Challenging Conventional Wisdom: Development Implications of Trade in Services Liberalization

50 Pages Posted: 12 Oct 2008

See all articles by Luis Abugattas

Luis Abugattas

affiliation not provided to SSRN

Simonetta Zarrilli

United Nations - Conference on Trade and Development (UNCTAD)

Date Written: 2007

Abstract

The implications of trade in services liberalization on poverty alleviation, on welfare and on the overall development prospects of developing countries remain at the hearth of the debate on the interlinkages between trade and development.

Assessing the actual and potential implications of services liberalization in developing countries is a complex exercise. Empirical studies remain anecdotic, with examples concerning a rather limited number of countries and services sectors. Quantitative assessment has produced inconclusive results. Moreover, a number of theoretical and methodological issues need to be addressed. Among those, there is the fundamental issue of whether the theoretical assumptions for justifying reform in the goods sector can be directly and fully transferred to the services sector and what could be the possible implications of such a transfer for welfare, equitable public policies and democratic sustainability. Answering this question is a precondition for formulating policy recommendations to developing countries, and for these countries to put in place sound domestic policies and accept international obligations that bind certain policy options. This paper holds the view that trade in services has some specificities, above all the movement of factors of production - that makes it rather different from trade in goods.

This paper reaches the overall conclusion that liberalizing trade in services, under appropriate regulatory and policy frameworks, may contribute to enhancing global welfare through increased efficiency, lower prices and greater choice of services, as well as increased competition at a country level. Liberalization is expected to be instrumental to expand access to basic services and contribute, therefore, to reducing poverty and achieving the MDGs. Developing countries, however, face a number of structural weaknesses that jeopardy the achievement of the above-mentioned results, namely poor or inexistent regulatory frameworks, difficulty in putting in place the right sequencing of policy reforms and liberalization initiatives, inability to compete with TNCs, numerous and fragile SMEs, poor access to capital and technology, pressure from investors and trade partners, huge fiscal deficits. Moreover, the ever-changing nature of markets and technologies, which is a key feature of several services sectors, can easily render the regulatory regime outdated, this characteristic demanding continuous and systematic fine-tuning of the regulatory and deregulatory framework.

Evidence shows that market liberalization may bring about different results, according to the specific services sector and the specific country/region at stake. In some cases evidence also demonstrates that the results are more the consequence of flanking domestic policies than of services liberalization. Given the increasing concentration of many services industries worldwide, there is a risk that the liberalization of services sectors in developing countries can fall short of producing the expected beneficial outcomes, due to industries structures and behaviors. Because of the technological changes, some services sectors are becoming increasingly difficult to define - as it is the case for audiovisual and telecom services - with the related complexity of establishing appropriate policies.

Lacking a coherent and broad picture of the overall impact of services liberalization on the sustainable development prospects of developing countries, a cautious approach to liberalization seems in order, keeping in mind that the final goal of the GATS is not the expansion of international trade in services per se, but rather the economic growth of all trading partners and the development of developing countries.

The "knowledge gap" regarding the effects of liberalizing trade in services on developing countries was among the factors that hampered progress in the negotiations on services carried out in the framework of the Doha Work Programme. Lacking such a crucial element, developing countries felt reluctant to embark in broad liberalization commitments. The overall negotiations were suspended on 24 July 2006 because of the difficulties in building consensus among major trade partners on the core issues of the Work Programme. Diplomatic efforts are, however, ongoing to try to revive the negotiations.

Work in the area of assessment of services liberalization in developing countries must continue, including in UNCTAD, with increasing emphasis on the possible policy options available to developing countries to strengthen their domestic services sector, their export capacity and to link the liberalization of trade in services with sustainable development and poverty alleviation goals, including the achievement of the MDGs. Hopefully, such a work will contribute to move the analysis from an anecdotic picture to a full-fletched picture.

Suggested Citation

Abugattas, Luis and Zarrilli, Simonetta, Challenging Conventional Wisdom: Development Implications of Trade in Services Liberalization (2007). Available at SSRN: https://ssrn.com/abstract=1280877 or http://dx.doi.org/10.2139/ssrn.1280877

Luis Abugattas

affiliation not provided to SSRN ( email )

No Address Available

Simonetta Zarrilli (Contact Author)

United Nations - Conference on Trade and Development (UNCTAD) ( email )

Palais des Nations
Office E 8074
Geneva, 1211
Switzerland

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