An Assessment of Services
Trade Policy Reform:
Some Evidence
Aaditya Mattoo
Three questions:
• How large are the gains from
services liberalization?
• What are the elements of
successful reform?
• What role can the GATS and
international support play?
1. How big are the gains
from liberalization?
•Strong intuition but weak
evidence
Three examples:
a. Dynamic benefits
b. The link with trade in goods
c. Temporary movement of
individuals
1a. Successful services reform is
associated with more rapid growth
Linear prediction
GUY
.059
DNK
SW
E
SLV
GBR
NOR
USA
ISL
Growth
rate
(adjusted
for other
factors)
NIC
BRA
IND
CRI
DOM
MLT
MOZ
COL
THA
URY
PER
LKA
TUN
MAR
TUR
ZAF
JAM
CYP
KEN
SGP
ARG
CHL
PAN
MW I
HND
VEN
MYS
CAN
BEL
FRA
AUT
FIN
ESP
AUS
ITA
NLD
EGY
BOL
KOR
PRT
GRC
PHL
MEX
NZL
CHE
ECU IDN
AGO
-.024
1
Composite services liberalization index
Source: Mattoo, Rathindran and Subramanian (2001)
8.5
1b. Services trade policy affects
the size and pattern of trade in goods
2.00
High Cost of Telecommunications
Penalizes Trade, Especially in
Differentiated Goods
1.80
1.80
1.60
1.40
1.20
1.00
0.80
0.78
0.64
0.60
0.40
0.20
0.00
homogeneous
reference
Note: The chart is based on 1999 data and uses the Rauch classification of goods.
differentiated
1c. Gains from liberalizing
mode 4
Some Cross Country Comparisons of Softw are Services
$25.00
$22.00
Cost per line of code (US$)
$20.00
$18.00
$15.00
Development
Support
$10.00
$10.00
$10.00
$5.00
$5.00
$0.30
$0.60
$0.60
$1.10
$1.30
$0.00
India
Italy
Ireland
United States
Germany
1c. Mode 4: Some
preliminary estimates
Increase in developed countries’ quotas on
skilled and unskilled temporary labour
movement equivalent to 3% of their labour
force could lead to an estimated $156
billion increase in world welfare
(which is greater than the estimated gains
from complete liberalization of goods
trade).
2. The elements of successful
reform
a. Emphasis on competition
b. Effective domestic regulation
c. Appropriate sequencing
2a. The pattern of reform in
basic telecommunications
Proportion of countries w ith privatized incum bent phone
operators (by region)
1.00
0.80
Asia
0.60
Africa
Latin America
0.40
0.20
0.00
1985
1990
1995
1999
Proportion of countries with competition in local services (by
region)
1.00
Asia
0.80
Africa
0.60
Latin America
0.40
0.20
0.00
1990
1995
1999
Proportion of countries with an independent regulator (by region)
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Asia
Africa
Latin America
1985
1990
1995
1999
Source: World Bank/I.T.U. Telecom Policy Database, and Fink, Mattoo, Rathindran (2001), forthcoming.
2a. The power of competition
1.a. Mainlines
16.00%
13.80%
14.00%
12.00%
10.00%
8.00%
7.30%
6.00%
4.00%
2.00%
0.00%
privatized
privatized+competition
1.b. Productivity
35.00%
31%
30.00%
25.00%
20.00%
15.00%
13.80%
10.00%
5.00%
0.00%
privatized
privatized+competition
2a. Questions that remain
• Are there good reasons to limit
entry/ownership?
•Why is entry/ownership
restricted?
How much is to be gained from
eliminating all barriers to
entry/ownership when some is
already permitted?
2b. Effective regulation
(i) To remedy informational
problems (e.g. in financial and
professional services)
(ii) To remedy market power
(e.g. in transport and energy
services)
(iii) To achieve social
objectives (e.g. universal access
in transport, telecom, financial
and health services; and
alleviation of adjustment costs).
2b(i) Regulation to remedy
informational problems
(e.g. in financial and
professional services):
– As a precondition for
successful liberalization
– As an impediment to trade
2b(i) Regulation as a precondition: an
example
Several African countries have already
undertaken significant liberalization
of financial services…
Market access commitments on commercial
presence under the GATS on banking
Full or ltns
Limitations on
only on the
Only no.
Only
Both no.
legal form
of
foreign of ssrs.
suppliers equity
And
foreign
equity
Egypt, Ghana, Angola,
ZimbaGambia,
Kenya,
Benin,
bwe
Morocco
Lesotho,
Gabon,
Mozambique, Morocco,
Sierra Leone, Mauritius,
Malawi,
Tunisia
Nigeria,
Senegal,
South Africa
2b(i) Regulation as a precondition:
an example
…But Interest Rate Spreads Have
Widened Significantly in Some African
Countries with Liberalized Markets,
1980-97 (percent)
1980
16
1990
1997
13.5
14
13.1
12
10
8
6
4.8
5.5
5.1
3.2
4
2
0
Kenya
Nigeria
2b(i) Regulation as an
impediment?
Three examples:
•Qualification requirements
•Offshore financial services
•Privacy
2b(ii) Regulation to
remedy market power
(e.g. in transport and
energy services)
• As a precondition for market access
• As a guarantor of consumer interests
2b(ii) Regulation to protect
consumer interests
Port liberalization and Breakup of
Private Carrier Agreements:
Estimated Reductions in Liner
Transport Prices
equivalent to
savings of
$2,063 million
25
20
10
equivalent to
savings of $850
million
5
8.27
15
20.05
0
Liberalization of port services
Breakup of private carrier
agreements
2b(iii) Regulation to
achieve social objectives
• Universal service
• Adjustment costs
2c. The sequence of telecom reform in
selected countries
Country
1990
1991
1992
1993
1994
1995 1996
1997
1998
1999
Malaysia
Privatization
Competition
Regulation
India
Privatization
Competition
Regulation
Argentina
Privatization
Competition
Regulation
Brazil
Privatization
Competition
Regulation
El Salvador
Privatization
Competition
Regulation
Nigeria
Privatization
Competition
Regulation
South Africa
Privatization
Competition
Regulation
Uganda
Privatization
Competition
Regulation
Source: World Bank/ITU Telecommunications Policy Database & Fink, Mattoo, Rathindran (2001),
forthcoming.
Note: Competition refers to the fixed-line local services segment.
2c. Sequences matter
30.00%
1.c. Effects of sequencing
on mainlines
25.50%
25.00%
20.00%
15.00%
12.40%
10.00%
5.00%
0.00%
Privatization before
competition
Competition before
privatization
Source: World Bank/ITU Telecommunications Policy Database & Fink, Mattoo, Rathindran (2001), forthcoming.
3. International
engagement: trade
negotiations
Three benefits:
•Deeper liberalization through
reciprocal exchange of concessions
•Credibility through binding
commitments
•Regulatory cooperation
3. Complementary global
efforts
• Devising sound policy
• Strengthening the regulatory
environment
• Enhancing developing country
participation in international
standard setting
• Ensuring access to essential
services in the poorest areas