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New Database Reveals Pattern of Services Trade Restrictions

July 9, 2012—Some of the fastest-growing countries in Asia and the oil-rich Gulf states have the most restrictive policies in the services trade, while some of the poorest countries in the world, such as Rwanda and Senegal, are remarkably open in the area, according to a new database detailing trade restrictions on global services.

Across sectors, transportation and professional services, such as accounting and law, are among the most protected in developed and developing countries alike, according to the Services Trade Restrictions Database. Meanwhile, retail, telecommunications and finance, such as banking and insurance, tend to be more open.

The restrictions affect the flow of investments and access to services, according to an analysis of the database by World Bank economists. In particular, limits on foreign acquisitions, discrimination in licensing, restrictions on the repatriation of earnings, and lack of legal recourse significantly hurt foreign investment. Compared with "open" policy regimes, they collectively reduced the expected value of foreign investment in a typical services sector by $2.2 billion in the period 2003-2009.

In addition, restrictive bilateral agreements in air transport limit access to services: the number of flights is up to one-fifth lower to countries with more restrictive policies, which include many landlocked countries.

Policy transparency can spur reform, and there are big gains from services reform, said Aaditya Mattoo, a co-author of the analysis and manager of trade research at the World Bank’s Development Research Group.

The Services Trade Restrictions Database offers data on services-trade policies in 103 countries, including 79 developing countries. It focuses on five sectors (financial, telecommunications, retail, transportation and professional services) and three modes of delivery (cross-border, commercial presence, people moving).

The database comes as policy makers, researchers and trade negotiators still grapple with the lack of information about an area that has become increasingly important. More than 50 percent of GDP in most countries — 80 percent in the U.S. and EU — originates from services. The U.S. and EU account for more than 60 percent of world services exports, but in the last decade, the service exports of India, China and Brazil grew by more than 15 percent a year.

As countries focus more on how to boost productivity, services-policy reform is seen as a priority from Europe to South East Asia, but with surprisingly little empirical evidence on how such reform is best designed. Countries also have been negotiating to cut down on policy barriers but with only limited knowledge of what these barriers actually are.

As they stand today, the Doha round of global trade talks don’t promise any further liberalization of services-trade policy. Moreover, two of the currently most protected areas — transportation and the movement of individual professionals — are either not being negotiated at all, or not with any degree of seriousness, Mattoo said.

More attention should be paid to successful transformations such as India’s, he said. The country’s still-incomplete policy reforms in banking, telecommunications, insurance and transport services all had significant, positive effects on the productivity of manufacturing firms. A one-standard-deviation increase in the aggregate index of services liberalization resulted in a 12 percent productivity increase for domestic firms.


STRI figures

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