|The Courier N° 156 - March - April 1996 - Dossier: Trade in Services - Country Report : Madagascar (EC Courier, 1996, 96 p.)|
|Trade in services|
by Professor Bimal Ghosh
As Western governments impose tougher restrictions on the hiring of temporary workers from developing countries, the author argues for greater open mindedness. The global economy, he suggests, is boosted and the urge to migrate is lessened.
Currently valued at over $1000 billion, commercial services account for some 20%of world trade. For over a decade, and until 1994, services have also been the fastest growing component of cross-border trade faring, better than trade in goods. And these figures will substantially increase if account is also taken of the services that are delivered by subsidiaries or affiliates of translational companies set up in foreign markets.
Trade in services will certainly receive a further boost in the coming years as the General Agreement on Trade in Services (GATS), an integral part of the Uruguay Round of trade accords, opens up prospects of a further expansion of world trade in services through market liberalisation. A crucial question facing developing countries is: will they benefit from the anticipated expansion of world trade in services envisioned under GATS; and if so, how and to what extent?
As of now, few developing countries are major actors in the services sector as producers or suppliers in the world market. In 1990 they accounted for 12.9% of the export of commercial services, compared to 83% for developed countries. The shares of both Africa and Latin America over the past 20 years have actually gone down. In 1970, Africa's share for example was a meagre 1.2%. In 1990, it took a further tumble to 0.9%.
Not surprisingly, there has been a general feeling among policy-makers in many developing countries, as was revealed for example during the earlier stages of the Uruguay Round trade negotiation, that these countries have little comparative advantage in the world market for service industries. The feeling, although less strong today, seems to persist.
The challenge for developing countries
But this pessimism is not borne out by the facts. Available balance-ofpayments data, for example, tend to suggest that many developing countries have a comparative advantage 1in a number of service industries, especially among those that are labour and skill or knowledge intensive.
Comparative advantage is not a static phenomenon. The experience of several newly-industrialised East Asian economies - among the leading service exporters in developing regions, shows that constant upgrading of the quality and technical capacity of labour of many developing countries can develop their potential comparative advantage in a wide variety of labour (including skill and knowledge intensive services). These include engineering, accounting, legal, management consulting, medical nursing, software development, data entry and processing and cleaning services.
The gains for developing countries from a dynamic use of such potential comparative advantage could be enormous. As an illustration, according to a recent estimate, by contesting only those skill and knowledge intensive services in the world market for which developing countries have a potential comparative advantage, and which can be delivered mainly through telecommunications, they can over time create anywhere between 6 million to 30 million new jobs and increase their export income by $350 million. These figures do not take into account the additional gains that can be secured by developing countries through, for example, the execution of specific labour service contracts in the absence of immigration restrictions. In 1990, despite immigration restrictions, developing countries earned a net income of $2.9 billion from the export of temporary labour services.
The challenge before developing countries is to take full advantage of their actual and potential comparative advantage in these categories of services exports. Two sets of measures are required.
The first concerns promotional and organisational measures needed to enhance the efficiency and competitiveness of developing country services exports. These include a favourable policy and regulatory regime, a sound and dynamic export trade organisation, a trained and flexible work force and an efficient telecommunications system. Much depends on the developing countries' own overall policies concerning services trade and industries, based on the acceptance of the view that increased interaction and competition within and between economies can be conducive to their economic gains.
The importance of temporary movement of persons
The world's main importers and exporters of labour
An equally important requirement is the removal of restrictions that impede access of developing countries' service exports to international markets. Market access through opportunities for temporary movement of persons has particular importance. For pure labour services, the mainstay of the service exports of several developing (including ACP) countries the movement is in fact inseparable from the content of the service itself. And for many labour and skill-intensive services, it serves as an important sub-mode or complementary mode of delivery. Movements of software consultants complementing cross border delivery of computer software and short visits of high level professionals or technicians to complement delivery through local subsidiaries or translational companies, are but a few examples.
Hence, even for the skill-intensive 'long-distance' services, which are mostly delivered through telecommunications and computer systems, a degree of direct interaction with the customer is often critically important - for example, to secure the contract, to hold technical consultations and to provide after delivery services and the like.
The GATS opens up a new window of opportunity in this direction. It seeks to expand world trade in services by liberalising all modes of delivery - not only through cross-border supply - such as telecommunications and transportation - and commercial presence abroad such as the branch of a banking company, but also through movement of persons both as service providers and consumers. Thus, for the first time, trade-related movements of natural persons have been brought into an agreed framework of multilateral disciplines and treated on a par with other modes of delivery. This is a significant achievement.
Gaps between goals and commitments
But none of this is automatic. The overriding reason for this is that the GATS allows considerable flexibility for the participating states in applying the general principles of liberalisation by listing limitations and exemptions to them. These are indicated in the 'specific commitment' of each government decided through negotiations among the contracting nations.
The liberalisation commitments of developed countries cover most service sectors. But they have shied away from lifting the often stringent restrictions on market access and national treatment they apply to the temporary movement of persons providing services, especially unskilled personnel. The gap between the goals of liberalisation and the depth of actual commitments is most striking in this area. As of December 1994, market access for such personnel was subject to limitations in 92% of all commitments.
Generally speaking, market liberalisation commitments of developed countries in services in natural persons amount to no more than what is already permitted under existing immigration laws in individual countries. These have remained limited mainly to executive and other senior level personnel in the form of intra-company transfers. Some limited improvements were brought about as a result of new offers made by five contracting parties - Australia, the European Union, Norway, Switzerland and India before the extended deadline for negotiation of the issue expired on 28 July 1995. But overall, the situation remains unchanged.
Nevertheless, negotiated commitments under the GATS have their special value in so far as they cannot be withdrawn in return for compensation and only under certain other conditions. The more predictable access thus opened for natural persons, even if limited mainly to intra-corporate senior personnel, should encourage dynamic developing countries to strengthen their knowledge and skill-intensive service industries and increase their exports through corporate and similar structures.
Since the negotiated commitments of developed countries offer little new by way of market access for unskilled workers, the immediate benefits for the least developed countries will remain limited. They will thus need special attention and assistance in negotiating wider market access for less skilled workers. Automation and technological change will in any case erode some of the comparative advantage of less skilled labour over time. It is hence particularly important that higher value added services are developed. Multilateral economic and technical cooperation, including the Lomonvention, can play a significant role in this context, especially during the transition. So too can the assistance envisaged under the GATS itself, notably for telecommunications.
Other avenues of action are possible. A number of commitments on services-providing natural persons, leave considerable discretion to immigration and labour ministries. This provides immediate scope for intensifying bilateral or plurilateral negotiations on further liberalising the regime for entry and temporary stay of foreign natural persons supplying services. The results of such negotiation can be multilateralised at a later date.
Another important point to note is that the present commitments under the GATS provide the basis on which to build progressive liberalisation through successive rounds of negotiations, beginning not later than the year 2000. Developing countries thus have a continuing opportunity to prepare for it, making full use, if necessary, of multilateral and bilateral technical assistance.
Trade-related movements and migration management
Increased participation of developing countries in services trade has important implications for migration management. As trade in services expands, improved foreign exchange earnings and increased capacity to import critical production inputs, combined with economies of scale and interaction with the outside world, would help these countries to further improve the performance of the services sector.
Manufacturing and other sectors of the domestic economy, in turn, gain in efficiency from an easier access to services inputs, especially those of producer and business services. More and better jobs are created, with the whole economy moving towards an upward swing.
When this happens and people have a more optimistic perception of the future performance of the home country economy, many of those who might have otherwise been compelled or induced to leave the country due to lack of jobs or better opportunities are likely to remain in the country. Pressure for disorderly migration, including skilled migration, declines. Some of the skilled migrants might even return, as is now happening in several East Asian countries.
True, increased trade in labour and skill-intensive services will imply increased temporary movement of persons. But this should not be confused or equated with longer-term migration for employment or permanent settlement.
The GATS (Article XVI and Annex) makes the point clear. Admittedly, there is a risk of some 'leakage' in the form of temporary service providers becoming permanent migrants, but the risk is limited and can be reduced through effective monitoring, including an internationally harmonised visa regime for trade-related movements, as distinct from long-term migration.
Trade-related temporary labour mobility not only enhances global economic efficiency but, on balance, it can also be largely a substitute for longer-term migration. Nations should give full consideration to both these aspects as they engage themselves in further negotiations on trade-related movement of persons. B.G.