Transcript Presentation

Trade and FDI in Services in
Asia
Kailas Karthikeyan , UNCTAD
Fostering Trade through Private-Public
Dialogue
Expert Meeting on Regional Integration in
Asia
28th and 29th March 2007
Contribution of Services Sector
• It has been theoretically argued and empirically
estimated that as economic growth proceeds as
the services sector grows.
• In 1990, the services sector contributed more
than 60% of GDP in most of the developed
countries while in developing countries of Asia it
ranged between 40 to 45% in 1990.
• In the period 1990 to 2005, we find that the
share of services in GDP remained more or less
the same in many East and Southeast Asian
countries while there has been a rise in its share
in most of the South Asian countries
CONTRIBUTION OF SERVICES TO GDP
2004
SOUTH ASIA
2000
ASEAN
1990
34.00
36.00
38.00
40.00
42.00
44.00
46.00
Growth rate in manufacturing sector has been higher in
ASEAN countries because of which the contribution of
services sector has not been high.
GROWTH RATE IN SERVICES (AVERAGE ANNUAL%:
1990-2004)
Sri Lanka
Pakistan
Nepal
Maldives
India
Bhutan
Bangladesh
Vietnam
Thailand
Singapore
Philippines
Myanmar
Malaysia
Lao PDR
Indonesia
6.08
4.69
4.44
7.88
7.49
9
4.75
7.79
7.37
9.34
5.04
7.96
7.04
5.09
7.47
Trade in Services
• An important reason for growth of services
sector has been trade in services.
• There has been a substantial increase in
services trade as a proportion of GDP in most of
the ASEAN countries in period 1990 to 2005.
• In most of the South East Asian countries it
averaged around 20%.
• However, for most of the South Asian countries,
except Maldives, trade in services as a
proportion of GDP has not been very high (less
than 10%)
Trade in Services (% of GDP)
Sri Lanka
P akistan
Nepal
M aldives
India
Average
(1996 to
2004)
B angladesh
Vietnam
Thailand
Average
(1990 to
1995)
Singapo re
P hilippines
M alaysia
Lao P DR
Indo nesia
Cambo dia
0
10
20
30
40
50
60
70
80
90
Trade in services in South East Asia
• Almost all the ASEAN countries witnessed an
increase in their trade in services in the latter
half of the 1990s compared to the early 1990s.
• Liberalisation of their financial sector led to a
rapid increase in trade in financial services in
these countries.
• But the financial crisis of 1997 led to a lowering
of trade in services, especially in the case of the
Philippines, Malaysia and Thailand.
Trade in services in South Asia
• In South Asia, tourism has been the main form of
trade in countries like Nepal and Maldives.
• The proportion of trade in services to total trade
therefore has remained high in these countries,
except for periods of political unrest.
• India, on the other hand, has witnessed a steady
growth in the proportion of services trade to total
trade, which can be solely attributed to trade in
IT and ITES.
• Pakistan, Sri Lanka and Nepal, on the other
hand, have experienced a fall/stagnation in the
average percentage of trade in services in total
trade.
South Asia in Global Services Trade
• South Asia as a whole has been able to increase its
exports of commercial services between 1993 to 2003 by
almost four times, i.e., US$ 7.9 billion to US$29 billion.
But out of this US$25 billion is from India.
• However low growth from other South Asian countries is
largely attributed to substantial underestimation of the real
flows.
• 40% of remittances to Bangladesh are through illegal
hundi sources.
• In Pakistan, out of a total US$ 10 billion only US$1billion
is through formal channels.
• Of the other South Asian countries, Sri Lanka’s remittance
receipts were larger than its tea exports, and in case of
Nepal, the remittances accounted for 12 percent of its
GDP in 2004.
RCA Analysis for Asian
Countries
RCAij=(Exports of i in jth service sector
/Total Exports of i in services) / ( Exports
of Asian countries to world in jth services
sector / Total Exports of services of Asian
countries to world )
Year 2003 – (UNCTAD Stats 2006)
Countries which had RCA in sector more than 1
TRANSPO
RT
SERVICES
China, Hong
Kong SAR
Korea,
Republic of
CONSTR
COMMUNIC UCTION
ATION
SERVICE
SERVICES S
OTHER
TRAVEL
BUSI SERV SERVICES
FINANCIAL
SERVICES
Cambodia
China, Hong
Kong SAR
Bangladesh
China
China
India
China,
Hong Kong
SAR
China, Hong
Kong SAR
China
Korea,
Republic of
Singapore
China,
Macao SAR
Singapore
Philippines
China, Hong
Kong SAR
India
Singapore
Indonesia
Malaysia
Indonesia
Sri Lanka
Pakistan
Philippines
Malaysia
Philippines
Sri Lanka
Maldives
Sri Lanka
Thailand
Myanmar
Nepal
Philippines
Sri Lanka
Thailand
Intra-Regional Complementarity
• Complementarity
in
competitive
advantages in services between South
Asia and East and South East Asia.
• South Asia competitive with respect to
Communication services and Travel
services while ASEAN competitive with
respect to financial services and other
business services.
Services Trade: South Asia’s Major Strengths
• South Asia is the second largest
recipient of remittances in the world. In
2005 it received US$ 32 billion dollars.
• The region therefore has comparative of
advantage in Mode 4 of GATS, in both
high skill and low skill workers.
• Cross border trade in services under
Mode 1 is important for India and
countries like Bangladesh, Pakistan and
Sri Lanka are also emerging as regions
for BPO outsourcing.
Exports of Total Services (US Million $)
2500000
2000000
Developing
economies: Asia
1500000
Developed
economies
1000000
World
500000
0
1980 1990 2000 2001 2002 2003 2004
Market Access Barriers to Services Exports
• Barriers in Cross-Border Trade
• The growing business of outsourcing is creating a
more efficient global division of labour and
bringing significant welfare gains
• But simultaneously it is affecting the structure of
employment in a number of importing countries
and impose adjustment costs.
• This has led to big concerns and apprehension in
the US and the UK about the IT job loss.
• 112 bills were passed till first three months of
2005 in US restricting government offshoring.
Market Access Barriers in Mode 1
• a) The US Congress included in the fiscal 2004
omnibus spending bill a provision that prohibits
federal agencies from outsourcing some kinds of
work to private companies that use workers
abroad.
• b) Prohibits a company from receiving state or
local contracts, grants, loans, or bonds, if the
company has a net loss of employees in the
state during the prior calendar year caused by
the company relocating jobs from the state to a
site located outside the United States.
• c) Only individuals who are either US citizens or
authorised to work in US permitted to perform
certain contracts.
Market Access Barriers: Mode 1
• In Europe also there were legal norms designed
to protect workers in outsourced deals known as
TUPES (Transfer of Undertakings and
Protection of Employees), which also have an
inhibiting effects.
• EU even gave wide ranging directives to
safeguard the privacy of personal data of EU
citizens by backing power to cut data flows to
countries that the EU judges not to have
adequate data protection.
Barriers for Temporary Movement of
Natural Persons from Asia to
developed economies
• Wage-parity requirement discourages import
of cheap labour
• strict visa procedures
• Economic Needs Tests
• Non-recognition of professional qualifications
• Imposition of discriminatory standards or
burdensome licensing requirements,
• payment of social security without
corresponding benefits like medical and
pension insurance schemes
• requirements of registration with or
membership of professional organisations.
Asian Regional Integration can
compensate / make up for lack
of liberalisaton seen in
developed countries.
Trade in Mode 4 Services within
Asia
Source Countries: Bangladesh, Cambodia, China,
Indonesia, Lao PDR, Myanmar, Nepal,
Phillipines, Sri Lanka & Vietnam
Destination Countries: West Asia and Persian Gulf,
Brunei, Hong Kong, Japan, South Korea,
Singapore, Taiwan
Both Source & Destination Countries: India,
Malaysia, Pakistan and Thailand.
(Wickramasekara, ILO, 2002)
Need for Mutual Recognition Agreements - I
• Mutual recognition of qualification is
considered to be the main obstacle affecting
trade in professional services.
• Commitments on market access and national
treatment are not always sufficient for a
foreign service supplier to be able to supply a
market because if a profession is regulated,
no one can practice it without a license.
• Some professions – such as law, health care,
engineering, architecture, and accountancy
— fall into the category of “accredited” or
“regulated” professions in most countries.
Need for Mutual Recognition
Agreements - II
• Article VII of GATS allows Members to enter
into mutual recognition agreements (MRAs),
enabling them to recognise the education or
experience obtained, requirements met, or
licenses or certifications granted in one or
several other countries.
• The article further requires that negotiations
to such agreements be open to all Members
that can demonstrate that their qualifications
are equivalent.
• However, to date, the number of MRAs and
their impact on services trade have been
rather limited.
Services Trade Restrictions in Asia – The
example of telecom
•Indonesia’s telecom policy – restrictions that enable
state enterprise domination – only partial
liberalisation in 1990s.
•Similarly Malaysia’s commitments also limited ;
important to study reservations for Bumiputras –
whether this had a buffer effect in 1997 crisis.
Similarly Thailand.
•Case for regional openness – success of India in
sequential liberalisation a case in point.
Conclusions
•Complementarities exist in Asia- regional integration in
services likely to improve competitive exporters earnings
as well as induce efficiencies in importing countries.
•Evidence already suggests high intra-Asian FDI
movement in services sector
•Compelling groundss to explore Asian services
integration – no significant new opening of traditional
services export markets – plus restrictions in accessing
these.
•Importance of learning lessons within region – both
successes (India telecom) and failures (financial
services liberalisation in SE-Asia and 1997 crisis)