At your service: Trade in the global economy

Trade Directorate
Page 47 

When you buy a business service online, the sales person may be half a block or half a world away. But do the same trade rules apply as when you buy a piece of solid merchandise, and who decides?

Services are a relative newcomer to the multilateral trading system, having been famously defined only as “anything you can’t drop on your foot”. Most trade negotiations over the years have focused on trade in goods, so while barriers on say, shoes or televisions, have been tumbling, services are only now beginning to be freed up. One reason that these “intangibles” were long ignored in an international trade context is that many types of service, such as business advice, were not easily exported, being rather local or national in reach.

That picture has changed enormously. Technological advance, privatisation and liberalisation have seen global trade in services rise to an estimated US$2.1 trillion annually. Even business services have spread their wings across borders, thanks to modern telecommunications. And the break-up of former state monopolies has created new cross-border opportunities for areas like telecommunications and energy. This trade is not simply for and among developed countries: the share of services in total trade has also increased in developing countries, with services accounting for approximately 30% of all world trade.

Services are a key indicator of economic development, accounting for 50-70% of economic activity, more than half of all civilian employment in most OECD countries, and underpinning many other sectors, including manufacturing. Countries at all levels of development have recognised that an inefficient services infrastructure can act as a tax on the entire economy, affecting efficiency and competitiveness, as well as physical trade.

Hard talks

It is hardly surprising that services should become the subject of multilateral trade talks. The trouble is that trying to remove barriers to services trade is as complex as services themselves, a point clearly demonstrated by the international negotiations under the WTO General Agreement on Trade in Services (GATS), which began on 1 January, 2000.

Technological change – sometimes blurring the differences between goods and services – the wide range of state and private sector suppliers, monopolies and markets, unilateral liberalisation in some state-owned monopolies, like telecoms: all of this makes for a complex global marketplace and an equally fast-changing regulatory landscape.

The GATS provides a framework of rules for global trade in services and a structure for multilateral commitments to liberalise. But the GATS has yet to deliver real market opening – most countries’ GATS commitments represented the status quo at the time of the Uruguay Round a decade ago. Meanwhile, thanks to technological change and unilateral liberalisation, most countries’ markets are in fact significantly more open than their GATS requirements indicate. Translating this into multilateral commitments is a major challenge of the current negotiations.

Progress in the GATS negotiations will not be easy, not least because of the sheer number of issues involved. Market access negotiations in services cover sectors as diverse as energy and telecommunications, transport and computer services. Already more than 90 negotiating proposals have been received from some 40 WTO members, with more to come. Some particularly sensitive sectors where little progress has been made so far – maritime transport, audio-visual services (with its cultural dimension reflected in some countries’ desire to protect their own language) and the movement of service suppliers (so-called “mode 4” of the GATS) – remain firmly on the table. Expectations of progress on mode 4 in particular are running high, with some developing countries indicating that their willingness to deepen commitments under other modes (such as mode 3 on commercial presence) may lessen if they do not receive increased access for their service suppliers.

In addition to market access negotiations, there is a significant agenda of rules issues left over from the Uruguay Round, covering rules on subsidies, government procurement, qualification requirements, technical standards, licensing and the like. One question stands out – that of a possible emergency safeguard mechanism to allow members to temporarily suspend a commitment where a surge of imports is causing unforeseen damage to domestic industry.

But the terms “damage”, “domestic industry” and even “imports” are much more difficult to define for services than for goods. Some major developed countries query the feasibility and desirability of a safeguard, but some developing countries may refuse to make significant market access commitments without one. The deadline for these negotiations has recently been extended to March 2002.

Broader negotiations

Apart from the technical difficulties, there are the politics. After the failure at Seattle to launch a broad trade round, only negotiations on agriculture and services already agreed under the “built-in agenda” were allowed to proceed.

While these two negotiations are formally separate, politically they are linked as some agricultural exporting countries in particular are reluctant to deliver liberalisation on services without an indication of similar progress in, say, market access for food. Most WTO members see little prospect of real results from the services negotiations in the absence of a broader negotiating agenda to provide the trade-offs and gains that allow multilateral trade deals to be struck.

In the meantime, services negotiations are taking place against the backdrop of concern about liberalisation and globalisation. Some people are anxious about the provision of public services like health and education and wonder about their governments’ ability to pursue national policy objectives within a global environment. While services supplied in the exercise of governmental authority are excluded from the GATS, most countries now have a mix of private and public sector provision, in health and education for instance. Services liberalisation also presents new challenges for regulation.

Contrary to some critics’ suggestion, “liberalisation” and “deregulation” are not synonyms. Indeed, services liberalisation often necessitates regulation or re-regulation, as governments try to achieve a range of policy objectives within new market structures. After all, governments still have to ensure competitive markets, safeguard consumer interests, improve environmental protection and, in areas like health and education, ensure universal provision.

Dialogue and debate are needed on these important issues. The OECD will contribute to this dialogue via its forthcoming study, Open Services Markets Matter, which addresses these concerns and balances the costs and benefits of liberalising services.

The road ahead for the services negotiations will be long and difficult. True, unilateral and regional liberalisation will probably continue and the global market will grow. But multilateral progress will be vital to spread the benefits of better, more efficient services to all consumers.

Services might not drop on your foot, but failing to achieve progress multilaterally could leave some service-starved countries limping on the sidelines of regional and bilateral deals and struggling in the global economy.


• OECD, Open Services Markets Matter, forthcoming.

• See also “Prepare for the global e-campus”, by D. Hirsch, p. 57.

©OECD Observer No 229, November 2001

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