Protection and Trade in Services: A Survey

Abstract

In the past, international economists have ignored trade in services, but technological progress and international trade negotiations are likely to keep liberalization of trade in services a high-profile policy issue.

Until recently, trade in services was mostly ignored by international economists, reflecting a perception that services were nontradable. This has never been true. Transportation and travel, for example, have always been important economic activities. In 1995, services trade had climbed to a 20-percent share of global trade - no doubt an underestimate, as the most dynamic component of trade in services is telecommunications, which is not being properly captured in conventional balance of payment statistics.

Hoekman and Braga survey the literature on trade in services, focusing on the policies used to restrict such trade, the gains from liberalization, and the institutional mechanisms adopted in pursuit of liberalization.

They argue that technological progress (which makes services more tradable) and international trade negotiations are likely to keep liberalization of trade in services a high-profile policy issue.

They suggest that research focus on developing better estimates of the welfare costs of protectionism in the service sector. This will require quantifying barriers to the international exchange of services.

This paper - a product of the International Trade Division, International Economics Department - was prepared for The Open Economies Review.

Keywords: Trade in services, protectionism, World Trade Organization, trade negotiations

JEL Classification: F13, F23