- Services represent two-thirds of global GDP, but the associated trade costs are higher than those of goods.
- A group of WTO members have reached an agreement to reduce the bureaucracy that hinders trade in services.
- We outline five main ways this new agreement will remove unnecessary barriers to trade in services.
Services account for two-thirds of global GDP and more than six out of ten jobs. In recent years, the growth in services exports has overtaken the weak growth in merchandise trade and now accounts for almost half of overall trade measured in terms of value added.
At the same time, the costs of trade in services are twice as high as those in goods, and 40% of these costs are linked to opaque regulations and cumbersome procedures.
A group of 66 WTO Members – responsible for over 90% of world trade in services – have reached an agreement that addresses the practical challenges of service providers wishing to export to other markets.
The agreement – spelled out in the old language of the WTO in the Reference document on domestic regulation of services – facilitate trade in services by reducing red tape that hamper the operations of service providers. The agreement aims to ensure that licensing and qualification requirements and procedures, as well as technical standards, do not constitute unnecessary obstacles to trade in services.
To this end, the agreement facilitates trade in services in three main areas:
The agreement provides that the competent authorities make available all the information that companies need to comply with authorization requirements and procedures, including, for example, authorization fees, points of contact, licensing criteria and technical standards. In addition, members will be required to respond to inquiries from service providers through appropriate mechanisms.
It is important to note that the disciplines will improve the opportunities for supplier involvement in regulatory decision-making, with a call for publication of draft laws and regulations before their adoption and the creation of opportunities for interested suppliers to submit. comments.
It aims to help governments of developing and least developed countries implement the World Trade Organization’s Trade Facilitation Agreement by bringing governments and businesses together to identify opportunities to address delays. and unnecessary red tape at borders.
For example, in Colombia, the Alliance worked with the National Institute for Food and Drug and Business Surveillance to introduce a risk management system that can facilitate trade while protecting public health, reducing by 30 % the average rate of physical food and beverage inspections and providing $ 8.8 million in savings for importers in the first 18 months of operation.
Legal certainty and predictability of authorization requirements and procedures
The agreement contains minimum guarantees to be observed by the competent authorities during the licensing and authorization process. This includes several elements such as indicative deadlines for processing requests; availability of information on status and decision on applications; and the possibility of resubmitting applications in the event of rejection. In addition, to facilitate compliance by service providers, the contract sets a reasonable period between the publication of new laws and regulations and their entry into force.
Regulatory quality and facilitation
The agreement aims to ensure that regulatory decision-making is improved, by requiring the independence and impartiality of regulatory authorities when processing license applications. It also encourages the acceptance of electronic requests and authenticated copies of documents, and requires authorization fees to be transparent and reasonable, and not unduly restrict the possibilities of providing services.
Here are five things the deal will achieve:
1. Lower trading costs
Recent OECD findings suggest that the benefits of implementing the Reference Document will translate into significant reductions in trade costs, especially in important basic service sectors. Implementation between G20 economies can potentially reduce trade costs by up to 6% over three to five years. The effects would be greatest in highly regulated sectors, where licensing processes and recognition of qualifications are more important. These sectors include commercial banking (-21%), telecommunications (-10%) and insurance (-9%). Trade in IT services would also be facilitated (-6%). Among professional services, the benefits would be equally significant for engineering (-6%) and architectural (-6%) services. The savings could amount to over $ 140 billion in the medium term.
2. Stimulate the growth of the services sector and further stimulate trade in services
According to a recent WTO analysis, economies that follow the good regulatory practices set out in the agreement see a greater contribution from services to GDP, as opposed to agriculture and manufacturing. The growth of the service sector is in turn associated with job creation, competitiveness and productivity, and the diversification of production. Improving the efficiency of services can indirectly improve the competitiveness of firms in the manufacturing sector.
Moreover, economies that follow the good regulatory practices set out in the agreement trade significantly more services than economies with less well-regulated service sectors. Trade in services is essential for economic growth and development. For developing economies, trade in services offers opportunities to build know-how and technological capacity and achieve global competitiveness.
3. Lead to greater participation in global value chains (GVCs)
Recent WTO analysis suggests that economies that apply more aspects of the agreement tend to be more actively involved in value chains. The economic benefits associated with participating in GVCs relate to increased productivity and export diversification. In addition, GVCs promote employment and have other spillover effects, including the advancement of knowledge and technology, the development of skills and the improvement of working conditions. Since GVCs are highly dependent on services, barriers to licensing requirements and procedures that regulate the provision of services play a particularly important role.
4. Benefit small businesses and women entrepreneurs
The costs of ineffective and non-transparent regulation weigh more heavily on smaller players who typically face more limited resources to navigate costly and opaque requirement procedures. In many cases, these can make market entry for small businesses and women entrepreneurs prohibitively expensive, leading to the abandonment of otherwise profitable business opportunities. At a time when businesses around the world demand greater transparency and predictability from regulatory environments, they will be the first to gain.
5. Paving the way for more flexible approaches to trade cooperation at the WTO
This will signal that groups of WTO members who have identified common interests can respond to them without being held up by other members who make their approval conditional on gains in other areas. Of course, these results must be extended to all WTO members to comply with the most-favored-nation principle, and they must cover issues that fall under existing WTO agreements. But there are many such issues where a critical mass of members can move forward – market access for services is one example.
As the level of multilateral liberalization remains frozen at the 1995 level, an update is urgently needed to add legal certainty to the liberalization of services undertaken autonomously and regionally over the past 25 years.