Services Knowledge Platform to Facilitate Deeper Integration in - - PowerPoint PPT Presentation

Services Knowledge Platform to Facilitate Deeper Integration in Services Trade

Sjamsu Rahardja The World Bank Presentation at Policy Group Meeting of ILO/EU Project Jakarta, July 12th 2012

Synopsis of my talk



Despite potential benefits of opening up services for competition, there is a wide variation of restrictiveness across countries and across services sector



Range of policies/regulation are still restrictive for services trade

 There are typically non‐tariff like instruments and often imposed by different

agencies

 Difficult to address by multilateral or preferential services agreement as these

agreements tend only to “lock in” subset of policies that had already been implemented unilaterally



Success in integrating services would depend on involvement of key stakeholders

 Understanding the political economy  Setting up complementary policies to address market failures 

Services knowledge platform can help facilitate the process of integrating domestic services sectors with the global market place

2

G a i n s in A n n u a l T F P G r o w th A ft e r S e r v i c es R e fo r m

1 2 3 4 in d u s tri es w ith lim i ted de p e n de n c e

• n ba n k in g

in d us trie s w ith h ig h d ep e n d e nc e o n ba n k i ng in d u s tr ie s w i th li m ite d d e pe n d e n c e o n tel ec o m m s in d u s tr ie s w i th h i gh de p e n d e nc e

• n te l ec om m s

P e rc e n t

G a i n s in A n n u a l T F P G r o w th A ft e r S e r v i c es R e fo r m

1 2 3 4 in d u s tri es w ith lim i ted de p e n de n c e

• n ba n k in g

in d us trie s w ith h ig h d ep e n d e nc e o n ba n k i ng in d u s tr ie s w i th li m ite d d e pe n d e n c e o n tel ec o m m s in d u s tr ie s w i th h i gh de p e n d e nc e

• n te l ec om m s

P e rc e n t

Source: Arnold, Javorcik, Lipscomb and Mattoo (2010).

The evidence: services reform can promote better performance in manufacturing industries

Evidence from Indian manufacturing sector suggest that services reform not only boosted services exports but also promote downstream manufacturing

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The evidence: services reform can facilitate trade

Restrictive transport policies are associated with more expensive and poor logistics quality

Source: Borchert, Gootiiz, Grover and Mattoo (2010)

UZB LAO RWA KAZ MUS URY NIC NLD CRI CHL LTU ALB NZL DNK PHL PAN LBN GBR IND BGR DOM PRT POL PER JPN SWE GRC ITA DEU GHA GTM AUS ESP KOR BEL FIN IRL ROM UGA CAN IDN HND ARG FRA BRA MDG SEN USA ZAF UKR MEX GEO COL ETH LKA KEN DRC KGZ TUR MOZ ECU NAM VEN ARM NPL NGA ZMB KHM RUS PAK MYS MLI BOL PRY DZA MNG CZE CIV BWA BGD HUN TZA YEM JOR AUT THA BHR EGY TUN CMR VNM IRN KWT CHN OMN QAT SAU

• 1
• .5

.5 1 e( LPI_comp_priced2009 | X )

• .1

.1 .2 e( agI_m0_tra | X )

coef = -1.4153001, (robust) se = .53648491, t = -2.64

LPI_comp_priced2009: IV estimation

Partial regression graph

UZB LAO RWA KAZ MUS URY NIC NLD CRI CHL LTU ALB NZL DNK PHL PAN LBN GBR IND BGR DOM PRT POL PER JPN SWE GRC ITA DEU GHA GTM AUS ESP KOR BEL FIN IRL ROM UGA CAN IDN HND ARG FRA BRA MDG SEN USA ZAF UKR MEX GEO COL ETH LKA KEN DRC KGZ TUR MOZ ECU NAM VEN ARM NPL NGA ZMB KHM RUS PAK MYS MLI BOL PRY DZA MNG CZE CIV BWA BGD HUN TZA YEM JOR AUT THA BHR EGY TUN CMR VNM IRN KWT CHN OMN QAT SAU

• 1
• .5

.5 1 e( LPI_quality_logistics2009 | X )

• .1

.1 .2 e( agI_m0_tra | X )

coef = -1.613734, (robust) se = .58220632, t = -2.77

LPI_quality_logistics2009: IV estimation

Partial regression graph

Availability of competitively priced logistics services Quality of logistics services

4

Country-level STRI and per-capita income:

The evidence: wide variation of services restrictiveness across countries

5

MNG KHM VNM MYS THA CHN IDN PHL ECU TTO NZL ARM GEO POL GBR NLD DOM IRL NIC LTU BOL ROM BGR KGZ SWE PRY PER ESP CZE MUS KAZ ARG AUT HUN DEU GTM USA GRC GHA MOZ MDG ALB COL AUS SEN DNK ZMB HND BRA CAN PRT BEL MAR KOR CHL UZB JPN RWA FIN RUS TUR CMR CIV FRA ITA UKR LSO NGA PAK URY MLI CRIMEX KEN TZA YEM MWI ZAF UGA VEN BLR NAM LKA BWA DZA JOR LBN NPL SAU BGD TUN OMN PAN BHR EGY DRC KWT QAT IRN IND ZWE ETH

0.0 20.0 40.0 60.0 80.0 Services Trade Restrictiveness Index (STRI) 5 6 7 8 9 10 11 12 Log of GDP per capita EAP All other regions Linear trend EAP Linear trend all countries

STRI by sector and region:

The evidence: wide variation of services restrictiveness across sector

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10 20 30 40 50 60 70 Services trade restrictiveness index GCC SAR MENA EAP AFR LAC OECD ECA

Note: 103 countries included.

Financial Telecom Retailing Transportation Prof.Services

The evidence: commitments under GATS are generally less than the actual policies had already been implemented

Z AF KEN NGA MU S PHL C HN ID N MYS THA ALB CZE TUR LTU HUN POL BGR BHR OMN DOM MEX CH L BRA PER BOL TTO GTM HND ARG U RY PAN CRI C OL NIC PRY JOR M AR TUN EGY NZ L USA DN K AUS GRC F IN JPN PRT AUT IR L SWE DEU NLD CAN GB R KOR BEL E SP ITA FRA LKA IND PAK Z AF KEN NGA MU S PHL C HN ID N MYS THA ALB CZE TUR LTU HUN POL BGR BHR OMN DOM MEX CH L BRA PER BOL TTO GTM HND ARG U RY PAN CRI C OL NIC PRY JOR M AR TUN EGY NZ L USA DN K AUS GRC F IN JPN PRT AUT IR L SWE DEU NLD CAN GB R KOR BEL E SP ITA FRA LKA IND PAK Z AF KEN NGA MU S PHL C HN ID N MYS THA ALB CZE TUR LTU HUN POL BGR BHR OMN DOM MEX CH L BRA PER BOL TTO GTM HND ARG U RY PAN CRI C OL NIC PRY JOR M AR TUN EGY NZ L USA DN K AUS GRC F IN JPN PRT AUT IR L SWE DEU NLD CAN GB R KOR BEL E SP ITA FRA LKA IND PAK

20 40 60 80 100 Services trade restrictiveness index 10000 20000 30000 40000 GDP per capita,PPP

Restrictive n ess of GATS commitment Fitted va lues Restrictive n ess of DOHA Offers Fitted va lues Restrictive n ess of actua l policy Fitted va lues

STRI for 61 countries, excluding Qatar and 31 countries that did not submit offers

Source: Borchert,Gootiiz, Mattoo 2010

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Challenges in further integrating domestic services sector with the global market place



International services trade negotiations might becoming less effective to serve as an “anchor” for domestic policy reform

 Less “market opening” effect, more focus on less important trade barriers  Restrictions in mode 4 abroad reinforce beliefs at home that it should

restrict its services from international competition

 Domestic downstream industries are already demanding more competitive

services



Often there is no “Ministry of Services” and this makes coordinating sectoral policy reforms challenging



Concerns over market failure due to the absence of regulation

 E.g . quality, safety, abuse of market power, cream skimming etc. 

Political economy in services reform

 Fear over impact of domestic income distribution from opening up services

to international competition

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How can Services Knowledge Platform help?

 A platform for exchange in information among key stakeholders in

particular sector in services

 What are lessons learned from reform process and greater international

competition in other countries?

 A platform to generate evidence‐based policy dialogue to

 Promote better regulations in certain service sector to allow for more

competition and greater trade

 Establish an inclusive process to design and implement regulatory reform  Identify complementary policies to ensure 9

How the Platform can help shape policy debate

• Potential

entrants in domestic or international market

• Incumbent

providers

• Consumers

(industries or individuals)

• Government

Regulatory certainty and

• versights to

ensure standards and market contestability Demand for quality services Incentive deliver quality services to consumers Incentive to deliver quality services to consumers 10

Stages in operationalizing Services Knowledge Platform

Identification of stakeholders & facilitation of information exchange Address knowledge and information gaps Data validation Design of reform and complementary policies Framework for action plan and implementation

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Example from World Bank’s engagement: professional services in Sub-Saharan Africa

• Skills shortages
• Most severe shortages of engineering and accounting professionals
• Shortages of middle‐level professionals (such as technicians or paralegals) and

shortages of experienced professionals

• Skills mismatches
• Jobless professionals despite scarcity
• Underdevelopment of professional services markets
• Professional services are less efficient, more costly and less widely available than

in many other comparable countries (for example, poor quality of auditing and reporting systems, poor enforcement of property rights)

• Foreign accountants are less than 3% of total in Malawi and Zambia and less than 10%
• f total in Kenya, Tanzania and Uganda but 60% in Rwanda
• Foreign engineers are less than 5% of total in Malawi and Mozambique and 6% of total

in Tanzania

• Virtually no foreign professionals in legal services in any of the Eastern and Southern

African countries

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Example from World Bank’s engagement: professional services in Sub-Saharan Africa

 Mapping the regulations of a wide range of activities going beyond the trade related regulatory regime  Analyzing market structure, skills gaps, Support to implement a mutual recognition agreement on professional services among several Sub‐Saharan countries.

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Restrictions on operations hurt professional services providers – the example of East Africa

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Mutual Recognition Agreements: strong conceptual and empirical support

 MRA of education, professional qualifications and licensing would eliminate

heterogeneity in education and qualification requirements and licensing procedures that is costly and hurts entry of small providers

Kox et al. (2004) estimate that EU stock of FDI could increase by 20-35% if regulatory Heterogeneity was reduced as a result of a common services regulation directive

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Example on potential application for Indonesia

 ASEAN Economic Community aims to have a freer flow of services trade

by 2015

 ASEAN equity on services will be at least 70 percent  MRAs for selected professional services (e.g. accounting, architecture,

medical practitioner)

 Priority services sectors: air transport, healthcare, tourism, e‐ASEAN,

logistics

 What are the economic impact and lessons learned from

 Progress in opening up air‐transport, retail, and telecom?  Stagnation in opening up health care, higher education, domestic sea

transport to international competition?

 How can those lessons inform process for regulatory reform in other

services sectors?

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Example on potential application for Indonesia

• Data collection to benchmark performance and
• pportunities
• Regulatory audit and how it affects services industries
• Exchange of information on reform experiences in other

countries or other sector within the country

Filling information and knowledge gap

• Identify “reform champions” within the government and

private sector

• Use evidence based dialogue to facilitate consensus for

reform target

• Identify policies to address market failures and distributional

concerns

Understanding the political economy

• Establish a credible mechanism for coordinating and

implementing policy reforms

• Identify action plans and better regulations
• Establish credible and transparent feedback mechanism for

all stakeholder

Designing and implementing reform

Relatively successful sectoral economic integration in Indonesia typically have the following ingredients

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To sum up



Despite clear potential benefits from more services trade, international cooperation seems to deliver less traction on reforms and integration of services sector, particularly

• n transport and professional services (which includes mode 4)



Services Knowledge Platform is an alternative way to bring parties together in the spirit

• f partnership to find best path for implementing regulatory reform in services to

increase competitiveness in domestic services industries



To be applicable and successful, the Platform should be demand driven and inclusive to key stakeholders. But eventually it would need to link to strong reform champion within the government to make policy coordination and implementation happen

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Thank You