Transcript Brazil`s Services Trade and International Trade

The Economics of Trade
Policy Reforms in Services
“Trade in Services and International Agreements”
Hanoi, Vietnam, May 23-27, 2005
CARSTEN FINK
Overview
Global patterns of services trade and
production
What explains trade in services?
Services and overall economic performance
Elements of successful services liberalization
The role of international trade negotiations
Global patterns of services trade
and production
What are services?
Key characteristics
Intangible
Invisible
Non-storable
Require simultaneous production and
consumption
Require physical proximity between
producers and consumers
Heterogeneity of services
Transport of goods and people
Financial intermediation
Communication services
Wholesale and retail distribution
Hotels and restaurants
Education and health care
Construction and environmental services
Legal, accounting, and auditing services
Trade: four modes of supply
Cross border supply (Mode 1): analogous to
conventional trade in goods
Consumption abroad (Mode 2): consumer
travels to the territory of the producer
Commercial presence (Mode 3): establishment
of subsidiaries, franchises or branch offices
Movement of individuals (Mode 4): services
supplied through temporary relocation of
individual service providers
Exports
of goods and services
Exports of Goods and Services, 1980-2002
Goods
Services
450
12000
400
10500
350
9000
6000
200
Billion $
7500
250
4500
150
100
3000
50
1500
20
00
20
02
98
96
94
92
90
88
86
84
0
82
0
19
80
(1980=100)
300
Source: WTO
Some figures on FDI in services
FDI in services as grown by 13 percent
annually from 1990 to 2002, reaching $4 trillion
In recent years, services accounted for about
two-thirds of total FDI flows
Share of services in total inward FDI stock rose
to some 60 percent in 2002, from less than 50
percent in 1990
Developing countries’ share of inward FDI stock
in services rose from 17 percent in 1990 to 25
percent in 2002
Developing countries are becoming
competitive exporters of services
Cross-border sales of services (for example, data
processing, software)—increasingly possible through
modern information and communications technologies
Consumption abroad—mainly tourism, but also health
services (e.g., Thailand, Malaysia)
Some outward FDI in services (for example, Malaysia
in telecommunications and environmental services)
Movement of individual service suppliers—professional
services, software programming, low-skilled services
(nurses, construction workers, domestic helpers)
What explains trade in services?
Two major explanations
Trade based on differences between
countries (comparative advantage-based
trade)
Trade based on different forms of
increasing returns to scale
Comparative advantage based trade
Sources of differences
Labor costs (e.g., call centers)
Natural endowments (e.g., tourism)
Technology (e.g., health services)
Regulation (e.g., financial services)
Price differences create incentives to
trade
Welfare implications
Standard trade theory predicts:
Gains for exporting producers and
consumers
Loss for import-competing producers
Overall gains from trade if markets are
perfectly competitive
Income distribution: production factor that
is intensively used in exports gains
Trade via labor mobility
MPL
MPL*
B
D
A
E
C
MPL*
O
MPL
L2
L1
O*
Source: Bacbground paper by Copeland/Mattoo
Trade based on increasing returns
Comparative-advantage based trade
cannot explain trade between similar
countries
Sources of increasing returns:
Fixed costs combined with market niches
Firm-specific intangible assets
Networks
Welfare implications
Gains from trade:
Greater diversity of services
Firms can reap greater economies of scale
Transfer of technology and know how
Income distribution effects less
significant
Services and overall economic
performance
Share of services in GDP vs. income
90
Percentage share of services in GDP
80
70
60
50
40
30
20
10
4
5
6
7
8
9
10
11
ln(GDP per capita)
Source: Fink (2005)
Explanations for positive correlation
Demand effect:
As economies grow richer, consumers spend
a larger share of income on services
Supply effects:
Increased “domestic outsourcing” of
services
Faster productivity growth in goods than in
services (Balassa-Samuelson effect)
Implications
As economies grow richer, service sector
typically generates the most important
generator of new employment
Pace of expansion of service sector
depends on the source of economic
growth
Factor accumulation versus productivity
growth
The input role of services
Service activities are key inputs into the
production of goods and other services
Inefficient provision of services acts like
a tax on other producers in the economy
For exporters in agriculture and
manufacturing, inefficient provision of
services can lead to negative rates of
effective protection
Services performance and trade
competitiveness: the case of transport
Cost and efficiency of transport services
determines export competitiveness
Higher shipping costs feed into lower wages
and lower returns to capital in export ventures
Poor logistics increase inventory costs.
Large costs of shipping delays for perishable
commodities and goods that are traded within
multinational vertical production chains
Transport costs often exceed tariffs
20
45°
18
Nominal tariff
16
14
12
10
8
6
4
2
0
0
2
4
6
8
10
12
14
16
18
20
Transport cost incidence
Source: U.S. Bureau of Census
Services liberalization and growth
Linear prediction
GUY
.059
DNK
Growth
rate
(adjusted
for other
factors)
NIC
BRA
IND
CRI
DOM
URY
PER
LKA
TUN
ZAF
JAM
CYP
KEN
SW
E
SLV
GBR
NOR
USA
SGP
ARG
CHL
PAN
CAN
BEL
FRA
AUT
FIN
ESP
AUS
ITA
MLT
MOZ
COL
THA
MAR
TUR
ISL
MW I
HND
VEN
MYS
NLD
EGY
BOL
KOR
PRT
GRC
PHL
MEX
NZL
CHE
ECU IDN
AGO
-.024
1
Composite services liberalization index
8.5
Source: Mattoo, Rathindran, and Subramamian (2001)
Elements of successful services
liberalization
Measures affecting services
trade
Entry restrictions (e.g., public monopolies)
Quantitative restrictions on:
Output or market share by foreign providers (e.g., cargo
reservation, capacity limitations in bilateral ASAs)
The number of individual service providers (e.g., quotas on
the number of foreign workers)
The type of legal entity permitted to provide services
(e.g., subsidiaries, branches)
Limitations on foreign equity ownership
Regulatory measures (e.g., qualification requirements,
access to networks)
What are elements of successful
services liberalization programs?
Phasing out of explicit barriers
Development of regulatory framework to
address market failures and advance social
objectives
Strengthening of competition policies
Ensure credible and stable policies
Appropriate sequencing of reforms
Development of regulatory framework
Address market failures
Natural monopolies and essential facilities
Asymmetric information
Externalities
Promote social objectives
Universal service
Need for competition policies
Importance of sunk costs and economies of
scale in services may lead to concentrated
markets
Private practices (e.g., liner cartels in maritime
transport, airline alliances in air transport)
Opening service markets to foreign providers
can promote competition
Role of competition law
Credibility and stability of policy
In the case of infrastructure services,
service providers can initially incur
substantial operating losses
Investors seek assurance that policy will
not be reversed in future
Difficult trade-off between stability and
necessary flexibility when circumstances
change
Appropriate sequencing of reforms
Most reforms are gradual reforms
How to best sequence
Change of ownership from public to private
Introduction of competition
Development of regulatory framework
Sequencing in telecommunications
Teledensity
Simultaneous
competition +
privatization
Competition after
privatization
O
Only
privatization
Competition
after
privatization
Simultaneous
competition +
privatization
Time
Source: Fink, Mattoo, Rathindran (2003)
The role of international trade
negotiations
What role for trade negotiations?
Much of the reform agenda in services is the
domain of domestic policy and much can be
achieved through unilateral reform
International negotiations can be helpful in:
Gaining market access abroad
Overcoming domestic resistance to reform through
reciprocity-based bargaining
Pre-committing to future reform
Strengthening credibility of domestic policies.
Promoting regulatory cooperation
Where to negotiate?
WTO/GATS
Benefit of MFN liberalization
Regional trade agreements
Examples: EU, NAFTA, ASEAN, MERCOSUL,
FTAA, numerous bilateral agreements
Are trade preferences in services feasible?
Are they desirable?
Can countries bargain more effectively?