The measurement of barriers to services trade and its impact on Chinese services export
Bingbing, Jiang;
Zhaohua, Lee
Abstract: Into the 21st century, the growth rate of trade in services is more than trade in goods. There are
urgent needs for reorganizing the concept of trade in services, the method of service barrier quantification, and
estimation the impacts of barriers to trade.
This paper studies the theory of trade in services, quantifying the seriousness of barriers faced by China’s
export of transport, finance, telecommunication sectors, and tests the impacts of barriers on China’s export. The
existing methods of measurement of barriers are mainly freedom index and ad valorem equivalents method. The
paper expands intensity indexes of services barriers to calculate the restrictions against Chinese service export
in financial, transport, telecommunications sectors. It includes the following four categories: restrictions on
market access, ownership and control, operating, movement of people. Possible restrictions are classified into
restriction 12 categories with weights, which based on the research of Kimura et.al (2003). The sum of weights
for all categories is 1. Then a score with a range from 0(least restrictive) to 1(most restrictive) is assigned for
each category, and intensity index calculated by summing up the multiplying the selected score by the weight.
The study tests the application of gravity model for bilateral services trade in a sample of 55 countries. It
finds that the standard gravity model explains services trade flows well. In this paper we employs gravity model
using panel data to explore whether the barriers in services trade limit the export of China’s financial, transport,
telecommunications services. The result shows that the questioned barriers of trade in services have no
significant influence. One possible reason is that China's service trade only has weak international
competitiveness and cannot meet the required level of service barriers restriction of trade partner.
Keywords:
Service trade
barriers
1.Introduction
Section Ⅰ: General Overview
The trade in services is now recognized as one of the fastest-growing sectors in many countries in the
world. From 1980 to 2007, The gross world services exports expanded from US$360 billion to US$3.26
trillion U.S. dollars an increase of 9.1 times .The share of world trade rose from 1 / 7 up to 1 / 5; in the
same period, the gross goods exports increased from US$1.99trillion to US$13.57 trillion, an increase of
6.8 times . The growth rate of trade in services was higher than it on trade in goods. The total world
services trade in 2008 amounted to US$7.2 trillion, increase 11% compared with 2007, which grew faster
than trade in merchandise. The world services trade is gaining in status. The growth of trade in services can
stimulate long-term growth in global economy and address the global employment problem. It has become
the focus of trade growth and leads a new point of economic growth.
There was a witnessed rapid development in China’s service trade. The average annual growth rate
was 18.64% and the total trade increased about 60 times from US$43 billion in 1982 to US$256 billion in
2007. In 2008, China's service trade amounted to US$304.45 billion, a growth of 21.3% compared with
2007. Trade in services exports reached US$146.55 billion; therefore the world rankings rose from seventh
place to fifth place. However, different from the case of trade in merchandise goods, China's service trade
deficit has been in a state since 1992, and the size of the deficit has expanded each year. Insurance,
financial, patent rights, royalties and license fees as well as the emerging trade in services have been in a
deficit state. Whether it is because of trade barriers that set up by trade partners impede China's export of
services?
Services have always been of fundamental social and strategic importance for both developed and
developing economies. With the technological advances and economic globalization, trade in services is
considered to be a knowledge-and technology-intensive industry, and the finance, insurance, securities,
information, and legal services sector are booming. Trade in services become the main topic that
negotiation on regional economic cooperation by WTO. On one hand, countries actively promote the
services trade liberalization in accordance with "the General Agreement on Trade in Services", and
continuously reduce the traditional barriers to trade. On the other hand, states take other direct or indirect
restrictions to raise the protection level of domestic service industries. The reduction in barriers to service is
a long-term trend and a constant game process. However, the definition of barriers in services itself is not
straightforward. Quantifying the seriousness of barriers as well as measuring economic effects of such
barriers is another difficult task. Therefore, there are urgent needs for sorting the policies of partner
countries, establishing the method of quantification, estimating barriers to trade as well as their economic
impacts in an internationally comparable form.
Section Ⅱ: Literature Review
Whether the traditional trade theory is applicable to services has yet reached a consensus. There are
differences in definition, measurement difficulties, statistical caliber inconsistencies and other issues in
services trade research. Trade in services must first be defined and the applicability of gravity model on
services trade must be clear, in order to conduct quantitative research. Therefore, this paper bases on the
empirical test of the applicability of gravity model in services trade, and analyze the impact of barriers to
services trade.
Applicability of the gravity model in services trade
Trade in services has begun to attract people's attention after the Uruguay Round, and the initial
studies had generally focused on whether the theory of trade in goods is suitable for services trade.
Deardorff (1985) and Jones (1985) formally introduced the service into trade theory for the first time.
Within the framework of perfect competition, constant returns to scale, and non-cross-border movement of
elements, researching the feasibility of comparative advantage theory applicable to services trade. They
considered that there was no essential difference between services trade and trade in merchandise goods.
However, from the political point of view, the difficulties in measurement and monitoring had led to
different. Deepak Nayyar (1988) analyzed the determination of trade in services, status and characteristics
of services trade in developed and developing countries from the point of political economy. The difference
between trade in goods and services was that technological progress in the manufacturing sector is often
labor-saving, what was very difficult to gain in labor-intensive industries and services sector. In addition,
temporary migration of labor from developing to industrialized countries would be brought form the
development of trade in services, and trade in goods will not. From a political economy perspective, the
trade in goods and services are very different. Melvin (1989) assumed two kinds of output, goods and
capital services, in a Heckscher - Ohlin (HO) model. The conclusion was that trade in services and goods
can produce the same balance of trade, although tradable nature and capital / labor-intensive were different.
The effect of tariffs on trade in goods and services were consistent. Deardorff (2001) analyzed the
relationship between trade in goods and services through the establishment of a simple theoretical model,
calculated the profit of the reduction in tariffs and other services barriers via the partial and general
equilibrium model. The study concluded that the liberalization of trade in services could lead to greater
benefits in international fragmentation of production. The dispute ―does traditional trade theory hold in
services trade‖ still exists, but it is a consensus by doing a certain change of the goods trade theory applies
to trade in services. However, there was few empirical studies on trade in services before 2000, due to the
difficulties in services trade measurement and lack of statistical data. Karine (1990) collected data on
cross-border transport in Belgium and Luxembourg, applying the international comparisons methods to
discuss the role of foreign investment and trade in services.
Despite the gravity equation’s empirical success in explaining trade flows, the model’s predictive
potential has been inhibited by an absence of strong theoretical foundations. Jeffrey H. Bergstrand (1984)
presented a general equilibrium world trade model from which a gravity equation was derived by making
certain assumptions and empirical evidence supporting the notion that gravity equation was a reduced form
from a partial equilibrium subsystem of a general equilibrium model with nationally differentiated products.
The microeconomic foundations of gravity equation were strengthened and gravity model used in a large
number of literature on goods trade. In 2002, OECD published the bilateral services trade data of 27
members and 55 countries of 1999-2000, the empirical studies on trade in services by gravity model began
to appear as well as the applicability of gravity model in services trade. Kimura, Lee (2004) selected the
data on trade in services and goods of 10 OECD member countries and 47 trading nations in the 1999-2000
to test the effect of standard gravity model. The conclusion was that it is complementary between goods
export and services imports, and trade in services can be better forecasted by gravity equation. Keith Walsh
(2008) estimated gravity model for the total services trade of 1999-2001 in a sample of 27 OECD member
countries and 55 non-OECD countries. The paper found that the Hausman-Taylor gravity model was most
suitable and the gravity variables of economic size, a common language were significant factors in services
trade, while the distance was not significant. Janer Ceglowski (2006) estimated a standard gravity equation
for bilateral services trade in 28 countries; the results indicated that economic scale and geographic
proximity were significant in services trade. The research implied that efforts to enhance goods trade
–bilateral or multilateral – should lead to more services trade as well.
The barriers to services trade and its impact
The General Agreement on Trade in Services (GATS) is not clearly defined barriers to services trade,
in part 1 article 1, referred to "this Agreement applies to measures by members affecting trade in services",
including the measures taken by: central, regional or local governments and authorities; and
non-governmental bodies in the excise of powers delegated by central regional or local governments or
authorities. Service transactions often require direct interaction between providers and consumers. That
means the time and space of production and consumption of services cannot be separated in most
circumstances. Therefore a tariff-like measure which is common in goods trade cannot be taken in services
trade. Noted in Hoekman (1997), the policy instruments that affect international trade in services are
similar to those used in the goods context, and consist of measures such subsidies, tariffs, taxes, quotas, and
technical standards. Including: (1) quotas, local content and prohibitions; (2) price-based instruments; (3)
standards, licensing and procurement; (4) discriminatory access to distribution networks.
The empirical research literatures of barriers to trade in services focused on the following two aspects.
First, the measurement of the intensity of barriers to services trade, what is a difficult task in this area.
Tariffs barriers cannot be taken by service trade barriers and current measurements of the trade in services
were mainly freedom index and tariff-equivalent method. Freedom index was originally proposed by
Hoekman (1995), according to the ―Schedules of Specific Commitments‖ which in the form of 4
transaction modes and 155 sectors. A score with a range from 1(least restrictive) to 0(most restrictive) is
assigned for each category, and then a freedom index is calculated by summing up the estimated scores.
The European Bank for Reconstruction and Development, for instance, added the sector and sub-mode of
supply, gave the weight of each category after investigation to sum up estimated score by multiplying the
selected score by a weight. The index expanded the Hoekman’s method, the weights were determined based
on the importance of the category, what highlight the impact of different restrictions. Dee (2003) employed
principal component analysis to estimate the economic effects of various restrictions, obtained coefficients
were the weights, which were more scientific assignment, the weighted average result was freedom index.
Kimura et.al (2003) estimated the restrictiveness index of barriers in the Russian financial services sector,
based on restrictions of commercial presence, cross-border trade and other investment. The paper
transferred the research focus on measurement of services barriers from the overall level to the concrete
industry. Service Freedom index can intuitive measure the degree of freedom of services trade of all
countries and sectors, but cannot directly measure the intensity of barriers to services trade and has weak
comparability.
Ad valorem Equivalents mainly calculated the mark up, which show the proportion of trade flows
reduced by restrictions on trade, and then transfer the mark up into tariff. (Total sales - Total average cost) /
Total average cost is employed to indicate the mark up. The proxy of total sales and total average cost were
the CIF price and FOB price, respectively, what was acknowledged on research about goods trade. The
basic assumption of mark up is product can be substituted perfectly; however, services trade research does
apply this method for the heterogeneity of service. Fink, Matto (2002) assumed the marginal price mark up
set by domestic government restrictions, trading restrictions, mandatory services, to analyze the effects of
public policies and private anti-competitive measures on the shipping price. Combing the quantitative
estimates of effects of removing existing barriers with an estimate of the price elasticity of demand for the
services involved, in the form of price wedges or regression residuals can be calculated, what was the
second method to measure the tariff equivalents. Drusilla and Robert (2001) has reviewed the measurement
of service and investment barriers, economic effects models, the paper referred that Francois (1999) has
fitted a fitted a gravity model to bilateral services trade for United States and its major trading partners,
taking Hong Kong and Singapore as free-trade benchmarks. The differences between actual and predicted
imports are taken to be indicative of non-tariff barriers. Combining this with an assumed elasticity demand,
the tariff equivalents can be estimated. This method is relatively science and reasonable, but when the
regression has low level of model fit will lead overestimate the size of trade barriers.
Another research focus of services trade is the calculation of the gain of free trade. The main method
is measure the difference of trade flow or welfare via the simulation of free trade. That reducing services
trade barriers could significantly increase national welfare was consistent with existing literature, but
whether trade barriers reduce trade flows is not clear. Hoekman (2006) has indicated the potential benefit of
Increase the degree of freedom on financial, retail, shipping, telecommunications, health care and insurance
industry, and the results showed the gains were several times more than the gains of free trade in goods.
Blyde and Sinyavskaya (2007) employed the gravity model for bilateral trade of 1980-1999 in a sample of
62 countries to conclude the liberalization of transportation and communication can increase the trade flow
of goods. Konan and Kim (2004) used general equilibrium model to simulate the welfare brought by the
elimination of restrictions on services trade in Tunisia and Egypt. The welfare would rise by 3.6% and
6.9%, annual output growth rate was 4.85% and 12.91%, and the fastest growing industries were
communication, trade, financial services, insurance and tourism.
Previous studies on measurement of services trade barriers are mostly on a national level using the
overall trade data and only a few researches on a specific industry. For the lack of services data, the results
of different countries have weak comparability. In considering the availability of data, we build up
restrictiveness index of services barriers. The paper first applies the methodology following Fukunari
Kimura et.al(2004), and other previous studies ,which enables us to quantify the existence of barriers.
Restrictions against foreign services suppliers are listed in sector-specific restriction tables and weights are
assigned for listed restrictions. Based on the Foreign trade barriers book (China, USA), scoring sheets are
fill out to obtain the restrictiveness faced by China’s services export. Then, we employ the gravity equation
to estimate the barriers’ impact on the China’s export. The paper plan is as follows: section 2 address
several causes of the regulation and obtains the restrictions on the transport, financial and communication
services. Section 3 obtains the restrictiveness index for the three services sectors. Section 4 estimates the
impacts of services barriers to China’s services export and gives the explanation to the regression reports.
The paper is concluded in section 5.
2. Restrictions on the transport, financial and communication services sector
According to the General Agreement on Trade in Services, trade in services is defined as the supply of
a service: (a) from the territory of one member into the territory of any other member; (b) in the territory of
one member; (c) by a service supplier of one member, through commercial presence in the territory of and
other member; (d) by a service supplier of one member, through presence of natural persons of a member in
the territory of any other member. The four modes of services transactions , respectively, (1)cross-border, (2)
consumption abroad, (3) commercial presence, and (4) the movement of natural persons.
Since the economic interpretation of the GATS policy discipline is not clear, the definition of ―barriers
to trade in services‖ could be different by researchers and the classification of barriers are different as well.
According to the degree of restrictions, OECD (2000) divided the barriers into the following levels: little or
no effect, restricted and prohibited. UNCTAD (1996) classified the regulation to commercial presence into
restrictions on market entry, ownership and control restrictions and operational restrictions. This paper
primarily focuses on the regulation of transport, finance and telecommunications service exports, which
mostly capital-intensive industries, therefore commercial presence is the most important model of exports.
―Restrictions on movement of natural persons‖ is added to restrictions developed by UNCTAD (1996) to
consider trade in services in the natural way of trade payments.
(1) Restrictions on market entry
The main restriction as following: bans on foreign investment in certain sectors; quantitative restrictions
(e.g. limit 25% foreign ownership in a sector); screening and approval; restrictions on the legal form of the
foreign entity; minimum capital requirements; conditions on subsequent investment; conditions on location;
admission taxes.
(2) Restrictions on ownership and control
Including: compulsory joint ventures with domestic investors; limits on the number of foreign board
members; government appointed the board members; government approval required for certain decisions;
restrictions on foreign shareholders’ right; mandatory transfer of some ownership to locals within a
specified time .
(3) Restrictions on operate
Including: performance requirements (such as export requirements); local content restrictions; restrictions
on import of labor, capital and raw materials; operational permits or licenses; ceilings on royalties;
restrictions on repatriation of capital and profit; government procurement discrimination.
(4) Restrictions on movement of natural persons
Limitations on the movement of natural persons by immigration laws and immigration procedures on the
service suppliers. There are restrictions on temporary entry of executives, senior managers and/or
specialists over certain days in some countries.
The causes of barriers to services trade are similar with the causes of goods trade barriers, what is to
protect national industry. According to international trade theory, only be accepted explanation is to protect
infant industries. A country has to temporarily protect the industry with potential comparative advantage,
which cannot compete with foreign enterprises in short term due to lack of knowhow. However, another
important reason is the unique status of services, and a country needs to implement strategic trade policy.
Financial, telecommunications, broadcasting, culture and other service sectors related to a country's
economic lifeline and political institutions. Services trade barriers ultimate protect the benefits of certain
pressure groups and/or interest groups. For the degree of protection financial, telecommunications and
other monopolistic industries was significantly higher than other competitive industries, such as tourism.
Moreover, GATS provides that "Each Member shall accord services and service suppliers of any other
Member treatment no less favorable than that provided for under the terms, limitations and conditions
agreed and specified in its Schedule " what means the abolition of restrictions on market access is not
members' general obligations and that provide the legitimacy of setting the trade barriers.
Restrictions on transport
Transport trade is the traditional trade in services and its proportion in total trade in services is
gradually reduced. Therefore the transports markets in most developed countries are compete and have less
regulation. Air transports relate to national air sovereignty and the degree of limitation relatively high. But
the United States began easing air transports control in 1978, and strongly promoted the "open sky" policy.
EU expanded the liberalization of the aviation market 3 baskets of agreement in 1987, 1990 and 1993
respectively. Japan relaxed price regulation by repealing "Japan Airlines Law" in 1987and completely
relaxed the passenger price controls according to the new air transport bill in 2001. But restrictions are still
existed in Australia and other countries.
Australia: addition to Australian QANTAS Company, foreign investors’ equity accounted for Australian
international air carriers cannot exceed 49%. In QANTAS Company, the equity share of a single foreign
company shall not exceed 25% and up to a maximum 49% of all foreigners, shall not exceed 35% of
foreign airlines. Foreign investment in the airport must be approval case by case. Foreign investment in
single airport should be no more than 49%. The proportion of routes’ ownership is no more than 5%. No
cross-ownership of Sydney Airport (including Sydney Airport. Shipping: vessels registered in Australia
must be hold by Australian investors, unless the charter of the ship is Australia operator.
Russia: passenger and freight rail market are not open, for the establishment of foreign joint ventures in
loading and unloading, container yards, shipping agents, customs clearance, repair and maintenance
services on rail equipment are not allowed. Tax holidays and investment guarantees are supplied to
domestic and foreign investors in aviation-related research and manufacturing incentives, but the shares of
foreign capital in aviation enterprises cannot be more than 25%. The directors and senior managers must be
Russian citizens.
EU: subsidies are provided to the aircraft, shipbuilding, shipping industries. Strict controls exist in some
members’ maritime industry.
Sweden: A foreigner is not allowed to own ship and/or aircraft registered in Sweden and may not operate
domestic flights.
Czech Republic: there restrictions on foreign investments in air passenger transport, road passenger and
freight industries.
Hungary: there restrictions on foreign ownership of the field of civil aviation and transport.
Poland: maximum foreign shareholding ratio in civil aviation is 49%.
Korea: it restricts partly foreign direct investment in passenger and cargo transport in coastal waters,
scheduled and non scheduled air transport.
Canada: All investments in transport services sector are reviewable at the following thresholds: C$5 million
for a direct acquisition and over C$50 million for an indirect acquisition. Restrictions on foreign new and
expand investment on relevant transport departments and demand "net benefits‖ to Canada.
United States: In air transport, U.S. Airways must be the actual control by US citizens: US citizens must
hold at least 75% of voting shares; the board chairman, at least two-thirds of board members and other
managers must be a US citizen. Domestic air services can only operate by United States agency, but foreign
carriers can provide aircraft with the whole crew to US carrier. "The United States Air Act" requires all
federal government expenditure on air transport only by the United States’ aircraft or by foreign aircraft
transport whose country enter into bilateral or multilateral agreements. In the maritime service, "the
Merchant Shipping Act 1920" requires the carriage of goods within the United States only operate by the
US ship carrier, and more than 75% of employees must be US citizens. However, if foreign companies
meet the requirements of the employment of U.S. citizens, they can be set up to supply freight service in
the United States; domestic passenger services have similar requirements.
New Zealand: foreign ownership with New Zealand's air company may not exceed 49%.
Japan: Foreign shipping companies can only rent port and cannot enter terminal handling services market.
According to "maritime law", in principle, that the domestic shipping market open only to Japanese vessels,
while there is no restriction on foreign direct investment, and only establishing companies in Japan be
allowed to enter the industry.
Restrictions on financial
WTO reached a "global financial services trade agreement" in 1997, WTO members have introduced or
improved commitments on opening financial services market except India. United States and EU would
fully open its insurance market except a limited number of restrictions; Japan's insurance market is fully
open but not fully liberalized labor market, and there is still some practical obstacles. Banking is related to
national security, countries are more or less restricted to the banking industry. It is one of the most
restricted industries.
Australia: Government approval foreign companies’ acquisition of the Australia bank case by case. Only
the foreign bank and its parent bank have good financial position, and the bank must agree to abide the
prudential agreement of Australian prudential supervision. Any person in any financial company
(deposit-taking institutions, insurance companies or the two holding companies) holding 15% or more,
must obtain the approval of Treasury. Condition would be added at approval or at any time after approval.
Korea: the supervision of foreign bank branches and the supervision of national bank branches are
inconsistent. Establishment of additional branches of foreign banks in Korea required more complicated
procedures than setting a new national bank branches. The foreign branches must complete all procedure
required to set up branches for the first time. The business scope and capital issues of foreign bank
branches will be treated as its subsidiary bank, as well as capital restrictions exist on foreign bank, which
limit the amount of local funding and assets. There is high cost for foreign banks join the Korea currency
clearing & settlement system.
Russia: "On Banks and Banking Activity" permits foreign banks to establish subsidiaries in Russia, but
does not allow foreign banks to establish branches. The Russian government retains the prerogative to limit
the foreign sourced element of charter capital in the banking sector to 50 percent of the sector’s total charter
capital, and foreign insurance firms are subject to a 49 percent equity restriction.
Canada: All investments in financial services are reviewable at the following thresholds: C$5 million for a
direct acquisition and over C$50 million for an indirect acquisition. The establishment of foreign banks’
branches in Canada needs special license and practitioners warrants, which issued by the financial authority
institutions, the fee of application is C$32,000. Lending branch and Almighty branch can be set up in
Canada by foreign companies. Lending branches are not allowed to attract deposits. Almighty branch does
not allow absorbing retail deposits and can only absorb single deposit over C$15 million. And the almighty
branches’ assets (at least C$50 billion) must be ―widely held‖, that is, regardless of nationality, any
individual may not purchase more than 20% of the bank's voting shares, or more than 30% of non-voting
shares. Any person who holds more than 10% shares of small and medium banks need prior approval of the
Ministry of Finance. Foreign company cannot hold exceed 25% of a Canadian life insurance company’s
equity and any single non-Canadian citizens may not own more than 10% shares.
United States: In insurance, each state has its own insurance regulatory structure, that is, different
registration, reimbursement and operational requirements in different state. The insurance companies,
agents and brokers must be licensed, and can only provide insurance services in the licensed state Most
states have the requirement of citizenship and state residence to brokers and other insurance ancillary
suppliers. In banking, foreign banks must establish a sub-bank which is insured in order to retail deposits of
less than $10 million. Branches of foreign banks needs to meet the "asset-backed demands" and cannot
profit from the federal deposit insurance. US laws allow foreign banks to takeover or set new institutions
cross state, but the deposits of the merged bank cannot exceed 10% of the total deposits in insured
depository institutions. And each state has corresponding restrictions on the deposit. Established firms
under foreign law cannot engage in credit union branches, savings bank, domestic loans, foreign banks and
cannot become a member of the Federal Reserve System. 29 states prohibit or restrict the method to enter
or expand by acquisition or establishment of state license’ commercial bank branch; 6 states do not allow
foreign banks to establish branches, but agencies could be established; 18 states do not allow the
establishment of representative offices of foreign banks.
Germany: except the capital from EU, Japan and the United States, other countries’ capital cannot be served
as capital base in German branch. There are different regulatory measures to different countries, and
implement local funds management to non-OECD countries’ commercial bank branches. General Manager
in foreign banks branches should be in the EU for 3 years or have 1 year work experience in Germany.
France: the specific industry such as insurance brokerage should be priority equity acquisition, what
requires the largest state-owned financial institutions CDC to act as a buffer to prevent foreign investors
merge with domestic company by increasing equity.
Netherlands: domestic companies have priority in bank's acquisition, and foreign company eligible to
participate M & A only after no domestic situation buy the bank who announced to sell within 6 months.
United Kingdom: According to the type of applicant, classify the banks into wholesale banking and
universal banking, whose license examined and approved strictly.
Greece: majority of the directors in foreign banks must be EU citizens.
Italy: setting the first branch of non-EU bank must be approved by the Italian Central Bank, Ministry of
Foreign Affairs and Ministry of Economic Affairs. Dealing with each foreign exchange transactions more
than €12,500 must be reported to the Italian Foreign Exchange. Most Visa validity of China staff is 3
months or 6 months.
Poland: Poland does not treat independent legal persons as a single taxable person (i.e., VAT grouping), as
allowed by the EU VAT Directive, and banks must obtain administrative permission.
Austria: While European Economic Area (EEA) Member State banks may operate branches on the basis of
their home country licenses, banks from outside the EEA must obtain Austrian licenses to operate in Austria.
However, if a non-EEA bank has already obtained a license for the operation of a subsidiary in another
EEA country, it does not need a license to establish branch offices in Austria.
Sweden: foreigners may not hold shares in banks. There are some restrictions on entry into insurance.
Czech Republic: investing in mortgage banking, asset management sectors are restricted.
Serbia: Foreigners’ work permit valid for 1 year and the permit should be applied once every year.
Singapore: Government does not allow foreign investors to buy the three major local financial institutions.
Japan: there is no specific limit on financial markets, but the labor market is not open. While Kyosai and
state-owned insurance company monopolized the domestic insurance market, it is not easy for foreign
financial institutions to enter.
India: "Insurance Management Board of India Act" provides the highest foreign direct investment ratio is
26% and foreign investment in insurance must be permitted by Indian Insurance Management and
Development Bureau. Strict controls exist when foreign banks enter into India, including restrictions on
establishment branches of foreign banks. The share of foreign direct investment in state-owned banks is
still limited to 20%.
Indonesia: Allow foreign ownership in the banking sector accounted for 99%, but the fact does not meet
commitments. According to GATS schedules of commitments, foreign shareholding less than 52% in
securities and financial providers can not set up branches. 2007 investment law allows new investors
accounted for the maximum shareholding is 80%.
Restrictions on Telecommunications
Australia: foreign equity limits in the monopoly company Telstra, which are capped at 35%. And a single
foreign investor equity limits are 5%.
Russia: Amendments to the 2003 Federal Law on Communications entered into force on 2007, tightening
regulation over non-incumbent telecommunications operators. But the law has not improved transparency
in the licensing process, and the 5-10 year license validity period does not allow sufficient time for foreign
investors to recoup the investment. Application fee of 3G licenses is set at 264 million Rubles, and
companies required to start offering commercial 3G services after obtain a license in two years while the
construction period is far beyond that.
Korea: Korea currently prohibits foreign satellite service providers from selling services (e.g., transmission
capacity) directly to end users without going through a company established in Korea. Korea maintains a
49 percent limit on foreign shareholdings of facilities-based telecommunications operators
Canada: In its schedule of WTO services commitments, Canada retained a 46.7 percent limit on foreign
ownership of suppliers of facilities-based telecommunications service, except for submarine cable
operations. In addition to the equity limitations, Canada requires that at least 80 percent of the members of
the board of directors of facilities-based telecommunications service suppliers be Canadian citizens.
EU: Enforcement of existing telecommunications legislation by national regulatory authorities (NRAs) has
been characterized by unnecessarily lengthy and cumbersome procedures in France, Italy, Austria, and
Portugal, among others. In Germany, Greece, Spain, Italy, Ireland, Austria, Finland, and Sweden have
slowed the development of competition by systematically appealing their national regulators’ decisions.
Austria: all wholesale markets found to be non-competitive and the application of remedies is delayed.
The incumbent fixed network operator tends to create new obstacles to local loop unbundling, delaying full
competition. Telekom Austria is the market leader in fixed-line network, mobile telephony and internet
access and the pricing is nontransparent.
France: France Telecom has a dominant position in supply and innovation in mobile phone, Internet, TV
and long distance telephone.
Germany: New entrants face difficulties competing with the partially state-owned incumbent, Deutsche
Telekom, which retains a dominant position in a number of key services, including local loop and
broadband connections.
Hungary: the telecommunications market is fully liberalized, but it is monopoly in some sub-industry.
Luxembourg: the state-owned Post and Telecommunication Company continues to dominate the nation’s
telecommunications market.
Poland: The Polish telecommunications sector is fully liberalized and open to foreign investment.
Nevertheless, the former state-run monopoly, TPSA, still controls 80 percent of the market for fixed-line
telephone subscriptions.
Spain: line rental costs are doubled higher than the EU average.
Serbia: communications and IT industry are key industries that encouraged to investment in.
United States: significant obstacles still exist, including investment restrictions, restrictive market access as
well as reciprocal based treatment. In terms of MFN, retain an exception that for DTH, DBS, and digital
audio services given by the reciprocity does not automatically on a third country, unless a third country has
given the same benefits.
Mexico: Mexico maintains a 49% limit on foreign direct investment in telecommunications networks and
services .Telmex has absolute dominance what make other foreign companies compete difficult.
New Zealand: 49.5% limit on foreign investment in the telecommunications industry.
3. Estimating intensity index of services barriers
Freedom index of trade in services is relatively simple, practical and able to calculate trade policy
indirectly; ad valorem equivalents is more precise and convincing, but the heterogeneity of services
requires a higher standard data, which need a large number of survey. In considering the availability of data,
this paper expand the freedom index to intensity index of services barriers, that is , first sorting out national
policy on service trade, and then base on the research of Kimura et.al (2003), possible restrictions are
classified into restriction categories with weights. The weights are determined, based on the importance of
the category in terms of how significantly the restriction of the category would limit service suppliers from
entering or operating in the market, and the sum of weights for all categories is 1. Second, a score with a
range from 0 (least restrictive) to 1 (most restrictive) is assigned for each category, according to the degree
of restrictiveness, so that the score reflects the type of restriction imposed by a country. Third, the estimated
score for each category is obtained by multiplying the selected score by a weight that is assigned to each
category. The intensity index of services barriers is calculated by summing up the estimated scores.
Table 1 shows the restriction categories, weights for them, and scoring for each category, which was
developed by Kimura et.al (2003). In order to estimate the index, lower weights are assigned for some
restriction categories that apply to both domestic and foreign services suppliers. In the paper of Kimura
et.al (2003), the restriction categories were classified into restriction on commercial presence, restrictions
on cross-border trade and other restrictions. This paper classify the restriction into restriction on market
access, restrictions on ownership and control, restriction on operating, restriction on movement of natural
persons. ―Whether same laws and regulations applicable to foreign / domestic business‖ added to restriction
on operating in order to measure the discriminatory policy, the weight is assigned to 0.05. ―Whether the
domestic market structure is monopoly‖ with weight 0.05 is added. The categories for restrictions ―raising
funds by foreign banks‖ and ―lending funds by foreign banks‖ are into ―raising funds‖, and the weight
decrease from 0.2 to 0.1. We add the category ―restriction on movement of natural persons‖, the weight is
assigned to 0.03. Table 2 shows the intensity index of services barriers.
Table 1
weight
scoring
category
Restrictions on market access
0.10
Licensing of specific services
1.0
No new license is allowed.
0.75
Licenses are issued through complicated and costly procedure.
0.50
Licenses are generally issued with application fee are several requirements.
0.25
Licenses are generally issued with application fee.
0.00
Licenses are automatically issued upon application without any cost.
0.10
Form of commercial presence
1.00
Measures which restrict or require a specific type of establishment.
0.00
No restriction on establishment.
0.20
Direct investment: equity participation permitted
The score is inversely proportional to the maximum equity participation permitted in an
existing domestic company.
Restrictions on ownership and control
0.10
Joint venture arrangements
1.00
Issues no new licenses and no entry is allowed through a joint venture with a domestic
company.
0.5
Company entry is only through a joint venture with a domestic company.
0.00
No requirement for a company to enter through a joint venture with a domestic
company.
0.02
Composition of the board of directors
The score is inversely proportional to the percentage of the board that can comprise
foreigners.
0.05
Applicable laws and regulations
1.00
Different laws and regulations are faces with foreign service providers and domestic
enterprises.
0.00
Same laws and regulations are faces with foreign service providers and domestic
enterprises.
Restrictions on operating
0.10
Restrictions on certain types of services
1.00
Restrictions on providing some types of services.
0.00
No restrictions on providing any type of services.
0.10
Other business
1.00
Companies can only provide the main services.
0.50
Companies can provide main services plus other related services after approval.
0.00
Companies have no restrictions on conducting other lines of business.
0.10
Raising funds by foreign companies
1.00
Companies are not permitted to raise funds in the domestic market.
0.75
Companies are restricted from raising funds from domestic capital market.
0.50
Companies are restricted from raising funds from the public.
0.00
Companies can raise funds from any source with only prudential requirements.
0.05
Expanding the number of branches
1.00
No new branches permitted.
0.50
Expansion is subject to prudential regulatory approval.
0.00
No restrictions on expanding operators.
0.05
Domestic market structure
1.00
Monopoly
0.00
Competition of multiple suppliers.
0.03
Table 2
Restrictions on movement of people
1.00
No entry of executives, senior managers and/or specialists.
0.75
Temporary entry of executives, senior managers and/or specialists up to 90 days.
0.50
Executives, senior managers and/or specialists can stay up to 1 year.
0.25
Executives, senior managers and/or specialists can stay 1-5 year.
0.00
Executives, senior managers and/or specialists can stay more than 5 years.
The intensity index of services barriers
Economy
Transport
Financial
Telecommunication
Hong Kong
0
0
0
France
0
0.05
0.05
Germany
0
0.115
0.05
Sweden
0.1
0.20
0.05
Luxembourg
0
0
0.05
Belgium
0
0
0
Hungary
0
0
0.05
Denmark
0
0
0
Austria
0
0.025
0.15
Czech Republic
0.10
0.10
0
Poland
0.102
0.075
0.05
Latvia
0
0
0
U.K
0
0.175
0
Italy
0
0.1475
0
Spain
0
0
0.025
Netherland
0
0.05
0
Russia
0.72
0.427
0.175
Serbia
0.015
0.015
0.015
Japan
0.50
0.08
0.03
Singapore
0
0.05
0
Korea
0.10
0.25
0.102
Australia
0.40
0.55
0.19
U.S.
0.313
0.325
0.10
Canada
0.05
0.53
0.1226
4. Empirical analysis the applicability of the Gravity Model in services data
A. Model
The concept of the gravity model relates the force of attraction between two objects to their combined
mass and the distance between them. The gravity model predicts bilateral trade flows between any two
countries as a function of their size and the distance between them. Economic size is measured as gross
domestic product (GDP), population or per capita income. Distance is typically measured as the distance
between the countries’ capital cities.
The gravity model estimated in this article is (1), in which all continuous variables are expressed in
logarithms. The dependent variable Mijt is imports of services from country i into country j at time t.
lnMijt=αij+β1ln(PGDPit)+β2ln(PGDPPARTjt)+β3ln(POPit)+β4ln(POPjt)+β5ln(Distanceij)+β6Adiancecyij
+β7Lauguageij+β8EU+µijt
……………… (1)
The primary source of service trade data used in this analysis is Statistics on International Trade in
Services assembled by the OECD (http://stats.oecd.org/wbos/index.aspx ). This covers imports and exports
of services between 36 countries and up to 276 partner countries over the period 1999—2007. But many
countries fail to report trade with some, or even all in some cases. After missing data removed, we choose
the data of total service of 26 sample countries / regions: Australia, Austria, Belgium, Canada, Czech
Republic, Denmark, Finland, France, Greece, Ireland, Italy, Japan, Korea, Luxembourg, Netherlands,
Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, United Kingdom, the United States, Hong
Kong, Russia, Germany; and 33 trading countries / regions: Canada, Mexico, the United States, Australia,
Japan, Korea, New Zealand, Austria, Belgium, Denmark, France, Germany , Greece, Ireland, Italy,
Luxembourg, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey, United
Kingdom, Egypt, China, China Taiwan, Hong Kong, India, Indonesia, Singapore and Thailand. The sample
periods are 2002 and 2006 of cross-sectional data.
Five continuous variables and three dummies are included in explanatory variables. GDP, GDP per capita
and population are used as measures of the size of a country and all three cannot be included
simultaneously due to multicollinearity. In this article, the latter two are included. As countries tend to
consume more service commodities as they become richer, GDP per capita is of more relevance than GDP
itself. Data on GDP per capita (in US dollars) and population are from the World Development Indicators
database (www.worldbank.org ). The coefficients on GDP per capita are expected to be positive. The
coefficients of the population in the trade partner countries may be expected to take either a negative or
positive sign. Population size may have a negative effect on exports if counties export less as they become
larger or a positive effect if they export more as they achieve economies of scale.
Distance between the importer and exporter is expected to have a negative impact on trade, for longer
distance means higher transport cost. The source of the data is www.indo.com . The three dummy variables
indicate whether the importing country and exporting country are adjacent, share a common language and
whether both are members of the EU. All three are expected to be positively related to the level of trade.
B. Results
years
2002
2002
2006
2006
coefficients
variables
αij
ln(PGDPit)
ln(PGDPPARTjt)
ln(POPit)
ln(POPjt)
ln(Distanceij)
-51.54***
-49.66***
-44.48***
-42.89***
(1.76)
(1.75)
(1.50)
(1.62)
3.12***
2.96***
2.64***
2.50***
(0.13)
(0.13)
(0.11)
(0.11)
1.50***
1.48***
1.41***
1.38***
(0.07)
(0.07)
(0.06)
(0.08)
0.99***
0.98***
0.88***
0.86***
(0.03)
(0.03)
(0.03)
(0.03)
0.76***
0.75***
0.74***
0.73***
(0.04)
(0.03)
(0.03)
(0.04)
-0.84***
-0.84***
-0.86***
-0.83***
(0.04)
(0.05)
(0.03)
(0.05)
Adiancecyij
Lauguageij
EU
-0.125
0.037
(0.19)
(0.14)
0.91***
0.77***
(0.14)
(0.12)
0.02
0.13
(0.12)
(0.12)
R2
Adj R2
0.75
0.76
0.77
0.78
0.75
0.76
0.77
0.78
Se
F
p value
1.113
1.094
0.943
0.915
407.6
275.02
466.42
315.95
0.0000
0.0000
0.0000
0.0000
Notes: standard errors in brackets.
* significant at 10 percent; ** significant at 5 percent; *** significant at 1 percent.
The results from the application of standard gravity model approach to services are similar to the
found in studies of trade in goods. The explanatory variables that are consistently the most influential are
the GDP per capita of the importer and exporter and the presence of a common language. Distance is the
variable that has a significant negative influence on trade.GDP per capita rather than the population of the
country determines the importer’s demand for service commodities. A shared language will increase trade
between two countries. Being members of the EU and adjacency have no significant influence on trade
flows. This may reflect the fact that service trade is not fully liberalized within the EU and borders have
little or no relevance for the movement of service commodities. Overall, the standard gravity framework
explains trade in services well.
5. Empirical analysis the impact of barriers to services trade on Chinese services export
A. Model
The gravity model estimated in this article is (2), in which all continuous variables are expressed in
logarithms. The dependent variable EXijt is exports of services from China into country j at time t.
lnEXjt=αij+β1ln(PGDPCNt)+β2ln(PGDPIMjt)+β3ln(POPCNt)+β4ln(POPIMjt)+β5BARRIERj+µijt
……………… (2)
Consistent with earlier, as countries tend to consume more service commodities as they become richer,
GDP per capita and population are used as measures of the size of a country. Data on GDP per capita (in
US dollars) and population are from the World Development Indicators database (www.worldbank.org ).
The coefficients on GDP per capita are expected to be positive. The coefficients of the population in the
trade partner countries may be expected to take either a negative or positive sign. The primary source of
service trade data used in this analysis is United Nations Service Database Services assembled by the UN
(http://unstats.un.org/unsd/ServiceTrade/ ). This covers imports and exports of service sectors between 197
countries and up to 258 partner countries over the period 2000—2007. But many countries fail to report
trade with some, or even all in some cases. After missing data removed, we choose the data of export of
China transport, financial and telecommunication service in period of 2000-2007. The sample regions of
import transport services are Hong Kong, France, Germany, Japan, Serbia, Singapore, Sweden, Belgium,
Hungary, Russia, Czech Republic, Italy, Korea, Australia, the Netherlands, Britain, Spain, Austria,
Denmark, and Latvia. The sample regions of import financial services are Hong Kong, France, Germany,
Japan, Singapore, Sweden, Luxembourg, Belgium, Hungary, Serbia and Russia. The sample regions of
import communication services are Hong Kong, Australia, France, Germany, Italy, Japan, South Korea,
Sweden, Serbia and Russia. A few of data missing, we give the data with the average of previous year and
next year. The coefficient on barrier is expected to be negative, for the existing restrictions will reduce the
trade flow of services. The distance variable is constant over the period, and it is pointless in panel data.
Therefore distance is not included.
Using panel data techniques captures the relationships between variables over the period of the sample
and can control for the possibility that the unobserved effects may be correlated with the regressions. The
two most commonly employed panel models are the fixed effects model and the random effects model. In
the fixed effects model, the intercept terms are allowed to vary over the individual units but are held
constant over time. The random effects model assumes that the intercepts of individual units are randomly
distributed and independent of the explanatory variables. Fixed effects model and random effects model
chosen primarily on the basis of the correlation among individuals (cross-sectional units) and the
correlation between the stochastic component and the regressors. If this is the case that the unobserved
effects are correlated with regressors, the random effects model estimates will be biased. And if there are no
correlation between the unobserved effects and regressors, the random effects model is appropriate. In
practice, when the cross-sections N large and time periods T relatively little, the individual is not
considered as randomly samples from the total and fixed effects model is appropriate. When the individual
is considered as a sample from the overall and individual error components cannot be observed, random
effects model estimates will be appropriate. In this article the minimum cross-sections N is 12, time periods
T is 8. The principle of selecting data is integrity, and most of the sample regions are EU member states, so
we can consider the individual units are samples from the overall, the random effects model is appropriate.
Through the Hausman test to determine the fixed effects or random effects model is more extensive, the
tests were as follows in table 3.
Table 3 Correlated Random Effects – Hausman Test
Cross-section random
Transport
Financial
Telecommunication
Chi-Sq.Statistic
11.41
8.19
1.61
Chi-Sq. d.f.
4
4
4
Prob.
0.022
0.085
0.807
Notes: according to the Eviews’ reports.
Test results show that at the 5% significance level, transport regression reject the random effects model
assumptions, and the financial, telecommunications regessions do not reject random effects assumptions.
The main reason of the rejection may be the inconsistency of data, which including China's large trading
partner in transport, while the data of finance, telecommunications does not include these partners (e.g. US).
Selecting from the economic significance, random effects model will be appropriate.
B The regression reports
This paper employs the random effects model and the estimation method is EGLS, which make some
adjust on the heteroscedasticity arising from outliers. Regression results are in table 4.
Table 4 The regression reports
Service
transport
financial
telecommunication
-8.69
-112.17***
-98.44***
(17.11)
(14.20)
(35.29)
0.65**
0.42**
0.36
(0.31)
(0.17)
(0.40)
1.79**
5.38***
3.85***
(0.72)
(0.39)
(1.45)
1.18***
0.93
1.94***
(0.15)
(0.59)
(0.47)
-0.39
-4.58
8.51
(0.97)
(4.47)
(7.58)
0.65
0.41
0.35
0.64
0.37
0.31
Se
0.576
0.91
0.85
F
54.42
12.99
8.90
P value
0.0000
0.0000
0.0000
DW statistic
0.65
0.66
1.69
variables
LOG(POPCN)
LOG(POPIM)
LOG(PGDPCN)
LOG(PGDPIM)
BARRIER
2
R
Adj R
2
Notes: standard errors in brackets.
* significant at 10 percent; ** significant at 5 percent; *** significant at 1 percent.
Table 4 shows the adjust R2 are between 0.31 and 0.64, F value and P-value of F are reasonable. Most
coefficients of explanatory variables are significant and the models are reasonable. Since lack of
multi-country data in 2000, the data accuracy is not high. The model omits other variables such as prices of
services, quality, consumer preferences and other important factors that affecting the export. There is a
certain gap between the actual and the simple measurement of services barriers. The data period this paper
chosen is 2000-2007 8 years, which only have small changes in services trade policy, and small country
sample also led to a relatively limited regression.
The effects of four variables population and GDP per capita on flow of trade in services are consistent.
The effects of variable services trade barriers on the transport, financial and telecommunication services are
different.
Exports of transport, financial and telecommunication services were positively influenced by
population and GDP per capita in the importing country. For transport and financial services, population
was found to be significant; and for telecommunication services, population was fond to be insignificant.
The positive coefficient on population of the importing country implies that larger countries produce more
consumers and so import higher values of services. Telecommunication industry needs huge initial fixed
investment and the exports changed little in short period. For transport and telecommunication services,
GDP per capita was found to be significant and for financial service, GDP per capita was found to be
insignificant. The positive coefficient on GDP per capita of the importing country implies that richer
countries demand more services and so import higher values of services. Richer regions demand for high
quality financial services, but China's international competitiveness of financial services is not strong.
Therefore the increase of China’s export of financial is insignificant.
Exports of transport, financial and telecommunication services were negatively influenced by population
and positively influenced by GDP per capita in China. Population was found to be significant for financial
and telecommunication services and insignificant for transport services. GDP per capita was found to be
significant for three kinds of services. The negative coefficient on China’s population suggests that the
demand of domestic market expand fast and decrease the services export. China's service trade has deficit
and the scale is growing, and the service providers would focus on meeting domestic demand. The growths
of GDP per capita in China increase the productivity and improve service quality, what have influence on
the services export.
The coefficients of variables service barriers on China’s transport, finance, telecommunications service
export were found to be insignificant. The barrier to telecommunication service is found to be positively
related to the level of exports, which was incompatible with the expected. The main reasons are as
following: (1) China's services trade have weak international competitiveness. This paper selected three
types of service export, transport, financial, telecommunications service, which were at the disadvantage
and the industries yet met the condition that the importing countries imposed. Some calculations show that
China services industry does not have the comparative advantage, and the trade competitiveness index in
2000-2006 has been less than zero, which average was -0.07. The average trade competitiveness index of
transport services was -0.37. The restrictions of services barriers, such as the foreign ownership of Air New
Zealand limited at 49%, which is unable to get for China's aviation business. (2) The setting of service trade
barriers is invisibility and some discriminatory measurements were caused by the non-transparent
conditions of approval. In this paper, we do not take into account the effect of the same barrier may vary
across sectors or countries and the indexes are based on the foreign barrier report (US, China) rather than
information on actual policies. The arbitrary approvals of business people visa increase the difficult of
measurement.
C. Robustness of the Results
Overall, the results are quite robust to the standard gravity equation. The importance of the quality of
services data is emphasized by the results of the regression incorporating services barriers which finds that
such barriers to be insignificant for the three service sectors. Rather than contradicting the established view
that barriers to services trade are important, this highlights the problem of collecting accurate data on
services barriers. Data on sub-sector services trade flows have only recently become available but they are
still limited. And there are a lot of omissions on the exports of a large number of countries. Barriers to
services trade are wide-ranging and reflect the heterogeneous nature of services products. The progress
needs to be made in measurement of services barriers to calculate the economic impact.
6. Conclusion
The article employs a gravity model approach to analyse the impact of services barriers to China’s
export on transport, financial and telecommunication service. Using an UN service database proving
China’s exports three subsectors (transport, financial and telecommunication service) panel data estimators
are applied. Based on the analysis of the composition and causes of barriers to services trade, the paper
classify the services barriers into restrictions on market access, restrictions on the ownership and control,
restrictions on operate and restrictions on movement of people and 12 sub-articles are included. And then
we expand intensity index of services barriers to measure the trade political restrictions, in order to
calculate the impact of the barriers to exports flows. Possible restrictions are classified into restriction four
categories with weights, which based on the importance of how significantly the restriction would limit
service suppliers. The sum of weights for all categories is 1. Then a score with a range from 0(least
restrictive) to 1(most restrictive) is assigned for each category, a restrictiveness index is calculated by
summing up the multiplying the selected score by the weight. The measurement results show that the
intensity indexes on transportation, finance and telecommunication service of Hong Kong, Singapore, EU
member states are low, while the intensity indexes of Japan, Russia, Australia and other countries are
higher.
The results from the application of the standard gravity model approach to services are similar to those
found in studies of trade in goods. The explanatory variables that are consistently the most influential are
the GDP per capita of the importer and exporter and the presence of a common language. Unlike trade in
goods, adjacency and membership of the EU are not found to increase services trade. The results also
indicates that distance is a significant determinant of services trade flow, for most trade in services is still
travel, transport and other traditional services, which need cross border movement of people. The standard
gravity framework explains trade in services well.
This paper employ gravity model to test the impact on the trade flow using the panel data of export of
China transport, financial and telecommunication service in period of 2000-2007. The results show that
exports of transport, financial and telecommunication services were positively influenced by population
and GDP per capita in the importing country, while negatively influenced by population in China and
positively influenced by GDP per capita in China. The positive coefficient on GDP per capita and
population of the importing country implies that richer countries demand more services and so import
higher values of services. The negative coefficient on China’s population suggests that the demand of
domestic market expand fast and decrease the services export. The coefficients of variables service barriers
on China’s transport, finance, telecommunications service export were found to be insignificant. Service
trade barriers may have insignificant influence on the services trade flows while weak international
competitiveness of services may lead to huge deficit. This highlights the problem of assembling accurate
data on trade in service and barriers to this trade. The issue of data quality has important implications. With
the share of services in world trade increasing, it becomes more important to estimate the impact of
changes in restrictions on trade flows.
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