INTERNATIONAL TRADE IN SERVICES:
CHALLENGES AND OPPORTUNITIES FOR
DEVELOPING COUNTRIES AND BRAZIL
Dorothée Rouzet
Organisation for Economic Co-operation and Development
Seminar “Brazil and International Trade in Services”
Brasília, 28 June 2016
A source of opportunities…
• Services are a huge global market and increasingly tradable
• Distance is less of an obstacle
– Easier global integration for countries with poor road and port
infrastructure, remote or landlocked
– But digital connectivity and language skills do matter
• Developing countries can enter global markets as competitive
providers of offshored business services
– With a greater fragmentation of production combined to cost pressures,
services previously provided in-house are more and more offshored
– Creating an opportunity to join regional or global value chains with
relatively low fixed costs: front and back office functions are stand alone
products
– With a view to moving up from BPO to ITO and KPO – from standard to
customised skill-intensive services
• Leapfrogging structural transformation – The Indian story?
… And challenges
•
Some conditions for the development of a successful services export sector
may not be easy to fill
– A critical mass of skilled workers
– A predictable business environment and cost attractiveness
– A domestic manufacturing base as clients from which to grow a competitive business
services industry
– The ability for specialists to move to the client’s location on short notice
•
A favourable policy environment is a full package
– For traditional traded services (transport, travel): infrastructure, security,
administrative procedures, openness in goods, etc.
– For trade in financial services, telecommunications and other business services:
services trade liberalisation is intertwined with the mandate of sector regulators, the
competition framework, investment regulation, prudential regulation, public
procurement rules, etc.
•
Challenges are the capacity and maturity of services regulatory authorities,
and preserving policy space to regulate while offering an open and secure
environment for investors
Services in (G)VCs
Services needed to establish and maintain a goods supply chain: Sandvik Tooling
Source: Kommerskollegium (2010)
Services in the supply chain
Services are the highest value added
activities in manufacturing supply
chains
And also add value in bundles of
goods and services sold together
The price difference is largely due to services
Mass market branded
Speed to
market
€ 20
Up-market branded
Design
€ 100
Services inputs determine quality and
performance
Medium/low tech
Price
High tech
R&D
Engineering
Taking stock
• Taking advantage of the expansion in global
services trade requires a coherent strategy
dealing with the various relevant policies (e.g.
skills, infrastructure, FDI, competition)
• Opportunities are not only on the export side
but also on the import side: state-of-the-art
and cost-effective services inputs to upgrade
manufacturing
• Services liberalisation for its own sake versus
holding a bargaining chip
8
The case of Brazilian services
• Brazil has a large services sector compared to
economies of similar development
– 71% of GDP, three quarters of formal jobs, more than 80% of
new jobs
– Directed towards and sustained by the domestic market
– Attracting market-seeking FDI inflows
• But the competitiveness of services is hampered by
structural deficiencies:
–
–
–
–
Low productivity
High inflation
High and distortive tax burden
Weak international performance
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Large services trade deficit
Trade balance in million USD, 1995-2014
Goods, balance
Services, balance
Trade, balance
60,000
40,000
20,000
(20,000)
(40,000)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
(60,000)
10
Low services productivity
Labour productivity in constant BRL 1,000
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Intermediate services are critical for
Brazil’s manufacturing competitiveness
Services value added in Brazil’s manufacturing exports (2011)
50%
40%
30%
20%
10%
Construction
Wholesale, retail & hotels
Transport & telecoms
Finance & insurance
Business services
Other services
Other manufacturing
Other transport
Motor vehicles
Electrical machinery
ICT & electronics
Machinery
Fabricated metals
Basic metals
Non-metallic minerals
Rubber & plastics
Chemicals
Coke & petroleum
Paper, print, publsh
Wood
Textiles & apparel
Food products
Mining
Agriculture
0%
OECD average
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Reaping the benefits from services trade:
Food for thought
• Improve the bottlenecks
– Transport and logistics: Infrastructure, speed and reliability
– Finance: Cost, availability and allocation
• Support manufacturing diversification and upgrading
– Key services: R&D, design, branding, engineering, software, consulting
– Building and improving digital infrastructure and skills
– Global integration as a tool for technology transfer
• Leverage existing strengths in high value added services
– Professional and technical services
– Domestic business services outsourcing
– Services related to the commodity sector
• Develop an integrated goods/services strategy for international
negotiations?
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