services trade and logistics reforms for growth and competitiveness gianni zanini april 2008
DESCRIPTION
What are Services ? 1.Business services 2.Communication 3.Construction 4.Distribution 5.Educational 6.Environmental 7.Financial 8.Health and social 9.Tourism and travel 10.Recreational, cultural and sporting 11.Transport services 12.OtherTRANSCRIPT
Services Trade and Logistics Reformsfor
Growth and Competitiveness
Gianni ZaniniApril 2008
Six questions:
I. What is trade in services?
II. Benefits of services trade liberalization?
III. How to identify and assess barriers to services trade?
IV. Elements of successful services reform?• Zambia case study
V. What do international negotiations offer?
VI. How to improve trade logistics?
What are Services?
1. Business services 2. Communication3. Construction4. Distribution5. Educational6. Environmental
7. Financial 8. Health and social 9. Tourism and travel10.Recreational,
cultural and sporting11.Transport services12.Other
A wide definition of trade
MODES1. Cross-border Trade
2. Consumption Abroad
3. Commercial Presence
4. Movement of Natural Persons
EXAMPLE Software, insurance or tele-diagnosis from country B to A
A’s resident obtains hospital treatment or education in B
Bank, telecommunications firm or hospital from B sets up subsidiary in A
Engineer or doctor from B provides services in A
Services trade grew faster in developing than in high-income countries...
Real Service Export Growth (%)
0.0
5.0
10.0
15.0
20.0
25.0
Low inc Lower mid inc Upper mid inc High inc
1995-99 2000-04 2005-06 2007
And services trade is becoming more important for upper middle income countries
Service Export (% of GDP)
0.0
5.0
10.0
15.0
20.0
25.0
Low inc Lower mid inc Upper mid inc High inc
1995-99 2000-04 2005-06 2007
Mode 1: Cross-border trade in business services
Regional distribution of business services exports, 1990-2005 Average growth rates of business services
exports, 1995-2005
Regional Distribution of Business Services Exports
223 7 9
256
79
4 11 8
380
86
10 17 12
530
171
35 23 23
0
100
200
300
400
500
600
East Asia & Pacif ic South Asia Latin America & Caribbean Middle East & Africa OECDs
(in b
illio
n of
US
dolla
r)
1990 1995 2000 2005906
Average Growth Rate of Business Service Exports for Selected Countries during 1995-2005
9.3
9.4
9.7
9.8
10.6
10.6
10.9
10.9
11.5
11.9
12.2
12.2
12.3
13.6
14.4
14.7
15.1
16.6
25.4
31.6
0 5 10 15 20 25 30 35
United States
Norway
Sweden
Mauritius
Malaysia
Morocco
New Zealand
Nigeria
Jamaica
United Kingdom
Spain
Finland
Malta
Israel
Argentina
Romania
Brazil
China
India
Ireland
(%)
Second question:I. What is trade in services?
II. Benefits of services trade liberalization?
III. How to identify and assess barriers to services trade?
IV. Elements of successful services reform?• Zambia case study
V. What do international negotiations offer?
VI. How to improve trade logistics?
Liberalizing Services Imports Promotes Efficiency and Growth
• Removing barriers to services trade leads to lower prices, improved quality, greater variety
• inefficient and limited supply acts as a tax on production and works against economic growth and export diversification
• benefits from liberalization vary: 1-50% of GDP• temporary and partial (3%) movmt of foreign
service providers might yield $150+ billion gains
Services reform has a big impact on manufacturing productivity
• Empirical study relating TFP of Czech firms in manufacturing to a measure capturing progress in services liberalization, weighted by the dependence on services inputs and controlling for other aspects of openness.
• Key finding: 10% increase in FDI in each services sector led to a 3% increase in the average productivity of Czech manufacturing firms.
High Cost of Telecommunications Penalizes Trade, Especially in
Differentiated Goods
0.640.78
1.80
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
homogeneous reference differentiated
Note: The chart is based on 1999 data and uses the Rauch classification of goods.
Services policy affects not just the size but also the pattern of trade in goods…
Benefits from more open transport services
• Sub-Saharan African exporters pay transport costs 5 times greater than tariffs.• Duopolies still flourish in international air transport. • Collusive arrangements in maritime transport are still exempt from competition
law in US and EU
Port liberalization and Breakup of Private Carrier Agreements:
Estimated Reductions in Liner Transport Prices
8.27
20.05
0
5
10
15
20
25
Liberalization of port services Breakup of private carrieragreements
equivalent to savings of $850 million
equivalent to savings of $2,063 million
Source: Fink, Mattoo and Neagu (2002)
Mode 3: Significant benefits from eliminating barriers to FDI
Linear prediction
1 8.5
-.024
.059
ITA NZL
SLV
PAN
PRT
FIN
ISL
ARG
CHE
ESP BEL
NLD
NOR USA CAN SGP
EGY FRA
SWE
GRC
GUY
AUS
GBR
AUT
CYP JAM
BOL
DNK
MLT
MWI
CRI
ZAF TUR
MOZ
KEN
IND
MAR VEN
MEX PHL
NIC CHL
URY KOR PER
MYS
ECU
AGO
THA
HND
COL
TUN LKA
BRA
IDN
DOM
Composite services liberalization index
Growth rate (adjusted for other factors)
Source: Mattoo, Rathindran and Subramanian (2006)
In recent years, India has radically reformed its services sectors
Newly created index of services reform
0
0.5
1
1.5
2
2.5
3
3.5
4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Banking Insurance Telecom Transport
Newly created index of services reform
0
0.5
1
1.5
2
2.5
3
3.5
4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Banking Insurance Telecom Transport
0
5
10
15
20
25
30
35
40 Growth Rate (CAGR)
36%
20%
FDI in Services*
FDI in Non-services
India: FDI in services sector is growing faster than in non-services . . .
(1992/93 values are indexed to 1; Unit: US$)
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
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
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
Which benefited the performance of downstream manufacturing industries
Gains in Annual TFP Growth After Services Reform
0
1
2
3
4
industries withlimited
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 withlimited
dependence on banking
industries with high
dependence on banking
industries with limited
dependence on telecomms
industries with high
dependence on telecomms
Percent
New study based on panel data for 10,000 Indian firms for the 1990-2005 period finds that
banking, telecommunications and transport reforms all have significant positive effects on the productivity of manufacturing firms
Source: Arnold, Javorcik, Lipscomb and Mattoo (2008).
Third question:I. What is trade in services?
II. Benefits of services trade liberalization?
III.How to identify and assess barriers to services trade?
IV. Elements of successful services reform?• Zambia case study
V. What do international negotiations offer?
VI. How to improve trade logistics?
Trade Barriers in Services• Tariffs are relatively uncommon. • Quotas are pervasive
– Limits on the number of foreign firms; limits on percent foreign ownership in banking, insurance, etc.
– Foreign providers completely shut out in some sectors (transport within a country)
– Foreign exchange restrictions can limit consumption abroad (tourism, education)
– Limits on movement of foreign personnel– Local content requirements in broadcasting
Trade Barriers (2)
• Discriminatory measures– Preferential taxes and subsidies– Preferential procurement– Preferential access to essential facilities
• Non-discriminatory measures– Qualification and licensing requirements– Qualification and licensing procedures– Technical regulations
Synthetic Services Trade Indices
• WTI includes services GATS commitment restrictiveness, transport, telecom, logistics indices
• DECRG is working on an index of actual services trade restrictiveness
• Most extensive liberalization GATS commitments are by recently acceded countries to WTO and developed countries
• Weakest commitment are by low and lower middle income countries, that could benefit the most
WTO accession countries and developed countries are least restrictive
Top 20: Bottom 20:
Country GATS Commitments Country GATS Commitments
Moldova 15.7 Togo 96.0 Georgia 29.5 Namibia 96.1 Latvia 30.9 Bangladesh 96.7 Kyrgyz Republic 33.4 Mauritania 96.7 Albania 34.9 Burkina Faso 96.8 Iceland 35.6 Uganda 96.8 Armenia 36.8 St. Kitts and Nevis 96.9 United States 37.3 Cameroon 96.9 Lithuania 40.3 Mali 97.0 Macedonia, FYR 41.9 Costa Rica 97.2 Hungary 42.0 Chad 97.3 Oman 42.6 Central African Rep. 97.5 Estonia 43.3 Guinea-Bissau 97.65 Norway 43.5 Maldives 97.67 Jordan 43.6 Niger 97.70 Saudi Arabia 44.5 Fiji 97.8 Australia 45.2 Congo, Dem. Rep. 97.8 Switzerland 46.3 Belize 98.4 South Africa 46.6 Tanzania 99.0 New Zealand 47.8 Madagascar 99.6
Lower Income countries are the most restrictive
Overall GATS Commitments Restrictiveness Index
84.477.1
73.7
61.2
0
10
20
30
40
50
60
70
80
90
100
Low inc Lower mid inc Upper mid inc High inc
Travel and Tourism is least restricted across all income groups
GATS by Sectors
0102030405060708090
100
Busine
ss
Communic
ation
Constr
uction/E
ngine
ering
Distrib
ution
Educti
onal
Enviro
nmen
tal
Finan
cial
Health
/Soc
ial
Touri
sm/T
rave
l
Recre
ation
al/Cult
ural
Trans
port
Other S
ervice
s
Low inc Lower mid inc Upper mid inc High inc
Current policies on FDI in services (Mode 3): significant unilateral liberalization
Countries Banking (retail) Telecom-Fixed Retail services Maritime Shipping Accounting
China
India
Malaysia
Indonesia
Philippines
Argentina
Brazil
Chile
Colombia
Mexico
Jordan
Morocco
Ghana
Nigeria
South Africa
Kenya
Australia
Denmark
Japan
South Korea
United States Mattoo, Gootiiz 2007
Open
Restricted
Closed
GATS commitments and offers in Mode 3 do not even capture existing openness
Countries Banking Telecom-Fixed Retail Maritime Shipping Accounting
China
India NC
Malaysia NC
Indonesia NC NC
Philippines NC NC
Argentina
Brazil
Chile NC
Colombia NC
Mexico
Jordan
Morocco
Ghana NC NC
Nigeria NC NC
South Africa NC
Kenya NC NC NC
Australia
Denmark
Japan
South Korea
United States NC
Current policies on cross-border trade in services (Mode 1): openness differs across sectors
Countries Bank: Loans Insurance: lifeInternational Maritime
Shipping Accounting Dom/law
China
India
Malaysia
Indonesia
Philippines
Argentina
Brazil
Chile
Colombia
Mexico
Jordan
Morocco
Ghana
Nigeria
South Africa
Kenya
Australia
Denmark
Japan
Korea
United States
But GATS commitments and offers on mode 1 are far from capturing even existing openness
Countries Bank: Loans Insurance: lifeInternational Maritime
Shipping Accounting Dom/law
China NC
India NC NC NC
Malaysia NC
Indonesia NC
Philippines NC NC
Argentina NC
Brazil NC
Chile NC
Colombia NC NC
Mexico NC
Jordan
Morocco NC
Ghana NC NC
Nigeria NC NC NC
South Africa NC
Kenya NC NC NC
Australia NC
Denmark NC
Japan NC
Korea NC
United States NC NC
Fourth question:I. What is trade in services?
II. Benefits of services trade liberalization?
III. How to identify and assess barriers to services trade?
IV.Elements of successful services reform?• Zambia case study
V. What do international negotiations offer?
VI. How to improve trade logistics?
The pattern of reform in basic telecommunications
P r o p o r t i o n o f c o u n t r i e s w i t h p r i v a t i z e d i n c u m b e n t p h o n e o p e r a t o r s ( b y r e g i o n )
0 . 0 0
0 . 2 0
0 . 4 0
0 . 6 0
0 . 8 0
1 . 0 0
1 9 8 5 1 9 9 0 1 9 9 5 1 9 9 9
A s i a
A f r i c a
L a t i n A m e r i c a
P r o p o r t i o n o f c o u n t r i e s w i t h c o m p e t i t i o n i n l o c a l s e r v i c e s ( b y r e g i o n )
0 . 0 0
0 . 2 0
0 . 4 0
0 . 6 0
0 . 8 0
1 . 0 0
1 9 9 0 1 9 9 5 1 9 9 9
A s i a
A f r i c a
L a t i n A m e r i c a
P r o p o r t i o n o f c o u n t r i e s w i t h a n i n d e p e n d e n t r e g u l a t o r ( b y r e g i o n )
0 . 0 00 . 1 00 . 2 00 . 3 00 . 4 00 . 5 00 . 6 00 . 7 00 . 8 00 . 9 01 . 0 0
1 9 8 5 1 9 9 0 1 9 9 5 1 9 9 9
A s i a
A f r i c a
L a t i n A m e r i c a
S o u r c e : W o r l d B a n k / I . T . U . T e l e c o m P o l i c y D a t a b a s e , a n d F i n k , M a t t o o , R a t h i n d r a n ( 2 0 0 1 ) , f o r t h c o m i n g .
2a. The power of competition
1.a. Mainlines
7.30%
13.80%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
privatized privatized+competition
1.b. Productivity
13.80%
31%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
privatized privatized+competition
Port liberalization and Breakup of Private Carrier Agreements:
Estimated Reductions in Liner Transport Prices
8.27
20.05
0
5
10
15
20
25
Liberalization of port services Breakup of private carrieragreements
equivalent to savings of $850 million
equivalent to savings of $2,063 million
Regulation to protect consumer interests
Fourth question: Zambia case studyI. What is trade in services?
II. Benefits of services trade liberalization?
III. How to identify and assess barriers to services trade?
IV.Elements of successful services reform?• Zambia case study
V. What do international negotiations offer?
VI. How to improve trade logistics?
Zambia: Some services have benefited from openness
• Since mobile telephony was opened to international competition in 1995, subscribers have risen by 300,000.
• In tourism, investments by Sun International have created 350 permanent jobs, supported by 500 or more casual and contract workers.
• In insurance, since the liberalization of the sector in 1992, non life premium rates have dropped; e.g., motor vehicle insurance premium rates fell from 10-16% of the value of the car in 1992 to 6% today.
Zambia: openness has not always improved access to services
• The national air carrier was liquidated and the sector was opened to foreign airlines. International air transport grew by 7 per cent per annum between 1995 and 2004, but domestic traffic declined at an average of 5 per cent per annum.
• Even by poor country standards, access to telecom, health and education is unusually low.
Zambia: openness has not improved access to banking services
• Banking was liberalized before establishing a proper regulatory framework. 1991-1994: Ten new bank licenses issued 1995-2001: Nine bank failures, causing estimated losses
equivalent to 7 percent of GDP.
• Foreign banks today account for over two thirds of total assets, loans and deposits. But credit to the private sector is only 8 per cent of GDP -
lower than in 1990 and in most other Sub-Saharan African countries.
Only 5,000 people hold 90 percent of loans.
Zambia: access to banking services is not just low, it is extremely unequal
• Only 5,000 people hold 90 percent of loans. • Firms outside of Lusaka, Ndola, and Livingston had to
give 65 percent more collateral (relative to the size of the loan).
• Large firms and goods exporters borrow at rates much below the average rate of 48 percent in 2005.
• Nearly 80 percent of fixed lines are located in Lusaka and the Copperbelt, where only 30 percent of the population lives. Only 0.30 percent of Zambia’s rural households, accounting for 65 percent of Zambia’s population, own a telephone.
Zambia has also failed to exploit its advantage in tourism
• In 2005, real growth of the travel and tourism sector was ten times faster in Botswana and Tanzania than in Zambia –not attributable to Kwacha appreciation alone.
• Contribution of tourism to GDP and employment is only about 4% in Zambia compared to more than 10% for Botswana and Namibia.
• Benefits of tourism have been unequally spread. Despite the high tourism potential of other poorer provinces, 82% of the tourists visit the Victoria Falls/ Mosi Oa Tunya area only and 93% of employment in nature-based tourism activities is concentrated in Livingstone and the rapids.
• Preliminary cross-country estimates suggest that Zambia is receiving one-third less tourists than would be warranted by its fundamental endowments.
Zambia: flaws in domestic reform
The current crisis of access in Zambia, and hence diminishing faith in reform, is attributable to:
• The persistence of barriers to entry and competition, e.g. in telecom, transport, tourism
• The inappropriateness of regulation (e.g. banking) and weak capacity of regulatory bodies (telecom, insurance, competition)
• The absence of meaningful policies to widen access to services,
• Inadequate efforts to deepen integration of regional services markets.
Zambia: barriers to entry hurt most firms and consumers
• Zamtel’s de facto monopoly in the international telecommunications gateway deprives 30,000 households of access to telephones.
• Denial of Fifth Freedom rights by Zambia and South Africa to third countries to fly the Lusaka-Johannesburg route undermine competition and hurt horticulture and tourism.
• Up to 74 licenses are required in tourism and can take up to a year to obtain at significant cost. Improvements in the business climate and infrastructure could draw 51 per cent or nearly 300,000 more tourists every year.
Zambia: regulatory weaknesses undermine the benefits of opennessWeakness:• The Communication Authority of Zambia is ill-equipped, legally and
technically, to ensure efficient interconnection• The Pensions and Insurance Authority needs deeper capacity to
ensure the solvency of firms, and • The Civil Aviation Authority is not adequately equipped to ensure
competition and safety,• Competition Authority of Zambia needs more resources to address
rigorously anti-competitive practices Inappropriateness:• In banking, burdensome “Know Your Customer” rules, • In accounting, demanding International Financial Reporting
Standards (IFRS) may promote financial integrity, but they effectively shut out small enterprises and poor households.
Tax system discriminates against services, small firms and poor regions
• Exports of services are subject to income tax of 35 per cent and value added tax of 17.5 per cent whereas non-traditional exports of goods are subject to a lower corporate income tax of 15 per cent and completely exempted from value added tax.
• Domestic firms must, in general, pay a corporate tax rate of 35 per cent whereas some large international investors, such as Sun International, are subject to lower negotiated corporate tax rates of 15 percent.
• Tourism in Livingstone alone is exempted from VAT, which risks accentuating existing regional inequalities in the development of tourism.
Zambia: absence of complementary policies to widen access to services
• The market has not and cannot deliver socially desirable levels of access to essential services
• There are virtually no serious pro-active policies to widen access to financial, telecommunication and transport services
• Powerful temptation to revert to inefficient instruments of the past such as public or private monopolies.
• Instead, emulate successful experiments in other countries harnessing markets to improve access to telecommunications, transport and financial services, as well as to enhance conservation of natural resources, through universal access funds that are competitively allocated and exploit synergies between service sectors.
• Assess critically whether there is an empowering role for affirmative action, for example, through preferential public and private procurement, of the type that was employed in distribution services.
Zambia: long term consequences of flawed sequencingEconomic• In banking, allowing new entry without creating a
mechanism to sift the sound institutions from the dubious led to disruptions that have had a durable effect on financial development.
• Liberalizing markets for agricultural output before the development of markets for services inputs like transport, had a durable effect on agricultural development.
Political• The failure to ensure that the benefits of liberalization are
widely shared by implementing policies to widen access has made reform undesirable and unsustainable
Key elements of successful reform
• Emphasis on competition• Effective domestic regulation• Access-widening policies• Appropriate sequencing• Credibility
Six questions:I. What is trade in services?
II. Benefits of services trade liberalization?
III. How to identify and assess barriers to services trade?
IV. Elements of successful services reform?• Zambia case study
V. What do international negotiations offer?
VI. How to improve trade logistics?
Three potential benefits
•Deeper liberalization through reciprocal exchange of concessions
•Credibility through binding commitments
•Regulatory cooperation
Two potential costs
• More complexity and intrusion into domestic policy than for goods trade
• Trade-offs in policy flexibility, domestic sovereignty and market access
GATS vs FTAs vs EIAs
• GATS/Doha: little progress, focus on commitments not on actual liberalization, little prospects for Mode 4 unskilled
• FTAs: some bites, some do not; potential for reciprocal Mode 4 liberalization
• EIAs: some bites, some do not; but much potential for regional regulatory cooperation and for reciprocal Mode 4 liberalization
Six questions:I. What is trade in services?
II. Benefits of services trade liberalization?
III. How to identify and assess barriers to services trade?
IV. Elements of successful services reform?• Zambia case study
V. What do international negotiations offer?
VI. How to improve trade logistics?
www.worldbank.org/lpi
Ranking and ComponentLogistics Business environment and institutions
Performance data
Available as: Rankings, Maps, scorecards
Customs and border processingDomestic costsInfrastructureTracking and TracingTimelinessLogistics competence of local service providersEase of arranging international shipments
LPI measures seven dimensions of country performance:
Key FindingsAll seven dimensions matter but performance often influenced by the weakest link in the supply chain therefore compromising overall performance and competitivenessEstablishing predictable and reliable supply chains opens opportunities – reliability as important as transport costs and speedReliability contributes to increased investment, diversification, and more competitive trade environmentQuality of private sector services also important No matter what the income level, good performance and best practice is possible
LPI strongly associated with competitiveness LPI strongly associated with competitiveness outcomes: growth, trade expansion and outcomes: growth, trade expansion and diversification of exportsdiversification of exports
Key Policy Implications
Need to expand the traditional reform agenda beyond customs reform and infrastructure developmentImproving the quality of logistics services and increasing border agency coordination also critically importantReforms need to be comprehensive (processes, services and infrastructure) and supported by public and private constituenciesNeed to be tailored to the individual circumstances of each country
Country LPI Rank
South Africa 24Malaysia 27Chile 32Turkey 34Hungary 35Czech Republic 38Poland 40Latvia 42Argentina 45Estonia 47
TOP 10 COUNTRIES
LOWER MIDDLE INCOME
Country LPI Rank
China 30Thailand 31Indonesia 43Jordan 52Bulgaria 55Peru 59Tunisia 60Brazil 61Philippines 65El Salvador 66
TOP 10 COUNTRIESLOW INCOME
Country LPI RankIndia 39Vietnam 53Sao Tome and Principe 57Guinea 62Sudan 64Mauritania 67Pakistan 68Kenya 76Gambia, The 77Cambodia 81
TOP 10 COUNTRIES
UPPER MIDDLE INCOME
LPI Ranks
From LPI benchmarks to ESW
LPI and components are starting points for in depth assessments
1. In LDCs: 1. TTF Audits part of DTIS, CEM or project prep
2. In middle income countries:1. Self standing action plans2. Part of broader growth & competitiveness
agenda and ESW.
Typical components of action plans
• Missing links in infrastructure• Soft measures:
– Port and customs reform– Processes and automation (beyond customs)– Special Customs regimes for exporters– Regulations, barriers to entry in the logistics industry.– Freight services: consolidation trucking sector/ Railways reform,
multimodality– Security and crime– Regional topics: logistics facilities and access to land– Shipper practices & capacities of local services providers,
training...
TTF AUDIT Methodology
• Audit methodology @ www.gfptt.org– home page of Global Facilitation Partnership
for Transportation and Trade bottom of page, under "Useful toolkits"
– newly revised version will be very soon published as a Transport Paper.
Services Trade and Logistics Reformsfor
Growth and Competitiveness
Gianni ZaniniApril 2008