Strategies for the Development of the
Services Sector to Engage in the
Liberalized International Economy
Martine Julsaint Kidane
Trade Negotiations and Commercial Diplomacy Branch,
Division on International Trade and Commodities
UNCTAD
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Outline
• Introduction
• Services and Development
• Linkages between the Agricultural, Manufacturing and
Services Sectors
• Linkages Between Regional and Multilateral Trade
Negotiations
• What is at stake?
• Challenges for DCs in Services Trade
• Preconditions to Successful Liberalization of Trade in
Services
• UNCTAD’s Experience with Assisting Countries
• Conclusions
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Introduction
UNCTAD XII Accra Accord
• Services economy is
• the new frontier for the expansion of trade, productivity &
competitiveness
• crucial for the provision of essential services & universal
access.
• but:
• the positive integration of DCs, especially LDCs, into the
global services economy & their increased participation in
services trade - particularly in modes & sectors of export
interest to them - remains a major development challenge
(Paragraph 55).
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Services and Development
Services play a central role in:
• Improving a country’s economic performance, e.g.,
• consumption of certain services creates benefits for society (e.g.
their nature as a public / merit good)
• services can have a positive impact on a country’s competitiveness
& efficiency (e.g., enhancing domestic supply capacity)
• key role in infrastructure building, competitiveness & trade
facilitation;
• increasing role in trade, employment & GDP.
• Achieving the MDGs
• improving human life, e.g., water, health & education
• key role in poverty reduction & gender equality (MDGs)
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Linkages between the Agricultural,
Manufacturing and Services Sectors
Most services play a role in the production and marketing of
goods and Ag products:
• Business services provide direct inputs into the production of
goods
• Transport, logistics, wholesale and retail trade ease the flow of
products between different stages of production and from
producers to final customers
• R&D helps improve the quality of products and processes
• Health and education services improve the quality of human
capital
• Financial services facilitate transactions within and across
international borders, channel funds from savings to investment
and allocates capital between sectors in the process
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Linkages between the Agricultural,
Manufacturing and Services Sectors
• Intermediate services are defined as services that enter
the production process and become embodied in the final
good/product
• A local services supplier base can be an important source
of competitiveness for manufacturing firms
• Lack of a well-diversified and competitive services supplier
base can force manufacturers to produce services inhouse, rendering them at a disadvantage both in terms of
product quality and costs
• Lack of access to key services inputs, infrastructure and
related transport services may constitute a poverty trap
for developing countries, locking them into an industrial
structure where they export raw materials
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Linkages between the Agricultural,
Manufacturing and Services Sectors
Spill-over Effects of Liberalized Trade in Services in Manufacturing
• There is a strong correlation between service sector reforms and the
performance of domestic firms in downstream manufacturing
sectors
• Intermediate services appear to have become more prominent in
the manufacturing process over time, as products have become
“smarter” and design has become more important
• Some generic services such as sufficiently sophisticated
telecommunications and reliable electricity are necessary in order to
use modern capital equipment, including software
• Manufacturing and services activities are complementary and
develop in tandem - sophisticated specialized business services will
not emerge unless there is demand for them from the local
manufacturing sector
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Linkages Between Regional and
Multilateral Trade Negotiations
• A study by OECD indicates that intra-regional
services trade accounts for the vast majority of
developing countries’ South-South services trade
• Services PTAs can be building blocks for multilateral
trade liberalization (Fink and Jansen, 2007)
• RTAs can strengthen developing countries’ supply
and export capacities in services
• Countries which have reviewed their laws &
regulations and performed assessments of trade in
services for RTAs will be better prepared for services
negotiations in the WTO
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What is at stake?
• Can DCs (CARICOM) countries develop the essential
services and basic infrastructure services needed for
development? Can they develop these intermediate
services domestically?
• Would (regional and/or multilateral) services trade
liberalization bring much needed state-of-the art
intermediate services to manufacturers in developing
countries?
• Trade liberalization could contribute to improving access
to efficient intermediate services (and compensate for lack
of local expertise in this area) but trade liberalization is no
panacea.
• Need for a services sector strategy which is integrated in
the broader development strategy for the economy.
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Challenges for DCs in Services Trade
• Trade & FDI flows still concentrated on ICs
• Many DCs still face supply constraints and trade
barriers
• Benefits not automatic
• After more than 10 years of GATS, no robust
relationship between liberalization & increase in
FDIs in DCs
• Many DCs, services exports are still insignificant:
• lack of supply capacity
• inadequate & weak infrastructure services
• prevalence of barriers to export
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Preconditions to Successful
Liberalization of Trade in Services
Liberalization of trade in services can contribute to development
BUT, there are certain pre-conditions:
• phased-implementation of reform
• stable domestic supply capacity
• competitive market environment
•
•
•
•
specific policies in favor of SMEs
access to capital & financing
well developed human resources
flanking policies, transparency & fair competition
• well-developed regulatory frameworks, a must
• Not “one-size-fits-all” approach for services
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Preconditions to Successful
Liberalization of Trade in Services
• For services trade liberalization to generate prodevelopment benefits
- it needs to be pre-ceded by proper policy, regulatory &
institutional frameworks
• Benefits may not be realized if conditions are not
right...
• Challenge is to design the right sequence of change
in reform policies, without losing the momentum of
reform
• Some argue that a prescription that all the right
policy institutions must be in place before
liberalization occurs will only provide excuses to “go
slow”
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Preconditions to Successful
Liberalization of Trade in Services
Proactive role for Government, following multistakeholder consultations, including with private
sector:
• Identifying their ‘natural’ advantage and developing it to
boost competitiveness
• Building and maintaining appropriate infrastructure
• Setting up appropriate regulatory frameworks, maintaining
political stability
• Becoming responsive to private sector needs
• Tapping diaspora support to build domestic industries
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Preconditions to Successful
Liberalization of Trade in Services
• Adopting a coherent strategy to raise profile of
services industries and exports:
• particular emphasis on the development of SMEs
• engaging in human resource and technology capacity
building
• improving the quality of national services
• Establishing inter-institutional/multi-stakeholder
structures:
• engaging policy makers, trade negotiators, private
sector, civil society groups (including consumers, trade
unions, cooperatives, others)
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Preconditions to Successful
Liberalization of Trade in Services
• Adopting an integrated vision of linkages across
sectors
• Sequencing between domestic and external
liberalization
• Improvement of the policy, regulatory and
institutional environment wherever required
• Utilizing South-South/regional trade as a launching
pad for global competition
• Sensitivity to market opportunities and strategy to
respond to market demands by creating and
marketing superior products and services
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UNCTAD’s Experience with Assisting Countries
• Overall objective of UNCTAD’s TC is to assist DCs to integrate
into the global economy
• It aims at enhancing their endogenous capacity to face
challenges and reap opportunities to be derived from that
integration, and to set and implement their own development
strategies
• The effectiveness of TC depends on national inputs, particularly
the level of ownership and local capacity developed by each
operation, and on the symbiosis between national development
strategies and development-friendly global mechanisms
• UNCTAD’s TC will particularly emphasize the development of
human, institutional, productive and export capacities of all
beneficiary countries
• Activities will be supportive of poverty reduction policies and the
implementation of the international development goals,
including those contained in the Millennium Declaration, and the
relevant recommendations of global conferences
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Accra Accord
States specifically in paragraphs 80 and 81:
• The increasing integration of DCs into the global services
economy will be facilitated by progressively lowering domestic
and foreign trade barriers in the Doha round and regional trade
agreements. Sound national, regional and international policies,
strategies, regulations and institutions in the area of services
are necessary to foster an enabling environment for building a
competitive services supply and tackling poverty and
infrastructure and human capital deficits…
• DCs, in accordance with their national development priorities
and capabilities, should devise national and regional strategies,
as well as complementary policies, and build regulatory
frameworks and institutions, to develop competitive service
sectors. The development implications of ensuring universal
access to essential services merit particular attention.
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Overview of Selected Activities
JITAP
• Support for multi-stakeholder, national interinstitutional committees on WTO issues
• Substantive and financial support for specialized
national thematic workshops and supporting technical
missions in relation the Doha negotiations
• Support for setting up reference centres and national
enquiry points for the MTS
• Workshops of the inter-institutional committees on
the Doha negotiations
• Product and services sector strategies
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Overview of Selected Past Activities
National Services Policy Reviews:
• Objective is to raise the awareness of national stakeholders of
the opportunities to secure development gains from
development of the services sector and services trade
• Activities stress that integration of DCs into the global services
economy requires the design and implementation of appropriate
policies and regulatory frameworks, negotiation and
management of services trade agreements, establishment of
institutional structures, creation of an enabling environment for
entrepreneurship, and building competitive services supply
capacities
• Activities include group training; the provision of specific
technical advice on legal, economic and policy issues; support
for stakeholder consultations; and the conduct of national
services assessments
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Overview of Selected Activities
Regional integration (SADC)
• Objective is to provide TC in institution- and capacity-building to the
SADC Secretariat, SADC negotiating machinery and SADC MS in
initiating and conducting negotiations on trade in services with a view
to supporting regional integration as well as building a coherent-andmutually supportive approach for the SADC region in regional, interregional and multilateral trade negotiations
Activities included:
• Training for Secretariat and SADC MS on issues related to services,
including through the organization of national and regional workshops
• Support to the SADC negotiating machinery (TNF), incl. through the
preparation of working materials, studies and advisory memoranda
• Support for enhanced cooperation and exchange of information
between SADC Geneva-based and capital-based officials
• Assessment studies
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Overview of Selected Activities
Regional integration (SADC) (ctnd):
• Specific, country- and sector-focused services assessments
• Examine policy and regulatory frameworks and the (potential)
impact of trade liberalization
• Provide beneficiary countries with data and information which
contribute to informed policy choices about accelerating national
services development and the liberalization and regulation of
service sectors at the national, regional and international level
• Collaboration with national consultants contributes to build
capacity at the country level
• Regional study based on inputs from national studies
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Conclusions
• The importance of the services sector is multiple: economic
activities in their own right, inputs to other sectors, contribution
to poverty alleviation (essential services)
• Support is needed in building analytical, regulatory and
institutional capacities of DCs at the regional level, including by
strengthening regional secretariats, and improving countries’
gathering of trade data and related information regarding
services
• Additional research is warranted on the experience of
developing countries in configuring an optimal, mutuallysupportive balance of regional and multilateral services trade
liberalization
• Strategy: “the are of planning the best way to achieve
something”
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Thank you for your attention!
Martine.Kidane@unctad.org
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