Services Trade as a Catalyst for Regulatory Reform

1. Services Trade as a Catalyst for Regulatory Reform Anja Gomm and Ceferino Rodolfo Trade Policy and Promotion Project, Philippines Asia Regional Consultative Conference Bangkok, 29 November to 1 December 2006

2. Introduction • Why we think services trade and the respective trade negotiations entail a strong link to business environment regulatory reform. • Trade in Services negotiations can be utilized for focused analysis and Public Private Dialogue (PPD) on urgent regulatoray issues • At the same time, we see a role for specific and customized Technical Assistance (TA) support to foster this link.

3. Unique Characteristics of Services Requires physical proximity between service provider and consumer • Services are typically invisible and intangible; hence, non-storable. • This requires that they are produced andconsumed at the same time. • Therefore, the service provider and consumer need to be physically proximate. • Technological advancements, especially in Information and Communication Technology (ICT), have made it possible for Services to be traded internationally • This has implications for the competitiveness of a country’s services sector Requires simultaneous production and consumption Non-storable Invisible Intangible

4. Services and Competitiveness • Services are deeply imbedded in the whole economy, providing critical support to other sectors. • Cross-sectoral impact of services make it critical to the competitiveness of the whole economy Over-all National Competitiveness Agriculture & Industry • Basic Services: Provide Basic Infrastructure and Facilitate Transaction Flows • Construction services • Communication services • Financial services • Distribution services • Transport services • Business services • End-user type of Services: Developing Human Capital • Educational services • Health-related and social services • Recreational, cultural & sporting services • Tourism and travel-related services • Sustaining Growth • Environmental services

5. Globalization introduced intense competition in industrial goods and agricultural products. Services Trade is a rapidly growing sector As countries seek to be more competitive, the importance of having a very efficientservices sector is highlighted. Drivers for International Trade in Services

6. How is International Trade in Services regulated? Domestic Regulation of Services • Rationale: • Public interest • Private (group) interest • Coverage: • Standard setting • Price controls • Entry controls • Public / private monopolies • Others Regulation of Trade in Services refer to the same regulations, applied differently (more restrictive) to foreign providers.

7. Trade in Services negotiations and Domestic Regulation SERVICES REGULATION cover: • Investment Policy • Immigration Rules and Regulations • Quality and Performance Standards • Banking and Financial Regulations, including Foreign Exchange • E-Commerce Laws • Competition Policy • Price Setting and Regulation • Others These are cross-sectoral rules that impact on the Economy, as a whole. In Services Trade negotiations, trading partners request and offer the removal of barriers. The process requires: (a) Introspection and (b) Cross-sectoral Public and Private Consultations. Introspection is needed, to understand own strategic interests (offensive and defensive). • Analysis of the Competitiveness of the specific Services sector, including its Strengths and Weaknesses; • The sector’s linkages with the whole Economy. • The impact of virtually all relevant cross-sectoral and sector-specific policies. Consultations (Public-Private dialogues) are necessary in order to identify the national strategic interests and pinpoint the regulations that pose impediments.

8. Contribution of Trade in Services Negotiations to the Regulatory Reform • Reality is: the overwhelming complexity of developing countries’ tasks and the capacity gap to handle them. Hence: 1) Trade in Services Negotiations provides the Focus (i.e. In ternational Negotiations in Trade in Services) for Capacity Building and analysis; • Reality is: that private group interests dominate in policy making. Hence: 2) Trade in Services Negotiations provides the Context (i.e. Competitiveness of the country vis-à-vis another country) for Public-Private Consultations; 3) Provides the Analytical Framework (i.e. determining regulations according to the GATS four modalities of supplying services) for research; and 4) Provides a sense of Urgency (i.e. the timelines of multilateral, regional and bilateral negotiations) for decision making and action

9. Lessons from the Project Need for cross-sectoral Consultations • Introspective analysis of the impediments is not enough • Backing of negotiating positions is needed from public and private stakeholders • Wider perspective required, due to • Cross-cutting nature of services • Sectoral nature of Agency mandates Cross-sectoral approach: • Supports transparency • Allows for understanding of relevance and nature of issues • Opportunity to extend beyond the limits of existing structures Role of Technical Assistance in supporting Public-Private Dialogues

10. Conditions for a successful process • Domestic Situation will dictate pace and path of liberalization: • The Role of the State • If too weak then chances for reform are bleak • Role of the Private Sector • An active private sector can compensate for a weak state • And be leveraged in response to vested interests—which may be even more difficult to hurdle than global challenges • Benefits of liberalization do not accrue automatically but require certain preconditions, such as the preparedness to review the regulatory framework and capacity building • To enable the link between services trade negotiations and a regulatory reform agenda, there needs to be a sense of urgency.

11. How feasible and relevant is services trade to effective regulatory reform? • The applicability of such an approach is a function of : • the importance of Services to the total economy (especially in view of the private sector) • the degree of inter-linkages with other sectors • the extent to which it is regulated, and dominated by vested interests • an institutional framework sufficiently capable of policy review and change

12. Conclusion • Continued barriers to exports and supply constraints prevent developing countries from reaping benefits of services liberalization • Business environment reforms benefit from focused analysis of current state and reform needs to enhance the country’s competitiveness. • Services trade negotiations • offer urgency for such a task • entail helpful focus AND analytical framework, • give the process the necessary guidance. • Negotiations do not per se lead to the introspection called for. • Need to shift from prevailing sectoral perspectives to cross-cutting analytical and consultative process. • Introspective process must weigh options for liberalization of services trade carefully. • The aim is for policy makers to balance prevailing private interests with broader public interests  greater benefit of whole economy and society.