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close this bookThe Courier N 156 - March - April 1996 - Dossier: Trade in Services - Country Report : Madagascar (EC Courier, 1996, 96 p.)
close this folderDossier
close this folderTrade in services
View the document(introduction...)
View the documentA trailblazing project for services in Africa
View the documentServices potential in the Caribbean
View the documentWhat do ACP nations have to win or lose from global liberalisation of services?
View the documentImplications for developing countries of liberalised financial services
View the documentTemporary movement of persons
View the documentNew realities for national shipping in Africa
View the documentState-owned airlines try to avert crash-lanclings
View the documentAir Jamaica: the bride without dowry soars to new heights
View the documentGlobal tourism
View the documentThe 'phone' phenomenon

(introduction...)

Talk about trade in services and the likelihood is you will draw a blank with anyone who is not well versed in macro-economic speak. It covers anything from tourism to architecture and accounts for a substantial share of global trade (see table). Developing countries and, in particular, ACP states lag behind in services development, importing more than they export, although this obviously varies from country to country.

The writers featured in this dossier look at the potential - and obstacles - for building up service industries in ACP nations with a view to boosting investment and eventually their own exports of services. It appears to be a race against time. There are fears about their ability to compete as talks on global trade in services prise open the markets.

Bigger and better service industries are vital to the development of any economy. And an uncertain future for traditional commodity exports puts a bigger onus on developing services. As the EU, for instance, seals more and more free trade agreements around the globe, this will make it easier for 'new' trading partners to enter the EU market, inevitably whittling away the long standing 'traditional' trade preferences.

The World Trade Organisation (WTO) is leading the way. The General Agreement on Trade in Services (GATS), agreed by 125 nations in Marrakesh in 1994, is based on most favoured nation (MFN) treatment for foreign services established in a member country, although exemptions are possible for countries who do not want to subscribe to certain clauses or who have balance of-payments problems.

Its annexes pledge the continuation of talks on basic communications, financial services, professional services, maritime transport, air transport and the movement of persons.

Whereas 1995 brought a deal in financial services, 1996 promises to be the year of telecommunications and maritime services. At the time we went to press, 16 nations had put offers on the table to liberalise telecommunications.

Significantly they are all developed countries.

The danger is that developing nations might lose out in an open market, although they could benefit from the so-called 'free rider' principle insofar as a liberalised telecommunications market will bring down the costs of such services for all. As for maritime services, countries are putting offers on the table to eliminate existing cargo sharing and reservation practices.

The anticipated agreement should ensure that public authorities provide port facilities to foreign-owned ships on a non-discriminatory basis. And a push at getting nations to agree further commitments in the whole range of services will be made from 1 January 2000.

In keeping with the current shift to forming regional alliances, authors argue for regional moves to liberalise trade to facilitate participation in the GATS, an agreement which will obviously benefit the most competitive producers of services.

Africa

To learn more about the situation in Africa, we spoke to UNCTAD economist, Norbert Lebalwho also writes for us in the Dossier), an expert on the potential for African services. He points out that wheress 97% of the external revenue of the Seychelles comes from services (mainly tourism-related) the figure is just 5% for Nigeria which is a major oil exporter. Services alone accounted for more than 30% of the import expenditures of countries like Gabon, Cd'lvoire, Cameroon, Zaire and Zambla. As for African services, ports and tourism provide the main income, although labour services (migrant workers) are particularly important to Lesotho, Sudan and Mali, accounting for between 30% and 80% of total exports in 1988.

According to Mr Lebal'African countries that are structural importers of services are anxious to develop their own services industries, especially in the range of selective intermediate services that are useful for the launching of more elaborate lines of production. Liberalisation of imports - that is to say the reduction of trade barriers and easing of requlations - is one way for these countries to ensure the quality of such services.' The author adds that 'for African countries already exporting services to the world market (notably tourism and labour), the aim is to develop production of higher value products and to increase their exports.'

He calls for investment in infrastructure, and in human resources so as to turn an unskilled labour force into a skilled one. He points out that transport and communications inherited from the colonial era 'are still a bottleneck owing to their inadequacy, despite the constant increase in the overall demand for transport as a result of population growth and the rise in personal income in some countries. African transport networks,' he continues 'were built along the colonial routes penetrating into the interior, to link the seaports with the hinterland. They are often quite unsuited to the present day economic situation of African countries.'

And in the GATS talks themselves, African nations, he believes, should push for more tourism infrastructure - airlines, hotels, restaurants, travel agencies and guides. Currently, he states, 'African countries do not have the technological and managerial capacities to respond adequately to market changes. This situation poses a particular challenge to them as they try to increase their competitiveness'.

To get the most out of the GATS shipping talks, he recommends commitments on the increased participation of Africans, whether unskilled or professionally trained, in the manning of vessels. He speaks of attaching requirements for technology transfers and financial support, in return for giving developed country vessels more access to African countries.

Finally, he recommends that African nations should get more out of their comparative advantage in iabour. 'Over the last two decades', he notes, 'the continent has had a growing income from the activities of Africans working abroad' and the sums involved are now significant.

Successes in which the development of one service has had knock-on effects on others are highlighted by Mr LebalHe mentions, by way of example, the Port of Djibouti. 'Over the past few years, the role of the port in regional cooperation and in storage, transit and transshipment operations has become increasingly important. The integration of other transport services (roads, railways and air transport) has encouraged the expansion of a retail trade and banking activites, so that Djibouti can now entertain the hope of becoming a significant banking centre.'

Like many who study trade in services, Norbert Lebale argues that some extra political impetus would not go amiss. 'Political barriers', he claims, 'are often an important factor which reduces the expected impact of African regional cooperation agreements. The most significant example, he says, is the failure of the Eastern African Community. This was based on developing and jointly managing the main services such as railways, air and sea transport, and posts and telecommunications.

The Caribbean

Turning to the Caribbean, an EU-commissioned discussion paper 1notes that this region has 'good potential in the field of services' such as information technology, transport, finance, insurance, health and tourism. It suggests 'national studies' to identify this potential, as well as possible regulatory reforms to overcome constraints and promote investment. Even in tourism, the main services earner for Caribbean nations, there is potential for more growth. A 'tourism master plan' is mooted.

Within the region, there are certain legal barriers to land transport services which restrict competition. These include minimum tariffs and impediments to the mobility of companies across borders, which the authors suggest need to be dismantled. They also point out that most ports in Caribbean countries are 'government owned and operated' and in many cases, 'this has resulted in bureaucratic and monopolistic operations.' The report continues: 'Among the causes of poor maritime transportation services and low port productivity cited by various users is the nature of management policies and practices; excessive documentation requirements, time consuming processes to pay consular charges in the exporting country and weak security leading to high levels of pilferage of cargo.'


The structure of trade in services


The growth of trade in services

As for telecommunications, private and state-run monopolies tend to dominate. 'The result is that in countries such as Haiti, St Lucia and Barbados, the high cost of communications services is an obstacle to the competitive development of the information services sector. And there are no sector or general agreements to develop the regional integration of consultancy services, through a common registration system or the extension of national treatment to all regional firms. Regulatory restrictions and barriers are also imposed by the different national professional associations.'

The study focuses on the delays and bureaucratic procedures faced by local and foreign businesses in obtaining visas and work permits for their personnel. This is a problem even where the workers are from elsewhere in the Caribbean. At a recent meeting of Caricom heads of state, a decision was taken to allow free movement of Caricom nationals who are graduates of member state institutions from 1 January 1996. The effects of this decision are yet to be felt, and restrictions on the freedom of non-graduates remain, even in cases where it would aid in the development of the smaller islands, for example.

Finally, restrictions to foreign investment apply in the banking industry, in the form of licensing in Barbados, Jamaica and the Dominican Republic. In Trinidad and Tobago, obstacles exist making it difficult for foreign banks to offer their services. In short, while the Caribbean may have considerable potential for services development, much remains to be done before this can be fully exploited. Debra Percival