives and more suitable institution al arrange-
126 Gains from Global Linkages
ments are a necessary condition to meet these deficiencies, specific measures need to be taken to ensure a systematic development of human skills in keeping with technological development and a ftow of capital to acquire the technologies.
International organizations, notably the International Telecommunications Union (lTU), the oldest specialized agency of the Uni ted Nations, could provide technical assistance in these and other related areas of telecommunications development. Its Telecommunications Development Bureau, which was set up in 1989 (replacing its Technical Co-operation Department) is mandated to extend technical co-operation to help develop telecommunication services and infrastructure in developing countries and foster international co-operation in the provision of such assistance. A significant new initiative of the organization is to enlist the financial support of the private sector in order to step up investment for telecommunications in developing countries which is currently estimated to fall short of needs by as much as $30 billion a year. The new programme, known as WorldTel, is to identify profitable telecommunications investment opportunities in developing countries and bring telecom companies, governments and private investors together to plan and implement specific projects. Under the plan, funds will be channelled to these countries in return for government guarantees that investors' interests will be adequately safeguarded.
The success of the initiative could bring improved and modern telecommunications systems within the easy reach of developing countries, thereby reducing the gap between rich and poor nations in the telecommunications field. The stake for the developing countries is high. At the same time, developed countries will gain from the large new markets that may be created for their telecommunications companies. Some of the leading companies - such as the AT &T, Ameritech and Sprint of the United States, Cable and Wireless of the United Kingdom, NEC of Japan, Teleglobe of Canada, Telecom Malaysia and Telstra of Australia - are reported to have already expressed an interest in the programme. It was expected that WorldTel might launch two or three pilot projects during 1995.8
5.2 TRADE-RELATED FOREIGN DIRECT INVESTMENT
Although issues concerning foreign direct investment are outside the scope of the present study, it is important to note that, alongside technical and financial aid from bilateral and multilateral sourees, developing coun-
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tries have the possibility of using inward movement of foreign direct investment as a means of strengthening their services seetor and increasing their participation in trade in services. They also can take advantage of the technical and other support available from various external sources to promote the investment inftows.
Foreign direct investment through transnational or foreign enterprises brings both capital and, often, advanced teehnology to the service industries of developing countries; it can facilitate the development espeeially of those service industries that need large capital investment and advanced technology. Links with transnational corporations can help the domestic service industries to have easy access to their information and distribution networks on agiobai scale. Furthermore, as al ready noted, employment in foreign affiliates or joint enterprises can, in some cases, provide the service-supplying personnel from developing countries with an avenue for entry and temporary assignments abroad. A number of advanced developing countries themselves are now suppliers of foreign direct investment to developed and other developing countries. Collaboration with efficient service transnationals should widen the prospects of some of the developing country service firms to increase their outward investment in third countries, and thus enhance the competitiveness and earnings of their activities.
As the developing countries increasingly Iiberalize the inftow of foreign direct investment in the services sector there could be a set of agreed guidelines for foreign enterprises to help the developing countries enhance the efficiency of their service activities, acquire new technologies, and sec ure access to distribution and information networks to promote exports. Such Iiberalization of foreign commercial presence could be inscribed in the national schedules of developing countries in return for concessions in the same or different areas from other trading nations. In many of these instances, developing countries could benefit from extern al technical assistance.
In addition to a significant number of institutions and programmes set up by various developed countries to foster the growth of foreign direet investment in developing countries, there are several international ageneies that seek to support, and create conditions conducive to, such inftows. These incIude: the World Bank, (espeeially through the Foreign Investment Advisory Services, jointly carried out by the Bank's International Finance Corporation and Multilateral Investment Guarantee Agency; UNCTAD (Division on Transnational Corporations and Investment); the Uni ted Nations Industrial Development Organization; and the International Trade Centre (ITC). Special mention may be made of
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ajoint UNDPIUNCTADlWorld Bank project on the Expansion ofForeign Direct Investment and Trade in Services, which is designed to assist developing countries in the liberalization of trade in services and the promotion of related foreign direct investment.9
5.3 AID THROUGH PREFERENTIAL AGREEMENTS WITH DEVELOPED COUNTRIES: THE LOME CONVENTION
International organizations are not the only source of technical and financial assistance for the development of the services sector. In their effort to promote service industries and take optimal advantage of the new opportunities created by the GA TS, developing countries can draw on general technical and financial support available under bilateral aid programmes run by most OECD countries. This apart, somewhat exceptionally, technical and financial aid may be available to developing countries as part of preferential trade and economic co-operation agreements with developed countries, of wh ich an outstanding example is the Lome Convention, signed between the European Community and the low-income countries of Africa, the Caribbean and the Pacific (ACP).
The fourth Lome Convention (Lome IV), signed on 15 December 1989, contains specific provisions relating to the development of service industries in ACP countries and also on trade in services. 10 The agreement includes provisions for enhancing domestic capacities to provide services, enterprise development in ACP countries through increased investment in services, improvement of transport, communications and information networks and transfer of know-how. Special attention is to be given to services that support economic development such as business advisory services relating to management, accountancy and information technology and infrastructure services for trade.
There are also expanded provisions for specific service industries such as tourism, communications and information technology. For example, to enhance the information technology capacity of ACP states, support is to be given to their efforts to acquire and install information technology systems. Assistance is to be made available to these countries for the development of efficient telematic networks including international financial information; the production in due course of computer software and their participation in international data processing activities. Similarly, in the field of tourism support is to be given to ACP states to facilitate their access to computerized reservation systems.
Prospects and Areas 0/ International Co-operation 129
Alongside the development of service industries, ACP states' trade, incIuding trade in services, is to be facilitated through preferential market access. The Convention recognizes the need for amending its trade-related provisions to take into account the outcome of the Uruguay Round negotiation. Two important points need to be noted in this connection. First, the Convention provides for funds to carry out specific projects including the development of the services sector in the ACP states in keeping with the above objectives. Second, under Lome IV, the ACP states can also benefit from technical and other support from the European Union in their efforts to promote regional co-operation and integration.
At the time of writing a new financial aid package for the ACP countri es was being discussed among the European Union member states. There was a divergence of views on the EU Commission proposal that the aid budget should be increased from Ecu 10.94 billion (excluding European Investment Bank loans) to Ecu 14.3 billion for 1995-2000. At the Cannes summit in June 1995 the EU leaders finally agreed on a total aid of Ecu 13.3 billion. Funds from this aid package should continue to be available for the development of, and expansion of trade in, services of ACP countries. 11
5.4 CO-OPERATION AMONG DEVELOPING COUNTRIES
Trade in services can contribute to, and at the same time be helped by, cooperation at the regional or sub-regional level. The development of regional infrastructures and related services has sometimes provided an impetus for such co-operation agreements especially following the attainment of national independence by developing countries. In several cases the joint infrastructures and network of essential services created during the colonial era paved the way for the initial action. And yet, for a variety of reasons, progress towards trade liberalization under these agreements has been slow and generally less than satisfactory. Emphasis has usually been placed on common extern al barriers to trade, often inftuenced by import substitution strategies, with a focus on goods, while intra-regional liberalization of factor ftows has remained limited. The more recent initiatives, both in Latin America and South East Asia, have however witnessed a shift towards liberalization based on market-oriented approaches, although expansion of intra-regional trade in services, including those supportive of trade in goods (for example, export financing, insurance and producer services), continues to be slow. Examples of a few co-operation agreements (see Table 5.1) which aim at liberalization of services trade or
Tab
le 5
.1
Gen
eral
cha
ract
eris
tics
and
the
trea
tmen
t of s
ervi
ces
in s
elec
ted
regi
onal
trad
e ar
rang
emen
ts i
n de
velo
ping
cou
ntri
es
AS
EA
N
CA
CM
L
AF
f AI
AN
DE
AN
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of factors of production within the grouping as an explicit goal include the Southern Cone Market (MERCOSUR, 1991 ),12 the Gulf Co-operation Council (GCC 1981), and the Economic Community of West African States (ECOWAS, 1975). MERCOSUR, which envisages the mobility of all factors of production, is currently engaged in negotiation on labour and capital mobility, which should have an impact on trade in services. Both acc and ECOW AS are committed to liberalizing movement of labour (affecting both trade and production) within the respective groupings. acc countries have in fact liberalized the movement of skilled (including professional) personnel among them, but ECOW AS has made little progress in implementing the objective.
By pooling their resources, infrastructures and markets, and by exploiting their specializations and complementarities, developing countries can strengthen their service industries and expand their trade in services. Regional and sub-regional co-operation for the development of adequate infrastrutural networks within an integrated or weil co-ordinated system can facilitate the f10w of services especially communications and information-based services. Educational and cultural services can be successfully developed in regions and sub-regions with a common language or a strong cuItural affinity just as closer inter-country contacts can create or widen domestic markets for regionally produced services. The principle of mutual recognition of standards and professional qualifications can be encouraged, as far as possible in keeping with international norms and practices (further discussed below), so as to facilitate market access of services and service providers within the regional grouping and outside. Developing countries can also benefit from joint efforts aimed at the development of human capital to promote a range of essential producer services supportive of manufacturing, agro-based processing and other service activities. Such collective action, incIuding pooling of resources, can also be useful in buying into distribution and information networks in the developed countries and securing market access abroad through joint corporate mechanisms or other forms of commercial presence. A coIlective approach can also be of help in carrying out more effective negotiation with transnational corporations and the foreign service suppliers on maUers such as transfer of technology and improved market access in developed countries.
As al ready noted, economic integration agreements are not prohibited under the GATS, but the relevant provisions (ArticIe V) require that an agreement of this type has substantial sectoral coverage, and that it involves the absence or elimination of all discrimination between firms (including juridical persons constituted under the laws of a country partici-
132 Gains jrom Global Linkages
pating in the agreement) or services of the countries concerned. In recognition of the special needs and characteristics of developing countries the Article further stipulates, as previously indicated, that these conditions may be applied to them in a more flexible manner.
It should be emphasized however that, despite the many benefits (such as those mentioned above) that the developing countries can derive from economic co-operation agreements, the maintenance of common trade barriers against the outside world as part of the agreements may lead mainly to trade diversion, with little or no efficiency and welfare gains for the countries concerned. This is particularly so (for services as in goods) when the size of the regional markets and the scope for competition are limited. If however there are significant economies of scale in the production of certain services or goods, freer access to a larger market resulting from the agreement would lead to more efficient and increased production in the relevant industries. Also, in sectors marked by significant product differentiation, the agreement may not eliminate the demand for varieties provided by the countries outside the agreement, and there may be less trade diversion effect. 13
In general, preferential trade arrangements - even if less beneficial than multilateral liberalization - are useful when they are geared to a broader process of liberalization. They need to be seen and used by developing countries not as a collective means of increasing the external barriers, but as a convenient mechanism for progressive or incrementalliberalization of trade in services, keeping the economic and social cost of adjustment within manageable limits at each stage. 14
5.5 MOVEMENT OF NATURAL PERSONS AS SERVICE PROVIDERS AND CONSUMERS: TRADE-RELATED MIGRATION REGIME
Movement of service-providing natural persons
Discussion in Chapters 2 and 3 has revealed the importance of the movement of natural persons as service providers (and consumers) in services trade. To recapitulate, such movements are a most important mode of delivery of labour- and skill-intensive services in which developing countries have a comparative advantage. In the case of pure labour services they are in fact the only mode of delivery, while for many skill-intensive services they often serve as an important sub-mode or complementary mode of delivery. It has been noted that, under the GATS, trade-related
Prospects and Areas of International Co-operation 133
movements of natural persons have been brought, for the first time, into an agreed framework of multilateral disciplines and treated at par with other modes of delivery of services. This is a significant achievement. But, it has also been noted that the depth of actual commitments by the member countries on market access for natural persons as service providers has been quite limited. In the majority of developed country offers such access has been confined to senior executive and highly skilled personnei, generally in the context of intra-corporate transfers or similar temporary assignments related to business firms.
The gap between the goals of liberalization and actual commitments in the area of movement of service-providing natural persons is clearly more striking than any other area covered by the GATS: it underscores a special need for more intensified national and international action. This can be done in two largely interrelated ways: adopting measures to take fuH advantage of the current offers so that the commitments could be consolidated and turned into effective market access of natural persons; and second, continuing efforts for increasingly wider application of the GATS' general principles on movement of persons, including in particular preparation for the next rounds of negotiation due to start within the next five years. For both these lines of action many developing countries may find it useful to draw on support and assistance from competent international and regional sources, as outlined below.
Informationflows on law and practice affecting movement ofnatural persons
The analysis of national schedules (horizontal commitments) on the presence of natural persons has revealed the diversity in the nature of the commitments and the manner in wh ich they are presented. The wide diversity in approach and presentation of detail is likely to add to the difficulties of many service-supplying small firms and individuals in developing countri es in having all the relevant information on the opportunities of entry and temporary stay of natural persons for supplying services. While some of the national schedules - whether they specify the categories of persons covered by liberalization or list the limitations in the form of economic tests or quotas - are fairly detailed, many others are not. Even when they are quite detailed, it is often difficult to have a clear and complete picture of the availability of market access and national treatment opportunities (or lack of them) for foreigners supplying services, without an adequate knowledge of the related regulatory provisions and administrative practices, notably those concerning temporary immigration. A number of
134 Gains from Global Linkages
national schedules in fact make a specific reference to the discretionary authority of the immigration or labour ministry for allowing the entry and temporary stay of foreign natural persons supplying services
Clearly, for many developing countries market access and national treatment provisions contained in the national schedules will be of little practical value unless all the relevant information, including the rules, regulations and practices surrounding the commitments, is made easily accessible to the service suppliers in a transparent and simplified form. These countries should therefore give a high priority to arrangements for collecting, collating and systematizing the relevant information on the entry, temporary stay and national treatment of natural persons supplying services in other countries. Such action can be conveniently Iinked to the provision in the GA TS (Article III) requiring each member country to establish enquiry points to publish and, on request, provide information concerning current regulations and guidelines and measures of relevance to the implementation of the agreement.
The International Organization for Migration (10M), in conjunction with WTO, can play an important role in helping the interested countries to establish the relevant information programme on movement of persons. Additional technical support may be available from UNCT AD, the ILO and ITC, while UNDP could be a possible source of financial assistance. In order to reduce the overhead cost, the information programme may be attached to a developing country's own enquiry point. As the developing countries establish their own enquiry points, they mayaIso find it useful to take the opportunity to streamline, consolidate or otherwise modify, if necessary with international technical assistance, existing immigration and other related laws and practices as they affect the entry and temporary stay of foreign service providers in their own countries. Here, too, 10M can make a significant contribution.
Licensing and recognition requirements affecting market access of natural persons
As discussed in Chapter 3, even in the absence of immigration restrictions, stringent and non-transparent Iicensing and certification requirements could be an impediment to market access of foreign service-supplying professionals and technical personnel. The GATS therefore disapproves the use of Iicensing and qualifications requirements (including the method of recognizing them) as a barrier to market access of natural persons or in a manner that nullifies or impairs specific Iiberalization commitments. It is relevant to recall in this context that a number of national schedules
Prospects and Areas 01 International Co-operation 135
contain specific commitments on market access for specialists engaged in a corporate or similar business structure. In addition, a few of them allow such access for independent or self-employed professionals already holding service contracts in the importing country. But even in the case of those countries whose schedules contain relatively detailed descriptions of the types of eligible specialists and/or professionals, developing countries may be unable to benefit from the market access provisions because of the absence of arrangements for recognition of nationally valid certificates and professional qualifications.
Developing countries, which face these constraints more than the developed ones, should devote special efforts to the pursuit of mutual recognition procedures. They may effectively use existing economic co-operation agreements (both with developed countries and with other developing countries) for this purpose. Since adherence to internationally recognized standards facilitates the process of mutual recognition, developing countries should take an active part, with such outside assistance as may be necessary, in the deliberation of the Working Party on Professional Services set up under the GATS to help develop necessary multilateral disciplines. In pursuing these efforts individual developing countries may find it more cost-effective to concentrate, as suggested in Chapter 3, on those professional services in which they have a special interest on grounds of their comparative advantage or for other reasons. Assistance from competent international organizations (for example, UNIDO, ITC and UNCT AD) may be sought to help establish such a priority list of services. Finally, given that the non-governmental professional bodies often play an important role in regulating professional services, governments of developing countries should encourage domestic professional associations to establish eIoser contacts with their counterparts at the international, regional and bilateral levels in their efforts to promote harmonized recognition of qualifications and procedures for licensing.
Clearer definition and categorization 01 trade-related mobility 01 natural persons
Mention has been made of the wide gap that now exists between the goals and general principles of the GA TS and the actual liberalization commitments concerning the movement of natural persons. An important reason for this gap relates to the concern, especially prevalent in developed countries, that temporary movements related to service trade can lead to, or be a surrogate for, permanent migration or long-term migration for employment. The concern in turn sterns partly, if not largely, from the absence of
136 Gains jrom Global Linkages
a specific and well-defined regulatory regime for trade-related movements and of adequate conceptual and definitional clarity that must underpin it. Discussion in Chapter 3 has shown the confusion that currently exists between movements of natural persons as service providers and other forms of temporary migration that are not strictly related to trade in services. The discussion has also highlighted some of the essential characteristics (for example,' specificity of time, job content and contractual arrangements) of movements related to services trade.
Trade-related movements, like any other movements across countries, should no doubt continue to be governed by national migration regulations, but there is no reason why under such nationallegislation a specific regime (or sub-regime) cannot be developed to deal with the special needs of trade in services. As already noted, the legislation of many countries already includes, in one form or another, provisions for temporary movements of persons. However from the perspective of expansion of world trade in services, these provisions are often fragmentary and incomplete. And since the regulatory provisions in different countries do not follow a common or similar form of presentation, it makes inter-country cooperation in monitoring the movements more difficult. An internationally harmonized regime can improve this situation. It can help in both man aging and monitoring trade-related labour mobility by allowing a clearer differentiation of such mobility from other forms of migratory movements. It can thus be expected to mitigate at least some of the prevailing concern about movements of natural persons as service providers and contribute to expansion of trade in services, in which developed and developing countries share a common interest. Although it will be for the national governments to take a formal decision on the matter, WTO and 10M, in concert with other international organizations concerned, can play an important role in exploring with the trading nations the possibility of developing such a regime.
Meanwhile, it may be of interest to both developed and developing countries if a study can be undertaken by the international organizations concerned (or with their support) on the extent to which barriers on movement of natural persons are constraining trade in services and their implications for the global economy. This could be a complement to the major study, proposed under Section 5.1 above, on barriers to trade in services.
Movement of consumers
Liberalizing the movement and presence of travelling consumers and according them national treatment are an important means of increasing
Prospects and Areas 0/ International Co-operation 137
world trade in services. Although, as indicated in Chapter 3, most restrictions on movement and national treatment of consumers (in contrast with other modes of delivery) come from the countries of origin, developing countries can expand their export of services by playing their part in removing or reducing some of the restrictions, either by themselves as consumer-receiving countries or in co-operation with the consumersending countries. (It needs no special mention that a significant number of foreign consumers in developing countries are frorn other developing countries.)
Market access through movement of natural persons as service consumers is generally quite liberal at both exit and entry points - involving the sending (importing) and receiving (exporting) countries, respectively. The main restrictions (especially in the case of developing country consumers travelling to developed countries) sterns from immigration rules and practices, which are governed by various national considerations, many of which fall outside the realm of trade in services. However, as suggested in Chapter 3, at least part of the current concerns and constraints surrounding the entry of visiting consumers can be rnitigated and their travel facilitated by a clearer identification of such rnovements under a specific, trade-related visa regime, (preferably divided by sub-types such as tourism, health and education), designed on an internationally harmonized basis. The arrangements should be analogous to those proposed for service-providing natural persons, and be part of the special regime for trade-related movements mentioned above. To the extent that the regime might contribute to the expansion of trade in services by liberalizing market access for foreign consumers, trading nations, both developed and developing, should have a common interest in pursuing efforts to achieve this goal. Advantage can be taken of regional economic co-operation agreements among developing countries and with developed countries to spur action in this connection. In addition to WTO and 10M, organizations concerned with tourism, education and health (for example, the World Tourism Organization, UNESCO and WHO) can be expected to have a shared interest in such an initiative.
Discussion in Chapter 3 has revealed that the restrictions on national treatment, whether imposed by the exporting or the importing country, can be of a varied nature and that most of them stern from wider policy considerations such as those relating to external finance and foreign exchange management, fiscal revenues, employment for nationals, national security, and protection of cultural heritage and the environment. A detailed discussion of these issues is therefore outside the scope of this study. It is important however to refer to a few areas which are of direct relevance to
138 Gains from Global Linkages
national treatment of travelling consumers and in which closer cooperation between consumer-sending and consumer-receiving countries can lead to fruitful results. These include recognition of education obtained abroad and of educational equivalence and transfer of social security benefits.
As already noted, developing countries ' trade in education and training services tends to suff er due to the absence of recognition or limited recognition of them in other developing and especially in developed countries. The situation is worsened when such non-recognition provides the grounds for withholding scholarships or allowances to students or trainees while they are abroad. In a like manner, students and trainees from developing countries may be handicapped in benefiting from educational and training services offered by developed or other developing countries (and this will have arestraining effect on the trade of the latter countries) due to the non-recognition or partial recognition of the diplomas already obtained by them in their countries of origin. By establishing suitable mechanisms for mutual recognition of education and training received abroad and with agreed criteria for determining educational equivalence, both exporting and importing countries, whether developed or developing, can gain, while fully safeguarding the standards of their national educational and training systems. Action (incIuding the use of extern al technical aid) for reaching these objectives will be analogous to (and may in some cases be coordinated with) that suggested for mutual recognition (incIuding harmonization of procedures involved) of professional qualifications for natural persons as service providers. .
Finally, as already noted in Chapter 3, many developing countries are constrained in taking full advantage of the export potential of their medical, personalized health care and holiday horne services due to the restrictions imposed by the countries of origin on transfers abroad of health and other social security benefits. The difficulty arises when, for example, the medical insurance schemes (especially in the public sector) do not cover or only inadequately cover medical cases outside the country of origin. A similar problem arises when the social security schemes have no provision for transfer abroad of their pension benefits or have provision for the transfer of only part of the benefits or when the procedure is too complicated and time-consuming.
Except in cases where these restrictions are intertwined with other issues of a complex nature such as foreign exchange management, it should be possible to improve the situation through cIoser co-operation between the consumer sending and consumer receiving countries. Aside from bilateral negotiation and agreements, developing countries can use the channel of
Prospects and Areas 0/ International Co-operation 139
regional co-operation agreements among themselves and with developed countries to remove or reduce these barriers to trade in medical, health-care and similar services. It can be argued that, idealIy, efforts to remove the barriers - although imposed in the country of origin of service consumers (and not in the territory of another member country) - should be regarded as part of the multilateral process of Iiberalization of trade in services. 15
Notes and references
1. At the time of writing WTO was already discussing with the World Bank and the IMF possible areas and Iines of possible collaboration between the three organizations. It was envisaged, for example, that for reasons of economy and better co-ordination, WTO might draw on the expertise of the Fund and the Bank for analytical work relating to international trade, incIuding trade in services. Details of the measures were due to be thrashed out by the end of 1995. The WTO Director-General was also due to hold consuitations in July 1995 to work out similar coIIaborative arrangements with the Uni ted Nations.
2. UNCTAD/Worid Bank, Liberalizing International Transactions in Services: A Handbook, op. eit. p. 147.
3. See UNCTAD, document TD/B/CNAI43 (Geneva: 30 June 1995) paragraphs 21-6.
4. In keeping with a recommendation of its Standing Committee on Developing Services Sectors (Trade and Development Board), UNCTAD was in the process of establishing a computerized database to facilitate the access of services and service suppliers of developing countries to world markets by providing information on measures, incIuding laws and regulations, that affect such access. See UNCTAD document TD/B/CNA/L 13 (Geneva: 22 July 1994) p. 2.
5. This can be complemented by an in-depth study, as suggested in arecent UNCT AD report, to analyse the successful experiences of developing countries in trade in services and identify possible new approaches within the context of the GATS. See UNCTAD, Studies on Sectors 01 Priority Interest to Developing Count ries: Issues Relating to the Export 01 Labour-intensive Services, op. eit. p. 19, paragraph 38.
6. UNCTAD, Trade and Development Report, 1988. op. eit. pp. 216-17. 7. See, ITU Centre for Telecommunications Development, Restructuring 01
Telecommunications in Developing Countries. op. eit. 8. Financial Times (London: 3 February 1995). 9. UNCTADI World Bank, Liberalizing International Transactions in
Services: A Handbook, op. eit. p. 158. 10. The Courier, 120 (March-April 1990) pp. 1-186. 11. Financial Times (London: 7 February 1995). 12. Although launched in 1991, the formal establishment of the trade area
was made effective from I January 1995, foIIowing a summit meeting
140 Gainsfrom Global Linkages
(December 1994) of the four member countries - Argentina, Brazil, Paraguay and Uruguay - at Ouro Preto, Brazil. Financial Times (London: 16 December 1994).
13. See, for example, E. Helpman and P. R. Krugman, Market Structure and Foreign Trade (Cambridge: The MIT Press, 1985); also R. Harris, 'Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition' American Economic Review, 74 (December 1984) pp. 1016-32.
14. lt is interesting to note that the trade ministers meeting, held at Denver in June 1995 under the initiative for free trade across the Americas, agreed on a basic set of principles including a commitment to consistency with the rules of the WTO, acceptance of all obligations of the agreement by all members and a promise not to erect trade barriers against third countries. The hemispheric-wide free trade agreement was to be forged by building on existing regional and bilateral trade pacts. Financial Times (London: 30 June 1995 and 3 July 1995).
15. lt should be recalled that under the GATS, market access through consumpti on abroad refers to the supply of a service 'in the territory of one Member to the service consumer of any other Member' and that the specific commitments concern measures taken in the service exporting (destination) country.
6 Services, Trade-related Temporary Movements and Migration Management: Some Concluding Remarks
Discussion in the previous chapters has shown that as developing countries fully exploit their potential comparative advantage in specific services and increase their participation in trade in service, the global economy gains from a more efficient use of the available resources, and all trading partners, including the industrial countries, can benefit. Beyond the initial efficiency gains, industrial countries should benefit from increased investment - as a result of higher returns to investment and, possibly, from innovation and higher productivity growth.
The gains made by the developing countries should lead to expansion of employment and improvement of incomes not just in the services sec tor but also in the manufacturing and primary goods sectors where services, especially producer services, can be of critical importance as intermediate inputs.
Although these gains cannot be easily quantified, enlightened conjectures suggest that they can be substantial. Arecent World Bank study, for example, has estimated that by competing in the trade of long-distance ('separated') services alone the developing countries can increase their export income by an amount that almost equals the total value of their current commercial service exports (about $140 billion, based on IMF figures).1 The calculation is based on the assumption that developing countries can effectively contest 10-30 per cent of the available service jobs with a high technical potential for long-distance delivery (Table 6.1).2 Services that are more amenable to long-distance delivery are generally information-intensive, which facilitates their cross-border supply through modern telecommunication and information technology as the main mode of delivery and also gives developing countries a cost advantage because of the relative labour intensity of many types of information processing; and they do not involve manipulation (movement, transformation, or creation) of physical objects.
For 0-7 economies the service jobs that are amenable to long-distance delivery make up between 12 and 16 per cent of the total employment in
141
142 Gainsjrom Global Linkages
Table 6.1 Estimates of market size for long-distance service exports from developing count ries, 1990 (US$ billions)
Potential value of long-distance service exports
Destination country Lowestimate High estimate
Canada 1.8 5.3 France 2.2 6.5 Germany 6.3 18.9 Italy 2.6 7.9 Japan 9.6 28.8 United Kingdom 3.5 10.4 United States 14.4 43.1 Total G-7 40.3 121.0
Source: World Bank (1995). Adapted from Apte 1994; ILO 1993; and national sources of labour statistics. Note: The low estimate assumes that the share of jobs with a high potential for long-distance provision in the destination country that can actually be contested internationally is 10 per cent. The high estimate assumes this ratio to be 30 per cent.
services. Assuming that developing countries can contest 10-30 per cent of these jobs, the likely size of potential market for developing countries in 0-7 economies falls in the range of 1-5 per cent of the total service employment in the latter economies. The scope for such long-distance service exports of course goes beyond the 0-7 economies and should incJude other industrial countries (as is done in the es ti mate above). For the purpose of calculating the employment effects of developing countries' increased long-distance service exports, the total number of service jobs in the concerned industrial (incJuding 0-7) countries can be estimated around 300 million.3
The gains that developing countries can make by capturing these markets could be enormous, especially when the second round effects are taken into account. Since the development of these service (especially producer) activities will have a positive effect on the other sectors of the economy and taking into account the multiplier effect of the additional income and investment. it can be conservatively estimated that each new service job will generate at least one additional job. while the income would increase by a factor of 1.5.
Services, Trade-related Temporary Movements and Migration 143
The long-distance service export, as defined above, thus holds the potential of creating in developing countries between three and 15 million jobs in the first round and a total of six to 30 million jobs when the second round effects are also taken into account. By the same token, the export income of $140 million will generate an additional $210 billion, making a total of $350 million or 2.5 times the present value of their total commercial service exports.
From the migration management perspective, this can make a significant difference. A few points need to be noted in this connection. Since most of the first-round jobs will be in the information and knowledge-intensive service activities, they will have a particularly important restraining effect on skill migration: many of the skilled and professional workers who might have otherwise moved, or tried to move, in search of jobs in industrial countries will be inc\ined to remain in the horne country because of the creation of 3-15 million new jobs (in the initial stage). Second, the effect will be even more powerful because most of the new skilled jobs will carry relatively high wages (expected wages are assumed to be two-thirds of those in the (respective) G-7 countries). In other words, the restraining effect will have an impact not only on those potential skilIed migrants whose move is driven by joblessness but also on those who seek higher earnings (better opportunities) abroad.
The second-round effect on employment and wages will have a similar stabilizing effect on emigration from developing countries, but it will be more widely spread affecting both skilled and less skilled workers in different sectors of the economy. But here, too, the two-fold gains - in the form of job creation and job upgrading - should reduce both unemployment-induced and opportunity-seeking migration. Since, however, the second-round gains are likely to be more of an endogenous nature, the job-upgrading effect will perhaps be less pronounced than in the case of the first-round gains (which are directly linked to international competi ti veness).
There is \ittle doubt however that the combined (first and second round) effects of developing countries' increased long-distance service exports can considerably reduce the mounting pressure for large-scale, disruptive migration. To put it differently, by reducing migratory pressures the overall employment and income gains can significantly contribute to making migration from developing countries more orderly and manageable in the years ahead.
Some caveats must however be added to the optimistic projections. First, while the projections bring out the developing countries' potential opportunities in long-distance services exports, these can be realized only
144 Gains from Global Linkages
incrementally over aperiod of time. Second, the extent to which they would be able to ac hieve this will depend on several critical factors which, as already noted, include a favourable policy and regulatory regime, a sound and dynamic export trade organization, a trained and flexible work force and an efficient telecommunication system.
Third, a most important pre-condition concerns developing countries ' market access, including the opportunities for temporary movement of persons as service providers. True, the absence of the need for extensive direct contact between the producers and customers is one of the important criteria used in the above estimate of the developing countries' potential market for long-distance service exports. Nevertheless, as the discussion in Chapter 2 has revealed, even in the case of the long-distance or separated services a degree of personal interaction with the customers is often needed, for example, to secure the service contract and complete its effective delivery. Hence, the special importance of opportunities for temporary movement of service providing persons. As already argued, this can be best guaranteed by an internationally harmonized visa regime for traderelated movements as distinct from migration for employment or permanent settlement.
It needs to be emphasized that the above es ti mate of the developing country gains from service exports does not take into account a whole range of other, labour-intensive services which depend on the movement of natural persons, skilled and unskilled, as the principal mode of delivery. It has been argued that a number of developing countries will continue to depend mostly on these traditional labour services (along with tourism) for their service exports at least for several years to come. Although under the GA TS the depth of commitments by the trading nations for liberalizing such movements has been limited (and non-existent for unskilled workers), it is believed that the future negotiations could be helped by giving simultaneous attention to the possible development of an internationally harmonized regime to define, monitor and manage trade-related movements, as distinct from longer-term migration for other purposes. Once the confusion between the two types of flows is removed, it will then be easier to see how under certain conditions trade-related temporary movements of persons can be used at least as a partial substitute for longer-term migration.
To sum up, parallel to a strengthened services sector, increased opportunities for temporary movement of persons as service providers and consumers can contribute to global economic gains through expansion of trade in services; this also has the potential for reducing pressures for disruptive migration in labour-surplus countries. Nations should give full
Services, Trade-related Temporary Movements anti Migration 145
consideration to both these aspects as they engage themselves in further negotiations on the issue of trade-related movement of persons.
Notes and references
I. The World Bank, Global Economic Prospects and the Developing countries (Washington, DC: World Bank, 1995).
2. Ibid. The ratios in quest ion are based on the experience of transnational corporations in the manufacturing sector. The ratio of total employment in foreign aff1Iiates of transnationals originating in 0-7 countries to total manufacturing employment in the horne country is in the 10-30 range (Oeneva: UNCTAD, 1994, World Investment Report: Transnational Corporations, Employment and the Workplace). The value of the potential market for developing countries is derived from the number of outsourced jobs multiplied by the expected wages. In the light of survey resuIts showing that companies seriously consider outsourcing when cost savings reach 30 to 40 per cent, expected wages were assumed 10 be two-thirds of those in the respective 0-7 countries. See M. Sobol and Uday Apte, 'Outsourcing Practices and Views of Efficient IS Users: An Empirical Study'. Working Paper 95-01-01, (Southern Methodist University, DalIas, Texas, 1995). The value of developing countries' long-distance services exports will be even higher when the value added to wages over time is taken into account.
3. In 1990-92 the total number of service sector jobs was 250 million in the OECD countries and around 334 million in industrial countries as a whole. However the laUer category included several middle-income industrial countries which are of less relevance in the present context.
Appendices
APPENDIX 1
Secloral breakdown of gross domeslic producl for selecled economies (Percentage of GOP at current prices)
Dtslribullon 01 GDP (Pet' cent)
Aglleullu", Inc:full')' M.nuf'durin~
GNP pe' capita Economy t990doII.,. '96' .... .... '96' .... .... '96'
Low-lncom,' Nepal 170 OS 51 50 11 '3 •• 3 Bangladelh 2'0 53 54 :Ja 11 '3 •• , Uganda 220 52 ,. ., '3 • 1 • NIgeria ... 55 20 :Ja •• •• :Ja , Indio 350 .. 31 3' •• 28 •• •• China 310 :Ja 3. " 3. " •• .8 K.ny< 310 35 34 •• 18 2' " 11 Pakistan 3aO '0 31 28 20 .5 25
" Ghana 390 •• .. .8 •• .. ,. '0 Togo •• 0 •• •• 33 .. 20 2. '0 Sri tanke "0 •• 2. 28 .. 30 28 11 Indonesia 570 51 •• •• .3 •• .0 8 Hondulls 590 '0 3. 23 •• 25 2' •• Egwt 500 2. .3 11 21 3' 2. ..
LOMr mlddl.~ncom.· BoI~o 830 .3 •• •• 3' •• 32 15 Zimbabwe 640 .8 .. 13 35 3. '0 20 Phiippines 730 26 .3 22 27 37 35 20 Nicaragua 530' • 5 23 ... •• 3' 2;1 18 Mo<o«o .50 23 18 '6 28 32 33 •• EIS.Iv.dor J 110 •• 27 11 2. 2. 2' 18 PeN "50 •• • 7 30 .. 31 11 CoIomI>. • 260 • 7 2. .7 21 30 3. •• Thailand 1420 3. 25 •• .3 •• 3. .. Tunlsla 1 .... 0 22 .7 I. .. 35 3. • Jamaica 1500 '0 • 5 31 37 .6 17 Turli:ey '830 34 .3 '8 25 30 33 •• Rom.nia 1640 11 .8 .. .8 "
eOSle Rica .900 .. '7 •• .3 .. .6 Chile '940 • 7 .0 31 .. Malaysia 2320 28 •• 25 37 • Argenllna 2370 11 13 '2 .. .. 33
Uppar mlddf,-Incom,' Mellico .... .. '0 • 27 :Ja 30 20 Uruguay .680 18 .0 11 35 33 34 Veneluela .680 6 6 • '0 47 50 STlzii • 880 •• .0 '0 33 31 3. .6 Hungary 2760 .. .. 59 3. Korea, Rap. 01 5.00 :Ja •• • .5 .. .. 18 Saudi Arabia 7050 • I • 60 ,. .. •
Hlgh-lncom.' OECD
Uniled Kingdorn 16100 3 • t '6 35 37' 34 11.1y ,.830 .. • • 43 33 France 19490 • • 38 •• Canada 20410 • • .' '0 33 '0' 2. Unilad Slates 21780 3 3 t 38 34 2r1 2. Germant' 22320 • • • 53 3. .0 Japan 25430 '0 • 3 .. " .. 34
0'11« Singapore 11160 3 I 0 2' 37 37 15 Hong Kong ',490 2 I 0 .0 28 2' Kuwail '6 ,so' 0 • 70 7. .. 3
Source: UNCTAOlWorid Bank, based on World Bank databases, a For definitions of country groups see Table 1,1, Chapter I
.... .... • 5 1 • • • • 1
'8 • • " :Ja
13 11 ,. 17 • 1 • 18 15 • 20 11 ,. 2 • •• •• '3 25 •• 26 ~} .5 11 18 15 •• 27 .7 2 • •• 20 .6 .3 17 15 20 .. •• 20 I. .. .. 23
35' ..
.. • 3 25 28 .6 20
.6 27
•• 31
• • 22 'lIi
23 27 .. I. .3' .. 11' 37 3' .. •• 2. 2. 27 18 6 •
Servk:etl
'96' .... '3 30 :Ja 33 35 " 33 38 34 31 ., •• ., .5 '0 .. :Ja 13 34 54 51 •• 38 32 ., •• '5 •• •• 53 .7 •• .7 '0 5' •• •• 50 •• 5 • 53 47 47 • • .. •• 54 '8 53 65 .. 47
25 53 64 52 68 47 3' .. 5 • 52 47 57 55 47 .8 53
21 37 43 31 .. 51 53
55 50
64 .3 5. 83 43 '6 55
74 62 68 .. 21
..90
28 •• 28 .5 .0 3' 51 •• 37
•• •• 38 53 53
..
.7
:~ 5' .7 57 51
•• 52 •• •• 34 68 .. '5
6' 55 .. 51 SO .6 '8
.2' 83 ., SO' .ri 5. 68
83 73 43
b Because manufacturing is generally the most dynatnic part of the industrial sector, its share of GOP is shown separately,
c Services are defined in note c to Table 1,1 d 1987 figure used, e 1988 figure used, f 1989 figure used, g Oata refer to the Federal Republic of Germany before unification,
146
Appendices
Appendix2A
147
Composition of commercial services exports by selected economIes, 1990 (Percentage)
Tansport
Passenger and Olher services Economy Commercial Total Shipment transport Travel andincome
IAlw-incomc' 100.0 31.8 14.4 23.4 33A Nepal 100.0 3.6 0.0 3.6 65.1 30.1 Banaladesh 100.0 12.8 0.1 12.5 6.4 BOA Uganda .. .. .. .. .. Niaeria 100.0 3.1 2.0 1.1 2.4 94.5 Indla' 100.0 22.6 11A 5.2 35.1 42.2 China 100.0 51.0 31.6 13.4 30.2 18.1 Kenya 100.0 39.0 6.0 33.0 54.5 60S Pakislan 100.0 583 4.4 53.9 12.5 29.1 Ghana 100.0 51.9 26.5 25.4 5.6 42.5 Togo 100.0 30.6 5.2 26.1 31.3 31.3 Sril.anka 100.0 39.9 2.2 31.1 30.2 29.9 Indooe.1a 100.0 3.3 0.0 3.3 91.2 5.5 lIonduras' 100.0 53.2 9.0 45.0 25.2 21.6 EIYpt 100.0 53.2 0.5 52.1 21.4 25.4
l..ower middlc-Inc:omc' 100.0 22.6 10.4 12.3 43.5 33.9 Dolly!a 100.0 36.6 12.1 23.9 43.3 20.1 Zimbabwcll 100.0 46.4 11.5 35.0 29.5 24.0 !'blßppln .. 100.0 6.2 4.1 2.0 11.4 82.5 Nkaralua 100.0 19.2 19.2 0.0 35.5 45.3 MORlCCO 100.0 11.3 8.2 3.2 61.1 21.0 mSaI._ 100.0 29.4 0.0 29.4 11.1 52.1 ..... 100.0 35.1 14.6 21.2 39.8 24A Col .. nbla 100.0 29.1 1.8 22.0 31.2 39.0 l11alland 100.0 18.4 6.4 12.0 59.5 22.1 Tunisia 100.0 23.9 7.0 16.1 65.1 11.0 Jamal<a 100.0 19.1 1.4 11.1 61.2 13.1 Turkey 100.0 13.1 11.9 1.2 46.0 40.9 Romania 100.0 45.7 45.7 0.0 14.2 40.2 eoslaRica 100.0 16.5 1.8 14.6 46.2 37.3 CIIIIe 100.0 40.6 22.4 11.1 26.6 32.1 Malaysia 100.0 33.1 14.1 19.6 40.5 25.1 Arsenlina 100.0 50.7 13.3 37.4 39.6 9.6
Upper middk-inrome' 100.0 215 10.7 10.7 35.6 42.9 Mexico 100.0 8.0 0.0 1.0 48.8 43.3 Urusuay 100.0 22.2 6.8 15.7 55.7 21.8 Venezuela 100.0 48.9 16.1 32.1 37.1 13.3 Dra7.lIC 100.0 44.3 29.6 14.7 39.1 15.9 lIungar)' 100.0 1.1 1.1 0.0 36.1 61.4 K ..... Rcpublico[ 100.0 35.2 21.0 14.2 29.1 35.1 50001 A .. bla 100.0 4.1 0.0 4.1 0.0 95.9
lligh·lncornel. 100.0 29.6 .. 28.5 41.9 OBeDd 100.0 29.0 11.0 11.0 28.2 42.1
UnilCd KIngdom 100.0 27.9 8.6 19.3 25.1 46.5 llaly 100.0 26.6 19.9 6.7 49.1 24.3 France 100.0 21.0 11.4 16.6 25.1 46.9 CanacJa 100.0 7.2 4.5 2.6 42.4 50.4 UnllCdStalCS 100.0 29.1 5.7 23A 34.1 36.1 Gennan)" 100.0 28.3 10.7 11.6 18.6 53.1 Japan 100.0 43.7 22.9 20.8 8.6 41.1
01"., 100.0 37.8 .. .. 33.2 28.9 SlnlllpOfC 100.0 30.9 10A 20.5 30.2 38.9 110118 KOlla" 100.0 42.6 .. .. 39.7 11.1 KuwaitC' 100.0 88.1 44.2 44.7 11.2 0.0
Source.f: UNCTAD/World Bank, based on IMF, The World Bank and GATT databases. a For definitions of country groups, see Table 1.1, Chapter I b 1988 figures used c 1989 figures used d The average shares shown are based only on those OECD counlries shown in table (G7). eIncludes transaclions of former Federal Republic of Germany, and also, after July, 1990, former Bast
Germany.
148 Appendices
APPENDIX 2B
Compositlon of commercial services imports by selected economles, 1990 (Percentage)
Transport
Economy COmmercial TOlal Shlpmant Passenger aod
~ansport Travel
I.ow·lncom.t 100.0 58.6 43.0 15.1 12.1 Nepal 100.0 44.0 32.1 11.9 28.3 Bangladash 100.0 77.6 65.9 11.9 14.1 Uganda 100.0 65.1 65.1 0.0 0.0 N;gat1a 100.0 37.7 32.1 5.6 31.1 Indiac 100.0 60.8 42.5 16.3 1.1 China 100.0 81.2 54.3 28.9 11.4 Kenya 100.0 71.2 53.5 17.8 6.4 Pakls~n 100.0 66.9 38.0 28.9 23.7 Ghana 100.0 67.8 48.7 19.1 5.6 Togo 100.0 54.1 35.1 19.0 19.9 Sri Lanka 100.0 68.7 44.2 24,4 11.9 Indonasla 100.0 47.4 38.9 8.5 15.2 Hondurasc 100.0 47.5 40.2 7.4 16.6 Egypl 100.0 47.1 39.3 7.8 3.8
Lowtr mlddle·lncome' 100.0 49.4 34.9 14.5 23.8 Bo&Yia 100.0 64.3 50.2 14.1 20.2 Zimbabweb 100.0 SO.4 31.7 18.7 14.8 PhIlIppIna. 100.0 58.9 48.4 10.4 6.4 Nlearagua 100.0 78.6 78.6 0.0 20.1 Morocco 100.0 66.2 56.1 10.0 18.8 EI Salvadorc 100.0 33.6 22.0 11.9 28.2 Paru 100.0 33.2 13.8 19.4 36.1 COlombia 100.0 40.3 16.7 23.6 302 Thaland 100.0 61.5 56.5 5.0 22.5 Tunist. 100.0 63.2 34.8 28.4 26.0 Jamalea 100.0 SO.6 36.1 14.4 8.0 Turkey 100.0 35.5 26.7 8.8 20.5 Romania 100.0 70.0 70.0 0.0 12.6 Costa Rlea 100.0 43.5 34.6 8.8 26.3 ChMe 100.0 48.5 16.3 32.2 19.1 Malaysia 100.0 47.7 33.8 13.9 25.2 Arg.nlina 100.0 32.4 5.6 26.8 40.5
Upper mlddle·lncom.' 100.0 31.8 16.2 15.6 24,4 MaxJco 100.0 26.5 15.2 11.3 54.8 Uruguay 100.0 34.9 17.1 17.8 35.2 Venezuela 100.0 41.6 25.8 15.7 40.3 Brazle: 100.0 56.0 15.1 40.9 14.7
~~~a~~ePUbliC 01 100.0 9.8 9.8 0.0 25.8 100.0 41.1 12.2 28.9 25.0
Saudi Arabia 100.0 20.2 20.2 0.0 0.0
HI~~~dPm.· 100.0 3\.5 34.1 100.0 31.2 12.9 18.3 34.0
Unlled Kingdom 100.0 35.9 9.9 26.0 40.9 lIat,. 100.0 37.3 26.7 10.6 37.0 Franee 100.0 38.1 16.8 21.3 19.1 Canada 100.0 7.4 5.6 1.8 47.6 Uniled Stales 100.0 37.0 14.4 22.7 44.2 Germany' 100.0 2\.8 9.6 12.0 32.8 Japan 100.0 3\.2 9.3 21.9 28.1
Oth" 100.0 37.8 36.4 SingapCH8 100.0 40.8 40.8 0.0 19.8 Hong Kongb 100.0 35.8 43.7 Kuwaitc 100.0 34.1 24.1 9.4 64.4
Othe, servkes Bnd Incoma
28.8 27.7
8.3 35.4 3\.2 32.1
7.4 22.4
9.4 28.5 26.0 19.4 37.4 33.8 49.1
28.4 15.5 34.8 34.7
1.4 15.1 38.2 28.6 29.5 16.0 10.6 41.5 44.0 17.7 30.3 32.3 27.0 27.1
43.8 18.7 29.8 18.2 29.3 64.4 33.9 79.8
34.3 34.7 232 25.7 42.8 44.9 18.8 45.4 40.6 25.7 39.4 202
1.5
Sourees: UNCTAD/World Bank, based on IMF, The World Bank and GATT databases. a For definitions of country groups, see Table 1.1, Chapter I b 1988 figures used c 1989 figures used d The average shares shown are based only on those OECD countries shown in table (G7). eincludes transactions of former Federal Republic of Germany, and also, after July, 1990, former Bast
Germany.
Appendices
APPENDIX2C
Leadlng ex porters and Importen In world trade In commerclal services, 1994 (Billion dollars and percentage)
Rank EXPORTERS Value Share Change Rank EXPORTERS Value Share in value in
1994 I Unlled strucs 178.2 16.5 1 I Uni"" 5Il10. Iß.O 12.0
2 Fnmce 89.1 8.3 5 2 Jopan 109.2 10.5
3 Ilal, 59.1 5.5 4 3 Germ .. , 98.8 9.5
4 Uni .... Klnldom SI.6 H 7 4 FIlUKC 69.9 6.1
5 J ..... 51.2 5.3 9 5 "aI, 58.0 5.6
6 GcnnMlf 53.1 4.9 I 6 Uni .... Klnldom 50.8 4.9
1 Ne\llerlands 39.6 3.1 8 1 Netherlancls 31.0 3.6
8 O.lJIum·Lu .... bourl 36.3 3.4 16 8 Del ... m ............. 33.8 3.2
9 Spaln 33.7 3.1 11 9 Canada 26.1 2.5
10 1100'_' 31.6 2.9 13 10 Auwla 21.3 2.0
11 Auslria 28.8 2.1 0 11 Chinese Taipei 21.1 2.0
12 Slnl· .... 22.9 2.1 26 12 K .... ,R .... or 20.2 1.9
13 SwllZerland 22.8 2.1 6 13 11011'_' 18.4 1.8
14 Korea. Rep. or 18.8 1.1 28 14 Spaln 18.4 1.8
15 ean .... 18.4 1.1 4 15 ThaIland 15.9 1.5
16 China 16.2 1.5 48 16 China 15.1 1.5
11 Aulnlla 14.1 1.3 18 17 Austral .. 15,5 1.5
18 Chinese Taipei 13.5 1.2 4 18 S_ 14.4 1.4
19 IJonmark 13.4 1.2 6 19 Norway 14.3 1.4
20 Sweden IU 1.2 9 20 Russian Fedetalion 13.8 1.3
21 Norway 13.0 1.2 4 21 Sln ...... 12.9 1.2
22 'lbailand 11.3 1.0 9 22 Swltzcrland 12.1 1.2
23 Turkey 10.1 1.0 2 23 SaudlAlabIa 12.5 1.2
24 Gn.'«e 9.1 0.8 12 24 Mexico 12.1 1.2
25 MeIico 8.6 0.8 3 25 IJonnwlt 12.0 1.2
26 EIYJII 7.1 0.1 9 26 amI! 9.8 0.9
21 Russian l"ederation 6.9 0.6 8 27 Indone~. 9.5 0.9
28 Portugal 6.5 0.6 -I 28 MaI.ysla 8.1 0.8
29 1"",,1 6.4 0.6 6 19 1 .... 1 8.0 0.8
30 Malaysia 6.4 0.6 26 30 Indl. 1.6 0.1
TOIaIofabove 905.3 84.1 - ,. .... or ...... 904.4 86.1
World 1011.1 100.0 - World 1042.1 100.0
SOllree: WTO Secretariat Estimates, 1996.
149
Change in value in
1994 10
10
1
3
2
13
1
15
-5
2
0
23
16
0
26
36
15
8
4
8
21
10
-10
3
13
1
8
11
15
13
--
Note: As from January 1996, the IMF began compiling Balance of Payments Statistics acconling to Ihe Fifth Edition of the Balance of Payments Manual, which has been harmonized to the extent possible wilh National Account Statistics (1993). As a result, WTO data on commercial services have undergone a substantial revision. Tbe product coverage of trade in goods In BOP statistics has become very similar to Ihat used in customs statistics (for example, processing trade and bunkers). Comparnbility between the national data and BOP statistics has improved as definitions of some tmnsactions have been clarified, \eading to a more uniform application of guidelines. BOP statistics also now provide more detail on commercial services transactions and an extended capital and financial account seetion.
1lte impact of lbese ehanges on the WTO's commercial services data are (a) a lower 'world total' for commercial services and (b) some major revisions in Ibe ranking oflbe principal services tmders as Ibe repercussions of these Change. affect countries differently. 1lte nccumcy of historieal comparisons is also affected, as many of Ihese changes cannot be taken fUIlY into account for preceding years. Moreover, as countries are implernenting these reeommended guidelines only gradually, commercial services data will remain subject to rurther revisions in the nenr future. Because some countries had begun implementing Ihese changes when compiling statistics for 1994, the figures in Ihis table reflect, to a degree, Ihe new definitions.
Serv
ice
ICli.
,ity
I.
1IU
SIN
ESS
SER
VIC
ES
A.
Prof
essio
nal
serv
ices
a.
Leaa
l
b.
Acco
uncm
C. auditinc.t~ ...
c.
Tax
atio
n
d.
Ard
tilec
lUn)
c.
Enc
inc<
rinl
r. ID
lClm
cd c
n,iu
ecri
ns
8·
Urb
an p
lam
ina:
anc
lland
scap
e ar
dlill
:CfU
rc
h.
Med
ical
llft
d de
ntal
i. V
eter
inar
y
j.
Mid
wiv
es.
nurs
es.
phys
iolh
enlp
isu
arid
par
a-m
edia
l pm
onne
l
k.
OdI
cr
B.
Com
pute
r an
d rd
alC
d se
rvic
es
I.
Con
sultl
acy
serv
ices
rdl
lCd
to e
he
iast
alla
tion
or compu~r h
ardw
are
b.
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warc
impI
emen
lalio
n
c.
Dat
lpro
cess
ina:
d.
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llbas
c:
c.
OdI
cr
c.
RC
SCIrd
t lin
d de
velo
pmm
l
a.
UD
Da
naN
QI
sc.ie
nces
b.
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on
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al s
cicn
ccs
and
bam
anir
ics
c.
InlC
Jdis
cipl
inar
y U
D
D.
Rea
l es
rale
ser
vice
s
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II G
I' Je
uc P
ftII*
Iy
b.
On
I fe
c or
CO
IUI'I
CI
basi
s
AP
PE
ND
IX3A
Com
mit
men
ts in
ser
vice
act
ivit
ies
by m
ajo
r co
untr
y gr
oup
(Num
ber o
f cou
ntrie
s)
oe
LDC
T
rans
ition
I T
otal
Se
rvic
e: a
edvi
ty
I.
BU
SIN
ESS
SEltV
ICE
S
E.
Ren
talll
easin
a ..
....
t ope
rato
rs
25
19
4 48
a.
Sh
ips
25
26
4 55
b.
A
i«m
I
22
12
3 40
c.
0
dIu
-.p
o" ..
.. ip
mcm
25
21
3 49
d.
O
tbcr
mK
hinc
ry l
ad c
quip
mcn
l:
25
27
• 56
c.
O
tIIer
2.
11
3 31
F
. O
Iber
bus
ines
s se
rvic
es
23
11
3 31
a.
Ad
vmisi
Da s
ervi
ces
18
" 4
31
b.
Mar
tct .
....
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....
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lic
opin
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27
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a
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da ..
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24
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la
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Chn
ical c
onsu
ltilq
: ser
rices
I 22
I
12
I 3
37
n.
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men
ancc
Ind
rcp
air o
n eq
uipm
entl
I 4
I 9
I I
14
o.
Bui
ldin
a.<l
eanm
, ser
vice
s
p.
Pho
to,n
pbic
ser
vka
I 22
I
2 I
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q •
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aina:
SCl'Y
ic:cs
I 23
I
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0 l
26
r. pr
inrin
s. po
blis
hina
s. C
onve
ntio
n se
rvic
es
_L~~ __
---
-
IDC
LDC
22
5
22
4
25
10
24
7
4 2
23
16
24
14
24
25
24
I
21
13
24
11
21
9
21
11
6 5
2 I
20
4
20
I
12
5
23
11
25
6
23
5
20
4
21
3
22
1
19
11
T..
..m
on
IT
OU
I
3 30
I 27
3 38
I 32
I 7
4 43
3 41
4 53
2 34
I 35
4 39
I 31
2 34
I 12
I 4
I 25
I 22
3 20
3 37
3 34
4 32
3 27
5 29
0 29
1 31
-U\ o ~
"15 ~ ~.
APP
EN
DIX
3A
co
nti
nu
ed
Serv
ice
aetiv
ity
/ oe
/ Lee
/ T
....,;
... n
/T
olal
Se
rvic
e ac
tivily
/o
e
1.
CO
MM
tlNJC
ATI
ON
SER
VIC
ES
1.
CO
MM
l1llI
CA
TlO
N S
ERV
ICES
A.
Posc
alsc
rvic
es
o /
3 /
0 /
3 E.
0I
iIer
I
0
8.
Cou
rier s
ervi
ces
I 4
I IS
I
3 L
22
3.
eOl'l
S11
lucn
oN A
IID R
.El.A
TED
EII
GII
IEE
RIN
G S
ERV
ICES
e.
Telec
omm
unica
don
serv
ices
A
. G
ener
al C
ODSI
NCIio
n w
ork
(or
build
inp
24
I.
Voi
ce t
elep
hone
ser
vice
s 0
10
0 10
8
. G
ener
al c
:ons
uuet
ion
wor
t ro
r ei
vil c
nain
ccriD
a:
24
b.
Packet:~swiccbcd d
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nsm
issio
n lC
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s 2
9 0
11
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lnsI
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and
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r w
ort
23
c. C
ircui
t-sw
itc:h
cd d
aIa
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issi
on s
ervi
ces
2 10
0
12
D.
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ldiD
a co
mpl
etio
n an
d ru
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ing
wor
t 23
d.
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s 1
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ices
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UTI
ON
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ES
f. Fa
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omm
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ices
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ic m
ail
2S
19
4 48
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R
ecai
linJs
cnoi
ces
2S
;. V
oic
emai
l 2S
17
•
46
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Fran
chis
ing
23
j.
On-
line
info
nDal
ioa
and
cWa
bu
c re
tric
nl
2S
21
4 50
E
. Q
lber
14
k.
Elec
IrOnl
c da
.. U
IIerd
wI&c
<ED
O 2S
14
4
43
$.
EDU
CA
TIO
NA
L SE
RV
ICES
I.
EDc:
lwac
odIv
aIuc
-add
cd fa
csim
ilc scrv~
9 16
4
29
A.
Prim
ary
educ
atio
n se
rvic
es
18
lncl
. slO
re a
nd C
OfW
Ird. s
core
and
ret
riev
c
m.
Cod
e u
d p
roco
col c
oavc
:rsio
n 2S
12
•
41
8.
Sec:
onda
ry c
duca
boD
scr
viee
.s 19
n.
Oa-
linc
iafo
rmat
ion
andI
or d
a&a
prtN
:CSS
inJ
9 16
4
29
e.
HiJ
bc:r
cduc
alio
n IC
rvicc
s 11
Ul
l ... _
..
....
....
. >
o.
0Ch0
r 4
15
2 21
D
. A
dult
cduc
atio
n 18
D.
Au
diI
n'is
ual
sen
iccs
E
. O
tber
edu
catio
n se
J'Yiee
s 3
I.
Mod
onpi
clul
ClI
Id .
_II
pe: ..
....
....
1II
d 3
10
0 13
6
. E
llVlR
ON
MI!
IIT
AL
SER
VIC
ES
distr
ibuc
ion
scrri
ces
b.
Mot
ion
piau
re p
!Vje
aion
serv
ices
3
3 0
6 A
. Se
wag
e se
rvic
es
23
c. W
to
qd
ele
.,..
_
2 1
0 3
8.
Ref
usc
disp
osal
ser
vice
s 24
d.
Rad
io u
d Id
cyis
ion
scvi
ces
2 4
0 6
C.
Sani
tatio
ft an
d sim
ilIr
se";
ces
23
.. So
und
reco
nlin
g 2
2 0
4 D
. 0I
iIer
23
f. Q
lber
2
2 0
4 -
---_
.-
LOC
I Tr
ansit
ion I T
otal
6 I
0 I
6
22
3 49
21
3 .a
19
3
4S
13
3 39
13
3 l6
4 0
27
8 4
37
9 4
38
5 3
31
0 0
14
4 4
26
6 3
28
3 4
2S
1 4
23
4 2
9
6 2
31
6 3
33
I
5 3
31
:
6 1
30 I I
).. :g ~ ~
<"'l ~
.- VI
..- VI
APP
EN
DIX
3A
co
ntin
ued
IV
I Serv
Ke
acliv
iry
1 oc
1 Lo
e 1 T
.. ns
ition
1 T
otal
Se
rvic
e ae
tivity
lo
e LO
C
1 Tra
nsiti
on 1
Tota
l
17•
F1N
AN
C[A
L SE
RV
[CE
S 7.
F1
NA
NC
IAL
SER
VIC
ES
IA.
All
insu
ranc
c Im
insu
J1lft
cc-r
elarc
d se
rvic
es
,. hn
icip
atio
n in
iuue
s o(
111
kind
s of
secu
riri
esl
23
27
4 54
Life
, Ic
eide
N:
and
hcal
th i
nsun
nee
scrv
as
1 24
1
38
1 4
1 66
h.
M
oney
bro
ldna
24
[3
0
37
b. N
on-li
fc i
nsun
net
serv
ices
1
251
371
4 1
66
i.
Ass
el m
ana,
emen
cl 23
23
2
., R
eins
unna
: an
d re
troc
cssio
n 1
25
1 41
1
4 17
0 j.
Se
nlem
enc
and
dear
ing
serv
ices
ror
fina
ncia
l as
sclS
. 23
13
3
39
inel
. se
euri
ties.
deri
vativ
e Pf
Oduc
ts. an
d OI
tIer
neao
ciabl
c in
srru
men
ts
d.
Serv
ices
I\Ix
ilSaf
)' 10
ins
uran
cc (
inel
udin
g
124
36
4 64
k.
A
dviso
ry a
nc1
othc
r lu
.xili
aty
fman
cial
setY
iccs
t 23
28
2
53
brok
inl
Ind
'Cen
ey s
ervi
ces
B.
Bank
ins;
and
othc
:t fm
ancl
al s
ervi
ces
(exe
!. in
sur:
anu)
p.
Prov
ision
and
tra
nsfe
r of
rmut
w io
torm
alio
n. a
nd
23
20
2 45
~
finan
cial «
lall
proc
:ess
ing
lDd
rdat
ed s
oftw
are:
by
::g pr
ovid
crs
of C
Khcr
fmaa
cial
seni
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epca
ncc
cf d
epos
its I
nd o
ther
tq'
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blc
24
35
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. O
tlter
1
10
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nds
(rom
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pub
lie
::: Ibo
u
nd
in, o
f 111
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s. in
cl..
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r al
ia.
23
35
4 62
S.
IlE
AL
TH
ItE
LA
TE
D A
ND
SO
CIA
L S
ER
VIC
ES
~
cOM
IIm
er c
:red
it. m
ortJ
llc c
redi
t. fa
ctar
i",
( .. h
er \h
aal_
Usl
od .
....
....
... r .
....
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... I
ees)
~
and
linan
eins
of c
omm
cn:w
tnl
nsac
tion.
'"
1 c.
Fina
ncia
l tA
lmI
24
22
2 48
A
. H
ospi
lal
serv
ices
1
15
1 15
1
2 1
32
d.
Aß
pay
men
t aDd
moo
ey 1nDmlis.~ S
I."I'V
lC.'e
S 24
25
3
52
B.
Oth
cr h
UN
n be
lieh
serv
ices
1
2 1
• 1
Lc.
Gua
r.ant
ces
Ind
c:om
mirm
ems
23
24
4 51
C
. So
cial
ser
vice
s 1
13
1 1
1 1
1 I'
Tra
dinz
(ar
ow
n Ic
coun
r or
ror
ICco
unl o
f cus
com
ers.
whe
lhcr
Oll
In u
chan
zc.
in
9.
TO
UR
ISM
AN
\) T
RA
VE
L I
lEL
AT
ED
SE
RV
ICE
S In
ove
r·dl
e<O
Unt
cr m
arke
r or
o&
hc:rw
ise t
hc r
ollo
win
,:
rn. M
one:
y m
arke
t ins
tnuf
ter'I
IX
23
21
3 47
A
. H
orel
and
mtl
uan
lS (i
nel.
care
riDl)
2'
69
4 98
12.
Fo~i&n c
xcha
nce
24
23
3 50
B
. T
nvd
'aen
cies
and
IOU
r ope
nron
: seM
c:es
2
' 53
•
82
I ~.
Der
i\'lr
ive
proc
hlCl
S in
c:l.,
bul n
ot
limire
d 10
. 24
11
1
36
C.
Tou
riSl
,uid
e se
rvic
es
24
24
2 '0
fu
tu~s
Ind
opt
ions
f4
&cb
aDge
rare
aDd
in&
ctcs
l rat
e iD
str1I
rDcD
lS
23
15
3 41
O
. O
tlter
I
12
0 13
i_
I pr
odac
:Is s
acb ..
SW
Ip$
, r..
-.,..
__
co:.
15.
Tra
nsfe
rabl
e sc
curi
ties
45
r6.
Och
cr n
egor
iabl
e in
suum
enu
and
finan
cial
ass
tlS.
39
ind.
bul
lion
APP
END
IX 3
A c
ontin
ued
Serv
icol
CliY
iIf
DC
LDC
Tr
ansi
tion
ITo .
.. Se
rvice
: ac:
tivicy
ID
C
LDC
1 T
rusi
Iioo
1 TO
ll.
1'. R
EC
RE
.\TIO
NA
L, C
ULT
lJR
AL
AN
D S
I'OR
TIN
G S
ERV
ICES
11
. TR
AN
SPO
RT
SER
VIC
ES
A.
....
....
...
serv
ices
(ol
ber
lbao
aud
iovi
suaI
) 17
16
1
34
c.
Supp
anin
l ser
vice
s fo
t air
lran
spof
t 19
1
14
1 2
135
8.
New
s IIC
DC)'
serv
eu
22
1 0
2J
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Spac
e Ir
lnsp
ort
1 1
o 1
0 1
2
C. ~ .
....
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d ..
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culo
ual
5 ,
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t lU
V'ic
es
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Spod
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lud
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er"
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s 10
15
1
36
a. '---
, ,
1 9
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er
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tio
n
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I 10
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TIW
'ISI'O
RT
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VIC
ES
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od te
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orte
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,
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16
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ppor
tiallC
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ot r
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ica
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es
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tll i
tf C
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ldaI
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s w
itb
op
er.l
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1I
1 0
10
r. Su
ppod
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ices
I'or
mar
idm
c cr
uasp
ort
I 6
0 7
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_ ...
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.. 12
,
3 29
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e.
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onin
a: l
ervi
l:a
rar ro
ad tr
ansp
Ort
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1
1 0
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.. .....
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2 o
1 •
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or _
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C.
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ril;:c
s c.
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ei&
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Oft
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ICY
ser
vice
s 11
,
0 30
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..........
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3 1
I 1
• d.
0d
Icr
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0 17
d.
_ lu
d ..,
.;ror
oio:
loft
/1
O/1
3J
• 37
1.
0dIe
r rr
aasp
on $
erY
_ I'
6 0
10
I N
ot iD
clud
ing
mar
itim
e w
:sse
\s, a
iIcr
aft o
r otb
cr tI
aIIS
pOrt
oqu
ipm
enL
,
Incl
udin
g U
IIde
r-w
rilin
g au
d pl
acem
ent .
. ag
cnt (
wbc
ther
pub
licly
or p
rivat
e1y)
aud
"",
visi
on o
f ser
vice
rela
tec1
10 s
uch
issu
es.
, Suc
b ..
cash
or p
ort
folio
1IIl
IIIog
eIIlO
It, a
n fo
rms
of c
oUec
ti..,
inW
Slm
ent m
anag
emen
t, .p
ensi
on ru
nd m
llllg
elllC
Dt,
cusl
Odi
al d
cpos
itory
aud
tru
st s
ervi
ces
• On
an th
e K
livi
ties
\ist
cd in
Art
icle
18
or M
TN-T
NC
lWIS
O. i
DCI.
cred
it ~=nce a
ud a
naly
sis.
in ..
.. llD
ent a
nd p
ortf
olio
rese
ardI
au
d a
dvia
:. a
dvic
c on
acq
uisi
tions
au
d on
c:o
rpor
aIe
rest
ruc:
lIIrin
g au
d sl
l'IIe
gy
SD
IU'C
': G
AIT
Sc:
cn=w
iat (
1994
)
~
"15 ~ S:
~ -VI t..)
154 Appendices
APPENDIX3B
Commitments on service activities of individual participants
Panicipant Number of panicipant Number of service activities service
inscribed in activitics scheduJes of inscribed in commitmcnts scheduJes of
commitments
Developed economies
Australia 93 Liechtenstcin 78
Austria 109 New Zea\and 79
Canada 92 Norway 96
European Union 106 South Africa 74
Finland 75 Swedcn 89
Iceland 96 Switzerland 107
Japan 109 United States 101
Developing economies
Algeria 1 Kuwait 44
Antigua & Barbuda 17 Macau 24
Argentina 57 Madagascar 2
Aruba 22 Malaysia 69
Bahrain 4 Malta 8
Bangladesh 1 Mauritius 1\
Barbados 6 Mcxico 68
Belize 1 Morocco 41
Benin 13 Mozambiquc 17
Bolivia 6 Myanmar 3
Brazil 43 Namibia 3
Brunei Darussalam 21 Netherlands 22 AntilIes
Burkina Faso 2 New Caledonia 7
Carneroon 3 Nicaragua 45
Chile 31 Niger 5
Colombia 42 Nigeria 29
Congo 4 Pakistan 35
Costa Rica 14 Paraguay 1\
Cote d'lvoire 15 Peru 27
Cuba 33 Philippines 45
Cyprus 9 Romania 45
Dominica 5 Saint Lucia 8
Dominican Republic 68 Senegal 22
Appendices 155
APPENDIX 3B continued
panicipanl Number of Panicipanl Number of service aClivities service
inscribed in aclivilies schedules of inscribed in commilmenlS schedules of
commitments
Developing economies
Egypt 28 Singapore 55
EI Salvador 25 Sri Lanka 2
Fiji 1 St. Vincent & 8 Grenadines
Gabon 14 Suriname 5
Ghana 32 Swaziland 9
Grenada S Tanzania 1
Guatemala 11 Thailand 71
Guyana 17 Trinidad & 19 Tobago
Honduras 14 Tunisia 11
Hong Kong 61 Turkey 72
India 33 Uganda 2
Indonesia 7 Uruguay 24
Israel 49 Venezuela 52
Jamaica 32 Zambia 15
Kenya 22 Zimbabwe 20
Korea, Rep. of 80
Transition economies
ezech Republic 81 Poland S4
Hungary 89 Siovak Republic 82
So"ree: GATI Sec,el";'l (1994)
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Quinn, J. B. Intelligence Enterprise (New York: The Free Press, 1992). Riddle, D. I. Service-led Growth: The Role of the Service Sector in World
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Factors bearing upon International Service Transactions (New York: United Nations, 1985).
UNCTAD, Trade and Development Report 1988 (New York: United Nations, 1989).
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158 Bibliography
UNCTAD, 'Harmonization and Recognition of Professional Qualification', UNCTAD/SDD/SERl2 (14 September 1993).
UNCTAD, World Investment Report: Transnational Corporations, Employment and the Workplace (Geneva: Uni ted Nations, 1994).
UNCTAD, Document TD/B/CN.4/L.J3. (Geneva: UNCTAD, 22 July 1994). UNCTAD, Document TD/B/CN.4/43. (Geneva: UNCTAD, 30 June 1995).
Index
Page references to tables, including tables in appendices, are in italic.
accounting services, 98 advertising services, 37,48 Africa, 37, 101 architectural services, 98 African, Pacific and Caribbean countries
(ACP),128-9 Asian and Pacific Economic Co-operation
Forum, 120 Asian economies, 37 asylum-seekers, 73 Australia, 100, 112, 113, 126 average annual growth rates, 14-17
balance of payments statistics, 38 Balance of Payments Manual, IMF, 30, 38 brain drain, 53-4 business services, 9
and temporary migration, 48 commitments on,102,150-3
Business practices, 86 restrictive, 91 see also monopolies
Canada, 69, 100, 113, 119, 126,142 Central Product Classification (CPC), 9,
150-3 Chile, 120 China, 46, 70 co-operation
developing countries, 119, 129-32,130 development of telecommunications, 116,
124-6 international, 116-40 regional and sub-regional 119, 129-32,130 technical, 116 see also policy issues; developing countries
Colombia, 73 commercial Iicensing, see Iicensing commercial presence, 64-6
and delivery of services, 29, 65 and OATS, 85,101,102,103 horizontal commitments on, 104-6, 105 and market access, 65-6 restrictions on hiring workers, 66 restrictions on ownership, 65 and telecommunications, 66-70
commercial services composilion of trade in, 37
exports,3I,32-3,34-6,14~149 imports, 31, 34"'(), 148, 149 list of, 9, 31
communications,37,102 see also telecommunications
comparative advantage, 57-8, 63, 94 Revealed (RCA), 57,79
computer software services, 46-7 computerized data services
and telecommunications, 46-7, 66-7 see also telecommunications
eonstmetion, 37, 102 eommitments on, 101 and related engineering services, 9, 150-3
eonsultaney services, 37, 98 eonsumers, movement of, see movement of
eonsumers eonsumers, national treatment of, see
national treatment of eonsumers eonsumption abroad, 84, 101,102,103 eontaet points, 121 eontraet workers, 45 eontraeting out, 13 eorporate trainees, 50 eross-border supply, 84, 101,102,103, 141 eultural services (films and videos), 37
data processing services, 46-7, 98 delivery ofserviees, 29-31,38-42
eombining modes ofdelivery, 29-30, 51, 65
and eommercial presence, 29, 65 complementarlty, 30 long-distanee services, 29, 141-4 modes of delivery, 29, 65, 101,102, 104,
132-3 and movement of persons, 29, 38-42, 43,
47,72,106-14 treated as goods, 29 and use of teleeommunieations, 29, 46-7,
98 see also trade-related labour mobility
developed countries, trends in, 9-13,147-9 export of merchandise, 31, 32-3
159
export of eommercial services, 31, 32-3 0-7 countries, 141-2,142 import of eommereial services, 31, 34...() see also under individual countries
160 Index
developing countries Article IV (GATS), 83, 88 Article XIX (GA TS), 83, 89 capabilities, strengthening of, 117-126 co-operation among, 119, 129-32,130 export of merchandise, 31,32-3 export of commercial services, 31, 32-3 import of commercial services, 31, 34-6 gains for, 141 GATS provisions, 86-92 growth in services sector, 13-24 growth in trade in services, 31-38 implications of GA TS for, 90-2 increasing participation of, 57-81, 86-92 intemationaltrade in services, role in,
31-8 labour-surplus, 24, 45 long distance services exports, 141-5,
142 regional trade arrangements, 130 as service ex porters, 105-6 see also Ilnder individual countrieslareas
distribution services, 9, 102, 150-3 domestic regulation and licensing
requirements, 85 duration of stay, 43, 44
Economic Community of West African States (ECOWAS),130, 131
economic migrants, 73 economic needs test, 105, 105, 108, 109,
109,110 education and training services, 9, 12,102,
138,150-3 and movement of consumers, 72, 73-4
educational equivalence, recognition of, 75, 78 qualifications, recognition of, 138 see also standards; Iicensing; regulation
Egypt, 41, 46, 73 electronic transmission, see
telecommmunications emigration, pressures for, 73 employment
creation (services sector), 24 female, 11, 22 migration for, 43, 53 opportunities, new, 10,54 percentage share of, 18-20 policy issues, 117 structure, 21-2
engineering services, 37, 98 Engineering et Construction Industrielle
(TECn,71
enquiry points, 88-9, 121, 134 enterprise structure, 70-1 environment, 102 European CommunitylEuropean Union
(ECIEU),95, 100, 113, 120, 128-9 exclusive service suppliers, 86 export of commercial services, 31, 32-3,
34-6 export of merchandise, 31, 32-3, 34-6
factor and non-factor services, 30, 31 financial services, 8, 9, 37,102,150-3
commitments on, 98, 99 foreign direct investment (FOI), 1,29, 104
policy issues, 118 and telecommunications, 70 trade-related, 126-8
foreign professionals, 110, 112-13 see also professional services
France,142
G-7, Group of seven most industrialized countries, 141-2,142
see also under individual countries General Agreement on Tariffs and Trade
(GATT), 82, 86,120 General Agreement on Trade in Services
(GATS), 2,82-115,131-6,144 Article III (Transparency), 83, 134 Article IV (Increasing participation of
developing countries), 83, 88 Article V (Economic integration), 83,
131-2 Article XIX (Negotiation of specific
commitments), 83, 89 Article XVI (Market Access), 83, 106 general provisions, developing countries,
86-92 implications for developing countries,
90-2 Iiberalization, principles of, 85-6 ongoing work, 99-100 scope and coverage, 84-5 specific commitments, 92-4 structure, 82-4 unfinished agenda, 99-100 unskilled workers, 144 Working Party on Professional Services,
135 see also movement of natural persons;
national schedules Germany,142 global economy and trade in services,
29-56
Index 161
see also. trade-related labour mobility goods-service Iinkages, 123-4 government services, 8, 21
policy issues, 118 Greece,71 gross domestic product (GOP), 1,9-10,
146 growth in trade, developing countries, 31 growth of production, selected economies,
14-/7 guest workers, 54 Gulf Cooperation Council (GCC), /30, 131 Gulf states, import of services, 46
health insurance and pension benefits, payment
of,77-8 and medical services, 138 and movement of consumers, 72, 73 services sector, 102 and social security benefits, transfer of,
71, 138 and social services, 9, 150-3
Hong Kong, 2, 31
IMF Balance of Payments Manual, 30, 38 immigration
asylum-seekers, 73 irregular migrants, 73 issues,55 laws and regulations, 55,112,133-4 national systems, 55 policies, 73-4 residence permits, 72-3 travel documents,72-3 visas, 72-3 see also migration
import of commercial services, 31, 34-6 import/export of labour and permanent
migration, policy issues, 53-4 India, 42, 46,69,73, 100, 113 individual service contractors, 50 Indonesia, 42, 72 information technology, see
telecommunications; data processing services
infrastructure, telematic, 11, 124 see also telecommunications
interdependence of manufacturing and service activities, 7, 11-13
International Bank for Reconstruction and Oevelopment, see World Bank
International Oevelopment Association, see WorldBank
International Finance Corporation, see World Bank
International Labour Organization (lLO), 123, 124, 134
International Monetary Fund (IMF), 30, 38 International Organization for Migration
(10M), 134, 136, 137 International Standard Industrial
Classification (ISIC), 8 International Telecommunications Union
(lTU),126 International Trade Centre (ITC), 121, 123,
124, 127, 134, 135 intra-company transferees, 50, 110, 112 investment income, 30 irregular migrants, 73 Italy, /42
Jamaica,69 Japan,46,126,/42 job creation, policy issues, 117
see also employment Jordan, 41 juridical persons, 88
Korea, see Republic of Korea
labour income, 30, 38 labour markettest, 50, 105, lOS, 108, 109,
/09, 110 labour mobility, trade-related, see trade
related labour mobility labour-intensive services, 37, 70-2 labour-related remittance flows, 38-42,
39-40 labour services, net earnings, 41 labour-surplus developing countries, 24, 45 Latin America, 37, 129 leasing, 37 legal services, 98 Iiberalization of professional services, 98 Iiberalization of trade, policy issues, 118-19 liberalization of trade in services
commitments on nature and extent, 108-11,109
principles of, 85-86 progressive, 86
liberalization of trade-related mobility policy issues, 51-3
Iicence fees, 30, 31 Iicensing requirements, 58-62, 85, 87, 107,
134-5 and domestic regulation, 85 Iimitations imposed by, 107, 134-5
162 Index
licensing requirements - continued and loeal knowledge, 59 and market access, 58-62 publication of, 87 see also regulation; standards
local knowledge, and licensing requirements, 59
Lomt Convention, 128-9 see also African, Pacific and Caribbean
countries (ACP) long-distance service exports, 29, 141-145,
142 and migration management, 143-4 and telecommunications, 29, 141
Malaysia, 126 manufacturing and service activities,
interdependence of, 7, 11-13 market access, 51, 58...{j2, 89
barriers to, 120-2 and commercial presence, 65...{j commitments on (GATS), 92-4 horizontal commitments on, 104-14, 105 and lieensing requirements, 58...{j2 \imitations on, 101, 102, 103 and national treatment, 92-4 restrietions for service providers, 51
medical and health services, 138 insurance schemes, 138 and quasi-medical services, 98 see also health
merchandise exports, 31, 32-3, 41 imports, 31,32-3,41
MERCOSUR, see Southern Cone Market Mexico, 2, 31, 46, 73,112,119 migrants' transfers, 38 migration
for employment, 43 for employment, policy issues, 53 and long-distance service exports, 143-4 management of, 24-5 monitoring of, 55 permanent, 43 temporary,43 temporary v. permanent, 135...{j and trade-related labour mobility, 42-5 see also movement of persons; national
treatment migration management, 24-6
and long-distance service exports, 143-4 migratory movements, from developing
countries, 24
modes of delivery see under delivery of services
monopolies, 86, 91 Morocco, 41, 46 most favoured nation (MFN) treatment, 85,
94,107-8 exemptions, 111
movement of consumers, 72-9, 84, 136-9 education services, 72, 73-4 health services, 72, 73 restrietions on, 72-3, 137 tourism,72 see also delivery of services; national
treatment of consumers movement ofnatural persons, 100, 106-14,
132-3 Annex on, GATS, 84, 107 horizontal commitments on, 106-14,109 see also General Agreement on Trade in
Services; natural persons movement of persons
os service providers, 38-42, 132...{j national treatment, 62-4 see also movement of consumers; natural
persons mutual recognition procedures (licensing),
135...{j
national economy, and growth of services sector, 6-28
national schedules (GATS), 94-114, 133-4 commercial presence, horizontal
commitments on, 104-6, 105 construction, commitments on, 101 financial services, commitments on, 98, 99 liberalization, commitments on nature
and extent, 108-11, 109 market access, commitments on, 92-4 movement of natural persons, horizontal
commitments on, 106-14,109 professional services, commitments on, 98 telecommunications, commitments on,
98,99 national treatment of consumers, 74-9
educational equivalence, recognition of, 75, 78
employment, restrietions on, 76 foreign exchange, restrietions on, 77 land ownership, restrietions on, 76 limitations, 103 local currency, use of, 75...{j price discrimination, 75 special taxes, 77 transfer of benefits, restrietions on, 77
Index 163
national treatment and market access, 92--4 horizontal commitments on, 104-6, 105
national treatment of service-providing persons, 62--4, 66, 85
access to public procurement markets, restrietions on, 64
civil rights, restrictions on, 62 discrimination in taxation, 64 discrimination in the workplace, 62-3 living conditions, restrictions on, 62 remittances, restrictions on, 64 hiring workers, restrictions on, 66 other restrictions, 66 see also natural persons, as service
providers natural persons, 106
GA TS Annex on, 84, 107 GATS, 100, 132-3 horizontal commitments on, 106-14,109,
133--4 limitations on movement of, 104 movement of, 100, 106-14, 132-6 presence of, 85, 101,102,103 as service providers, 38-42, 132-9 see also trade-related labour mobility
negotiated commitments (GATS), 94-104 newly industrializing economies (NIEs), 57 non-residency,30 North America Free Trade Agreement
(NAFTA),92, 112, 119-20 Norway, 100, 113
Organization for Economic Cooperation and Development (OECD), 128
other goods and services, see commercial services, composition of trade in outsourcing of services, 46
ownership, and commercial presence, 65
Pakistan, 42 payments and transfers, international, 86 pension benefits, transfer of, 138 pension benefits and health insurance,
payment of, 77-8 permanent migration and import/export of
labour, policy issues, 53-4 Philippines, 2, 42, 46, 73 policies, immmigration, 73-4 policy issues and framework, 51-6,
117-20 foreign direct investment, 118 government procurement, 118 job creation, 117 Iiberalization of trade, 118-19
Iiberalization of trade-related mobility, 51-3
migration for employment, 53 preferential trade agreements; 119-20,
128-9 public sector services, 117 relation between import/export of labour
and permanent migration, 53--4 sectoral coverage, 118-19 standards and Iicensing requirements, 118 technology, 118 telecommunications, 118 transport, 118
practising v. consulting, 60-1 preferential trade agreements
policy issues, 119-20 LomeS Convention, 128-9
processing and repair, 37 professional qualifications, recognition of,
59-61,134-5 professional services
commitments on Iiberalization of, 98 degree of regulation, 59 MFN exemptions, 111 and temporary migration, 48 types of, 98
project-tied work, 2, 44 public sector services, policy issues, 117
qualifications harmonization of, 107 mutual recognition of, 111 educational, recognition of, 138 see also licensing requirements;
standards quota restrictions, 108, /09, 110
recognition of educational qualifications, 138
recognition requirements (GATS), 85-6 recreational, cultural and sporting services,
9,102,150-3 regional and sub-regional co-operation, 119,
129-32,130 regulation
of professional services, 59-60 ofimmigration, 55,112,133--4 see also licensing
regulatory framework, 54, 134 regulatory measures, types of, 62
entry visas, 62 licensing arrangements, 62 residence and work permits, 62
regulatory standards, development of, 59
164 Index
remittanee ftows, labour-related, 38-42 Republie of Korea, 2, 31, 46, 70, 71 residenee permits, 62, 72-3 residuality,7 restaurants and hotels, 8 restrietive business praetiees, 86 revealed eomparative advantage (RCA), 57 right of pmetiee, foreign professionals, 60 Romania, 71 royalties, 30, 31
seetoral eoverage, poliey issues, 118-19 of sehedules commitments, 95, 96-7
security services, 98 self-employed service providers, 50 service activities
commitments by major country group, 150-3
commitments by individual participants, 154-5
contribution to GDP, 9-10 service contract, 45 service export strategies, 122-6
combining service activities, 124 externalizing service export strengths,
123-4 goods-service Iinkages, 123-4 legally constituted business enterprises,
122-3 telematic services and infrastructures,
124-6 service exports, promotion of, 70-2
packaging of service components, 70-1 specialized expertise, 71
service packages, 45-6 service providing persons, movement of,
see movement of persons service sectors, commitments by, 102 service seilers, 50 services, delivery of, see delivery of
services services industry, development of, 118 services sector, growth of, 6-28
definition and measurement, 6-9 differences between developed and
developing countries, 13, 21, 23 effect oftechnological developments on, 7
services seetor categories CPC, 9, 150-3 GATT Iisting, 9, 31,150-3 IMF,30 ISIC,8
services transactions, and labour mobility, 45-9
short-term or business visitors, 49 Singapore, 2, 31 skill-intensive services, 53-54 social security benefits, transfer of, 138 software (computer) services, 46-7 software developrnent, 98 software technologies, 47 Southern Cone Market (South America)
(MERCOSUR),130, 131 specialists, on specific assignments, 51 Sri Lanka, 42 standards
establishment of common, 60 in the EU, 60 internationally recognized, 135 and licensing requirements, policy issues,
118 see also educational; regulation
Sudan,42 supply, mode of, see under delivery of
services Switzerland, 100, 113
technical assistance, international, 116, 124-8
Technical Co-operation Department, 126 technology, poliey issues, 118 telecornmunications, 46-7, 66-70, 89-90
access to, 68, 89 and commercial presence, 66-70 eommitments on, 98, 99 and computerized data services, 46-7,
66-7 co-operation in development of, 116,
124-6 and delivery of services, 29, 46-7, 98 in developing countries, 68-70, 89-90 foreign direct investment, 70 and information infrastructure, 66-70 joint ventures, 69 and long-distance service exports, 29, 141 and movement of persons, 67 policy issues, 118 regional co-operation, 70 strategy for development , 69 and tourism, 69 see also telematic services
Telecomrnunications Development Bureau, 126
telecommunications systems, policy issues, 118
teleconferencing, 67 telematic services and infrastructures,
124-6,128
Index 165
human resources, development of, 125--6 investment, in, 125--6 operational efficiency, 125 policy issues, 118 policy objectives, 124-5 see also telecommunications
telemedicine, 67 te1eports, 69-70 temporary movement, non-residency, 30 temporary movement of labour, 43, 44
policy issues, 51--6 see also trade-related labour mobility
tcmporary movements of specialists, 48 temporary stay, 43 temporary working residents, 49-51
corporate trainees, 50 individual service contractors, 50 intra-company transferees, 50 self-employed service providers, 50 service seilers, 50 specialists on specific assignments, 51
total factor productivity (TPF), 22-3 tourism
commitments on, 102 and movement of consumers, 72 and telecommunications, 69 travel documents, 72-3 and travel related services, 9, 95,150-3
trade barriers, 120-2 trade in services
characteristics, 29-31 definition of, 29-31 measurement of, 30
trade in services and global economy, 29-56 trade-related foreign direct investment,
126-8 see also foreign direct investment
trade-related labour mobility, 38-42, 44-5, 49
benefits for exporting country, 52-3 consequences for importing country, 52 Iiberalization of, 52-6 Iicensing requirements, 58 and migration, 42-5 and permanent migration, 107 alld services transactions, 45-9 types of, 49-51 see als(} delivery of services, movement
ofpersons tradc-related migration, international
regime, 132-9
trade-related v.longer term migration, 144 transfers of remittances, non-official, 42 transparency, 85, 87,134
see also GATS Article 111; enquiry points
transport services, 9, 102, 150-3 policy issues, 118
travel documents, 72-3 Tunisia,71 Turkey, 71, 72
Uganda, 2 UN Convention on the protection of the
rights of migrant workers (1990), 43 underground economy, 1I unfinished agenda, GATS, 99-100 United Kingdom, 1,69, 126,142 United Nations Conference on Trade and
Development (UNCTAD), 120, 121, 124,127,134,135
Uni ted Nations Development Programme (UNDP),43, 120, 134
United Nations Education, Scientific and Cultural Organization (UNESCO), 137
United Nations Industrial Development Organization (UNIDO), 120, 123, 124, 127,135
United States of America, 1,46,69,98,99, 112,119,120, 126,142
Uruguay Round trade negotations, 2, 4, 31, 45,82
Venezuela, 2 visas, 62, 72-3
entry and exit, 72-3, 111 residence, 111 trade-related, 74
visitors, short term or business, 110, 112
work permits, 62, 108, 11I workers, hiring of local, 66 workers' remiUances,38 Working Party on Professional Services,
GATS,I35 World Bank, 120, 121, 127, 141 World Health Organization (WHO), 137 Wor1d Tourism Organization, 137 World Trade Organization (WTO), 100,
116,120, 121, 134, 136, 137 WoridTel,I26