Surprisingly little is known about policies that affect international trade in services, which contrasts with the importance of services in the current global economy (Francois and Hoekman 2010).

  • Around 80% of GDP in the US and the EU originates from services, and the proportion is well over 50% in most countries, industrial and developing alike. As countries confront the challenge of boosting productivity, services policy reform is being identified as a priority from Europe to South East Asia, but with surprisingly little empirical evidence on how barriers to foreign services providers affect competitiveness and how services reform is best designed.
  • The US and EU account for over 60% of world services exports, and the service exports of India, China, and Brazil have grown by well over 15% every year for the last decade. As these countries seek to sustain export growth, and others seek to replicate it, international negotiators have been struggling to negotiate away policy barriers with only limited knowledge of what these barriers actually are.

A new Services Trade Restrictions Database fills this gap by providing novel data on services trade policies across 103 countries (24 developed and 79 developing), 18 services sectors from within 5 broad industries (financial, telecommunications, retailing, transportation and professional services) and 3 modes of delivery (cross-border, commercial presence, presence of natural persons). On commercial presence, for instance, the database covers restrictions on foreign ownership, legal form, licenses, operations and certain aspects of the regulatory environment.

Figure 1. Country coverage: 103 countries of which 79 are developing

Source: Borchert et al. (2012a)

The database contains richly textured policy information on individual policy measures as well as a summary of key restrictions by country, sector, and mode of delivery. In addition, the database provides a preliminary quantification of the restrictiveness of policy – the Services Trade Restrictions Index (STRI). All qualitative and quantitative information is available at http://iresearch.worldbank.org/servicestrade.

In its current form, the Services Trade Restrictions Database is best seen as a first response to the strong demand for better information from policymakers, negotiators, researchers, and the private sector. The database could play an important role in advancing policy reform, informing international negotiations, provoking dialogue among interested parties, and enabling empirical analysis of services trade policies, and their impact on trade flows.

Some initial findings:

Where is the protection? The database reveals interesting patterns in policy. Across regions, some of the fastest growing countries in Asia and the oil-rich Gulf states exhibit the most restrictive policies in services, whereas some of the poorest countries are remarkably open. Across sectors, professional and transportation services are among the most protected in both industrial and developing countries, while retail, telecommunications, and even finance tend to be more open.

Figure 2. Patterns of protection: Across countries, regions, and sectors

Country-level STRI and per-capita income

STRI by sector and region

Source: Borchert, Gootiiz and Mattoo (2012b)

Why does services protection matter? An illustrative set of results suggests that services trade policy reform would:

  • Promote foreign investment: Restrictions on foreign acquisitions, discrimination in licensing, restrictions on the repatriation of earnings and lack of legal recourse all have a significant and sizable negative effect on foreign investment, reducing the expected value of sectoral foreign investment inflows by $1.5 billion over a seven-year period, compared with “open” policy regimes.
  • Enhance access to services: In terms of access to services, credit as a share of gross domestic product is on average 3.3 percentage points lower in countries with major restrictions on the establishment of foreign banks as compared with those that only impose operational restrictions.
  • Facilitate connectivity: Landlocked countries tend to restrict trade in key ‘linking’ services like transport and telecommunications more than other countries (Borchert et al. 2012). These choices hurt them. Restrictive policies lead to more concentrated market structures and more limited access to services than these countries would otherwise have, even taking into account the constraining influences of geography and low incomes. Even moderate liberalisation in these sectors could lead to an increase in cellular subscriptions by seven percentage points and a 20% increase in the number of flights.
Are multilateral negotiations helping open markets?

Most services liberalisation has been undertaken unilaterally. As a result, actual policy is substantially more liberal than the policy commitments (bindings) made by WTO members in the General Agreement on Trade in Services (GATS) during the Uruguay Round. The latter are, on average, 2.3 times more restrictive than currently applied policies, i.e. countries could more than double their average levels of restrictiveness without violating their commitments. As they stand today, the Doha offers improve by about 10% on the Uruguay Round commitments but do not provide any further liberalisation of actual policy. Moreover, two of the currently most protected areas, cross-border transport and the movement of individual professionals, are either not being negotiated at all or not with any degree of seriousness. If services negotiations are to be a credible instrument of policy reform, new approaches would need to be considered, perhaps along the lines discussed in Hoekman and Mattoo (2011).

Figure 3. Uruguay round commitments, Doha offers and actual policy

Source: Borchert et al. (2011)

References

Borchert, Ingo, Batshur Gootiiz, Arti Grover, and Aaditya Mattoo (2012), “Landlocked or Policy Locked? How Services Trade Protection Deepens Economic Isolation”, World Bank Policy Research Working Paper No. 5942.
Borchert, Ingo, Batshur Gootiiz and Aaditya Mattoo (2011), “Services in Doha: What’s on the Table?”, in Will Martin and Aaditya Mattoo (eds.), Unfinished Business: The WTO’s Doha Agenda, CEPR and World Bank, London.
Borchert, Ingo, Batshur Gootiiz, and Aaditya Mattoo (2012a), “Guide to the Services Trade Restrictions Database”, World Bank Policy Research Working Paper 6108.
Borchert, Ingo, Batshur Gootiiz and Aaditya Mattoo (2012b), “Policy Barriers to International Trade in Services: Evidence from a New Database”, World Bank Policy Research Working Paper 6109.
Francois, Joseph and Bernard Hoekman (2010), “Services Trade and Policy”, Journal of Economic Literature, 48(3):642-692.
Hoekman, Bernard and Aaditya Mattoo (2011), “Services Trade Liberalization and Regulatory Reform: Re-Invigorating International Cooperation”, World Bank Policy Research Working Paper 5517.

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