Trade in Services: Some Lessons from South Africa

1. Trade in Services: Some Lessons from South Africa Matthew Stern www.dnafrica.com

2. Outline • Trade in services – facts and theory • Case studies • Health services • Construction services • The gains from trade • Trade policy implications

3. Trade in services • 25% of global trade • Fastest growing sector (trade & FDI) • Dominated by OECD (70%) • Highly regulated • Critical determinant of competitiveness

4. World service exports ($ millions)

5. Application of trade theory • Trade in services, in general, display the same characteristics as trade in goods • The theory of comparative advantage does apply to services trade • Given high levels of regulation (protection) in the service sector, economic factors alone cannot explain the pattern of trade in services • The removal or reduction of barriers to trade in services would contribute to major increases in global welfare

6. Developing countries • 50% of GDP • Fourfold increase in trade over last 15 years • Important contributor to economy-wide efficiency and development • Labour intensive • More dependent on trade in services than industrialised countries

7. Service/merch. ExportsWDI:2002 Service/merch. imports

8. Constraints on liberalization • Domestic opposition • Lack of expertise and resources • Unable to improve access for domestic exporters • Cannot fully address anti-competitive practices of foreign firms • Inadequate stability or international credibility

9. What is GATS? • Implemented January 1995 • 140 member countries • All sectors (except government and air traffic rights) • Positive list approach • All modes of supply

10. GATS: Modes of supply • Mode 1: Cross border supply • relatively few bound commitments • Mode 2: Consumption abroad • relatively open • Mode 3: Commercial presence • market access restrictions prevail • Mode 4: Movement of natural persons • most restrictive

11. GATS: Coverage • Infrastructure services, capital intensive, scale economies • Communication • Transport • Strong institutional & regulatory difference between jurisdictions • Financial services • Business services • Health services • Education • Traditionally “liberal” services • Distribution • Tourism • Other • Environmental services • Recreation • Culture • Sport • Construction Source: Adlung (2000)

12. GATS: Obligations • General • MFN treatment • Transparency • Specific • Market access • National treatment

13. Case Studies

14. SA exports of goods & services

15. GATS: South Africa • Scheduled 9 out of 12 major sectors (education, health and recreational services excluded) • Relatively liberal commitments in retail, computer, construction, tourism and business services • Relatively few commitments in transport, life insurance, communications and education services

16. SA Health Sector • Well developed private sector • 55% of total health care expenditure • 20% of all patients • High cost and specialised care • Embattled public sector • 80% all patients • 30% all doctors • HIV/AIDS • Migration

17. Exports of health services • Cross border • Call and claim centers

18. Exports of health services • Cross border • Call and claim centers • Consumption abroad • Health tourism

19. Consumption abroad www.medibroker.co.uk

20. Exports of health services • Cross border • Call and claim centers • Consumption abroad • Health tourism • Commercial presence • NHS contracts

21. NHS health care contracts • 900 cataracts in Lancaster • R10 million • 45 personnel • 12 000 ENT in Middlesex • 300 hips and knees in Southport • 1 000 orthopedics in Gosport

22. Exports of health services • Cross border • Call and claim centers • Consumption abroad • Health tourism • Commercial presence • NHS contracts • Movement of natural persons • Nurses

23. Nurses registered in UK

24. Constraints—international • Portability of national health insurance • Recognition/registration of medical professionals

25. Constraints—domestic • National Health Bill • Certificate of need • Immigration • Moratorium on foreign health professionals • Community service • 45% plan to emigrate • Technology/telecommunications

26. SA Construction Sector • Large and extremely competent construction firms • Highly skilled engineers • Dominated by government expenditure • Long-term decline in domestic activity

27. Construction works

28. Exports of construction services • Civil engineers • 20% of turnover offshore • >90% in Africa • Consulting engineers • 10% of turnover offshore • >80% in Africa

29. Exports and investment • Grinaker-LTA • 50th largest international contractor* • 5th largest contractor in Africa* • Operations: Australia, United Arab Emirates (UAE), Angola, Nigeria and Mauritius • Murray and Roberts • 54th largest international contractor* • 7th largest contractor in Africa* • Operations: Australia, UAE, UK, Botswana, Namibia, Nigeria, Tanzania, Zimbabwe and Indonesia * Engineering News Record

30. Constraints - international • Technical standards and regulations • Nationality & residency requirements • Ownership restrictions • Government procurement • Tied-AID • Export credit agencies

31. Constraints – domestic • Poor standards • Poor regulations • Expertise • Immigration

32. Gains From Trade

33. Gains from exports • Employment • Complementary exports • Foreign exchange • Knowledge and skills • Economies of scale

34. Gains from exports

35. Gains from imports • Knowledge and skills • Product • Price • Quality • Capital and infrastructure

36. Gains from imports

37. Trade Policy Implications

38. Health services - WTO • 40% of member countries have made some commitments • 25% hospital services • 33% medical and dental services

39. Health services - SA

40. Health service strategy • Remove domestic restrictions on investment and professionals • Target foreign barriers to health tourism and electronic trade • Access to the national health systems of importing countries is critical

41. But first … • Compulsory community service • New National Health Bill (certificate of need) • Restrictive immigration laws • Poor working conditions in the public sector

42. Construction & engineering services - WTO • Construction: between 51% and 64% of countries have made full commitments in modes 1 to 3 • Architectural and engineering: between 46% and 66% of countries have made full commitments in modes 1 to 3 • Within SADC, just South Africa and Lesotho have scheduled both sectors.

43. Construction services - SA

44. Engineering services - SA

45. Construction service strategy • Remove domestic restrictions on investment and professionals • Re-consider GATS exemption for Export Credit Agencies (ECAs) • Engage in negotiations on government procurement to address tied AID

46. But first … • Foreign exchange controls • Restrictive immigration policies • Inappropriate procurement rules • Weak standards and regulations

47. Conclusion

48. Conclusion • Need to understand the economic gains from service liberalisation • Need to understand the social costs of service liberalisation and protection • Need to identify actual constraints to trade • Foreign barriers • Domestic regulations (or the lack thereof)