Transcript The Impacts of Liberalization of trade in services

Expert Group Meeting
on Transport and Trade Facilitation in ESCWA region
on 10 and 11 April 2013 in Dubai
The Role of Trade in Services
in the MENA region
Dr. Denise Sumpf
Economic Development and Globalisation Division, UNESCWA
The Contribution of Services’ to GDP (in per cent)
Figure A.1: World Development Indicator on “Services, etc. Value added (in % of GDP)” for the ESCWA Region
70
60
50
40
30
20
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Bahrain
Egypt, Arab Rep.
Iraq
Jordan
Kuwait
Lebanon
Libya
Morocco
Oman
Qatar
Saudi Arabia
Syrian Arab Republic
Tunisia
United Arab Emirates
West Bank and Gaza
Sudan
2011
Yemen, Rep.
Source: (World Bank, 2012)
Slide 2
Employment Opportunities in the Services Sector
Figure 1: World Development Indicator on “Employment by sector (in % of total employment, latest year
available)” (Note please : No data available for Lebanon, Libya, Yemen and Tunisia)
100
80
37.20
45.30
45.70
52.80
58.30
60
84.20
79.20
76.00
Jordan
(2010)
Kuwait Morocco Oman
(2005) (2008) (2000)
75.50
82.20
71.20
60.90
40
20
0
Bahrain
(2004)
Egypt,
Arab
Rep.
(2008)
Iraq
(2008)
Employment in industry (% of total employment)
Qatar
(2007)
Saudi Syrian United West
Arabia
Arab
Arab Bank and
(2009) Republic Emirates Gaza
(2010) (2008) (2008)
Employment in agriculture (% of total employment)
Employment in services (% of total employment)
Source: (World Bank, 2012)
Slide 3
Enabling Trade in the Region
Table 3: The Enabling Trade Index (ETI) rankings in 2012 compared to 2010 for selected MENA
countries
Country/E
conomy
UAE
Oman
Saudi Arabia
Bahrain
Qatar
Jordan
Tunisia
Rank
(2012)
19
25
27
30
32
42
44
Score
5.07
4.86
484
4.80
4.74
4.42
4.39
Rank
(2010)
16
29
40
22
34
39
38
Source: Excerpt from Table 1 (Lawrence et al., 2012, p. 9)
Country/
Economy
Morocco
Kuwait
Egypt
Lebanon
Syria
Yemen
Rank
(2012)
64
66
90
93
108
119
Score Rank
(2010)
4.08 75
4.07 65
3.78 76
3.71 n/a
3.47 104
3.25 n/a
Services Supply and Barriers to Trade
Mode 1 –
Cross-border
supply:
services supplied
from one country
to another (e.g.
international
telephone calls).
Mode 2 Consumption
abroad:
consumers or firms
making use of a
service in another
country (e.g.
tourism).
Mode 3 –
Commercial
presence:
a foreign
company
setting up
subsidiaries or
branches
Prior to Market Entry
(e.g. affecting the new
establishment of operations)
- Mode 3 Non-discriminatory  Licensing requirements
 Restrictions on direct
investment
Discriminatory
 Restrictions on permanent
movement of people
Mode 4 –
Presence of
natural persons:
individuals
travelling from their
own country to
supply services in
another
Post Market Entry
(e.g. affecting ongoing
operations)
- Mode 1, 2, and 4  Restrictions referring to
core business conduct
 Pricing of services
 Restrictions on temporary
movement of people
Slide 5
Barriers to trade in commercial services
• Restrictions on trade in services can have the effect of being:
(a) Price-creating – restrictions protect incumbent firms from
competition, which allows firms to increase their prices or rents and
expand their price-cost margins; or
(b) Cost-creating – restrictions limit potential or existing firms from
operating efficiently and thus push up business costs.
• Many restrictions or too much regulation protect incumbent service
suppliers from the entry of new competition, which allows them to
increase their prices or create rents and expand their price-cost
margins.
• Restrictions on the entry of foreign service suppliers include
prohibitions on entry, placing limits on the number of firms or strict
licensing requirements.
6
Assessment of services trade restrictions
Example: Telecommunications





Restrictions on temporary
movement of people
Other discriminatory
measures
Joint ventures are required
Screening of investment
Quotas
Labour market tests
Foreign participation in
government procurement
Barriers to competition
 Whether access to networks
and interconnection is
regulated
Regulatory transparency
 Information on spectrum
regulations publicly
available
Source: (Organisation for Economic Co-operation and Development, 2013)
Country confirms entry or provides
correction
Foreign ownership and
market entry restrictions
Result Sourc Countr
e
y
Link to regulation (e.g. law,
administrative decision), etc.
Measure (examples)
Qualitative Information
Policy
Slide 7
Transportation
Services
Financial
Services
Different measures of restrictiveness: Services Trade
Restrictions Index (STRI)
Country
Algeria
Egypt
Jordan
Lebanon
Morocco
Tunisia
Yemen
Algeria
Egypt
Jordan
Lebanon
Morocco
Tunisia
Yemen
Mode 1
100
16.16
25.85
25.85
56.46
56.46
29.08
37.5
25
12.5
37.5
37.5
25
37.5
Mode 3
18.54
50
30.61
25
9.69
34.69
34.69
81.25
55.56
72.22
73.33
22.22
61.11
13.33
Source: Based on (Borchert et al., 2012b) and (Borchert, Gootiiz, & Mattoo, 2012a)
Slide 8
Different measures of restrictiveness: Trade
Restrictiveness Index Scores (TRI)
Aggregate Trade Mode 1 - CrossRestrictiveness border supply:
Index
Transport Services
Telecommunications
Services
Financial Services
Banking Sector
Egypt
Jordan
Morocco
Lebanon
Insurance Sector
Egypt
Jordan
Morocco
Fixed Telecom
Egypt
Jordan
Morocco
Mobile Telecom
Egypt
Jordan
Morocco
Maritime Transport
Egypt
Jordan
Morocco
Air Transport
Egypt
Jordan
Morocco
Source: (Marouani & Munro, 2009)
Mode 2 Consumption
abroad
Mode 3 Commercial
presence
Mode 4 –
Movement of
natural persons
0.85
0.41
1.16
0.20
1.49
1.10
1.98
0.00
0.00
0.00
3.33
0.00
1.03
0.22
0.34
0.04
1.07
1.82
0.19
2.69
0.50
0.88
1.61
0.00
2.27
3.44
0.00
2.10
3.17
0.62
0.32
0.91
1.55
1.88
0.40
1.22
0.85
0.80
0.64
0.02
0.64
2.05
0.00
2.05
1.36
1.08
0.81
1.81
2.23
0.73
0.99
0.78
0.59
0.00
0.00
0.00
0.00
0.00
0.00
0.77
0.67
0.67
2.24
2.66
1.16
0.55
0.36
0.59
0.75
0.5
0.5
n.a
n.a
n.a
0.52
0.34
0.64
0.17
0.37
0.25
0.73
0.47
0.49
0.65
0.46
0.41
n.a
n.a
n.a
0.85
0.49
0.60
0.36
0.36
0.10
Slide 9
Services Trade Costs – Globally and in the Region
World aggregate trade costs indices for selected industries,
1995-2007 (1995=100)
Source: (Miroudot, Sauvage, & Shepherd, 2010)
Slide 10
Services Trade Costs – Globally and in the Region
World aggregate trade costs indices
1995-2007 (1995=100)
Source: (Miroudot, Sauvage, & Shepherd, 2010)
Slide 11
Inflation and variation in unemployment rate – What
does the inverted Philips Curve mean?
Overall Trade Costs
Services Industry
Slide 12
The Impacts of Liberalization of trade in services:
illustration from the transport sector in Egypt
• Measuring the effects of restrictions on trade in services
has, until recently, been put in the “too difficult basket”.
• This has mainly been because of the difficulty in
identifying restrictions on services.
• Restrictions on trade in goods usually take the form of a
tariff, while restrictions on trade in services usually take
the form of Government regulation and a certain level of
regulation is usually justified to meet regulatory
objectives.
13
The Impacts of Liberalization of trade in services:
illustration from the transport sector in Egypt (cont.)
• The methodology for measuring and modeling
restrictions involves three broad steps:
• (1) Calculate a trade restrictiveness index. This
measures how restrictive a service sector is in an
economy;
• (2) Estimate the effect of restrictions on the performance
of service suppliers – price, cost, price-cost margin or
quantity;
• (3) Project the economy-wide and global benefits of
removing restrictions on services using a computable
general equilibrium model.
14
The Impacts of Liberalization of trade in services:
illustration from the transport sector in Egypt (Cont.)
Table : Ad Valorem Equivalents (AVEs) of Barriers to
Trade in Transport Services in Egypt
Trade Restrictiveness
Index using Domestic % AVE based on
Index
Domestic Index
Service Sector
Maritime services
sector
Air transportation
sector
Trade Restrictiveness
Index using Foreign
Index
% AVE based on
Foreign Index
0.425
72.321
0.6632
68.324
0,4552
0,6453
0.4245
64,345
source: chemingui et al. (2013)
15
Simulations using the CGE model for Egypt
• Three simulations have been tested here:
1. a baseline scenario 2012-2020 without any policy
changes
2. a scenario where Egypt will remove all its trade
barriers on goods from the Arab region
3. scenario 2 + liberalization of air and maritime air
transportation services
16
Results
Table : results expressed in average yearly change over the period 2012-2020
GDP
6.0%
6.0%
7.1%
Private consumption
7.6%
7.6%
8.1%
Exp-TOT
10.3%
10.3%
13.6%
Imp-TOT
9.6%
9.6%
11.8%
Investment
9.7%
9.7%
11.0%
17
Policy implications
• Liberalization of services amplifies the expected gains
from GAFTA through two channels:
– better resource allocation among the economic sectors
– lower costs for trade operations
• However, the next question is how to improve transport
services: 1) through only private investments (domestic
or foreigners), 2) through better public spending and
governance? or through private-public partnership?
• The role of Aid for trade in this area is very important:
measuring costs, identify projects to reduce trade costs,
costing projects and identification of financing options,
impacts analysis.
The work continue for other countries and other sectors… 18
Selected policy recommendation…
Better regional integration in
support of economic diversification
and services trade requires:
Trade policy measures themselves
do not necessarily address the
barriers to trade in services.
•reinforcing the current free trade
area and adopting - as one objective the creation of an Arab Customs Union
in 2020,
•to create functioning and reliable
financial, telecommunications and
transport sectors substantial
infrastructure investments together
with policy changes concerning
education and labour market are
necessary to enhance
competitiveness.
•reducing transport cost by creating an
intra-Arab trade and transport
corridor; and
•reducing transactions costs through
trade process innovation and business
friendly regulation
•Public expenditures side: Investment
decisions prioritized based on objective
cost/benefit evaluations (incl. social and
environmental costs and benefits
•Other policy measures: monetary
policy options, such as lending for
priority (value-adding) sectors and
investment into bankable projects by
modifying the near-term path of
interest rates as well as establish
more flexible exchange-rate policies
Better measures of trade flows to assess the costs of protection
Thank you!
For additional information, please contact:
UNITED NATIONS – ESCWA
P.O. Box 11-8575, Riad el-Solh,
Beirut – Lebanon
Web: http://www.escwa.un.org/