___________________________________________________________________________

2011/SOM3/CTI/014a Agenda Item: 5.5

PECC/ADBI Presentation

Purpose: Information Submitted by: PECC

Third Committee on Trade and Investment Meeting

San Francisco, United States22-23 September 2011

1

PECC/ADBI P t ti tPECC/ADBI Presentation to APEC CTI

San Francisco 21 September 2011San Francisco, 21 September 2011

Gloria Pasadilla & Jane Drake-Brockman

PECC-ADBIConference on Services

• On June 1-3, PECC and the ADBI held a Conference “Services Trade: Approaches for the 21st Century” atServices Trade: Approaches for the 21st Century at the Chinese University of Hong Kong.

• Experts from the WTO, OECD, World Bank, ADBI, UNESCAP, ICTSD, ASEAN and APEC Secretariats as well as from the local and regional business community, including the APEC Business Advisory Council (ABAC)including the APEC Business Advisory Council (ABAC) and the Global Services Coalition.

2

Connection of services work with APEC’s programs?

• A lot to do with Economic Committee’s work on regulatory reformsregulatory reforms

• A lot to do with the work of GOS and, of course, of CTI

• Regulatory reforms have trade dimension

Productivity gains from services regulatory reforms potentially exceed those in goods

– Regulatory reforms, especially in the services sector, have huge impact on growth

Labor Productivity’s Contribution to GDP Growth Labor Productivity’s Contribution to GDP Growth by the Service Sectors (OECD, 2000~2006)by the Service Sectors (OECD, 2000~2006)

Labor Productivity’s Contribution to GDP Growth Labor Productivity’s Contribution to GDP Growth by the Service Sectors (OECD, 2000~2006)by the Service Sectors (OECD, 2000~2006)

3

The win-win of services trade reform

• Trade barriers can have both rent-creating and cost-creating effects. Rent-creating effects arise from limiting market entry. O h ki d f b i i i h i i (Other kinds of barriers are cost-creating in their impact (egregulatory compliance costs.)

• Removal of barriers which are cost escalating generate relatively larger welfare gains and benefit domestic producers as well as foreigners.

• In goods trade, the barriers tend to be rent creating. In services trade, many more barriers are cost escalating.

• Explains why a number of empirical studies confirm that the primary feature of services trade liberalisation is a rise in the level of domestic productivity.

Services also have large contribution to growth

The service industry (including construction) creates the largest no. of new jobs when 1 bil. Korean won of new investment is injected to the industry.

The service industry (including construction) creates the largest no. of new jobs when 1 bil. Korean won of new investment is injected to the industry.

Category 2000 2003 2005 2006 2007

Manufacturing industry 8.8 8.6 7.2 6.9 6.6

Electricity, gas, water services

4.7 3.9 3.2 3.1 3.1

Construction industry 14.6 16.3 14.8 15.2 14.8

jobs when 1 bil. Korean won of new investment is injected to the industry. jobs when 1 bil. Korean won of new investment is injected to the industry.

Service industry 13.7 13.7 12.6 12.6 12.6

4

Trade dimension of regulatory reform in services

• APEC’s regulatory reform program as applied to service sectors has a strong effect on trade in services.

Cross-border

19%

21%

23%

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6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

18,000.00 Cross border services export as a share to goods export has increased although it may still appear to be small. BUT majority of

15%

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-

2,000.00

4,000.00

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Goods Services Share of Services to Goods Exports

Source:  World Bank, World Development Indicators  

services trade really take place via commercial presence and less via cross-border trade

Behind the border measures in trade are mostly regulatory issues

• Because most services trade take place via mode 3 service supply or via commercial presence, most of the constraints to pp y p ,services trade are behind the border measures, thus the importance of regulatory reforms agenda not only for services efficiency but also for services trade.

• In services, regulatory reforms have direct effect on markets and trade, on access and entry of new service providers ( h th d ti f i ) th i ti d(whether domestic or foreign), on their operations, and ultimately, on the service sector growth and performance overall, as well as on manufacturing sectors that rely heavily on services. Work on ‘embodied’ services in goods exports.

5

Greater coordination of APEC programs across committees and subgroups to

create synergy

• In sum, regulatory reform agenda is also a trade agenda

• Hard to disentangle one from the other, especially in the case of services sector.

• Propose joint conferences/ workshops with other APEC groups e.g. GOS/CTI/EC that also try to work on regulatory issues. PECC and ADB Institute are willing partners in this process.

UR Commitments, Doha Offers and Actual Policies

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STRI for 61 countries, excluding Qatar and 31 countries that did not submit offersSource: Borchert,Gootiiz, Mattoo 2010

6

Services as a driver for growth

Source: World Bank (2009), The Service Revolution in South Asia, Figure 1.3‐4, p. 41   

Share of Services Employment in Total Employment

(averaged over 1990-2000 and 2001-2009)

Source: World Development Indicators, from Atje and Mugiyani (2011)

7

High service shares of employment are associated with high female participation rates

Slide 13

Higher growth in services output is associated with larger falls in poverty

Slide 14

8

미 의 지출비 의 에 미치 영 의 수미 의 지출비 의 에 미치 영 의 수

전체 R&D 지출 중 서비스산업이 차지하는 비중은 7%에 불과

Sources of Innovation?

미국의 R&D 지출비중의 20%에도 못미치고, 영국의 30% 수준 서비스산업 R&D 지출의 90% 이상이 통신 및 IT 관련 서비스업종에 집중 미국의 R&D 지출비중의 20%에도 못미치고, 영국의 30% 수준 서비스산업 R&D 지출의 90% 이상이 통신 및 IT 관련 서비스업종에 집중

제조업제조업 및및 서비스산업서비스산업 BERD BERD 비율비율 (‘08)(‘08)제조업제조업 및및 서비스산업서비스산업 BERD BERD 비율비율 (‘08)(‘08)

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Services in Production and Trade

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Source: Francois and Manchin (2011)

9

The share of Services exports to GDP is growing

7Services Exports: A Comparison across Income Groups

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Regional supply chains

• The application of enabling services such as telecommunications and IT has driven segmentation of goods supply chains into production units which can be dispersed geographically, and yet be connected

• The same thing is happening in services; for knowledge intensive services• The same thing is happening in services; for knowledge-intensive services industries where value can be “captured” and “stored” so that production can be separated from consumption and scaled up, the growth of cross-border digital trade is enabling development of services supply chains

• Any activity or cluster of activities (business functions) in the value chain can become a core competence, or be outsourced – most can also can be offshored, leading to new competitive opportunities for specialization

• The objective is to move up the value–added ladder and to engage in the highest value-adding “tasks”, namely design, R&D, innovation and t d di ti l i ti k ti d b dstandardization –or logistics, marketing and brand.

• The model is known as the “Smiley Face”, the curve used by Acer Computer’s CEO Stan Shih to convince Chinese Taipei to permit Acer laptops to be manufactured in China. Mr Shih said: “Hollowing out of tangible things is not critical. Hollowing out of intangible things is really critical.”

10

“Smiley Face”: conceptual model of the shift to a high value added, globally integrated,

services economy

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AddedValue

Global Logistics Center

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Replacement

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Innovation

DesignR&D Value Creation

Standardisation

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AssemblyManufacture

(Source: Business Week International online extra, May 16, 2005, Stan Shih on CT and China)

Services Value Chain: IBM Example

Human Resources Manila, Philippines

Accounts Payable Shanghai, China

Procurement Operations Shenzhen, China

Japan

AccountingKuala Lumpur, Malaysia

Back Office ServicesDalian, China

20

Help Desk and Customer ServiceBrisbane, Australia

11

As this process takes place,“other commercial services” are becoming more

important than “travel” and “transport”201)

40%80%90%

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Transportation Travel Other commercial services

What are “other commercial services”

Composition of US service exports

Source: US BEA from Fancois 2011

12

Productivity in services depends on human capital/skills and digital infrastructure

Factors affecting Competitiveness

Factors affecting Competitiveness

• Openness of own-policies affecting trade, investment (inwards and outwards) and labour mobility in services(inwards and outwards) and labour mobility in services are important

• The domestic regulatory environment is important; transparency, simplicity, efficiency, predictability, coherence

Inescapable Conclusion: APEC governments should, in the interests of their own competitiveness, be choosing to making much more progress on services trade and investment governance and domestic regulatory reform

13

How to make progress?

This tripartite work has generated thinking around two themes;themes;

(1) a stand-alone services negotiation in the WTO, if necessary on a critical mass plurilateral basis, preferably on an mfn basis

(2) a cross-sectoral “Services Reference Paper”, setting out principles for regulatory coherence in services.

What can APEC do?

• bring regulators together with business to pretotype principles for regulatory coherence inpretotype principles for regulatory coherence in services

• irrespective of any developments in the DDA,

– incubate the idea and

– build “critical mass” of political will

for stand-alone services negotiations