Strategies for the Development of the Services Sector to Engage in the Liberalized International Economy Martine Julsain

1. 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

2. 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

3. 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).

4. 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)

5. 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

6. 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 in-house, 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

7. 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

8. 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

9. 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.

10. 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

11. 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

12. Preconditions to Successful Liberalization of Trade in Services • For services trade liberalization to generate pro-development 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”

13. Preconditions to Successful Liberalization of Trade in Services Proactive role for Government, following multi- stakeholder 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

14. 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)

15. 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

16. 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

17. 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.

18. Overview of Selected Activities JITAP • Support for multi-stakeholder, national inter-institutional 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

19. 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

20. 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-and-mutually supportive approach for the SADC region in regional, inter-regional 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

21. 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

22. 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, mutually-supportive balance of regional and multilateral services trade liberalization • Strategy: “the are of planning the best way to achieve something”

23. Thank you for your attention! Martine.Kidane@unctad.org