Unleashing the Next Engine of Growth: An Agenda for Services...
Transcript of Unleashing the Next Engine of Growth: An Agenda for Services...
Aaditya Mattoo
March 7, 2016
Unleashing the Next Engine of Growth: An Agenda for Services Trade beyond
Doha and the TPP
http://econ.worldbank.org/policyresearchtalks
Services are different from goods but also from each otherBANKING TRANSPORTATION
COMMUNICATIONTOURISM
• Services transactions often require face-to-face contact. • There is a risk of market failure, especially because consumers are not well-informed about suppliers
Either producers must to move to consumers or vice versa…
PERSONAL SERVICESMEDICAL SERVICES
CONSTRUCTION SERVICES RETAIL SERVICES
…and regulation is often needed to protect consumers
Of course, services markets are changingDIGITIAL COMMUNICATION
RIDE SHARINGMOBILE BANKING
TELEMEDICINE
• Technology is reducing, but not eliminating, the need for face-to-face service delivery• “Over-regulation” is leading to the emergence of new services
The story ahead
• Defining characteristics of services transactions: • Face-to-face with more digital delivery
• Risk of market failure
• Influence: • How services are traded (Part I)
• How they are protected and regulated (Part II)
• Implications for:• National trade reform (Part III)
• International trade cooperation (Part IV)
Preview of findings
I. Digitization and aging are driving services trade but “divergent globalization”
II. Much unilateral liberalization, but still big barriers and big unrealized gains
III. Better regulation the basis for both success in domestic reform and exports
IV. Greater regulatory cooperation the key to successful trade negotiations
V. World Bank can help in each dimension
The importance of services for all countries…
ALB
ARG
ARM
ATG
AUSAUT
BDI
BEL
BEN
BFA
BGD
BGR
BHS
BIH
BLR
BLZ
BOL
BRA
BTN
BWA
CAF
CHE
CHL
CHN
CIV
CMR
COD
COL
COM
CPVCRI
CYP
CZE
DEU
DMA
DNK
DOM
ECUEGY
ESPEST
ETH
FIN
FJI
FRA
FSMGBR
GEOGHA
GIN
GNB
GRCGRD
HND
HRVHUN
IDN
IND
IRL
IRN
ITA
JAM
JORJPN
KEN
KGZKHM
KIR
KNA
KOR
LAO
LBNLCA
LKA
LSO
LTU
LVA
MAR
MDA
MDG MEX
MKD
MLI
MNG
MOZ
MRT
MUS
MWI
MYS
NAM
NER
NGA
NIC
NLD
NPL
PAK
PAN
PER
PHL
PLW
POL
PRT
PRY
ROU
RUS
RWA
SDN
SEN
SGP
SLE
SLV
SRB
SUR
SVK
SVN
SWE
SWZ
SYC
TCD
TGO
THA
TJKTKM
TONTUNTUR
TZAUGA
UKR
URY
UZB
VCT
VNM
VUT
ZAF
ZMB
ZWE
20
40
60
80
10
0
Sha
re o
f S
erv
ice
s in G
DP
0 10000 20000 30000 40000 50000 60000GDP/capita (Constant 2005 USD)
Line indicates the mean value
Share of Services in GDP:1995
Source: Work in progress with Aldo Pazzini Bortoluzzi drawing upon World Development Indicators
Share of services in GDP and GDP per capita, current USD, 1995
ALB
ARG
ARM
ATG
AUS AUT
BDI
BEL
BEN
BFA
BGD
BGR
BHS
BIH
BLR
BLZ
BOL
BRA
BTN
BWA
CAF
CHE
CHL
CHN
CIV
CMRCOD
COL
COM
CPV
CRI
CYP
CZE
DEUDMA
DNK
DOM
ECU
EGY
ESP
EST
ETH
FINFJI
FRA
FSM
GBR
GEO
GHA
GINGNB
GRCGRD
HND
HRVHUN
IDN
IND
IRL
IRN
ITAJAM
JOR
JPN
KEN
KGZ
KHM
KIR
KNA
KOR
LAO
LBN
LCA
LKA
LSOLTU
LVA
MAR
MDA
MDG
MEXMKD
MLI
MNG
MOZ
MRT
MUS
MWI MYS
NAM
NER
NGANIC
NLD
NPLPAK
PAN
PERPHL
PLW
POL
PRT
PRY
ROU
RUS
RWASDN
SEN
SGP
SLE
SLVSRB
SUR
SVKSVN
SWE
SWZ
SYC
TCD
TGO
THATJK
TKM
TONTUNTUR
TZA
UGA
UKR URY
UZB
VCT
VNM
VUT
ZAF
ZMBZWE
20
40
60
80
10
0
Sha
re o
f S
erv
ice
s in G
DP
0 10000 20000 30000 40000 50000 60000GDP/capita (Constant 2005 USD)
Countries in 1995 Countries in 2014 Line of fir for 1995 Line of fit for 2014
Line indicates the mean value
Share of Services in GDP:1995 and 2014
Source: Work in progress with Aldo Pazzini Bortoluzzi drawing upon World Development Indicators
Share of services in GDP and GDP per capita, current USD, 1995 and 2014
The importance of services for all countries is growing
Services matter even in the poorest countries
Source: WTO estimates on the basis of LDCs' National Accounts statistics.
Estimated breakdown of value added by main economic activity in LDCs, 2011
Defining “trade” in services: the four modes of delivery
Mode 1. Cross-border Trade
Outsourced IT and back-office services International transport
International communication
Mode 1: Services exports of some countries are growing rapidly
8.1
12.6
16.0
17.2
22.7
23.0
25.6
27.4
35.5
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0
Senegal
Mali
Mozambique
Benin
Cambodia
Zambia
Malawi
Uganda
Burkina Faso
Other commercial services Goods
9.3
10.2
11.2
11.9
13.4
14.6
15.3
15.3
17.8
18.0
22.6
0.0 5.0 10.0 15.0 20.0 25.0
Chile
Israel
Russian Federation
Argentina
India
Phillipines
Brazil
Korea, Republic of
Mauritius
China
Costa Rica
Other commercial services Goods
Commercial services exports of services, other than travel and transport, 2005-2014, annual % change
Selected Least Developed CountriesSelected Developing Countries
But for many countries, exports are small relative to internal services transactionsSource: Anderson James E., Ingo Borchert, Aaditya Mattoo, Yoto V. Yotov, (2015), "Dark Costs, Missing Data: Shedding Some Light on Services Trade," NBER Working Papers 21546
Defining “trade” in services: the four modes of delivery
Mode 2. Consumption Abroad
Tourism Education abroad Health care abroad
Mode 2: Tourism matters most for the poorest countries
AFG
ALB
AREARG
ARM
ATG
AUSAUT
AZE
BDIBEL
BENBFA
BGD
BGR
BHR
BHS
BIH
BLR
BLZ
BOLBRA
BRB
BRN
BTN
BWA
CAF
CAN CHECHLCHNCIV
CMR
CODCOG
COL
COMCPV
CRICYP
CZEDEU
DJI
DMA
DNK
DOM
DZA
ECU
EGY ESP
ESTETHFIN
FJI
FRA
FSM
GAB
GBR
GEO
GHA
GIN
GNB
GNQ
GRC
GRD
GTM
GUY HKG
HND
HRVHTI
HUNIDNINDIRLIRNIRQ
ISL
ISRITA
JAM
JOR
JPNKAZ
KEN
KGZ
KHM
KIR
KNA
KOR
KSV
KWT
LAO
LBN
LBR
LBY
LCA
LKA
LSO LTU LUXLVA
MAC
MAR
MDA
MDG
MDV
MEXMKDMLI
MMR
MNE
MNGMOZMRT
MUS
MWI
MYSNAMNER
NGA
NIC
NLD NOR
NPL
NZL
OMNPAK
PAN
PERPHL
PNG
POL
PRT
PRY QATROURUS
RWA
SAU
SDN
SEN
SGP
SLB
SLE
SLV
SRB
SSD
STP
SUR SVK
SVNSWE
SWZ
SYC
TCDTGO
THA
TJK TKM
TLSTON
TTO
TUNTURTUV
TZA
UGA
UKR
URY
USAUZB
VCT
VNM
VUTWSM
ZAFZMBZWE
020
40
60
80
10
0
Sha
re o
f T
rave
l in
tota
l go
od
s +
co
mm
erc
ial serv
ices
0 50000 100000 150000GDP/capita (Current USD)
Line indicates the mean value
2014
Share of travel in total exports of goods and services against GDP per capita, 2014
And a survey of the literature:Joseph Francois and Bernard Hoekman (2010), Services Trade and Policy, Journal of Economic Literature, 48, 642-92.
Defining “trade” in services: the four modes of delivery
Mode 3. Commercial Presence
Retail distributionBanking Telecommunication Education
In Africa, as elsewhere, most FDI is going into services
48
121
31
Services
Unspecified
Manufacturing
Primary
Inward FDI stock by sector for Africa, 2012
(Percentage of total inward FDI stock in region)
56
21
9
83
Finance
Transport, storage andcommunications
Business activities
Trade
Construction
Services FDI stock, by industry in Africa, 2012
(Percent of Africa's inward FDI stock in services)
Source: UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics).
Defining “trade” in services: the four modes of delivery
Mode 4. Movement of Natural Persons
Construction workers Doctors and nurses Performers
Services “trade” has a wide scope and potential impact
1. Cross-border
Trade
Outsourced IT and back-office services
International transport International communication
4. Movement of
Natural Persons
Construction workers Doctors and nurses Performers
2. Consumption
Abroad
TourismEducation abroad Health care abroad
3. Commercial
Presence
Retail distributionBankingTelecommunication Education
Openness to trade in services is associated with more rapid growth
Source: Aaditya Mattoo, Randeep Rathindran and Arvind Subramanian (2006), Measuring Services Trade Liberalization and its Impact on Economic Growth: An Illustration,, Journal of Economic Integration, vol. 21, 64-98.
Services trade matters
Goods trade stumbles, but services trade does not fall
100
150
200
250
300
350
400
-15
-10
-5
0
5
10
15
20
World Import Volumes of Goods and Services
Goods: Growth rates Services: Growth rates
Goods (1993=100, RHS) Services (1993=100, RHS)
Source: IMF World Economic Outlook
Services trade declined less during the crisis and has grown faster after the crisis
Source: Constantinescu, Mattoo and Ruta (2016), work in progress, building on “The global trade slowdown: cyclical or structural?,” World Bank Policy Research Working Paper 7158.
Michele Ruta
Cristina Constantinescu
Drivers of services trade 1: Demographic ChangeYoung and old have different patterns of demand, e.g. USA
0 10 20 30 40 50
other
services
manuf. goods
housing
food
Broad expenditure categories
0 5 10 15 20 25
utility
transport
social security
personal service
hotel
health
finance
recreation
education
domestic service
catering
Expenditure on services
Housing includes interest on mortgage and property tax
(USA, 2012)
Average of consumption shares. by HH types (in %)
Two Adults Two 65+
Source: Work in progress with Erhan Artuc, Zovanga Louis Kone, Maggie Liu and Caglar Ozden
Young and old have different patterns of demand especially within services: India
0 10 20 30 40
other
personal
hotel
catering
education
recreation
postal
transport
health
utility
Urban area
0 10 20 30 40
other
personal
hotel
catering
education
recreation
postal
transport
health
utility
Rural area
Hi, j, k denotes household of size i, with j children (i.e of age 0-17) and k elderies (i.e. 65+)
(India, 2011)
Average of consumption shares. by HH types (in %)
H200 H202
Source: Work in progress with Erhan Artuc, Zovanga Louis Kone, Maggie Liu and Caglar Ozden
Therefore, demographic change is influencing services trade
Shifting dependency ratios…
3035
4045
5055
60
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Japan South Korea China Malaysia Indonesia
Working Age Population Ratio: Japan, South Korea and China
vs. Malaysia and Indonesia
by affecting the demand and supply of services
China’s rebalancing and demographics are already shifting demand towards services
80
90
100
110
120
130
140
150
160
170
180
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
China: Imports of Goods and Services, bill. USD (index 2011Q1=100)
Services Imports
Goods Imports
Source: IMF Balance of Payments Statistics
10
12
14
16
18
20
22
24
20
11
Q1
20
11
Q2
20
11
Q3
20
11
Q4
20
12
Q1
20
12
Q2
20
12
Q3
20
12
Q4
20
13
Q1
20
13
Q2
20
13
Q3
20
13
Q4
20
14
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
15
Q1
20
15
Q2
China: Share of Services in Total Imports (percent)
Source: IMF Balance of Payments Statistics
Source: Constantinescu, Mattoo and Ruta (2016), work in progress, building on “The global trade slowdown: cyclical or structural?,” World Bank Policy Research Working Paper 7158.
Drivers of services trade 2: DigitizationThe international fragmentation of goods production
Driven by, and boosting demand for, information, communication and transport services
HR and payroll management
AccountingSoftware development
Product design
includes both goods parts and services tasks
In parallel, the international fragmentation of services production
Call Centre for customer service, etc. Medical transcription services
Web hosting and webmaster services
Outsourced consultations and diagnostics
is creating new opportunities for trade
Who is participating in services trade?
Comparative advantage in services is determined by the interplay between :
• Endowments, especially of skills
• Infrastructure, especially telecommunications
• Institutions, especially regulatory
Sebastian Saez
Arti Grover
Poonam Gupta
Skills matter: Evidence from Indian states
Skiil to labor ratios (%)
0
5
10
15
20
25
30
35
40
45
Wo
od
Beve
rag
es
Textil
e p
roducts
Le
ath
er
Min
era
ls
Textil
es
Basi
c m
eta
lsM
eta
l pro
duct
s
Paper
Tra
nsp
ort
part
s
Ch
em
icals
Tansport
serv
ices
Tra
de&
Hote
ls
Food
Busi
ness
& d
we
llin
gs
Bankin
g
Tele
com
Source: Amin and Mattoo (2006).
Services output and Education: averages over 1980-00
OR
AP
BH
HY KNKR
TN
UPWB
GJ
MPRJ
PJ
MH
0
1000
2000
3000
4000
5000
6000
0 0.001 0.002 0.003 0.004 0.005
Tertiary educated per cpaita
Serv
ices o
utp
ut
per
cap
ita
Skilled to total labor ratios across sectors Services output per capita against tertiary educated per capita
And the quality of institutions matter: Evidence from Indian States
Gini coefficient (%)
0
5
10
15
20
25
30
35
40
Textil
e p
roducts
Le
ath
er
Min
era
lsB
asi
c m
eta
lsT
ransp
ort
part
sM
eta
l pro
duct
s
Textil
es
Wo
od
Food
Beve
rag
es
Paper
Tele
com
Bankin
g
Ch
em
icals
Busi
ness
& d
we
llin
gs
Tansport
serv
ices
Tra
de&
Hote
ls
Source: Amin and Mattoo (2006).
T&D Loss and Services per capita: averages over 1980-00
BH
OR
TN
WB
PJ
KN
UP
MP
KR
GJ
AP
HY
RJ
MH
R2 = 0.45
0
1000
2000
3000
4000
5000
6000
10 15 20 25 30
T&D Losses (%)
Se
rvic
es
pe
r c
ap
ita
Diversity of input sources and output destinations across sectors as measure of institutional dependence
Services output per capita against a proxy for institutional weakness (T&D losses of electricity utilities)
Direct and indirect value added exports of financial services, share of GDP, 1995-2009
New value added trade data reveals evolution of comparative advantage and structural change
Source: Liu, Mattoo, Wang and Wei (2015)
IND
IDN
CHN
BGR
ROMBRA
RUS
LVA
MEXLTU POL
EST
HUN
SVK
CZE
MLT
SVNKOR
PRT
GRC
CYPESP
ITAAUSDEUFRA
JPN CAN
BEL
AUT
FIN
GBR
NLD
SWE
USA
DNK
TUR
0
.05
.1.1
5
Indir
ect V
alu
e A
dd
ed
Expo
rts/G
DP
0 .05 .1 .15
Direct Value Added Exports/GDP
Countries Turkey
Indirect and Direct Value Added shares of GDP (in constant 2005 USD) - Financial Services
Note: Does not include Ireland and Luxembourg
IND
IDN
CHNBGR
ROM
BRA
RUS
LVA
MEX LTU
POL
EST HUN
SVK
CZEMLT
SVN
KOR
PRT
GRC
CYPESP
ITA
AUS
DEU
FRA
JPN
CAN
BEL
AUTFIN
GBR
NLD
SWE
USA
DNK
IRL
LUX
TUR
0.1
.2.3
.4.5
Indir
ect V
alu
e A
dd
ed
Expo
rts/G
DP
0 .2 .4 .6
Direct Value Added Exports/GDP
Countries Turkey
Indirect and Direct Value Added shares of GDP (in constant 2005 USD) - Business Services
Direct and indirect value added exports of business services, share of GDP, 1995-2009
Skill endowments rather than skill intensity may constrain unskilled employment
The surprisingly high unskilled labor value added in services exports
Source: Joint work with Alen Mulabdic based on Cali et al (2016), "The Labor Content of Exports Database."
Labor value added (LVA) in $1000 of exports
II. What are the barriers to trade and how big are the gains from reform?
Policy barriers to services trade are heterogeneous and often opaque
1. Quotas, explicit and implicit, are pervasive
US Jones Act shuts out foreign tankers
Prohibition of foreign providers
Italy restricts non-EU players after dismal World Cup
Limits on foreign personnel
Zimbabwe to press ahead with controversial indigenisation scheme
Limits foreign firms and ownership
India raises foreign insurance stake limit to 49%
2. Explicitly discriminatory measures
Preferential procurementHow 'Buy American' Can Hurt U.S. Firms
Small Airlines Push for More Access at New York Airports
Preferential access to essential facilities
Gulf Airline Counters Subsidies Claims
Taxes and subsidies
3. Regulatory requirements can implicitly discriminate
Technical regulations
“Accounting standards are holding banks back” -FT
“Deutsche Bank avoids US capital rules” -FT
Prudential regulations
“Overqualified immigrants really are driving taxis in Canada” -PRI
Qualification and licensing requirements
The Services Trade Restrictions DatabaseWorld Bank Services Trade Restrictions Database covers 103 countries (of which 79 are developing)
Source: Borchert, Ingo, Batshur Gootiiz and Aaditya Mattoo (2014) “Policy Barriers to International Trade in Services: Evidence from a
New Database,” World Bank Economic Review, 28:162-188.
Ingo Borchert
Batshur Gootiiz
010
20
30
40
50
60
70
Serv
ices tra
de r
estr
ictiveness index
GCC SAR MENA EAP AFR LAC OECD ECA
Note: 103 countries included.
Financial Telecom Retailing
Transportation Prof.Services
STRI by sector and region
Source: Borchert, Ingo, Batshur Gootiiz and Aaditya Mattoo (2014) “Policy Barriers to International Trade in Services: Evidence from a New Database,” World Bank Economic Review, 28:162-188.
The persistence of protection
Engagement with the Bank’s India Team and India’s Trade Ministry
Deepak Mishra
SumantaChaudhuri Joint SecretaryMinistry of Trade
And India is a key player in setting the multilateral agenda
Services are central to India’s domestic reform and export agenda
Gains from reform (mode 3)
Payoffs from India’s incomplete reformNewly created index of services reform
0
0.5
1
1.5
2
2.5
3
3.5
4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Banking Insurance Telecom Transport
Newly created index of services reform
0
0.5
1
1.5
2
2.5
3
3.5
4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Banking Insurance Telecom Transport
0
5
10
15
20
25
30
35
40 Growth Rate (CAGR)
36%
20%
FDI in Services*
FDI in Non-services
India: FDI in services sector is growing faster than
in non-services . . .
(1992/93 values
are indexed to 1;
Unit: US$)
1992/9
3
1993/9
4
1994/9
5
1995/9
6
1996/9
7
1997/9
8
1998/9
9
1999/0
0
2000/0
1
2001/0
2
0
5
10
15
20
25
30
35
40 Growth Rate (CAGR)
36%
20%
FDI in Services*
FDI in Non-services
India: FDI in services sector is growing faster than
in non-services . . .
(1992/93 values
are indexed to 1;
Unit: US$)
1992/9
3
1993/9
4
1994/9
5
1995/9
6
1996/9
7
1997/9
8
1998/9
9
1999/0
0
2000/0
1
2001/0
2
Engagement with the Indian Government gave us an opportunity to build on: Arnold, Jens, Beata Javorcik and Aaditya Mattoo (2011), The Productivity Effects of Services Liberalization: Evidence from the Czech Republic,), Journal of International Economics, vol. 85(1), 136-146.
Fernandes, Ana and C. Paunov (2012). “Foreign Direct Investment in Services and Manufacturing Productivity: Evidence for Chile,” Journal of Development Economics 97 (1), 305-321.
India’s services reform boosted performance of downstream manufacturing industries
Gains in Annual TFP Growth After Services Reform
0
1
2
3
4
industries with
limited
dependence
on banking
industries with
high
dependence on
banking
industries with
limited
dependence on
telecomms
industries
with high
dependence
on telecomms
Percent Gains in Annual TFP Growth After Services Reform
0
1
2
3
4
industries with
limited
dependence
on banking
industries with
high
dependence on
banking
industries with
limited
dependence on
telecomms
industries
with high
dependence
on telecomms
Percent
40Source: Arnold, Jens, Beata Javorcik, Molly Lipscomb and Aaditya Mattoo (2014) “Services reform and manufacturing performance:
Evidence from India,” Economic Journal, vol. 126, 1–39.
Services reform as industrial policy
Modi to refresh ‘Make in India’ manufacturing driveFebruary 14, 2016
More open bilateral air service agreements could lead to more traffic on existing routes and more cities being served
Source: Cristea, Hillberry and Mattoo (2015), 2015 Open Skies over the Middle East, forthcoming in the World Economy.
Gains from reform (mode 1)
Services reform as trade facilitation
Existing flights in 2010
Counterfactual flights in 2010
Sibel Kulaksiz
Access to markets (mode 4)
The elusive license to practice
• In the US, professional licensing is generally the responsibility of state boards.
1. The verification of educational qualifications, training and
experience to establish eligibility to take the professional examination
2. The remedying of any gaps in education, training and
experience before taking (all or part of) the examination, with the
remedial steps to be taken in large part in the United States.
3. Passing the professional examination(s), held entirely or in significant part in the US
4. The fulfillment of additional requirements, such as experience or
local residency, in order to obtain a professional license
The steps involved in getting a license are:
The regulatory tax on foreign professionals in the US
Profession
Number of Indian professionals
coming to the US annually
(average for the 1995-2000
period)
Visa, examination
and licensing fees
paid per
professional
Average income
foregone per
professional due to
differential requirements
Total Income/ fees paid or lost
by Indian professionals due to
regulations (US$ in million)
(A) (B) ( C) (D)
Physicians and Surgeons 1092 $4,640 $100,000 114
Civil and Mechanical Engineers 683 $2,270 $60,000 43
Accountants 518 $5,600 $30,000 18
Architects 350 $3,030 $25,000 10
Total for all professionals 10234 614-768$60,000-$75,000
Source: Mattoo and Mishra (Working paper, 2006; published 2009) Foreign Professionals in the United States: Regulatory Impediments
to Trade, with Deepak Mishra, Journal of International Economic Law, vol. 12, 435-456.
Economics of mobility thrives on rising demand •Saikat Neogi, Updated: May 07, 2007 23:04 IST
Access to markets (mode 1)
Privacy regulation - a European Damocles sword
11%
33%
22%
11%
6%
Below 1 million
1 million - 10 million
10 million - 100 million
100 million - 500 million
500 million - 1 billion
Estimation of Opportunity Loss (in USD)
33%
67%
No
Yes
Non-fructification of deals becouse of data protection related concerns
Source: NASSCOM-DSCI Survey (2013)
NASSCOM-DSCI Survey of the Impact of EU Privacy Regulation on India’s Services Exporters
Aaditya Mattoo and Sacha Wunsch(2004), Pre-Empting
Protectionism in Services: The WTO and Outsourcing, Journal of
International Economic Law, vol. 7, 765-800.
The US could save over $1.4 billion annually even if only one in ten US patients chooses to undergo treatment abroad.
Procedure US inpatient
price ($)
US
inpatient
volume
US outpatient
price ($)
Estimated US
outpatient
volume
Foreign price
including travel
cost ($)
Savings if 10% of
US patients
undergo surgery
abroad instead of in
the US ($)
Knee surgery 10,335 399,139 4,142 60,000 1,236 380,604,366
Shoulder Arthroplasty 5,940 23,300 7,931 N/a 2,204 8,704,809
TURP 4,127 111,936 3,303 88,064 2,385 27,581,317
Tubal Ligation 5,663 78,771 3,442 621,229 1,248 171,065,574
Hernia Repair 4,753 40,553 3,450 759,447 1,608 152,655,706
Skin lesion excision 6,240 21,257 1,696 1,588,884 812 151,952,860
Adult Tonsillectomy 3,398 17,251 1,931 102,749 1,010 13,588,218
Hysterectomy 5,783 640,565 5,420 N/a 1,869 250,704,845
Haemorrhoidectomy 4,945 12,787 2,081 137,213 781 23,160,663
Rhinoplasty 5,050 7,265 3,417 N/a 1,906 2,284,315
Bunionectomy 6,046 3,139 2,392 41,507 1,487 5,186,290
Cataract extraction 3,595 2,215 2,325 1,430,785 1,133 171,078,116
Varicose vein surgery 7,065 1,957 2,373 148,043 1,393 15,618,521
Glaucoma procedures 3,882 - 2,292 75,838 1,017 9,670,440
Tympanoplasty 4,993 754 3,347 149,246 1,261 31,408,685
Total savings 1,415,264,725
Source: Mattoo and Rathindran (2006), How Health Insurance Impedes Trade in Healthcare, Health Affairs, vol. 25, 358-368.
May 21, 2006
Outsourcing Your Heart
Trade proposal would open up foreign health coverage By Adam Behsudi | 2/4/15 3:02 AM EST
Access to markets (mode 2)
How health insurance inhibits trade in health care
Collaboration between India’s Trade Ministry and the Bank
Who’s thinking of services reform?
Beata Smarzynska Javorcik and Aaditya Mattoo
Services: An Opportunity India Must Not Miss
Aaditya Mattoo and Deepak Mishra
Collaborative research led to proactive positions by India with multilateral benefits
WTO Hong Kong Ministerial DeclarationAdopted on December 18, 2005
Annex C: Services Objectives
1. …Members should be guided, to the maximum extent
possible, by the following objectives :
(a) Mode 1 and Mode 2 commitments at existing levels of
market access
(b) Mode 3 commitments on enhanced levels of foreign
equity participation and removal or substantial reduction
of economic needs tests
(c) Mode 4 new or improved commitments
7. ..request-offer negotiations should also be pursued on a
plurilateral basis…
…a small group of Members… would:
• Lock-in the currently open regimes for cross-border trade
• Eliminating barriers to foreign investment either immediately or in a phased manner
• Allow greater freedom of international movement for individual service providers
III. How is reform best implemented?
Elements of services trade policy reform
3 goals
• efficiency
• stability/reliability
• access
3 instruments
liberalization – ownership, competition
regulation
policies to improve access
3 issues• Sequential epiphany on importance• Tension between goals• Sequence of implementation
Boutheina Guermazi
Telecommunications
Charles E. Schlumberger
Air Transport
Mohammad Amin
Temporary Migration
Jens Arnold
Macroeconomics
Jose De Luna-Martinez
Finance
Samuel Munzele Maimbo
Finance
Olivier Cattaneo
Tourism Overview
Lucy Payton
Request from Zambian Trade Minister for support on trade in services
Services trade matters for the least developed countries: Zambia
And produced some clear benefits• Mobile telephony: dramatic growth since
competition and foreign entry in 1995• Tourism: investments by Sun International
have created jobs
• Insurance: improved access since liberalization in 1992
But despite openness, access to services in Zambia was limited and unequal
National air carrier liquidated and sector opened; but domestic traffic declined 5 per cent per annum.
Foreign banks dominated but credit to the private sector only 8 per cent of GDP -lower than in 1990
Only 5,000 people held 90 percent of loans.
Even by poor country standards, access to telecommunications is low.
80 percent of fixed lines in Lusaka and the Copperbelt, where only 30 percent of the population is
Source: Carsten Fink, Aaditya Mattoo and Randeep Rathindran (2003), An Assessment of Telecommunications Reform in Developing Countries, Information Economics and Policy, vol. 15, 443-466.
Where Zambia could have liberalized unconditionally, it did not
Why? Understanding the political economy of liberalization
Zamtel’s de facto monopoly in the international telecommunications gateway deprived households of access to telephones.
“When fee was reduced from $12m to $350,000, international and local call charges fell by more than 50%.” -Darlington Mwape, Zambia’s Ambassador to the WTO:
February 12, 2016 “After a bilateral open-skies deal, fares between South Africa and Zambia fell by almost 40 % and passenger numbers rose nearly as much.”
Denial of Fifth Freedom rights by Zambia and South Africa undermined competition and hurt horticulture and tourism.
Burdensome licensing in tourism (74 licenses and a year’s wait) cost Zambia nearly 300,000 more tourists every year. And Zambia’s tax system discriminated against services, the small firm and the poor regions
Where other reform’s were first needed, liberalization was rushed
Zambian Govt Caused Meridien Bank
Closure, Reveals SardanisLusaka —
…former chairman of Meridien BIAO
International Andrew Sardanis has denied
ever siphoning US $90 million to the
Bahamas.
Banking liberalized before strengthening regulation. 1991-1994, ten new bank licenses issued; 1995-2001: nine bank failures, causing estimated losses equivalent to 7 percent of GDP. Durable effect on financial development.
Agricultural output markets liberalized before the development of markets for services inputs. Durable effect on agricultural development.
Regulatory inadequacy persists and undermines the benefits of openness
Weakness:The Communication Authority of Zambia The Pensions and Insurance Authority The Civil Aviation AuthorityCompetition Authority of Zambia
Inappropriateness:In banking, burdensome “Know Your Customer” rules, In accounting, demanding International Financial Reporting Standards (IFRS)
Absence:After independence, clumsy instruments to widen access; after liberalization, none
Why? Understanding the political economy of regulation
FROM COLONIALISM TO KAUNDA’S SOCIALISM
FROM CONDITIONALITY
Should we reinstate NAMBOARD?
Yes - according to National Farmers Union president Jarvis Zimba:
THE ZAMBIAN ECONOMISTGovernment will soon revive the national airline-Commerce Minister Mwanakatwe
The PF government will renationaliseZAMTEL-Opposition leader Michael Sata
TO STATE CAPITALISM?
If we cannot implement efficient instruments to widen access to services
Elements of successful services trade policy reform
• Emphasis on competition
• Effective but appropriate regulation
• Efficient instruments to widen access to services
In appropriate combination and sequence
58
Developing countries with stronger institutions are pushing the frontiers of services trade: Chile
Expenditure on innovation by sector, (Average 2005-2006, using weights)
Leonardo Iacovone, Aaditya Mattoo and Andres Zahler (2014), Trade and innovation in services: evidence from a developing economy, with, World Economy, vol. 37(4), Pages: 953–979.
Services firms in Chile spend nearly as much on innovation as manufacturing firms
Leonardo Iacovone
Andres ZahlerChief, División de InnovaciónGovernment of Chile
59
Enaex has become a global pioneer in providing rock blasting services to mining companies
• Milodon is the world's largest truck for mixing and loading of explosives.• Inteliblast software processes input data and determines the type of rock
fragmentation strategy• GPS device mounted on the arm allows location of the perforation and
development of customized designs of the blasting processes based on field data.
60
The port terminal in the region of Arica and Parinacota has innovated along multiple dimensions to increase productivity
• Improvement of the port’s layout, • More efficient slot allocation for management of trucks at the port,• Automation of electronic records of the port loads entered, and • New system to efficiently trace loads.
61
Cencosud has innovated in retail, creating a new client interface to enhance customers’ shopping experience
For example, in the electronics section, no more in-store brand promoters but:• An initial adviser who advises clients on the best product suited for
their needs • An expert who is available to answer technical questions and • Comprehensive training in-store to costumers on product use
62
Mutually reinforcing relationship between trade and innovation
Propensity to spend on innovation of exporters and non-exporters
Exporters in Chile spend much more on innovation than non-exporters
Are current IP and innovation assistance regimes biased against services?
Trade and innovation in services are seen as a way out of the middle income trap
A key issue for policy research:
Leonardo Iacovone, Aaditya Mattoo and Andres Zahler (2014), Trade and innovation in services: evidence from a developing economy, with, World Economy, vol. 37(4), Pages: 953–979.
IV. Why have services trade negotiations disappointed, and can we do better?
What does international cooperation on services trade offer?
Key policy question - where can and should these gains be realized: in a regional or multilateral context?
64
• Regulatory cooperation
• Deeper liberalization at home and abroad through reciprocity-based market access negotiations
• Enhanced credibility ofo current trade regimeo commitment to future reforms
Multilateral negotiations have struggled to eliminate protection
ZAF
KENNGA
MUS
PHL
CHN
IDNMYS
THA
ALB
CZE
TUR
LTU
HUN
POLBGR
BHR
OMN
DOM
MEX
CHL
BRAPE R
BOL
TTOGTMHND
ARG
URY
PAN
CRI
COLNIC PRY
JOR
MAR
TUN
EGY
NZL
USA
DNK
AUS
GRC
FIN
JPN
PRT
AUTIRL
SWEDEU
NLDCANGBR
KOR BEL
ESP
ITAFRA
LKA
IND
PAK
ZAF
KEN
NGAMUS
PHL
CHN
IDN MYSTHA
ALB
CZE
TUR
LTU
HUNPOL
BGR
BHR
OMN
DOM
MEX
CHL
BRA
PE R
BOL
TTOGTMHND
ARG
URY
PAN
CRI
COLNIC PRY
JOR
MAR
TUNEGY
NZL
USADNK
AUS
GRC
FIN
JPN
PRT
AUT
IRLSWEDEU
NLD
CAN
GBR
KOR
BEL
ESP
ITA FRA
LKAIND
PAK
ZAFKENNGA
MUS
PHL
CHN
IDN
MYSTHA
ALB CZETUR
LTU
HUN
POLBGR
BHROMN
DOM
MEX
CHL
BRAPE R
BOL
TTO
GTMHND ARG
URY
PAN
CRI
COL
NIC
PRY
JOR
MAR
TUN
EGY
NZL
USA
DNK
AUSGRC
FIN
JPN
PRTAUT
IRLSWE
DEU
NLD
CAN
GBR
KORBEL
ESP
ITAFRA
LKA
IND
PAK
02
04
06
08
01
00
Serv
ice
s tra
de r
estr
ictiveness inde
x
0 10000 20000 30000 40000GDP per capita,PPP
Restr ictive ness of GATS co mmitment Fitted values
Restr ictive ness of DOHA Offers Fitted values
Restr ictive ness of actual policy Fitted values
STRI for 61 countries, excluding Qatar and 31 countries that did not submit offers
Uruguay Round Commitments, Doha Offers and Actual Policy
Ingo Borchert, Batshur Gootiiz and Aaditya Mattoo (2011), Services in Doha: What is on the Table?, in Will Martin and Aaditya Mattoo (eds.), Unfinished Business: The WTO’s Doha Agenda, CEPR and World Bank, London.
Regional negotiations too have had limited liberalizing impact
Ahmad Ahsan
Sebastian Saez
Martin Molinuevo
025
50
75
100
Se
rvic
es
tra
de
re
stric
tive
ne
ss in
de
x
MMR BRN THA PHL IDN LAO MYS SGP VNM KHM
AFAS commitment
Applied policy
Blueprint goals
Note 1: Applied policy information for Brunei is missing. Note 2: MMR =Myanmar, BRN =Brunei, THA =Thailand, PHL =Philippines, IDN =Indonesia, LAO =LAO PDR, MYS = Malaysia, SGP =Singapore, VNM =Vietnam, KHM =Cambodia.
Source: Gootiiz and Mattoo (2013)
AFAS commitments, applied policy and Blueprint
goals for each country
The TPP has delivered credibility but not much liberalization0
2550
7510
0
Ser
vice
s tr
ade
res
tric
tive
ness
inde
x
BRN MYS CHL SGP MEX VNM CAN USA PER JPN AUS NZL
Note: For Brunei, applied policy information is missing.Absense of a bar means the score is zero
Overall STRI
Doha TPP Policy
Services Trade Restrictiveness Indices for TPP Countries Doha Offers, TPP Commitments and Applied Policy
Source: Batshur Gootiiz and Aaditya Mattoo (2016), Does TPP Bring More Openness in Services?
Example: 1. “The US reserves the right to adopt or maintain any measure…”
• Transport: “…relating to the provision of maritime transportation services …”
• Cross-Border Trade: “…that is not inconsistent with the US’ obligations under the GATS….”
Mode 4: “the United States is not undertaking any commitments in this area.”
• MFN: “…that accords differential treatment to countries under any bilateral or multilateral international agreement in force or signed prior to the date of entry into force of this Agreement.”
2. Malaysia: licenses based on “prudential considerations and “the best interest of Malaysia.”
Why? Security is a growing concern in an insecure world
• Digital trade and informational security
• Financial internationalization and financial security
• Labor mobility and security
• Demographic change and health and old-age security
And this concern affects multiple services markets
Services trade held back by a combination of protectionist and legitimate regulatory concerns
Which conventional negotiations modeled on goods trade cannot disentangle
Needed: a mechanism to protect consumers from international market failure Proposed: regulatory commitments by exporters to protect foreign consumer interests in return for market access commitments by importers
Conventional approach: negotiations about exchange of market access commitments by importers Does not work for services
Conventional vs Proposed Approach
Inability to protect consumers leads to:• protection (esp on modes 1 and 2) or • burdensome requirements (esp on modes 3 and 4). The Costs of Data Localisation:
A Friendly Fire on Economic Recovery
For services to be global, regulation cannot be national
How exporting country regulatory commitments work: data flows
The problem
Exporting country commitments to adhere to importer standards of privacy in return for free data flows
The necessary bargain
•EU-US Safe Harbor Agreement; renegotiated as EU-US privacy shield;
•TPP provisions on data flows matched by provisions on protecting privacy and preventing fraud
Examples
How exporting country regulatory commitments work: labor flows
The problem
Source country commitments to certify character and qualifications, facilitate repatriation, combat illegal migration in return for freer labor mobility
The necessary bargain
• Bilateral labor agreements between Spain-Ecuador; Korea-Philippines;
• APEC Business Travel Card
Examples
How exporting country regulatory commitments work: financial services
The problem
Dodd-Frank ends
capital
exemptions for
European banks
Financial crisis: Banks reduce credit supply in emerging Europe
Exporting country commitments to protect interests of foreign consumers, financial stability, and avoid “financial nationalism”, etc. in return for market opening
The necessary bargain
• EU efforts to preserve the internal financial market EU-US markets
• EU-US discussions under the TTIP
• Vienna Initiative, for macroeconomic stability in emerging Europe
Examples
How exporting country regulatory commitments work: competition policy
The necessary bargain
Exporting countries to enforce competition rules to protect interests of foreign consumers in return for market opening
Rigging of Foreign Exchange Market Makes Felons of Top Banks
The problem
• EU-US cooperation on price rigging by financial institutions,
• EU-US action on collusive arrangements in air and maritime transport;
• APEC initiatives on competition policy;
Airlines Come Under EU-US Cargo Cartel Probe
European Commission -Press release
Competition: EU and US celebrate 20 years of cooperation; agree to advance cooperation
further
ExamplesEU, US exemptions from competition policy for export cartels
Source: Carsten Fink, Aaditya Mattoo and Ileana Cristina Neagu (2002), Trade in International Maritime Services: How Much Does Policy Matter?, World Bank Economic Review, vol. 16, no. 1, 81-108.
A positive initial reaction to the proposed approach
2nd APEC Structural Reform
Ministerial Meeting7-8 September 2015
Cebu, PhilippinesSession III: Regulatory Reform and
Cooperation in Services
Dr. Aaditya Mattoo
Cebu, Philippines, 8 Sep 20152015 Structural Reform Ministerial Meeting Joint StatementStructural reform and servicesThe final challenge is mitigating regulatory externalities, or accounting for the effects of regulation in one economy on the consumers of the service in another economy.
We support regulatory cooperation as one of the mechanisms for facilitating market opening...
We, therefore, instruct the Economic Committee to conduct dialogues with sectoral regulators, policy makers, and business
-0.5
-0.2
0.1
0.4
0.7
1.0
Harmonization Mutualrecognition
with restrictiveROO
Mutualrecognition
withoutrestrictive
ROO
Percent
Impact on trade volumes with non-members
Recognition without restrictive rules of
origin promises the greatest benefits to
third countries
Source: Chen, Maggie Xiaoyang, and Aaditya Mattoo (2008), Regionalism in Standards: Good or Bad for Trade, Canadian Journal of Economics, vol. 41, 838-863Notes: ROO = Rules of origin.
Watching out for the risk of excluding developing countriesRisk of trade based on mutual trust rather than comparative advantage
Resisting the tyranny of harmonization to avoid exclusion within countries
Source: Xavier Faz (2013), Mexico’s Tiered KYC: An Update on Market Response, CGAP
In Mexico, the introduction of simplified bank accounts with less burdensome information requirements is associated with an increase in the number of deposit accounts
Three concluding suggestions
• Addressing the risk of exclusion
• Reaffirm relevant WTO MFN-related provisions (GATS Article VII).
• Restrain use of exclusionary rules of origin
• Support development of appropriate standards in developing countries.
• Strengthening national regulation• Identify sectors where regulation matters for trade liberalization• Diagnose and remedy regulatory inadequacies• Country- and sector-specific advice and assistance on sequence of regulatory reform and liberalization
• Advancing International regulatory cooperation• Identify sectors where absence of regulatory cooperation matters for trade liberalization • Facilitate cooperation and ensure coherence with trade negotiations; developing country participation. • Country- and sector-specific advice on sequence of regulatory cooperation and liberalization.