Trade in services for development Fostering sustainable growth and economic diversification About the World Bank The World Bank Group is one of the world’s largest sources of funding and knowledge for developing countries. Its five institutions – the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Multilateral Investment Guarantee Agency and the International Centre for Settlement of Investment Disputes – share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development. About the WTO The World Trade Organization is the international body dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible, with a level playing field for all its members. Trade in services for development Fostering sustainable growth and economic diversification A World Bank and WTO co-publication Acknowledgements This publication is the result of a joint effort of the World Bank and the WTO. The publication was co-authored and coordinated by Martin Roy of the WTO and Pierre Sauvé of the World Bank under the supervision of Deputy Director-General Anabel Gonzalez and Xiaolin Chai, Director of the Trade in Services and Investment Division, at the WTO, and Mona Haddad, Global Director of Trade, Investment and Competitiveness, and Sebastien Dessus, Practice Manager, Trade and Regional Integration, at the World Bank. The publication was edited by Ross McRae and Anthony Martin of the WTO. The World Bank and the WTO are grateful to all those who provided comments and guidance during the drafting of this publication. At the World Bank, special thanks go to Nora Carina Dihel, Bernard Hoekman and Sebastián Sáez for their careful review; Roberto Echandi, Elwyn Davies and Albert Zeufaq for their comments; and Karen Muramatsu for contributions on several recent World Bank projects depicted in the publication. At the WTO, special thanks go to Ravneek Bhullar for excellent research assistance throughout this project; and Barbara D’Andrea and Shradha Bhatia for assistance on services trade statistics. Special thanks also go to Pamela Apaza Lanyi, Laura Baiker, Elena Bertola, Antonia Carzaniga, Christophe Degain, Emmanuelle Ganne, Ishrat Hans, Markus Jelitto, Claudia Locatelli, Joscelyn Magdeleine, Sang Hyun Park, Cédric Pene, Michael Roberts, Ester Rubio, Karsten Steinfatt, Victor Stolzenburg and Ruosi Zhang for their helpful inputs, comments and suggestions. Disclaimer The opinions expressed in this publication are those of the authors. They do not represent the positions or opinions of the World Bank, its Board of Directors or the governments they represent nor do they represent the positions or opinions of the WTO or its members and are without prejudice to members’ rights and obligations under the WTO. Any errors are attributable to the authors. The designations employed in this publication and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the World Bank and the WTO concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. Contents Foreword 2 Executive summary 4 Introduction 8 1 The future of trade lies in services: key trends 12 2 The contribution of services trade policies 46 3 Fostering economic development through services trade 72 Conclusion 94 Abbreviations 96 Bibliography 97 2 Trade in services for development Foreword Services have emerged as the driving force services play as intermediate inputs is that is shaping the economic landscape a key determinant of improved export of countries at all levels of development. performance of other sectors such as They account for the largest share of manufacturing and agriculture. global economic activity by generating more than two-thirds of GDP, employ the Moreover, high-value services and services most workers, and are the source of most exports are creating new well-paid jobs new job creation, especially for female and for young people and professionals in young workers. At the same time, services developing economies. Services trade is trade has turned into a key element in associated with inclusive growth, given growth strategies, becoming the most its positive impacts on the employment dynamic component of global trade in prospects of women workers, the youth recent times, and creating higher value- and entrepreneurs as well as on micro, added jobs. small and medium-sized enterprises. The COVID-19 pandemic accelerated Advancing the United Nations Sustainable the growth of digitally delivered services, Development Goals requires effective while travel services were hit hard. access to a host of services, ranging Modern services such as information and from health and education to finance, communications technology and business transport and logistics services. Policy services now represent a greater share of measures governing trade and investment exports in developing economies, helping in telecommunications and computer these countries capture an increasing share services are key determinants of of world exports in these dynamic sectors. enhanced digital connectivity, while trade in environmental services strengthens Services trade offers significant and efforts to combat climate change and multifaceted development impact. improve environmental stewardship. Services offer a direct route for developing economies to diversify their Services represent the future of trade. exports away from a limited range of Developing economies have already made products and commodities. Services- important inroads in leveraging services led export diversification can also boost trade, but much remains to be done to fully resilience by reducing exposure to realize the sector’s development promise. commodity price volatility. There is a need to re-ignite international cooperation in the services sector. Improved access to high-quality modern Such efforts need to expand trade and services is also critical to the operation investment, reduce trade costs, bring about of cross-border production networks and greater transparency and predictability fundamental to economy-wide productivity on trade policy regimes and, ultimately, gains. The trade facilitating role that increase the participation of developing Foreword 3 economies in policy deliberations and subject to considerable regulatory negotiations on services trade. Further, scrutiny are still challenging for many data must be able to move more freely and developing economies. A “Trade in securely across borders to support digital Services for Development” initiative could trade and realize the growth potential for support deeper international cooperation inclusion and jobs. by mobilizing resources for technical assistance and capacity building. The Deepened international cooperation WTO Secretariat and the World Bank on services trade requires more Aid Group stand ready to help governments for Trade, as domestic reforms and realize the full development potential of international negotiations in sectors trade in services. Ngozi Okonjo-Iweala Ajay Banga Director-General President World Trade Organization World Bank Group 4 Trade in services for development Executive summary This co-publication by the World Bank and While it is important to consider reforms to the WTO is motivated by a shared view that services trade in a broader development setting, the structural changes associated with a this publication does not delve extensively into the more service-centric world economy and the development dimension of services per se. Rather, central contribution that expanded trade and it draws attention to the role that can be assigned investment in services can make to economic to deepened international cooperation, and thus growth and development warrant greater policy to trade policy, negotiations and agreements in attention and revived international cooperation. the sector, in helping secure the far-reaching An important aim of the publication, and a key development dividends associated to domestic reason for its joint nature, is to recall the benefits reforms and increased trade in services. of advancing the negotiating agenda on trade in services, and the opportunity costs of not doing The sheer diversity of the services sector so. Accordingly, the publication aims to foster suggests that policy reforms need to pay close reflection on how best to mobilize additional attention to – and be informed by – differences support – and better assistance – for developing in the nature and roles that various services and least-developed economies in implementing play, in the multiple ways they are traded, services sector reforms and reaping the in the intensity of the regulatory scrutiny development gains from expanded trade and they command, in the broad range of public investment in services. policy aims their supply pursues and in the political economy forces they put in play. Such In arguing the case for reinvigorated international differentiation helps explain why services sector cooperation in services trade, it is important governance rarely – if ever – proceeds on to remember that advancing the development a one-size-fits-all basis. It also explains why prospects of countries and the welfare of their domestic reforms anchored in trade agreements citizens remains the ultimate goal of policy typically proceed in a progressive manner. reform efforts. Trade, economic diversification and deeper integration provide key channels Despite challenges linked to characteristics through which broader development aims can be that are intrinsic to services and to the sector’s pursued. Such a distinction matters substantively, heterogeneity, a deepened commitment to as a host of more purely domestic policy reforms, supportive domestic business environments and spanning areas as diverse as education and to trade openness in services form indissociable training, trade facilitating infrastructure – both parts of a comprehensive growth-enhancing physical and digital – and sound regulatory policy agenda. The world economy has in frameworks can affect the degree to which recent decades undergone structural shifts trade and investment in services can serve as that have brought services to the forefront. development levers. Simply put, the development Services account for the largest share of global payoff from expanded services trade stands to economic activity, generating more than two- be magnified by supportive domestic business, thirds of GDP, employ the most workers and are regulatory and human capital ecosystems. the source of most new job creation, especially for female and young workers. Services spur growth through the key intermediation role they play as inputs into the production of other Executive summary 5 services and goods, such that the benefits Expanded trade and investment in services of boosting the competitiveness of services can spur productivity growth and act as a key and goods markets are mutually reinforcing. channel for the dissemination and adoption of new technologies and know-how. A conducive The economy-wide ubiquity of services means business climate for domestic and foreign the sector plays a key role in the export services providers therefore improves the overall competitiveness of businesses in all sectors. efficiency of resource use. By contributing to Productivity gains in extractive industries, improved performance in the sector, services agriculture and manufacturing are all shaped trade policies also represent a critically by the ease of access to efficient services and important means of achieving the United Nations infrastructure. Improved access to quality and Sustainable Development Goals, contributing in affordable services can enable developing the process to alleviating poverty and increasing economies to integrate globally. Diversification, shared prosperity. and hence a more varied range of services exports, will increase resilience to unexpected Elevating the policy attention paid to services economic events and promote the pursuit of requires that domestic and international policies more sustainable development paths. be brought up to speed with the reality of the global services economy. For trade policy- Beyond their rising importance in domestic makers, this means intensifying cooperation economies and their key role as intermediate to overcome obstacles that hinder trade and inputs, services are also an increasingly investment in services. At the domestic level, prominent feature of cross-border exchanges. continued efforts need to be directed to putting Services had long been the most dynamic in place business and regulatory environments component of international trade and investment conducive to the supply of more efficient and prior to the COVID-19 pandemic, and the world competitively priced services. At the global level, has since borne witness to how services offer stepped up cooperation could entail renewed growing export opportunities, including for efforts to provide greater transparency and developing and least-developed economies, as predictability to services trade regimes, building digitalization and the ability to deliver services on advances registered in the latest generation remotely remove barriers to trade arising from the of deep preferential trade agreements. Moving limited size and challenging geography of some in this direction could provide a major boost to economies. restoring the primacy of the multilateral trading system in matters of services trade governance at a time when calls for its reform and reinvigoration have gained wide currency. 6 Trade in services for development Key messages The publication delivers six key messages. 1. Services trade is highly dynamic and offers important opportunities for developing economies Services trade has been the most dynamic component of world trade for the last 15 years. Such dynamism provides developing and least-developed economies significant opportunities for export-led growth, economic diversification, inflows of foreign direct investment (FDI) and integration into global value chains. Services trade promotes greater inclusiveness, particularly for female and young workers and entrepreneurs as well as micro, small and medium-sized enterprises (MSMEs). In 2021, 59 per cent of employed women worked in the services sector, and 9 out of 10 services firms were MSMEs. Today, the services sector generates half of employment worldwide and two-thirds of global GDP – more than agriculture and industry combined. These changes in the structure of the global economy challenge long-held perceptions of services as a less desirable path to economic growth and development compared to manufacturing. 2. The growth in services trade is a result of mutually reinforcing factors The growth in services trade has resulted from the interplay of a number of mutually reinforcing factors. These include not only policy reform efforts to make domestic service markets more contestable (e.g. competitive) but also the accelerating pace of technological change. Intermediate services (i.e. inputs in the production of other goods and services) play an increasing role in sustaining trade growth through economy-wide improvements in efficiency and facilitating cross-border production. 3. Trade in services has become more digitalized Fuelled by advances in information and communications technologies (ICT), exports of commercial services almost tripled between 2005 and 2022, with exports of digitally delivered services experiencing the fastest growth, increasing almost four-fold. During the same period, developing economies accounted for an increasing share of global services trade, as least-developed economies’ exports of commercial services grew more than four-fold between 2005 and 2002, while those of other developing economies more than tripled. The expansion of developing economies’ exports is increasingly tied to services supplied across borders through digital means. And developing economies account for an increasing share of non-traditional service exports. Such gains belie the export pessimism that long permeated earlier discussions of services trade and tended to limit developing country engagement in negotiations, particularly at the WTO. Executive summary 7 4. Services are central to tackling the most pressing global challenges Significant opportunities in the services sector still remain to be seized by developing countries. Barriers to trade remain an obstacle in different sectors and modes of supply. However, services trade policy has an important role to play in reducing trade costs, improving the performance of services, attracting FDI, boosting supply-chain resilience and increasing manufacturing productivity and exports. In this regard, services trade policies play a key role in strategies to promote development. Moreover, there is a growing acceptance that services – and services trade – will prove central to tackling the most pressing global challenges These include benefits offered by a rapidly digitalizing global economy, facilitating timely access to critical goods and services in response to pandemics and natural disasters, addressing food security by adopting the latest technology in agricultural practices, facilitating the transition to a decarbonized global economy, and designing and deploying green technologies. 5. Improved commitments on services trade can bring key benefits Although services sector reforms are chiefly undertaken by governments at the domestic level through autonomous policy measures, binding commitments in trade agreements represents a key policy complement. While services trade barriers impose significant costs, uncertainty stemming from the absence or relative paucity of binding commitments carries additional costs. Improving the level of binding commitments in services trade can send positive signals to investors about one’s business and investment climate. Encouraging WTO members to bind their best commitments from preferential trade agreements could provide a major boost to multilateral trade diplomacy – without requiring any additional liberalization undertakings – as commitments undertaken in preferential settings are typically implemented on a non- discriminatory (i.e. most-favoured-nation treatment) basis. The complementary role played by legally binding commitments in trade agreements can help to prevent protectionist backsliding and lock-in prevailing degrees of openness. The scope for unduly discretionary or arbitrary trade action can be reduced through increased transparency and policy predictability. Economies stand to benefit from the significant development gains of reviving the WTO’s market access negotiations on services. 6. An Aid for Trade roadmap for services can help tackle key challenges Adapting international cooperation to the new realities of services trade calls for increased levels of Aid for Trade. This support should be directed to strengthening the capacity of developing economies to design and implement services trade reforms and supply competitive services to global markets. Many developing and least-developed economies find it difficult to conduct domestic policy reforms and negotiations in services trade – not least because of the diverse nature of the service economy, the regulatory intensity that characterizes it, constraints in policy formulation and regulatory enforcement as well as in supply-side capacities. An approach in which Aid for Trade support underpins efforts to enhance international cooperation, reduce trade costs and improve the transparency and predictability of trading conditions could provide momentum to the services trade policy agenda – particularly at the WTO. A “trade in services for development” initiative could help to mobilize a coherent Aid for Trade package in services, targeting five key challenges: (i) addressing data gaps in services trade; (ii) supporting greater participation of developing and least-developed economies in policy discussions on trade in services; (iii) strengthening regulatory frameworks and institutions; (iv) promoting diversification, notably that offered by digital services trade; and (v) addressing key supply-side constraints and improving the services-related skills of workers. 8 Trade in services for development Introduction Services are shaping how trade contributes to economic growth and development The world economy has in recent decades slow the spread of the virus, including restrictions undergone structural shifts brought on by rapid on cross-border mobility, led to an unprecedented technological developments that have made collapse of services trade, which declined across all services one of the most dynamic sectors. The regions. The impact was more severe for services services sector has been the main source of involving face-to-face interactions. Services trade in economic growth since the 1990s and services the travel sector decreased 81 per cent year-on- today dominate the production and employment year in the second quarter of 2020. landscape of economies at all levels of development (Nayyar and Davies, 2023). At the same time, ICT services were key in ensuring economic and trade resilience and Subsectors such as logistics, finance and in speeding up pandemic recovery efforts. information and communication technologies A sustained rebound in services trade and (ICT) are essential to the functioning of modern investment will be critical to global recovery economies. Services have long comprised prospects. many of the fastest growing sectors of the world economy – such as business services, Trade and investment policies in services are healthcare, entertainment and ICT services. essential to harnessing the sector’s growth and Examples of the types of services covered by the development potential. However, maximizing General Agreement on Trade in Services (GATS) the benefits requires a rethinking of the central are provided in Figure 1. contribution that services trade plays in the development process. Furthermore, interest in Beyond their rising importance in domestic tackling the barriers to trade and investment in the economies, services are also an increasingly sector needs to be revived at the global level. prominent feature of cross-border exchanges. Services had long been the most dynamic The ability of services firms and suppliers to component of international trade and investment operate outside domestic markets holds the prior to the COVID-19 pandemic and the world has key to promoting growth, deepening integration since borne witness to how services offer growing and speeding up efforts to diversify economies. export opportunities, including for developing and Economic diversification can be fuelled not only least-developed economies, as digitalization and by growing opportunities for services exports the ability to deliver services remotely remove but also through the greater use (and sourcing) barriers to trade which can arise from the limited of competitively priced services as inputs in size and challenging geography of economies other sectors. and ease trade within and across borders. Services contribute centrally to the operation of Services were severely impacted by the cross-border production networks, such as regional pandemic, with business closures and social and global value chains. When measured in valued- distancing measures exacting a heavy toll on added terms, services account for 50 per cent of the sector. Health-related measures adopted to world trade. Introduction 9 Figure 1. Services sectors and subsectors BUSINESS SERVICES 1 (professional, computer & related, R&D, real estate, rental/leasing, other business services) 2 COMMUNICATION SERVICES (postal, courier, telecommunication, audiovisual) CONSTRUCTION AND RELATED 3 ENGINEERING SERVICES (general construction for buildings & for civil engineering, installation & assembly work, building completion & finishing work) 4 DISTRIBUTION SERVICES (commission agents, wholesale trade, retailing, franchising) EDUCATIONAL SERVICES 5 (primary, secondary, higher, adult) SERVICES ENVIRONMENTAL SERVICES 6 SECTORS (sewage, refuse disposal, sanitation & similar) FINANCIAL SERVICES 7 (all insurance and insurance related, banking & other financial) HEALTH RELATED AND 8 SOCIAL SERVICES (hospital, other human health, social) TOURISM AND TRAVEL 9 RELATED SERVICES (hotels & restaurants, travel agencies & tour operators, tourist guides) RECREATIONAL, CULTURAL AND SPORTING SERVICES 10 (entertainment, news agency, libraries, archives, museums & other culture, sporting & other recreational) TRANSPORT SERVICES 11 (maritime, internal waterways, air, space, rail, road, pipeline, services auxiliary to all modes of transport) 12 OTHER SERVICES NOT INCLUDED ELSEWHERE Source: Services Sectoral Classification List, GATT document MTN.GNS/W/120. 10 Trade in services for development range of “inside-the-border” measures of a “Trade and regulatory nature, are increasingly important investment policies determinants of foreign direct investment, economy-wide productivity gains and export in services are performance. essential to This publication is a collaboration between the harnessing the World Bank and the WTO. It is motivated by a shared view that the transformative properties sector’s growth associated with a more service-centric world economy and the contribution that trade and and development investment in services can make to economic potential.” growth and development warrant greater policy attention and revived international cooperation. The economy-wide ubiquity of services means The publication aims to help mobilize additional the sector plays a key role in the export support – and better assistance – for competitiveness of businesses in all sectors. developing and least-developed economies Productivity gains in extractive industries, in implementing services trade reforms and agriculture and manufacturing are all shaped reaping the development gains from expanded by the ease of access to efficient services trade and investment in services. and infrastructure. Improved access to quality and affordable services can enable developing In arguing the case for reinvigorated economies to integrate globally. international cooperation in services trade, it is important to remember that advancing the Diversification can help to mitigate economic development prospects of countries and the risk and trade volatility. Hence, a more varied welfare of their citizens remains the ultimate range of services exports will increase resilience goal of policy reform. Trade, economic to unexpected economic events and promote diversification and deeper integration the pursuit of more sustainable development provide key channels through which broader paths (ADB, 2021a; UNCTAD, 2022). A fuller development aims can be pursued. Such a appreciation of the dual nature of services as distinction matters substantively as a host intermediate inputs and final exports was largely of more purely domestic policies can be absent, however, when the global services expected to condition the scope that exists regime took shape during the Uruguay Round to use trade and investment as development of trade negotiations. levers in services. Growth in the services sector amplifies Simply put, the development payoff from the impact and relevance of government policies expanded services trade stands to be magnified affecting cross-border trade and investment by supportive domestic business, regulatory and in services. Such policies, which span a wide human capital ecosystems. Introduction 11 THE SERVICES SECTOR IS THE MOST DYNAMIC COMPONENT OF INTERNATIONAL TRADE Services sector is larger than agriculture and industry combined Industry Agriculture Services account for 67% 50% of global trade in Share of global GDP, 2021 value-added terms Digitally delivered services exports were worth US$ 3.82 trillion in 2022 54% of total global services exports were delivered digitally in 2022 + 375% The increase in digitally delivered services exports since 2005 12 Trade in services for development 1 The future of trade lies in services: key trends Key points • Structural shifts in the world economy brought on by rapid technological developments have placed services and services trade at the heart of economic transformation. These shifts challenge long- held perceptions of services as a less desirable path to economic growth and development. The services sector today generates more jobs (50 per cent share of employment worldwide) and output (67 per cent share of global GDP) than agriculture and industry combined – and is increasingly doing so in economies at earlier stages of development. Services trade and related policies are key to harnessing the promise of services-led development. • Fuelled by advances in information and communications technologies (ICT), global commercial services exports almost tripled between 2005 and 2022, a period that saw marked changes in the composition of services trade, with exports of digitally delivered services increasing almost four- fold. During this period, developing economies accounted for an increasing share of less traditional services exports. The expansion of developing economy exports is increasingly tied to services supplied across borders through digital means. • Expanding services trade is also delivering major gains in inclusiveness for female and young workers and entrepreneurs, as well as for micro, small and medium-sized enterprises. • Beyond their rising importance as final exports, services also play a critical trade facilitating role in the functioning of regional and global value chains, with trade in intermediate services (i.e. inputs in the production of other goods and services) valued at US$ 3.95 trillion – more than double that of final services exports. • Highlighting what has come to be called the ‘servicification’ of the world economy, services account today for 50 per cent of global trade in value-added terms, compared to 16 per cent for agriculture and 34 per cent for industry. The share of services content in total exports has increased the most in non-OECD members since 2005, recalling the significant development dividends at play in the sector. • While services trade was hit hard by the COVID-19 pandemic, digitally delivered services have led the recovery in global services trade and proved fundamental to heighted economic resilience. Still, despite the continued rise of cross-border supply, services supplied through a commercial presence continue to predominate, recalling the central importance of facilitating investment and improving business climates, including through binding commitments in trade agreements. 14 Trade in services for development 1. The worldwide shift towards services The contribution of services in economies 59 per cent to 75 per cent, respectively, between worldwide has increased markedly over time. 1970 and 2021. The services sector’s share of global GDP increased from 53 per cent to 67 per cent The GDP share of services in low-income between 1970 and 2021. The increasing economies also increased over this period, contribution of services to GDP has occurred from 36 per cent to 42 per cent. This growth, in economies at different levels of development however, was less pronounced than in the rest of and has been accompanied by a marked the developing economies, and was largely due decline in the relative share of agriculture to the more significant role agriculture plays in (see Figure 2). the world’s poorest countries. The shift towards services has been pronounced in developing economies. In much of the Services sector’s share of global GDP developing world, growth in services output has outpaced growth in industry and agriculture. On the basis of World Bank income groups, the 1970 2021 53% 67% shift towards services has been most prominent for upper middle-income and high-income economies, whose shares of services of GDP grew from 40 per cent to 56 per cent and from “ Growth in services output has outpaced growth in industry and agriculture. 0 20 40 60 80 100 0 20 40 60 80 100 0 20 40 60 80 100 1970 1970 1971 1971 1972 1972 1970 1973 1973 1974 1974 1975 1975 1971 WORLD 1976 1976 Figure 2. 1977 1977 1972 1978 1978 1979 1979 1973 1980 1980 1981 1981 1974 1982 1982 1983 1983 1975 1984 1984 1985 1985 1976 1986 1986 1987 1987 1977 1988 1988 1989 1989 1978 1990 1990 1991 1991 1979 1992 1992 1993 1993 1994 1994 1980 1995 1995 1996 1996 1981 1997 1997 LOWER MIDDLE-INCOME 1998 1998 1982 1999 1999 2000 2000 1983 2001 2001 HIGH-INCOME ECONOMIES 2002 2002 1984 2003 2003 2004 2004 1985 2005 2005 2006 2006 1986 2007 2007 2008 2008 1987 2009 2009 2010 2010 1988 2011 2011 2012 2012 1989 2013 2013 Agriculture 2014 2014 2015 2015 1990 2016 2016 (As a share of the respective GDP, in per cent) 2017 2017 1991 2018 2018 2019 2019 1992 2020 2020 2021 2021 1993 1994 1995 0 20 40 60 80 100 0 20 40 60 80 100 1996 1970 1970 1997 Industry 1971 1971 1972 1972 1973 1973 1998 1974 1974 1975 1975 1999 1976 1976 1977 1977 2000 1978 1978 1979 1979 2001 1980 1980 1981 1981 2002 1982 1982 1983 1983 2003 1984 1984 1985 1985 1986 1986 2004 1987 1987 Services 1988 1988 2005 1989 1989 1990 1990 2006 1991 1991 1992 1992 2007 1993 1993 1994 1994 2008 1995 1995 1996 1996 2009 1997 1997 Share of GDP by sector, world and World Bank income groups, 1970-2021 1998 1998 2010 1999 1999 2000 2000 LOW-INCOME ECONOMIES 2011 2001 2001 2002 2002 2012 2003 2003 2004 2004 2005 2005 2013 2006 2006 2007 2007 2014 2008 2008 2009 2009 2015 2010 2010 The future of trade lies in services: key trends 2011 2011 2016 2012 2012 2013 2013 2017 World Development Indicators database, available at https://databank.worldbank.org/source/world-development-indicators. 2014 2014 UPPER MIDDLE-INCOME ECONOMIES 2015 2015 2018 2016 2016 Source: UNCTADstat database, available at https://unctadstat.unctad.org/wds. Estimates for 2021 based on the World Bank’s 2017 2017 2019 2018 2018 2019 2019 2020 2020 2020 2021 2021 15 2021 16 Trade in services for development Services today generate 75 per cent of Data from the International Labour Organization GDP and of employment in most developed (ILO) show that services and agriculture each economies. In both developing and developed accounted for 40 per cent of total global economies, services now account for a greater employment in 2000.4 By 2021, however, share of GDP than either agriculture or 50 per cent of the world’s workforce was industry. While the share of agriculture in GDP employed in services, but the share of has long been in decline globally, the relative agriculture had dropped to only 27 per cent. contribution of industry has also been declining in many economies. Economies at all levels of The services sector has grown to become the development are generally specializing less in main source of employment in both high-income industrial activity – the manufacturing sector economies (75 per cent of total employment also employs fewer workers following the rapid in 2021) and also upper middle-income spread of labour-saving technologies.1 economies (53 per cent; see Figure 3). Meanwhile, agriculture still accounts for the Not surprisingly, the point at which industry peaks highest proportion of employment in low-income in terms of output and employment is occurring economies, at 58 per cent. at earlier stages of economic development in a number of economies, prompting concerns of Yet, services-sector employment grew “premature de-industrialization”.2 significantly in low-income economies, from 21 per cent in 1995 to 31 per cent in 2021. In a similar fashion, the services sector is driving Figure 3 shows that, similar to the trend in the labour market outcomes – and today generates share of GDP, the share of services in total more jobs than any other sector and at earlier employment has grown significantly across all stages of development.3 income groups since 1995. Figure 3. Share of employment by sector, world and World Bank income groups, 1995-2021 (As a share of total employment, in per cent) 7% 3% 5% 4% 41% 36% 29% 27% 37% 58% 40% 43% 69% 49% 61% 70% 36% 24% 55% 26% 21% 22% 23% 26% 29% 27% 75% 73% 23% 23% 70% 65% 24% 21% 23% 11% 22% 21% 10% 23% 53% 33% 18% 50% 50% 48% 29% 16% 9% 9% 42% 40% 40% 38% 38% 34% 31% 29% 23% 21% 2021 2021 2021 2021 1995 2005 2015 1995 2005 2015 1995 2005 2015 1995 2005 2015 2021 1995 2005 2015 World High income Upper Lower Low income middle-income middle-income Services Manufacturing Agriculture Agriculture Industry Services Source: ILO World Employment and Social Outlook (WESO) Data Finder, available at https://www.ilo.org/wesodata. The future of trade lies in services: key trends 17 (a) The inclusive dimension of services: women’s empowerment, youth and MSMEs Women’s empowerment countries (up from 80 per cent in 2000), 62 per cent in upper middle-income countries (up Services have a positive gender dimension from 40 per cent), 43 per cent in lower middle- and play an important role in women’s income countries (up from 29 per cent), and empowerment. In 2021, 59 per cent of 30 per cent in low-income countries (up from employed women globally worked in the 19 per cent). services sector, compared to only 44 per cent in 2000 (see Figure 4). In contrast, services Women-led firms have more success in the accounted for 45 per cent of total male services sector – in particular for services employment in 2021. delivered remotely over digital platforms (Sauvé, 2020). This suggests that some gender- The share of women employed in the services specific barriers to female entrepreneurship sector has increased in all economies since may prove less onerous than in industry, not 2000. Services now account for 87 per cent least in light of the smaller average size and less of total female employment in high-income capital-intensive nature of service exporting firms. Figure 4. Share of female employment by sector, world and World Bank income groups, 2000 and 2021 (As a share of total female employment, in per cent) 2% 39% 25% 5% 37% 18% 59% 42% 75% 62% 11% 16% 87% 20% 80% 16% 17% 23% 62% 59% 15% 44% 43% 40% 12% 8% 29% 30% 6% 19% 2000 2021 2000 2021 2000 2021 2000 2021 2000 2021 World High income Upper Lower Low income middle-income middle-income Services Industry Agriculture Services Industry Agriculture Source: ILO World Employment and Social Outlook (WESO) Data Finder, available at https://www.ilo.org/wesodata. 18 Trade in services for development “ In 2021, three in every five employed women worked in the services sector. The future of trade lies in services: key trends 19 Among firms that export, the proportion Figure 5. of enterprises owned by women in the Youth employment in selected developing services sector is significantly greater than economies, 2021 in industry, even though the proportion of exporting firms that are led by men is higher in both sectors. 26% Youth 45% The services sector has also become an increasingly important source of employment for younger workers and entrepreneurs in developing economies. Across a range of economies, the services sector accounted for 29% 45 per cent of youth employment in 2021 (see Figure 5). For example, in Albania, the service sector's share of youth employment grew from 35 per cent in 2010 to 56 per cent in 2020. In Agriculture Services Industry Services Industry Agriculture Guatemala, such a share rose from 45 per cent to 54 per cent over the same period. Among Source: ILO YouthSTATS database, available at https://ilostat. ilo.org/resources/concepts-and-definitions/description-youth- exporting firms, the proportion that are led by labour-market-statistics. youth is once again much greater in services than Note: Data on 32 developing economies for 2021 or the most in industry and for much the same reasons found recent year available. Youth here refers to people aged between 15 and 29. to apply to female-owned or led firms (ITC, 2022). Micro, small and medium-sized enterprises Further underscoring its contribution to economic and social inclusion, the services sector accounts for the largest number of firms, particularly micro, small and medium-sized enterprises (MSMEs). The International Trade Centre (ITC, 2022) estimates that nine out of ten services enterprises globally employ fewer than 100 employees. “Across a range of economies, the services sector accounted for 45% of youth employment in 2021.” 20 Trade in services for development 2. Services-led pathways to growth and development Many services have long been portrayed as industry sectors. The growing contribution of non-tradable activities characterized by low services to economic transformation is attributed, productivity and wages, responding primarily to among other factors, to their increasing domestic demand and offering less desirable tradability and to the greater contestability of growth and development paths relative to services markets.6 manufacturing.5 The economic development gains associated with the export-oriented, The internationalization of services affords greater manufacturing-led development, in East Asia opportunities to specialize, exploit comparative reinforced the belief that the pathway to sustained advantages and export. However, the improved growth for lower-income economies necessarily services sector performance associated with lay with manufacturing. heightened market contestability, much of it pursued via unilateral pro-competitive reforms, has However, the trajectory of the structural also been found to boost productivity in transformation seen in recent decades in non-services sectors of the economy.7 developing economies has challenged these long-held perceptions of services pessimism Two other growth-inducing features of (see Nayyar et al., 2021). The structural changes manufacturing were its innovation dynamics, have vastly expanded job opportunities and through capital accumulation impacting labour reduced cross-sectoral productivity gaps both productivity, and the spillover effects associated within and across economies. Services are today with cross-sectoral linkages. Both are attributes seen as central determinants of productivity, that are increasingly seen to operate in services. competitiveness and rising living standards. ICT applications across a range of services, from transport and logistics to professional The ability to supply, access and export services, have seen sustained product and efficient, affordable and innovative services process innovation fuel important gains in labour has become central to the realization of productivity (Nayyar et al., 2021). development strategies. Services are also increasingly linked to other As services become easier to trade across sectors, expanding productivity by creating borders, more technologically intensive and economy-wide spillovers. This is illustrated by the subject to growing economies of scale, the central intermediation role services perform as idea that productivity gains stem chiefly from inputs in the production and export of goods and manufacturing and that expansion of the services other services. sector can only come at the expense of overall growth has lost considerable ground (see Still, while labour productivity in services has Nayyar and Cruz, 2019). The gains observed in grown and reduced the gap with manufacturing, services-sector productivity reflect the fact that significant cross-sectoral and cross-country a growing number of services sectors display variance remains. The extent to which sectors features similar to those driving productivity share features associated with economies of growth in manufacturing – not least as a result scale, trade intensity, spillovers and innovation of the opportunities offered by ICT. Digitalization varies greatly. Some services sectors, such as favours economies of scale as the range of financial and ICT services, have higher total services become more easily storable and factor productivity than manufacturing in low- tradable, lessening the need for simultaneity and middle-income economies; while others, in production and consumption and vastly such as hospitality, have lower productivity than expanding the range of markets that can be manufacturing. reached through remote means. In leveraging services for gains in employment A growing body of evidence has in recent years and productivity, recent work at the World Bank documented how services offer a growth path has drawn attention to the critical importance of that complements activity in agriculture and four major policy areas (Nayyar et al., 2021): The future of trade lies in services: key trends 21 • expanding services trade; broader context, where structural shifts towards • fostering technology adoption; services provide trade opportunities – but • training workers to upgrade skills; simultaneously – also where government • targeting services that provide benefits to the policies on services trade are key to spurring wider economy for public support. services-led growth and development by helping to foster economy-wide gains in How to harness gains in economic development efficiency and competitiveness. by expanding services trade is to be seen in this 3. Increasing importance of services in world trade The global shift towards services has a statistics. However, their greater – and arguably trade corollary. Services now account for a more important – influence stems from the significant share of world trade and investment, central role services play in cross-border as reflected in balance of payments (BOP) production networks. (a) Trade in commercial services forms a large and growing share of world trade Services had long been the most dynamic Share of commercial services in global component of world trade prior to the trade in 2022 COVID-19 pandemic. Measured on a BOP basis, trade in commercial services8 expanded >22% at a faster pace than trade in goods between 2011 and 2019.9 The share of commercial services in global trade flows stood at over 22 per cent in 2022, down from 25 per cent in 2019, prior to the COVID-19 pandemic. Developing economies’ share of global Since 2005, global commercial service exports commercial services exports have increased by almost 170 per cent (see Figure 6). The growth rate of commercial services 2022 exports has been stronger in developing economies and least-developed economies (see Figure 7). Between 2005 and 2022, commercial services 33.5% up from exports from least-developed economies grew well over 300 per cent, while those of other developing 2005 economies grew more than 250 per cent. As a result, the share of developing economies 23.5% in global commercial services exports has Growth in commercial services exports, increased markedly – from 23.5 per cent in 2005-2022 2005 to 33.5 per cent in 2022. Despite its impressive growth, however, the relative share of Least-developed Developing services exports for least-developed economies economies economies remains limited, at less than 1 per cent of global exports – a level that has further regressed following the COVID-19 pandemic. >300% >250% 22 Trade in services for development From 2005 to 2022, the share of global shares of Asia, Latin America and the Caribbean, commercial services exports of Africa, Europe, and the Middle East increased, while those of Latin America and the Caribbean, and North Africa, Europe and North America declined. America all declined, while those of Asia (from 19.5 per cent to 24.2 per cent) and the Middle The expansion of trade in commercial services East (2.5 per cent to 5.4 per cent) increased. was fuelled by advances in ICT, perhaps best China and India doubled their share of global exemplified by the global expansion of the Internet, commercial services exports from 2005 to 2022, which has boosted opportunities for the remote from 3.0 per cent to 5.4 per cent, and from supply of services (including across borders), such 2.0 per cent to 4.4 per cent, respectively. With as professional, business, audiovisual, education, regard to global commercial services imports, the distribution, financial and health-related services. Figure 6. Growth in world exports of goods and commercial services, 2005-2022 (Index 2005 = 100) 300 250 200 150 100 2005 2010 2015 2020 Commercial services Goods Source: WTO Stats, available at https://stats.wto.org, and WTO estimates. Figure 7. Growth in exports of commercial services, by groups of economies, 2005-2022 (Index 2005 = 100) 450 400 350 300 250 200 150 100 2005 2010 2015 2020 Rest of the world Other developing economies Least-developed economies Source: WTO Stats, available at https://stats.wto.org, and WTO estimates. The future of trade lies in services: key trends 23 Growth of exports of ‘other personal, cultural and recreational services commercial services’ (7 per cent) and other business services (7 per cent). Trade has grown more rapidly in less traditional sectors such as ICT services when compared Figure 8 also contrasts the services trade growth to transport, travel and goods-related services across different economies and underscores (see Figure 8). BOP statistics reveal that that the expansion of developing economy these ‘other commercial services’10, which exports is increasingly tied to less traditional include many digitally delivered services, have services that can be more readily supplied expanded at a much faster rate between 2005 across borders through digital means. Least- and 2022 than more traditional sectors such as developed economies experienced strong transport (6 per cent) and travel (3 per cent), growth in more traditional sectors such as which were greatly affected by the COVID-19 transport (14 per cent) and construction services pandemic. Within ‘other commercial services’, (11 per cent), as well as in personal, cultural telecommunications, computer and information and recreational services (23 per cent) and services had the fastest annual growth from telecommunications, computer and information 2005 to 2022 (10 per cent), followed by services (18 per cent). Figure 8. Average annual growth rate of exports in selected services sectors, by groups of economies, 2005-2022 Total commercial services Transport Sectors Travel Goods-related services Other commercial services Personal, cultural & recreational Other commercial services Other business services Telecom., computer & information services (subsectors) Charges for the use of intellectual property Financial Insurance & pension Construction -5% 0% 5% 10% 15% 20% 25% World Least-developed economies Other developing economies Source: WTO Stats, available at https://stats.wto.org, and WTO estimates. 24 Trade in services for development “ The growth of developing economy exports is increasingly in services supplied digitally. Growth in computer services exports The growth of sectors such as telecommunications, computer and information Bangladesh services have been particularly strong in 2019-2022 developing economies in recent years. For +31% instance, computer services exports in Pakistan grew by 14 per cent in 2022, following a 45 per cent rise in 2021, and increased on average by 31 per cent in Bangladesh from Pakistan 2019 to 2022. The experience of India and the Philippines as global leaders of trade in computer 2021 services and in business process outsourcing +45% services illustrates the growth potential of trade in non-traditional services, as well as the benefits for female employment (see Box 1). The future of trade lies in services: key trends 25 Export growth in less traditional services has COVID-19 pandemic in 2019. Those services helped to diversify the export baskets of many featured prominently in the total exports of developing economies. Figure 9 shows that, developing economies before, as well as for a number of developing economies, ICT, during, the pandemic (7 per cent of total finance and other business services, which are exports of goods and services in 2022), predominantly exported digitally, accounted for which, in certain cases, transformed export over 15 per cent of total exports of goods and profiles, notably by lessening the share of services in 2022 as well as before the tourism-related services. Figure 9. Share of telecommunication, computer and information services, other business services, and finance, 2019 and 2022 (Top 10 WTO members, in per cent) 2019 Israel 32.8 United Kingdom 29.6 Seychelles 27.4 India 26.4 Nepal 26.2 Ghana 25.7 Phillipines 25.1 Costa Rica 25.1 Dominica 22.9 Singapore 16.6 0 10 20 30 40 50 60 2022 Dominica* 58.6 Samoa 47.9 Israel 35.3 United Kingdom 29.7 Philippines 29.3 India 28.6 Tonga 28.4 Afghanistan* 26.9 Ghana 25.7 Costa Rica 25.3 0 10 20 30 40 50 60 Source: WTO Stats, available at https://stats.wto.org, and WTO estimates. Note: European Union counted as one. *Data from 2021. 26 Trade in services for development Box 1. Computer services and business process outsourcing: India and the Philippines India is deeply integrated into the global value Government intervention chains (GVCs) of the software industry. Starting in the 1990s, it became a leading destination for The two countries’ boom in BPO services exports multinational corporations to outsource their labour- is mostly due to comparative advantages and the intensive software and business process outsourcing implementation of government initiatives and policies (BPO) services. The export of computer-related that created an enabling environment for BPO services has significantly contributed to India’s companies. Both India and the Philippines have a economic growth. large, young workforce with strong English language capabilities and familiarity with digital and distance Similarly, the Philippines has become a global leader communication – mainly facilitated by the mass in BPO and is now considered the call centre capital emigration Indian and Filipino workers. of the world. The country specializes in outsourcing customer services and back-office services, such The Indian diaspora played an important role as call centre activities, computer-related services, in shaping policies in the IT sector in India. medical transcription and animated films and cartoon The government, for example, created bilateral productions, mainly to overseas corporations. programmes for expatriates to connect with the IT sector in India through several channels to promote Job creation knowledge transfers, consultancies, the creation of alumni networks for government-funded institutions Services value chains are a major contributor to in the sector, honorary fellowships at Indian economic growth and sources of foreign exchange universities, and government advisory panels with the for both countries. In India, no other industry has participation of non-resident Indian IT professionals. generated as many well-paid jobs over the past decade as the IT industry. Government interventions played an important role in helping develop the sector and attracting Similarly, the IT and business process management foreign investment. For instance, liberalization of sector in the Philippines is the largest employment the telecommunication sector in the 1990s in both generator. In 2021, it created 1.23 million direct countries helped foster the digital infrastructure jobs and 4.08 million indirect jobs and generated needed for the BPO sector industry to flourish. US$ 24.7 billion in revenues. In addition, both countries implemented intellectual Women’s empowerment property rights legislation and cybercrime regulations. Government incentives in the form of duty-free The contribution of BPO services goes beyond imports for equipment and supplies, tax exemptions, growth and employment. They also make important 100 per cent foreign ownership, and industrial contributions to skills upgrading, higher education parks, as well as reforms that facilitated business attainment and social inclusion – boosting the operations, such as one-stop-shop services for participation of women in the workforce. business registration, all contributed to strengthening both countries’ comparative advantage in the sector. In the Philippines, approximately 54 per cent of the BPO sector’s workforce are women. Call Future investment centres are the largest employers in the BPO sector and the majority of the workforce are also To keep pace with rapidly changing technology women (55 per cent). In India, 34 per cent of the IT and still remain competitive and progress up the workforce are women. Female workforce participation value chain, India and the Philippines will need to in the BPO industry is much higher than the national continually upskill and reskill their workforces and average, which is 46 per cent in the Philippines and invest in the development of their domestic services 21 per cent in India. sectors – particularly in terms of R&D. An important concern for both countries is that their participation The future of trade lies in services: key trends 27 in services GVCs arguably still involves a too high These investments are supporting BPO firms in the share of largely routine low value-adding tasks. Philippines to move towards more specialized and knowledge-based BPOs to cover fraud analytics, BPO firms in the Philippines are now integrating data integration, project management, R&D, cloud technology and robotic automation into mergers and acquisitions valuation and product processes and applications, which is helping profitability analyses. to increase productivity and business model sophistication. Source: Nano and Stolzenburg (2021). “ India and the Philippines have become global leaders in computer services and business process outsourcing. 28 Trade in services for development Structure of commercial services trade have been more pronounced. The share of ‘other commercial services’ in their total commercial Reflecting differing cross-sectoral trajectories, services exports rose from 34 per cent to the structure of trade in commercial services 48 per cent between 2005 and 2022. While the has changed significantly at the global level pandemic had a strong impact on the structure since the COVID-19 pandemic. The share of of world trade, particularly in light of the steep travel and transport services in world services decline in travel-related receipts, the relative trade has declined markedly, while that of expansion of ‘other commercial services’ at the services that can be more readily supplied expense of more traditional sectors had already electronically has increased. Indeed, the started beforehand. share of ‘other commercial services’ in global commercial services exports increased steadily Subsectors which have seen the strongest from 48 per cent in 2005 to 56 per cent in growth in their relative importance for 2019, and then rose to 66 per cent in 2021, developing economy exports include the falling back to 59 per cent in 2022, reflecting telecommunications, computer and information a COVID-induced boost and the relative services subsector (from 7 per cent of total contraction of other sectors due to pandemic- developing country exports of commercial services related restrictions (see Figure 10). Meanwhile, in 2005 to 14 per cent in 2022), other business the aggregate share of travel, transport and services (from 19 per cent to 23 per cent), and goods-related services dropped from 52 per cent insurance and pension services (from 1.4 per cent to 41 per cent between 2005 and 2022. to 2.6 per cent). In contrast, the share of transport and travel decreased from 62 per cent to For developing and least-developed economies, 49 per cent between 2005 and 2022, and the changes in the composition of services trade pandemic further encouraged this shift. Figure 10. Structure of global exports of commercial services, 2005-2022 100% 27 26 25 24 25 25 25 25 25 24 25 25 24 24 24 11 10 17 17 19 80% 21 22 22 23 20 21 20 20 19 19 18 17 17 17 17 22 68 66 60% 59 53 54 55 55 55 56 50 52 51 52 52 52 48 49 50 40% 20% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Other commercial services Transport Travel Goods-related services Source: WTO Stats, available at https://stats.wto.org. Note: Goods-related services cover the BOP categories of ‘manufacturing services on physical inputs owned by others’ and ‘maintenance and repair services not included elsewhere’. The future of trade lies in services: key trends 29 over the same period in each of the above Share of ‘other commercial services’ regions – except for Africa, where it declined exports in developing economies from 40 per cent to 37 per cent. As a result, the 2005 2022 sector accounts for a smaller share of Africa’s total 34% 48% services imports than is the case in other regions.11 The qualitative changes at play should not be underestimated. Not only do less traditional services account for a growing share of As a share of total commercial services exports. developing economies’ services exports, but these economies also account for increasing shares of world exports in these sectors (see The composition of services trade has changed Figure 11). This is so even as their share of across all regions, producing broad-based world trade in traditional services still remains development gains. The share of ‘other relatively more important (with 49 per cent of commercial services’ in total commercial world exports for transport and 45 per cent services exports increased in all regions between for travel in 2022). 2005 and 2022, most notably in Africa (from 21 per cent to 27 per cent), Asia (39 per cent to Developing economies’ share of world 61 per cent), as well as in Latin America and the exports of ‘other commercial services’ grew Caribbean (29 per cent to 39 per cent). from 17 per cent to 28 per cent between 2005 and 2022. Their share of world exports The share of ‘other commercial services’ in total of business and computer services also imports of commercial services also increased increased noticeably.12  Figure 11. Developing economies’ share of global commercial services exports, by selected main sectors, 2005-2022 (As a share of global exports for each sector, in per cent) 55 50 50.6% 45 43.0% 40 42.8% 35 35.5% 31.6% 30 25 20 17.5% 15 10 5 0 2005 2010 2015 2020 Transport Travel Construction Other business services Telecom., computer & information Financial Source: WTO estimates. Note: Developing economies here include least-developed ones. 30 Trade in services for development Digitally delivered services exports, 2022 US$ 3.82 trillion 54 share of global % services exports Digitally delivered services The rapid expansion of services trade, especially (5.6 per cent) and other services (4.2 per cent) of less traditional services, mirrors the strong (see Figure 12). While tourism and other services recent growth of digitally delivered services. requiring cross-border mobility of people fell in Services are central to digital trade – not only this period, digitally delivered services exports because a broad range of services can now be continued to rise, reaching US$ 3.82 trillion in supplied online, but also because they provide 2022, and representing a 54 per cent share of the basic enabling infrastructure for digital total global services exports. supply, digital transactions and e-commerce more generally. Boosted during the pandemic by remote working, learning and entertaining, the According to the latest WTO (2023) estimates, year-on-year growth of digitally delivered global exports of digitally delivered services services exports was 14 per cent in 2020 and more than tripled since 2005, growing 8.1 per 15 per cent in 2021. Digitally delivered services cent per year on average during 2005-2022, exports in 2022 were recorded 37 per cent outpacing the growth in exports of both goods above 2019. Figure 12. Growth of digitally delivered services exports, 2005-2022 (Index 2005 = 100) 400 300 200 100 0 2005 2010 2015 2020 Digitally delivered services Goods Other services Source: WTO estimates (WTO, 2023). Note: ‘Digitally delivered services’ comprise mode 1 exports of the following BOP categories: financial services, insurance and pension services, charges for the use of intellectual property not included elsewhere, telecommunication, computer and information services, and selected categories in business services and personal, cultural and recreational services. The future of trade lies in services: key trends 31 Digitally delivered services exports under mode 1 in Africa and in least-developed economies (cross-border supply) have grown rapidly continued to lag, with Africa holding less than a across all regions in recent years (see Box 2 1 per cent share of digitally delivered services for information on modes of supply). Europe exports in 2022. accounts for more than half of global exports of digitally delivered services. Asia’s exports have The expansion of services trade in developing been rising faster than the rest of the world. economies also encompasses health and education services. While trade in these In 2022, almost 25 per cent of digitally delivered sectors has offered important export growth services originated from Asia and 19 per cent opportunities – including, but not exclusively, from North America. Latin America and the as a result of digitalization – it has also helped Caribbean as well as the Middle East saw an advance a range of non-trade objectives, acceleration in growth in 2022. However, growth discussed in Boxes 3 and 4. Box 2. Services trade: four modes of supply The WTO’s General Agreement on Trade in Services (GATS) categorizes services trade according to four modes of supply. MODE 1: cross-border supply MODE 2: consumption abroad Services are supplied from the territory of one WTO Services are provided in the territory of one member member into the territory of any other member (e.g. to a consumer of any other member (e.g. tourism). through the Internet). MODE 4: presence of natural persons MODE 3: commercial presence A supplier of one member provides services through Services are delivered by a supplier of one member the presence of natural persons in the territory of through its commercial presence in the territory of another member (e.g. consultants). any other member (e.g. establishing a subsidiary in a foreign country to serve the local market). 32 Trade in services for development Box 3. Developing export-oriented medical services Trade in medical services through all four modes of For instance, trade in health services can help supply was estimated at US$78.6 billion in 2019. It developing countries address their physical and has been an important element in the fight against the human capital deficiencies in the healthcare industry. COVID-19 pandemic. However, pandemic-related However, the impact of trade on health systems restrictions resulted in a contraction of trade in will depend on a number of factors, including the medical services by 9 per cent. structure of the domestic health system and the formulation of accompanying regulations and policies. Trade in medical services holds the potential to improve the accessibility and quality of domestic healthcare in both exporting and importing countries. “ Trade in medical services was US$ 78.6 billion in 2019. The future of trade lies in services: key trends 33 Mode 1: telemedicine are required to serve three years in the public system, including in rural areas, prior to working Telemedicine has been growing in recent years, in private hospitals, in return for public funding of with the COVID-19 pandemic rapidly accelerating their education. The government has also increased this trend. Telemedicine can bring many benefits the salaries of physicians, nurses and dentists for developing countries, especially in terms of in all community hospitals to encourage these alleviating human and infrastructure constraints professionals to stay in the public health sector and in remote and underserved areas and expanding maintain the quality of public healthcare services. access to quality medical services. The availability of telemedicine services is heavily reliant on the quality Mode 3: foreign commercial presence of internet connectivity and telecommunications infrastructure. Prospects for cross-border Foreign investment in the health services sector telemedicine may be also hampered by the absence has the potential to bring medical technologies and of strong legislative frameworks for telemedicine, innovation through improved access to, and the digital trade and data protection. transfer and the upgrading of, medical technologies, know-how and other strategic assets, while also Mode 2: medical tourism helping to eliminate pre-existing shortages. This is particularly attractive for developing countries Medical and wellness tourism has expanded with health infrastructures in need of improvement, significantly in recent decades, propelled by as it lowers the pressure imposed on limited improved telecommunications and transport public finances while improving access to medical services. Countries such as Brazil, Cuba, India, services. Increased capacity can also make available Jordan, Malaysia, the Republic of Korea, Singapore, inexistent or scarce health services (e.g. specialized Thailand and the United Arab Emirates have treatments), helping to reduce the need to import become major medical hubs, receiving foreign such services. patients from both developed and developing countries. For example, India has become a popular Foreign investment in health services creates destination for medical travel, and hosted around spillovers reaching far beyond the health sector, 3.5 million foreign patients from 2009 to 2019. including indirect effects on growth, income and Foreign patients from developed countries such as employment as well as in other sectors such as the United Kingdom and the United States, as well construction, transport, telecommunications and a as from developing countries such as Bangladesh, host of business services. Foreign firms often have Nepal and Sri Lanka, go to India in search of less better access to technologies and strategic assets, costly, high-quality treatment. often outperforming domestic institutions but also helping improve quality and competition between Thailand is another popular destination for medical health services providers. tourism. It has developed a large medical tourism sector geared towards foreign patients, with In India, HLL Lifecare Limited (a state-owned 61 hospitals bearing the Gold Seal of Approval enterprise) and the Acumen Fund (a non-profit from the Joint Commission International, an impact investment fund based in the United States) organization which assesses hospital standards created a joint venture to provide high quality and around the world. In 2019, Thailand received more affordable (30-50 per cent cheaper) maternity 172,265 international medical tourists, according hospital care to low-income and underserved to estimates by its National Statistical Office. In communities in India. The joint venture has expanded order to mitigate the internal brain drain risk caused to nine hospitals since 2008, becoming the largest by the expansion of an industry geared towards chain of maternity hospitals in southern India and attracting international tourists, doctors and nurses providing services to more than 300,000 patients. Source: Gillson and Muramatsu (2020) and World Bank and WTO (2022). Note: For background information on the development of trade in health services in developing countries, see Cattaneo (2009). 34 Trade in services for development Box 4. Digital trade partnerships in health and education services in Africa Pan-African e-Network Project African Digital Health Library Digital services trade plays an important role in Another digital health services partnerships in Africa facilitating access to health and education. The Pan- is the initiative between the University of Florida African e-Network Project – launched and funded and an online medical library in Zambia. The aim is by the Government of India in partnership with the to disseminate medical information to doctors in African Union – has become one of the largest Southern Africa. telemedicine and online education projects in Africa. The project’s aim is to connect major universities and Africa Teledermatology Project centres of excellence in Africa and India, extending quality higher education opportunities for thousands The Africa Teledermatology Project provides support of African students. to dermatology professionals and patients in Africa through a range of services such as: The project also aims to connect major African hospitals to highly specialized hospitals in India for • online consultation services; medical training, online medical consultations and • discussions pertaining to diagnosis and other medical services. The project would connect management of patients with skin diseases; 53 learning centres, 53 remote hospitals, five • links to education resources; regional universities and five regional hospitals in • access to a dermatologic curriculum designed Africa to 12 highly specialized hospitals and seven specifically for African sites. leading Indian universities. African states participating in this project include The project is now in its second phase, and 47 Botswana, Burkina Faso, Eswatini, Lesotho, Malawi African states have already joined the initiative. and Uganda, and is funded by the American Academy As part of this phase, the Government of India of Dermatology, the Austrian Academy of Sciences launched the e-VidyaBharati (tele-education) and and the Commission for Development Studies. e-ArogyaBharati (telemedicine) Network Project (e-VBAB) in October 2019. The project now Virtual University of Uganda features an online education portal (www.ilearn. gov.in), providing students and professionals in Several other online educational initiatives are Africa with access to over 500 courses in a variety underway. The Virtual University of Uganda is the of fields, such as engineering, science, pedagogy, first online university in the country to be licensed by mathematics and humanities. the Uganda National Council for Higher Education. The university offers online education and provides The portal also offers 15,000 scholarships to students access to an e-library, which contains African students to further their education through more than 50 million open-access items, including undergraduate and postgraduate courses from resources from internationally renowned universities leading private universities in India. In the medical such as the Massachusetts Institute of Technology field, the project offers telemedicine for patients and Johns Hopkins University. and continuing medical education for African doctors and paramedics. The university recruits local and international staff and students. Its foreign student body features students from Burundi, the Democratic Republic of the Congo, Rwanda, Somalia and South Sudan. Source: Africa Teledermatology Project, the Government of India, and iLearn. Note: For background information on the development of trade in health services in developing countries, see Dihel and Goswami (2016). The future of trade lies in services: key trends 35 (b) Expansion of jobs linked to services exports The growth of cross-border services trade has for more than 10 per cent of total services resulted in an increasing number of jobs linked sector jobs. Figure 13 highlights that, for some to services exports, including in developing countries, cross-border services exports account economies. These jobs represent a large and for over 20 per cent of total jobs (e.g. Ireland, rising share of many countries’ total services Netherlands, Costa Rica). The share of jobs jobs and, in some countries, of total employment. linked to services exports has, overall, tended to In India, South Africa and Türkiye, jobs directly increase, outpacing the growth of total jobs in linked to cross-border services exports account developed and developing economies alike. Figure 13. Proportion of jobs linked to cross-border exports of services (2005 and 2018) Argentina Australia Belgium Brazil Canada China Colombia Costa Rica Croatia Denmark France Germany Hungary Iceland India Indonesia Ireland Israel Italy Japan Korea, Rep. Mexico Netherlands New Zealand Norway Russian Fed. Saudi Arabia South Africa Spain Sweden Switzerland Türkiye UK US 40% 30% 20% 10% 0% 0% 0% 10%10% 20% 20% 30% 30% 40% 40% Jobs in service trade exports/total services jobs 2018 Jobs in services trade exports/total employment 2005 Jobs in service trade exports/total employment 2018 Jobs in services trade exports/total employment 2018 Source: OECD Trade in Employment (TiM) Database, available at https://stats.oecd.org/Index.aspx?DataSetCode=TIM_2021#. 36 Trade in services for development (c) Key role of micro, small and medium-sized enterprises in services trade MSMEs play a key role in services trade and At the WTO, work carried out within the Informal account for the greater share of total cross- Group on Micro, Small and Medium-sized border services exports (67 per cent) in a Enterprises aims at enhancing the participation of range of developed and developing economies smaller firms in services trade and the inclusion (see Figure 14). The WTO (2019) finds that a of developing economies in the international rise in services trade is less likely to be biased trading system (see Box 5). towards larger firms than is observed for manufacturing trade. Indeed, when total global exports are considered (i.e. goods and services), “The WTO’s Informal large enterprises account for the greater part Group on Micro, Small of exports, with the contribution of MSMEs and Medium-sized dropping to 38 per cent. Enterprises aims A study by the ITC (2022) finds that the to enhance the gap in export propensity between small and large enterprises is much less pronounced in participation of smaller services than in manufacturing – 28 per cent of firms in services trade MSMEs in manufacturing export, compared to 77 per cent of firms with at least 100 workers. and the inclusion of This 49 percentage point gap is more than developing economies twice as large as the 22 percentage point gap in services, where 16 per cent of MSMEs export in the international compared to 38 per cent of large companies. trading system.” Figure 14. Average share of goods and services exports by MSMEs, selected economies, 2008-2020 70% 60% 50% 40% 30% 20% 10% 0% 2008 2010 2012 2014 2016 2018 2020 Share of total goods exports Share of total service exports Source: OECD Trade by Enterprise Characteristics (TEC) database, available at https://www.oecd.org/sdd/its/trade-by-enterprise- characteristics.htm. Note: MSMEs are here defined as firms with fewer than 250 employees. Selected economies comprise 34 OECD members and 7 non-OECD members. The future of trade lies in services: key trends 37 Box 5. WTO’s Informal Working Group on Micro, Small and Medium-sized Enterprises The Informal Working Group on Micro, Small and • transparency; Medium-sized Enterprises* was established at the • access to information; end of 2017 and includes 98 WTO members from • trade facilitation; all regions and levels of development, including four • MSME participation in regulatory developments; least-developed countries (Afghanistan, The Gambia, • access to finance; Lao People’s Democratic Republic, Myanmar). • cross-border payments. Today, 95 per cent of companies across the globe In December 2021, it launched the Trade4MSMEs are MSMEs, accounting for 60 per cent of the platform (https://trade4msmes.org). The platform world’s total employment. However, MSMEs face a aims to support MSMEs and policymakers by number of obstacles when seeking to participate in bringing trade-related information together in one international trade. The Group aims to support the place and linking to reliable information resources for internationalization of small firms through soft law would-be traders or officials looking to increase their and the development of concrete tools. trade policy inclusivity. It features a series of short guides on international trade to assist MSMEs and In December 2020, the Group finalized a package of policymakers. six recommendations and declarations relating to: * See https://www.wto.org/english/tratop_e/msmes_e/msmes_e.htm. (d) Transformative impacts of the COVID-19 pandemic The COVID-19 pandemic caused a steep The pandemic also provided an opportunity to collapse in cross-border services trade, which accelerate the adoption of IT solutions and to further reinforced and accelerated the structural expand the scale of remotely supplied services. changes already underway, boosting the relative importance of services that can be more readily Beyond their lead role in pandemic mitigation, supplied digitally (see Figure 15). The drop in digitally delivered services also led the first services exports in 2020-2021 was significant phases of recovery in global services trade. across all regions, and deeper than for the As services trade posted a 25 per cent year- trade in goods. It was led by declines in travel on-year increase in the third quarter of 2021, receipts, first and foremost, but also by a marked digitally deliverable services such as computer, contraction in transport services. financial and business services were the main drivers of trade growth alongside transport Not surprisingly, trade under modes 2 boosted by surging shipping rates. There was (consumption abroad) and 4 (movement of natural rapid growth in computer services exports in persons) was most impacted, owing to health- both developed and developing economies (e.g. motivated mobility restrictions (WTO, 2020a). Bangladesh, Ireland, Mauritius, Ukraine, United Digitally deliverable services were less affected by States). Pakistan’s ICT services exports also the trade downturn at the height of the pandemic boomed during the pandemic (see Box 6). and played a critical mitigating role, as ICT services allowed economic activities to be sustained, such as through online retailing, in addition to enabling teleworking and online schooling. 38 Trade in services for development Figure 15. Year-on-year change in global trade in commercial services, by sector 70% 54% 50% 45% 30% -15% 10% -10% -8% -30% -29% -50% -70% -81% -90% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Travel Transport Other commercial services Source: On the basis of estimates from the ITC, the United Nations Conference on Trade and Development and the WTO. Note: Average of global exports and imports. Greater digital connectivity proved fundamental Rapid growth in computer services exports for resilience during the COVID-19 pandemic. in 2021 The Asian Development Bank (2021a) finds that countries with better ICT infrastructure recorded Bangladesh Ireland lower drops in economic activity. At the same +68% +51% time, the pandemic produced a connectivity boost, bringing an estimated additional 782 million people online between 2019 and 2021 (ITU, 2021a), forming new digital habits Mauritius Ukraine and spurring investments in the digital economy. +42% +63% United States However, the pandemic also exposed significant digital divides, both within and across countries, revealing how shortcomings in digital connectivity could exacerbate social inequalities +29% (see WTO, 2022a). The future of trade lies in services: key trends 39 Box 6. The ICT boom in Pakistan Since the onset of the COVID-19 pandemic, the cities. In 2019, Pakistan had the second highest ICT services exports of Pakistan experienced number of tech hubs in South Asia – at 35 – behind sustained growth. With social-distancing measures only India, with over 250. and border closures in place, the demand for digital services surged, propelling ICT services Human and physical capital are supporting the as the top contributor to the economy among all growth of the country’s ICT ecosystem. More than service subsectors. Exports increased in almost all 20,000 engineers and IT professionals graduate subsectors: software consultancy, call centres and in Pakistan each year, mostly of whom can speak telecommunication services. English. There is also a growing number of high- quality freelance professionals in the sector. Even before the COVID-19 pandemic, Pakistan’s technology ecosystem was buoyant, with a growing Pakistan has a good digital infrastructure with number of new startups, support organizations and improved telecommunication services, Internet angel investors. Both the public and private sectors access, and 14 IT parks available. Such attributes play an important role in supporting the boom in the form important drivers of Pakistan’s business tech startup ecosystem, with several accelerator and process outsourcing industry. innovation incubator programmes in place, such as Invest2Innovate and Nest I/O, which have supported According to the Pakistan Software Houses over 19 startups. Association, 53.8 per cent of the ICT sector’s revenue in 2019 came from exports – mostly to Facebook partnered with the government to launch the United States (52.1 per cent), the United Arab its first innovation laboratory in April 2019, and Emirates (8.8 per cent) and the United Kingdom Google regularly organizes events in Pakistan’s major (7.0 per cent). Source: Saez et al. (2020). 40 Trade in services for development (e) Trade by mode of supply and the contribution of services supplied through a commercial presence While BOP statistics capture the growing The developing economies’ impressive trade importance of cross-border trade in services performance under this expanded measure of in modes 1, 2 and 4, they still significantly trade in services is largely due to four economies underestimate global services trade as defined that rank as leading services exporters and in GATS. Most notably, BOP data generally importers (China; Hong Kong, China; Singapore; do not cover the supply of services by foreign- India). A large part of their combined exports owned companies (mode 3), by far the most occurs through mode 3. For other developing economically important mode of service supply.13 economies, cross-border supply remains the predominant mode of services exports, slightly When services sold through a foreign supplier’s ahead of commercial presence (WTO, 2019). commercial presence are taken into account, the services share of world trade is around TiSMoS underscores that mode 4 accounts for 20 percentage points higher than traditionally a similarly small share of services exports for estimated, representing 43 per cent of total different groups of WTO members – developing trade in goods and services.14 Figure 16 shows and developed economies, as well as least the relative share of each of the four modes of developed. Mode 4 is nevertheless relatively service supply in global services trade. With more important for certain sectors. On the a value of US$ 7.8 trillion, sales through the basis of the TiSMoS dataset, 9.8 per cent of establishment of foreign- affiliates worldwide global exports of ‘other business services’ were (mode 3) dwarf other modes, accounting for supplied under mode 4 in 2017. 58.9 per cent of global services trade.15 This is more than twice the second most important mode – cross-border supply (mode 1, including Figure 16. through electronic means), which accounted for World trade in commercial services by 27.7 per cent of the total services trade at latest mode of supply (2017) count. The 2.9 per cent share of trade involving the temporary movement of service suppliers 2.9% reflects the restrictive policy stance governing mode 4 trade. 10.4% When measuring trade in services under the four modes of supply,16 the share of developing economies (excluding least-developed) in global 27.7% services trade increased by 10 percentage 58.9% points since 2005, from 14.7 per cent to 25.2 per cent at the latest count. While the share of least-developed economy exports also increased, it only accounted for 0.3 per cent of global services exports and 0.9 per cent of imports. With respect to least-developed economies, their services exports have been rising by an annual Mode 4 Mode 2 Mode 1 Mode 3 average of almost 11 per cent since 2005, albeit Cross-border supply (mode 1) from a very low base, with growth led by tourism Consumption abroad (mode 2) boosted by greater intra-regional arrivals prior to Commercial presence in another country (mode 3) the pandemic. Presence of individuals in another country (mode 4) Source: Trade in Services data by Mode of Supply (TiSMoS), WTO Secretariat. The future of trade lies in services: key trends 41 (f) The role of services in supply chains Frequently dubbed as the “glue” that enables supply of different inputs in different stages and cross-border production networks, services locations (Nano and Stolzenburg, 2021). have played a critical role in enabling the emergence of global and regional value chains. The critical role of services as inputs and in The deployment of these chains has been made supply chains is reflected in the fact that over possible by improvements in the efficiency, two-thirds (69 per cent) of global services quality and costs of services that enable the trade (on a BOP basis) consists of trade in coordination of geographically dispersed intermediates, compared to trade in services yet interlinked production processes – from for final consumption (see Figure 17). The transport and logistics to communication and COVID-19 pandemic and the resulting business services.17 drop in tourism services has increased the relative importance of intermediate services. In addition to linking different production However, even before the pandemic, trade stages across borders, services have also in intermediate services accounted for over become important inputs at all stages in 57 per cent of global services trade, a higher the production process of goods and other proportion than trade in intermediates plays services. Services inputs, whether imported in manufacturing. or locally produced by foreign or domestically owned enterprises, are increasingly used in the The role of services in global value chains is production of manufactured products that are also highlighted through data that capture the subsequently exported. Services value-added valued added by a country in the production content embodied in exported goods has grown of any good or service that is then exported. in importance and represents an increasingly Measuring trade in value-added terms reveals significant way for services firms in developing that the role of services in world trade is far countries to join GVCs and reach international more significant than implied by gross flows. markets. In addition, services increasingly form Indeed, services value-added accounted for their own value chains, with fragmentation in the 50 per cent of the value of world trade in goods Figure 17. Trade in intermediate and final services, 2015-2021 4 US$ 3,95 trillion 3 US$ trillion 2 US$ 1,79 trillion 1 0 2015 2016 2017 2018 2019 2020 2021 Intermediate services Final services Source: WTO estimates (based on the conversion table EBOPS 2010-CPC 2.1-BEC Rev.5). Note: Trade as average of exports and imports. 42 Trade in services for development and services in 2018, compared to 16 per cent cent on average for OECD members, and 41 for agriculture and 34 per cent for industry (see per cent for non-OECD members in 2018 (see Figure 18).18 In comparison, the share of services Figure 19). However, the share of services value-added stood at 30 per cent in 1980 and at content in total exports increased the most in 45 per cent in 2005 (Heuser and Mattoo, 2017). non-OECD members since 2005. The rising share of services inputs in total trade Services value-added accounted for over 51 also reflects major structural changes in the per cent of India’s total exports in 2018. In the fabric of economic activity, with production same year, it reached a higher share than the processes making increasing use of services non-OECD average for countries such as the and manufacturing components. In this Philippines (50 per cent), Brazil (45 per cent) so-called servicification of industrial production, and Morocco (45 per cent). manufacturing firms increasingly rely on services, procure services inputs – from home and Figure 19 also shows that services value-added abroad – and also supply services themselves accounted, on average, for 31 per cent of (e.g. transport, R&D, IT, professional services, manufacturing exports for OECD members, and repair and maintenance and other after-sales only slightly less for non-OECD members, at 29 services) (WTO, 2020a). per cent. This significant share underscores the importance of efficient and quality services for Services value-added represents a large and the productivity of manufacturing activities and increasing share of total exports, reaching 54 per their international competitiveness and export Figure 18. Structure of world trade, 2005 and 2018 IN VALUE-ADDED TERMS IN GROSS TERMS 21% 21% 21% 45% 2005 2005 34% 58% 16% 21% 25% 2018 50% 2018 34% 54% Agriculture Industry Services Source: Trade in Value Added (TiVA) Database, OECD, and WTO Trade in Services annual dataset, available at https://stats.wto.org. The future of trade lies in services: key trends 43 Figure 19. Services value-added in total exports and in manufacturing exports, domestic and foreign, 2005 and 2018 TOTAL EXPORTS MANUFACTURING EXPORTS 2% 3% 50% 51% 5% 6% 36% 2% 3% 30% 29% 6% 28% 8% 23% 19% 2005 2018 2005 2018 2005 2018 2005 2018 OECD Non-OECD OECD Non-OECD Domestic services-value added Foreign services value-added Source: Trade in Value Added (TiVA) database, OECD. Note: This includes data from 38 OECD and 28 non-OECD economies. OECD and non-OECD aggregates include intra-trade flows as domestic ones. Figure 20. Share of services value added in manufacturing exports, selected economies, 2005 and 2018 70% 60% 50% 40% 30% 20% 10% 0% d . a ca d . nd ca s an ep bi a na e a a sia Fe y am o lia ne sia nd di a or ri bi in an o ra e ce a nd la Ri c na al n in hi ad il ,R le Af a u ic kiy bo isi ra ne oc ap nt pi om az pa ila S er K iA tN ay n Ze di a m C r an hi la hi ex ta Pe an ia st n ilip U ge ea Sp U th itz r Br am do or a ng In er al C Ja Ire ud Tü Tu C ol K, ss os Fr e Au M Th ew C u M r Sw Ar M G Vi Ph C In Si Ko So C H Ru Sa C N Domestic services value-added (2018) Foreign services value-added (2018) Total services value-added (2005) Source: OECD Trade in Value Added (TiVA) Database. 44 Trade in services for development Figure 21. Share of services in total exports, in gross and value-added terms, selected economies, 2018 100% 80% 60% 60% 40% 20% 0% 0% Pe d ud ed. a a p. Th nd ca s an bi a na e ric os ia a sia y am co sia Be a ne nd m di Re a or in an o iye ra ce F sia nd ei la Ri b li al Ko n Sw n hi ad il le Af a SA ru iu ic bo ra ne ly oc ap nt pi om az pa ai la er K un iA N ay n Ze di m C an hi la rk ni lg a, ex ta Ita an ia st ilip ai U ge Sp h itz Br am do or ng In er al U et C Ja Ire Br Tü Tu re ol K, ss Fr ut Au M ew C M Ar M G Vi Ph C In Si So C H Ru Sa C N Value added Gross Source: OECD Trade in Value Added (TiVA) Database. potential. The cost and quality of the underlying Figure 21 underscores that even in economies services affect the performance of the economy where services represented a small proportion of as a whole and are essential for connectivity and total exports in gross terms, services value-added the competitiveness of goods exports. often accounted for a significantly larger share of total exports. For example, services accounted for Looking at selected economies, Figure 20 shows 6 per cent of Mexico’s total exports in gross terms that services value-added represented between in 2018, but the proportion jumped to 45 per 25 per cent to 40 per cent of the content of cent in value-added terms. Similarly for Argentina, manufacturing exports for a wide range of services as a share of total exports went from economies at different levels of development, and 20 per cent to 48 per cent. Hong Kong, China that in many cases a significant proportion was showed the strongest share of services foreign services value-added. The share of total value-added in total exports at 83 per cent. services value-added The share of total services value added was relatively high for a number of Looking at trade in value-added terms shows that developing economies, including Brazil (36 per economies at different levels of development may cent), Chile (29 per cent), Mexico (37 per cent), enjoy comparative advantages in some services South Africa (35 per cent) and Turkey (28 per even if, in gross terms, they tend to export more cent). For the majority of economies covered in goods than services.19 Figure 20, the share of services value-added in manufacturing exports increased between 2005 However, TiVA statistics may yet underestimate and 2018, in particular for Peru and Chile. the share of services in world trade because they do not capture the services value added provided The OECD TiVA database reveals not only the key by manufacturing companies. TiVA statistics role of services in manufacturing competitiveness capture services bought as inputs by enterprises and exports, but also the contribution of in other sectors, but manufacturing companies imported services to such exports. For a number also undertake services activities ‘in-house’ which of economies, such as Belgium, Ireland and are not captured in TiVA statistics as services Morocco, the foreign share of services value added of manufacturing exports. value-added is greater than the domestic one. The future of trade lies in services: key trends 45 Endnotes 1 The many reasons for the declining importance of other commercial services imports went from of manufacturing for most economies include the 38.3 per cent in 2005 to 42.3 per cent in 2022. fact that manufacturing activities have become 12 From a regional perspective, the share of global more technology, skill and capital intensive and exports of other commercial services from create fewer jobs (Ghani and O’Connell, 2014), Asia and the Middle East increased between and demand for services has changed in step 2005 and 2022 (from 16.0 per cent to 23.5 with rising incomes and demographic shifts. per cent and from 2.0 per cent to 3.3 per cent, 2 For background information, see Amirapu and respectively). The shares of Europe and North Subramanian (2015) and Rodrik (2015). Similar America declined between 2005 and 2022 concerns are expressed about the impact and those of other regions remained broadly widespread adoption of artificial intelligence unchanged. and machine learning technologies will have on 13 Since a foreign-owned affiliate is resident in the employment in services (see Baldwin, 2019). host country, its services sold in the country are 3 For background information, see Ghani and not recorded in BOP statistics, which are only O’Connell (2014). concerned with transactions between residents 4 See the ILO World Employment and Social and non-residents. Outlook (WESO) Data Finder, available at 14 The WTO's Trade in Services data by Mode https://www.ilo.org/wesodata. of Supply (TiSMoS) provides an aggregate 5 For an historical context, see Baumol (1967) and picture of services trade covering the four modes Kaldor (1966). of supply as defined in GATS. It covers 200 individual economies for the period 2005-2017. 6 For background information, see Cali et al. (2008), Eichengreen and Gupta (2013), 15 Financial services and distribution services Jensen and Kletzer (2005), Jones and together account for around half of this value. Kierzkowski (1988), Riddle (1986) and Schettkat 16 TiSMoS available at https://www.wto.org/ and Yocarini (2006). english/res_e/statis_e/trade_datasets_e. 7 For background information, see Hoekman and htm#TISMOS. Shepherd (2017) and Nordås and Kim (2013). 17 For further information, see Díaz-Mora et 8 Trade in commercial services in the BOP is al. (2018), Heuser and Mattoo (2017), Low and total services trade minus exports/imports of Pasadilla (2015) and World Bank (2020a). government services not included elsewhere. 18 The most recent update of Organisation for 9 BOP statistics generally do not cover trade in Economic Co-operation and Development services through commercial presence (mode 3). (OECD) Trade in Value Added (TiVA) statistics For more information on the modes of supply, see was released in 2021, with coverage up to 2018. Box 2. 19 However, TiVA statistics may yet underestimate 10 Other commercial services are total commercial the share of services in world trade because services less the categories of travel, transport they do not capture the services value-added and goods-related services. Other commercial provided by manufacturing companies. TiVA services include construction, financial statistics capture services bought as inputs by services, insurance and pension services, enterprises in other sectors, but manufacturing telecommunications, computer and information companies also undertake services activities ‘in- services, charges for the use of intellectual house’ which are not captured in TiVA statistics property not included elsewhere, other business as services value-added of manufacturing services, and personal, cultural and recreational exports. With data for a sample of countries services. that are mostly OECD economies, Miroudot and Cadestin (2017a) find that services 11 For example, other commercial services inputs account for 37 per cent of the value of amounted to 40.4 per cent of total commercial manufacturing exports, but this share increases services imports in the Middle East in 2022, to 53 per cent when adding services activities compared to 35.8 per cent in 2005. In the case taking place within manufacturing firms. of Latin America and the Caribbean, the share 46 Trade in services for development 2 The contribution of services trade policies Key points • The high degree of regulatory scrutiny attached to the supply of services, both within and across borders, focuses attention on how the policy choices of governments matter for services trade. Services facilitate market integration by supplying the basic infrastructure for trade. Despite continued efforts to reform, barriers to trade in services remain high overall, increasing trade costs with damaging economy-wide consequences. • Higher services trade restrictions are associated with lower shares of services value-added within global value chains (GVCs). They can also adversely affect the productivity of manufactured exports, hindering efforts at moving up the value chain. • Because services supplied through a commercial presence remain the most powerful driver of services sector internationalization, important signalling benefits can be associated to binding commitments and to steps taken to facilitate the entry and operation of foreign established services providers. • Lowering barriers to trade and investment in services may strengthen resilience and promote adaptation to climate change, while reducing the cost of environmental protection measures. Doing so also promises important advances in inclusiveness, given the favourable impacts of trade in services for female and young workers and entrepreneurs, and micro, small and medium-sized enterprise (MSMEs). • Not only do services trade barriers impose significant costs, uncertainty stemming from the absence or relative paucity of binding commitments also carries additional costs. Current international commitments on services, particularly at the WTO, provide for limited predictability and transparency and offer only partial protection against policy reversals. • Considerable scope exists for closing the widening gap between commitments made under the latest generation of preferential trade agreements and those scheduled under the General Agreement on Trade in Services (GATS). 48 Trade in services for development 1. The multifaceted impact of services trade policies1 The increasing and complex role of services sheds further light on their impact on sectoral in economies and international trade has and economy-wide performance (Roy, 2019; raised the significance of both national and WTO, 2020a). How governments design and international policy regimes governing trade in implement services trade policies is central to services. Recent research based on improved their development trajectories and to prospects data on services trade and services policies for deepened integration. (a) Effects on economic, trade and investment performance Impact of services trade openness on A wide basket of services comes in play in economy-wide productivity and the bringing final goods from their place of production performance of key services sectors to final consumers across borders, including transport services (maritime, air, road), logistics Impediments to trade and investment in services services (freight forwarders, customs brokers, shield domestic suppliers from competition, storage, warehousing, metrology), express delivery leading to higher prices and reduced incentives services, advertising and distribution services to invest, innovate or otherwise improve services (wholesale and retail). quality. Sectors facing lower trade costs – which are themselves generally associated with lower A study by the International Trade Centre (ITC, 2022) services restrictions – tend to be more productive based on enterprise surveys confirms that access and enjoy higher productivity growth than those to high-quality logistics and transport services is with higher trade costs.2 positively linked to competitiveness and to improved performance across a range of indicators. Firms In developed economies, services policies, making use of high-quality logistics services perform particularly those restricting mode 3 trade, better in inventory management as well as in on-time have been found to explain differences in total delivery, two key elements of successful exporting. factor productivity, which in turn largely mirror differences in productivity growth.3 In Chile, measures which began in the 20th century to increase competition in transport services have Services trade restrictions negatively affect resulted in greater GVC participation and facilitated performance in a number of important services the country’s goods exports in key sectors. The sectors, as measured by comparable indicators experience also underscores how a reduction across a broad range of countries. For of barriers to trade in goods and the expansion example, countries that impose more trade- of goods exports creates a demand for services restrictive policies in commercial banking have liberalization in order to maximize positive returns less-developed credit markets.4 from liberalizing trade in goods (see Box 7). How trade-facilitating services Pro-competitive regulation can exert a strong policies impact physical connectivity influence on the efficiency of services markets. and goods trade Services trade policies impact physical connectivity, as higher levels of services trade restrictiveness in Services impact physical connectivity and trade logistics, maritime and road transport result in higher integration by providing the basic infrastructure trade costs.5 Focusing more specifically on the that underpins trade in goods. Without efficient transport of containerized cargo on liner vessels, services, goods cannot be successfully traded, Bertho et al. (2016) find that government restrictions effectively taxing countries regardless of the in the shipping sector, especially those limiting source of their comparative advantages. foreign direct investment (FDI), significantly inflate maritime transport costs, with adverse impacts on the flow of goods trade.6 The contribution of services trade policies 49 Similar impacts have been shown for road This contrasts with the experience in other transport. Reforms aimed at facilitating market countries of Africa’s Great Lakes region, where entry in trucking in Rwanda resulted in nominal restrictive entry regulations, quotas and other price declines of close to a third and were measures have reduced competition, raising the associated with an expansion of the domestic costs of road transport services and negatively trucking fleet.7 impacting agricultural exports. Firms which use… High-quality logistics Low to medium-quality logistics 78% have good inventory practices 36% 79% deliver on time 67% Source: ITC (2022). “ Services provide the basic infrastructure that underpins trade in goods. 50 Trade in services for development Box 7. Impact of liberalizing transport policies in Chile Chile’s experience not only highlights the strong • The government negotiated an increasing number of impact that the liberalization of transport services open skies’ agreements, providing greater access can have on supply chains and goods exports, but to the sector for foreign services providers. also how lowering barriers to goods trade generates • The government attracted foreign direct investment demand for services liberalization. through public-private partnerships to build and maintain the road network. Efficient transport is one of the most important • Authorities opened the sector to foreign participation. services required to compete in the global economy. Chile's challenging geography further underscores Overall, Chile's transport services is relatively low, as the essential role of transport services – domestic measured by the World Bank–WTO’s Services Trade and international – in shaping the performance Restrictiveness Index (STRI). of global value chains (GVCs) and in exporting products to foreign markets. Trade in value-added statistics showed that sectors such as the wood and wood products and the From the late 1980s to the mid-1990s, Chile chemicals sectors are intensive users of transport undertook significant steps to liberalize its services, absorbing high value-added from that transport sector: sector in Chile. Transport services value-added is also integrated into exported goods. The country’s • Authorities ended the state monopoly on harbour agribusiness and printing industries are the leading services and introduced concessions for port sectors embodying transport services value-added in terminals by private companies. their exports. “ Competitive transport markets have been a significant factor in Chile’s successful development of its agribusiness sector through GVCs. The contribution of services trade policies 51 Liberalization measures have significantly impacted The modernization of Chilean ports following their Chile’s agribusiness sector, with the country privatization significantly contributed to the extent becoming one of the world’s largest cherry exporters exporters in Chile were able to take advantage of despite its distance from world markets and the reduced tariffs abroad to export large quantities of perishable nature of its exports. products. The industry exports 80 per cent of its production and Reduced barriers in the transport sector have been offers a clear example of competitive agribusiness associated with better value chain performance, expansion. This trend has largely been made possible as reflected in the significant increase in domestic through expansion to overseas market opportunities value-added, after controlling for other factors. enabled by export-oriented policies – a number of Competitive transport markets have been a which are tied to Chile’s extensive web of preferential significant factor in Chile’s successful development trade ties with key partners. of its agribusiness sectors through GVCs. High import and export volumes for goods, Source: See Bamber and Fernandez-Stark (2015) for a combined with a liberalized transportation sector, full account of the cherry industry in Chile and Shepherd and van der Marel (2016) for details on the liberalization of have fostered competition among logistics transport services. providers, which have helped to reduce costs. Services policies as key determinants reduced foreign investment inflows and lower of foreign direct investment output of foreign affiliates. Countries with lower levels of FDI restrictiveness are significantly Governments increasingly focus on attracting likelier to attract foreign investment in services FDI to create quality local jobs, promote than countries with more trade-restrictive linkages with domestic suppliers and improve policy regimes.10 access to foreign markets. This motivation is linked to the productivity enhancing gains that Mistura and Roulet (2019) analyse 60 FDI can produce by exposing local firms and developed and developing countries between workers to new technologies and know-how 1997 and 2016 and quantify the impacts and to enhanced competition. that FDI liberalization could have on bilateral FDI stocks, taking into account factors such FDI, including in services, can also help domestic as market size and growth potential, factor firms to participate in GVCs by becoming endowments and levels of corporate taxation. suppliers of foreign affiliates or by sourcing from They find the deterring effects of barriers to FDI them (Hoekman and Sanfilippo, 2022). Globally, to be larger in the services sector. the services sector attracts most FDI,8 but it is also the sector where foreign investment remains Key FDI restrictions that limit foreign most restricted when compared to manufacturing investment include foreign equity limitations or the primary sector.9 and discriminatory or unduly onerous screening mechanisms – limitations which often apply to Various studies have found that services the services sector. trade restrictions are associated with both 52 Trade in services for development FDI is not only affected by explicitly discriminatory regulatory transparency and predictability stands measures but also by the predictability and out in the World Bank’s Global Investment transparency of the policy and regulatory Competitiveness surveys, which find that the environment. The World Bank (2020a), drawing legal and regulatory environment is one of the top on a dataset of over 14,000 parent companies three factors shaping investment entry decisions, investing in over 28,000 projects across 168 host along with political and macro-economic stability countries, shows that investor confidence and (World Bank, 2020a). FDI flows increased with reduced regulatory risk. The report finds that the impact of regulatory risk In addition, high-quality services, including on FDI is sizable and comparable in magnitude to in such infrastructure services as transport, other economic and policy factors. logistics and telecommunications, is a key component of a conducive business Such findings are of particular relevance for environment and an important factor in FDI services, given that most subsectors are highly attractiveness in services and other sectors regulated (e.g. finance). The importance of (OECD, 2023; Ta et al., 2021). “ Greater services trade openness can increase both the level and quality of an economy’s goods export basket. The contribution of services trade policies 53 Impact of openness in FDI and trade in services on manufacturing and “Reducing trade GVC participation costs for goods Achieving a reduction in trade costs for goods greatly depends greatly depends on improving the performance of the services used by goods-producing on improving the enterprises. Country-specific research performance of the demonstrates that openness in services trade increases the productivity of services used by manufacturing industries.11 goods-producing Research also underscores how lower enterprises.” services barriers are associated with greater manufacturing exports, given the key intermediation role of services inputs. Hoekman and Shepherd (2017) find that a 10 per cent increase in services trade restrictiveness levels a more important determinant of a country’s results in a 5 per cent decrease in bilateral participation in GVCs than tariff barriers.14 trade in manufactured products. The experience of India highlights how reforms Trade and investment restrictions on transport to facilitate FDI in services can ignite positive and retailing services are seen to exert the growth dynamics by boosting participation in largest impacts on merchandise exports. foreign manufacturing value chains. In the 1990s, Wolfmayr (2012) finds that services inputs, in policy changes bringing about better regulation particular imported services, have a positive and greater openness to FDI in services provided and significant effect on the manufacturing manufacturing firms in India with access to better, export shares of European countries. more reliable and more diverse business services. Focusing on business and financial services, This allowed manufacturing firms to invest Liu et al. (2020) find that the level of in new business opportunities and better development of these sectors enhances technology to organize production more the revealed comparative advantage of effectively and reap economies of scale, and manufacturing sectors that use these services to manage inventories and coordinate with intensively. Using a sample of 63 developed consumers and suppliers more efficiently. and developing economies, Díaz-Mora et al. (2018) find that a greater share of foreign Empirical studies lend support to the services value-added in manufacturing exports positive impact of liberalizing services FDI contribute to more resilient and stable export on manufacturing value chains. In the Czech relationships. Republic, for example, services reforms generating greater FDI inflows were seen to Recent research also find that services result in productivity gains of domestic firms trade restrictiveness negatively impacts the involved in downstream manufacturing.15 sophistication of manufacturing exports, suggesting that greater services trade How restrictions limit cross-border openness can increase both the level and quality trade in services of an economy’s goods export basket.12 Policy restrictiveness in services trade raises Other studies further emphasize that restrictions costs for foreign exporters, thereby limiting on inward FDI in services have a particularly cross-border trade in services – including for strong negative impact on manufacturing services supplied over digital networks. Such exports.13 This is consistent with earlier research restrictions also limit the services exports of the suggesting that investment openness can be country imposing the measures.16 54 Trade in services for development By limiting competition, restrictive measures Services trade restrictiveness and hinder the performance of domestic suppliers, services value-added in exports reducing incentives to improve efficiency through innovation, financial investment and the adoption Higher services trade restrictions are associated of new technologies. This in turn affects the with lower shares of services value-added within capacity of domestic suppliers to compete in GVCs.18 Trade barriers in both exporting and international markets. importing countries exert an overall negative impact on services value-added flows. Services Services firms, like producers of manufactured barriers in exporting countries are seen to exert goods, use inputs from services subsectors, greater impacts, as they reduce competition so raising the cost of imported inputs can in domestic services markets, leading to less make the firms less competitive and limit their efficiency and lower performance, thereby limiting export potential.17 the services value-added contribution to exports. “ Trade barriers in both exporting and importing countries exert an overall negative impact on services value-added flows. The contribution of services trade policies 55 (b) Services trade and efforts to bridge the digital divide and harness opportunities in digital trade Services trade policies play a critical role in the in 165 countries shows that mobile broadband development of the backbone infrastructure penetration was 26.5 per cent higher in enabling digital trade. Sectors such as countries with competitive markets (ITU/ telecommunication and computer services UNESCO, 2013, 2019). in particular, but also financial and logistics services, are key enablers not only for the sale of Higher levels of services trade restrictiveness goods online, but also for the digital supply of an in telecommunication services are associated increasingly wide range of services. with lower penetration rates for fixed, mobile and broadband Internet (Nordås and Rouzet, 2016; Telecommunication services, which encompass Borchert et al., 2017). Studies have also found the Internet, mobile telephony and data that markets characterized by more intense transmission services, provide the basic competition achieved greater price decreases infrastructure and transport capacity that allows and better services, and that liberalization of the a range of services to be supplied digitally, in telecommunications sector can lead to higher addition to also permitting goods to be offered GDP growth and to sectoral and economy-wide and purchased over business to business and productivity gains.23 business to consumer networks. Digital technologies are bringing down Indeed, the Internet is one of the most important trade costs for services and, as noted in the business platforms for companies, domestically preceding sections, are offering new trade and internationally, and promotes efficiency by opportunities. Digital technologies are also making transactions quicker, cheaper and more rejuvenating exports in traditional services convenient to carry out.19 sectors, such as tourism and agriculture. Suppliers of telecommunication and computer The Organisation for Economic Co-operation services (e.g. cloud computing and other and Development (OECD, 2022a) estimates data storage and processing services) also that trade costs for financial, communication enable data flows across borders, which and business services fell by between 30 per underpin the international operations of firms cent and 70 per cent from 2000 to 2019. The in different sectors. In addition, information and greater ease of trading and reduced impact communications technology (ICT) services, of geographical distance on cross-border combined with innovation and regulatory services trade was driven, in large measure, adaptation in the financial sector, have made by the adoption of ICT, which accounted for significant advances in payment solutions one quarter of the drop in trade costs in these possible, particularly with mobile devices.20 sectors (OECD, 2022a). Over the past 25 years, a growing number A negative correlation has also been found of countries have moved from monopolistic between entry barriers and restrictive market structures to pro-competitive regulatory regulations on services and investment in digital environments. They have done so by reducing technologies and ICT.24 This suggests that barriers to entry and often through privatization of barriers to entry and competition in services state-owned incumbents.21 These changes have sectors reduce the incentive of suppliers to enhanced the affordability, quality and diversity invest in digitalization (e.g. investment in the use of telecommunication services.22 of cloud facilities by transport companies, the supply of online services by professional services Countries that introduce effective pro- firms or the use of the Internet by retailers). The competition regulation have greater success in example of East Africa highlights how the policy stimulating market growth and digital readiness framework is key to attracting investment in (ITU, 2023, 2017). A study of mobile networks connectivity-boosting infrastructure (see Box 8). 56 Trade in services for development Box 8. Digital integration in East Africa The East Africa region is home to approximately Gender gaps in access to digital technology and 384 million people, of which over one third skills are also common in many countries, such as live below the poverty line, 72 per cent of the Ethiopia, Somalia and South Sudan. Disparities in population live in rural areas and a third is under the development of the ICT regulatory frameworks in the age of 24. More than half of the countries in many East African countries also affect broadband the region are considered fragile and affected by market growth. For instance, Somalia, Ethiopia and prolonged periods of civil war. These conditions Djibouti have only recently created an ICT industry have led to many refugees, internally displaced regulator, while Kenya is much more advanced, people and migration, especially in borderlands. having one since the 1990s. The adoption of digital technologies holds the There is also a need to both strengthen the current potential to expand the services sector, boost policy, legal and regulatory environments to enhance services trade, and support regional and international competition and create a level playing field throughout integration in East Africa. Deepened regional the region to attract greater investment in connectivity integration within the East African Community could infrastructure and create a more integrated digital market. boost GDP in the region by up to US$ 2.6 billion For instance, data must be able to move more freely and and create up to 4.5 million new jobs. Countries in securely across borders to support digital trade. the region can also benefit from economies of scale and network effects created by a more extensive Similarly, cybersecurity will be critical to boost cross- regional digital market. border trade in digital services. However, there are significant disparities in data governance regimes However, investing in an integrated digital market and in cybersecurity preparedness throughout the requires building the foundations for a digital region. While Tanzania, Kenya and Rwanda stand economy to flourish. This includes investments above the global average in terms of cybersecurity in digital physical and human capital, removal of preparedness, many other countries, such as cross-border barriers and efforts at regulatory Burundi, Djibouti, Eritrea and South Sudan, are still harmonization at the regional level. significantly below the global average. The East Africa region has significant disparities There are also disparities in the level of in connectivity levels that affect the development development of financial services, with both of a regional digital market. Diverse degrees of national and regional payment frameworks still information and communications technology (ICT) underdeveloped and lacking in interconnectedness, infrastructure development among East African further affecting trade in the region. Currently, countries drive differences in price, performance and e-commerce and intra-regional trade levels in East broadband penetration levels – which range from 5 Africa are still relatively low. per cent in South Sudan to 48 per cent in Kenya. Therefore, accelerating regional integration will Rural areas are also underserved in terms of ICT necessitate a comprehensive approach towards infrastructure. For instance, Kenya has network digital development and require building key coverage of about 94 per cent, but northern Kenya foundational blocks, such as data governance, remains underserved. Access to ICT networks financial services and digital capital to enable the is essential, especially in border areas, where digital economy to grow. This will also require greater volumes of cross-border trade, including via efforts at policy and regulatory harmonization e-commerce, occur. throughout the region. Note: For further information, see the World Bank’s Eastern Africa Regional Digital Integration Project, available at https://projects.worldbank.org/en/projects-operations/project-detail/P176181. East Africa includes Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Sudan, Tanzania and Uganda. Further background information can be found in World Bank (2018). The contribution of services trade policies 57 Measures that restrict trade in services show a density for broadband (adjusted for income strong inverse correlation with different indicators per capita) (Nordås, 2020). Figure 22 shows of performance in the telecommunications the strong correlation between the services sector. Services trade restrictiveness in trade restrictiveness for digital services and telecommunications is associated with higher telecommunication services with an economy’s prices for broadband and lower subscriber levels of ICT development. Figure 22. Relationship between services trade restrictiveness and ICT development 10 9 8 ICT Development Index 7 6 5 4 3 2 1 0 0 0. 1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Digital STRI 10 9 8 ICT Development Index 7 6 5 4 3 2 1 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Telecom STRI Source: ICT Development Index available at https://www.itu.int/en/ITU-D/Statistics/Pages/IDI/default.aspx; digital Services Trade Restrictiveness Index (STRI) available at https://goingdigital.oecd.org/en/indicator/73; telecommunications STRI available at http://i-tip.wto.org/services/default.aspx. Note: Data for the ICT development index and the digital STRI are for 2017. Data for the telecommunications STRI are from 2016. 58 Trade in services for development Data policies and trade in services A recent study examining the level of restrictiveness of data policies across a sample of 64 Greater adoption of digital technologies and economies finds that restrictive measures are the spread of ICT services like broadband significantly associated with lower imports Internet and cloud computing have boosted of data-intensive services (van der Marel not only trade in digital services, but also and Ferracane, 2021). Since data-intensive cross-border data flows. This has brought services serve as inputs to an increasing closer scrutiny to bear on government range of economic activities, reducing imports measures that restrict data flows. through restrictive data policies and localization requirements can negatively impact user industries and limit the productivity gains generally associated to digitalization. (c) Services trade policies and women’s economic empowerment Since levels of female employment are Boosting trade in areas such as tourism, significantly higher in services, women may be education and distribution services has a positive expected to benefit more from services than from impact on women’s economic empowerment. manufacturing exports. A recent study on India Government policies that provide an enabling suggests that opening up services has helped environment for these sectors to grow, including to close gender education gaps by raising by freeing up mode 3 (commercial presence) education levels among women more than those trade, can generate considerable employment among men (Nano et al., 2021). opportunities for female workers.25 (d) Services trade policies and climate change mitigation and adaptation Trade in environmental services can play an be supplied remotely via mode 1 (cross-border essential role in helping economies transition to supply) trade (APEC, 2021).26 a low-carbon economy. Such services are often embodied in environmental goods, as they are Despite its growing importance, restrictive typically integral to transferring and using low- measures still affect trade in environmental carbon technologies. Examples of environmental services, inflating the costs of environmental services include: construction, operation and projects in which they are used. For example, maintenance of renewable energy generation restrictions on the provision of environmental and distribution products; advisory services on services can affect engineering and consulting reducing emissions from vehicles; application of activities, which in turn affect several other clean technologies in manufacturing; advisory environmental project components dependent services on land-use management and agricultural on these types of services for their operations, practices; and services relating to the inspection, such as renewable energy, smart agriculture certification and testing of products and services and water treatment. produced with low-carbon technologies. Additional restrictions on services supporting Most trade in environmental services occurs trade in environmental goods and services can through mode 3, followed by mode 4 (temporary also negatively affect access to such products. movement of services suppliers). As in all other Enhanced access to ICT services can play an sectors, technological advances are increasing essential role in the transfer and implementation the range of environmental services that can of new environmental technologies. The contribution of services trade policies 59 Services illustrate how trade can be both a opportunities for diversification by being contributing factor and potential solution to generally less sensitive to the impacts of climate climate change. Nowhere is this more palpable change than, for example, sectors with a greater than in the transport sector (see Box 9). reliance on land use and other natural resources. Climate change can affect trade by altering Agricultural yields in Sub-Saharan Africa comparative advantages as a result of climate- and South Asia are expected to experience induced productivity losses. The greater the most significant negative impacts from recurrence of extreme heat episodes has been climate change, with far reaching impacts on found to reduce productivity levels to a lesser employment, particularly of poorer workers and extent in services and manufacturing than in households (Brenton and Chemutai, 2021). agriculture. As noted in WTO (2022b), a one degree rise in a country’s temperature translates Countries with greater openness to trade are into reduced export growth for agriculture and found to have greater capacity to adjust to light manufacturing.27 climate-induced shocks to productive structures (WTO, 2022a). Climate change will increasingly entice countries faced with rising temperatures to shift resources Enhanced trade allows countries to access towards activities with a lesser environmental or to the most efficient and highest quality carbon footprint. Many such activities will be in the environmental goods and services, thereby services sector. Actions taken to reduce services reducing the costs of environmental protection, trade costs can facilitate more orderly and properly while new investments help to upgrade sequenced adjustments in production structures. infrastructure. Environmental services are sine qua non to the appropriate functioning Lack of diversification and high commodity of environmental goods. As such, taking dependence can exacerbate vulnerabilities measures to increase trade in them should to climate change. Services offer important happen in tandem. Box 9. The challenge of decarbonizing transport services The transportation of goods and people around the Aviation, for both freight and passengers, is also world using various modes of transport is responsible under pressure to reduce emissions, as illustrated by for an estimated 7 per cent of all CO2 emissions. the “flight shame” consumer phenomenon and no-fly Although transportation is often the part of a good’s campaigns. The International Civil Aviation Organization supply chain that is less emission intensive, significant has adopted a mitigation policy based on technological industry efforts are being directed to lowering the improvements, including setting emissions standards transport sector’s carbon footprint. and introducing biofuels, supporting operational improvements through fuel efficiency monitoring Arguably the most climate friendly cargo transportation and more direct flight paths, making airports more mode, the almost 1 billion tonnes of CO2 emitted fuel-efficient and capping CO2 emissions through annually by the shipping industry is still significant and the Carbon Offsetting and Reduction Scheme for several initiatives are underway to make it less so – for International Aviation – CORSIA. instance by reducing vessel speeds and developing carbon-neutral fuels, among others. The costs of emerging mitigation measures in international transport are not easy to assess, Use of carbon-efficient fuels such as methanol are as policy measures and new business models also under development. However, this raises the are still under discussion, new technologies still issue that the infrastructure needed to support a under development, and travel habits – particularly whole new shipping industry reliant on methanol business travel – appear to have been durably will need to be built all over the world – an altered in the pandemic’s wake. important infrastructural challenge that will require significant investment. Source: Brenton and Chemutai (2021). 60 Trade in services for development Meanwhile, foreign investment can help to for developing economies confronted with support the diffusion of mitigation technologies, technological and institutional capacity shortfalls increase the availability and accessibility of in climate change mitigation. Box 10 illustrates related services globally, and help to scale Gabon’s commitment to curbing carbon activities and initiatives necessary for achieving emissions and the role played by environmental climate goals. This is particularly important services in this regard. “ Enhanced access to ICT services can play an essential role in the transfer and implementation of new environmental technologies. The contribution of services trade policies 61 Box 10. How can services trade help Gabon decarbonize and diversify its economy? The economy of Gabon is still overly dependent on Environmental services natural resources, such as oil, for growth, exports and fiscal revenue – all heavily reliant on extractive Gabon faces three challenges in its environmental activities. However, lower oil prices and a drop trajectory: mitigating the adverse effects of climate in production have led to a gradual decline in the change; decarbonizing its product and export basket; share of the oil sector. and utilizing the economic potential of its abundant natural resources, particularly its rainforests. As a result, the services sector has become one of the main drivers of the economy, accounting Gabon has demonstrated a firm commitment to for a significant portion of aggregate output and protecting its forests and biodiversity, curbing carbon employment. Nonetheless, services export levels emissions and addressing climate risks. However, remain very low, showing untapped potential achieving such aims requires a sophisticated to grow the sector. environmental services industry. Gabon is still highly dependent on the import of specialized Recent work by the World Bank has identified environmental technical services. Therefore, there several services subsectors with the potential is potential for Gabon to develop its environmental to help Gabon increase its services trade levels services industry. This will help Gabon achieve its and diversify its economy, including ecotourism, environmental commitments while also diversifying environmental and information and communications its export basket by developing a capacity to sell its technology (ICT) services. expertise in the region. Ecotourism ICT services Gabon’s forests are home to remarkable The Plan Stratégique Gabon Émergent and the biodiversity, making Gabon a promising ecotourism Plan Gabon Digital state Gabon’s commitment destination. Gabon also has a large share of to investing in digital services.* Despite progress, national parks and protected areas. In addition, however, there is still potential to further develop before the COVID-19 pandemic, ecotourism Gabon’s digital economy and increase trade in ICT already accounted for the second largest source of services. Developing the local digital industry could services trade receipts. help to expand job opportunities, especially for the country’s youth, contribute to economic and social Yet, despite several subsidy programmes, the sector recovery, and promote trade diversification. Increased is still in its infancy, with a dearth of hotels that are participation in the African Continental Free Trade inadequately serviced by transportation links and an Area and WTO discussions on services and digital underdeveloped road network. trade will be necessary for efforts in this direction. As the pandemic progressively fades away, there is In order to develop its services economy, Gabon potential to revive the sector and invest in branding will need to address several other constraints to the efforts to help Gabon be internationally recognized sector’s growth. This includes improving transport as a prime ecotourism destination. Developing the services to boost connectivity via air, maritime and land. industry will also require improvements in adjacent The country’s weak transport infrastructure affects services subsectors such as air transport services. as well as trade in goods. In addition, poor logistics One way that Gabon can improve transportation and trade facilities in Gabon limit the country’s ability services is through greater air transport connections to export and import goods that are critical to those with airlines from leading source countries. sectors, driving up trade costs in the process. Source: World Bank (2022). * See https://www.cafi.org/sites/default/files/2021-02/Gabon_2015_SM%20A_PlanStrategiqueGabonEmergent.pdf. 62 Trade in services for development (e) Services trade linkages to agriculture Access to efficient services, through trade and estimate that the share of services value-added investment, increasingly matters for agriculture amounts to 23 per cent of the average export production and exports. A wide range of services value of food products and 14 per cent of the intervene at all stages of the food value chain, export value of agricultural products, although from financial services, transport, distribution and with significant cross-country differences. logistics services to more specialized services and technologies (e.g. veterinary services, soil The contribution of services to agricultural analysis, metrology). production and exports is increasingly linked to digital services that are making agriculture Greenville et al. (2019) find that services “smarter” (i.e. more productive and sustainable sector inputs account for 30 per cent of the all at once). Agriculture is increasingly moving final value of agri-food products in high-income away from manual tools, animal traction and economies and 23 per cent in middle-income motorized mechanization to the expanding use and low-income economies. In exports, they of digital technologies. “ Agriculture is moving away from manual tools, animal traction and motorized mechanization to the expanding use of digital technologies. The contribution of services trade policies 63 For example, digital services include shared- environmental sustainability form part of what has asset services, which connect owners of come to be referred to as “precision agriculture”. technology (tractors, drones) with farmers in need of such equipment (FAO, 2022).28 Many of Digital services are also reshaping downstream these technologies rely on applications operated value chains, through transport, logistics, through a smartphone or via call messaging. distribution and retail activities. These are producing lower costs, reduced delivery times and ICT services provide farmers access to better enhanced traceability of products along the whole and more timely information on soil properties, value chain, thus better balancing supply and temperature and weather conditions, crop demand and contributing to improved food safety. growth, livestock feed levels and market conditions, thereby reducing information and Efficient services markets can facilitate the coordination costs.29 Equipment monitoring adoption of better agricultural practices that solutions offer another example of the rising contribute to productivity growth and help to digitalization of agriculture. build resilience and to improve product quality and the efficient use of resources (FAO, 2019). Such services can automate the operation The adoption of digital technologies and related of a range of equipment, such as irrigation services depends in part on governments’ pumps, or can be used to track the movement agriculture policies and – at its core – an enabling of equipment and animals. Technologies which environment that facilitates access to connected improve productivity while reducing input use services (see also OECD, 2022b). and maximizing resource management and (f) The contribution of services trade policies to diversification efforts Sustained diversification relies on the industries. Similarly, a recent report by the Asian contribution of services to economy-wide gains Development Bank (ADB, 2021b) stresses the in productivity and allocative efficiency. Sound critical need for greater economic diversification services trade regimes are key components in Central Asia, underscoring the importance of a policy framework and business climate of policies supportive of services trade in such that facilitates competition and investment in efforts (see Box 11). new activities, boosts private sector expansion and speeds up the reallocation of resources Tourism services, in addition to being the towards higher productivity activities, resulting leading source of MSME exports and the largest in a broader base of economic activities (World employer of female workers (WTO, 2019), also Bank, 2019). offer important potential for export diversification. The case of Gabon also draws attention to the Work by the United Nations Conference on opportunities linked to new trends towards Trade and Development (UNCTAD, 2022) sustainable and green tourism. underscores that leveraging digital, business and financial services is key to driving structural Tourism value chains have strong backward transformation and diversification in countries and forward linkages with other services in Africa – many of whose economies remain sectors (e.g. transport, retail, entertainment unduly dependent on commodity exports, which and cultural services, conference management, is associated with low growth and economic construction services, handicrafts), as well vulnerability. The case of Gabon (see Box 10) as with agribusiness and manufacturing, highlights the role that services can play in further contributing to economic diversification diversifying economies dependent on extractive (UNCTAD, 2022). 64 Trade in services for development Box 11. Harnessing services for economic diversification in Central Asia Production and exports in many economies of Most of these services subsectors are producer the Central Asia Regional Economic Cooperation services (i.e. they are inputs into other economic (CAREC) Program are dominated by resource activities). The efficient functioning of these intensive and primary commodities such as crude oil, services subsectors is a precondition for the strong metals and agricultural products. CAREC members* performance of the rest of the economy. The quality need economic diversification to grow faster, raise of the institutions that are the interface of the incomes, and increase productivity. government and the economy is also a factor in how well – and to what extent – services promote a Services have made a significant contribution to the country’s growth and advancement. economic growth of CAREC members. The growth rate of gross value-added in the services sector CAREC members need to adopt a coherent and is much faster than in agriculture in all CAREC comprehensive approach to the balanced development members as well as in the manufacturing sector in of interdependent services sectors. Establishing and most of them. maintaining favourable legal and regulatory frameworks will deliver the greatest net benefit. However, the services inputs needed to support economic diversification are lacking, and Liberalizing trade in services – by lowering barriers to there remains a high concentration of natural foreign direct investment, for example – is an effective resource- dependent manufacturing economies. way to enhance competition in services sectors. CAREC members could further foster growth of their However, market opening needs to be carried out services sector, especially of services subsectors carefully to effectively manage adjustment costs. As that are critical to economic diversification and countries liberalize their services trade regimes, they sustainable development. These include: also need to strengthen labour market institutions and vocational training. Equally crucial is to build and • telecommunications and information services; upgrade the physical infrastructure required to nurture • financial services; the development of the services sector. • education and R&D services; • tourism services; • freight transport and storage services; Source: ADB (2021b). * Afghanistan, Azerbaijan, China, Kazakhstan, Kyrgyz • quality testing and certification services; Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan • other agriculture services. and Uzbekistan. (g) The contribution of services trade to achieving the Sustainable Development Goals Policies affecting trade in services offer important their growing presence in the export baskets means of securing compliance with the United of developing economies and in light of the Nations Sustainable Development Goals potential they hold for future growth. This is (SDGs), several of which depend on improved particularly true for digitally delivered services services sector performance and scaled up trade because of the considerable scope that exists to and investment in a range of key sectors. lower currently high services trade barriers. The role assigned to trade in implementing the Beyond SDG 17, services trade matters to the 2030 Agenda for Sustainable Development achievement of several other SDGs because of (United Nations, 2015) is expressly articulated their central contribution to economic growth, in SDG 17 and its call for increased exports poverty alleviation and job creation. Services by developing and least-developed countries. trade and investment also matter because of their Services are key to achieving this objective given impacts on women’s economic empowerment The contribution of services trade policies 65 and the contribution of services to climate change A prime example, much in evidence during the mitigation and adaptation, as discussed above. COVID-19 pandemic, concerns the strong growth in online education, including across borders. By enhancing overall allocative efficiency and Such trade proved instrumental to sustaining sectoral performance, more open and well-regulated access to education and strengthening human services markets can help to advance SDG aims by capital (SDG 4) (WTO, 2022c). improving access to and use of services on which the achievement of many SDGs rests. Fiorini and Hoekman (2018) empirically document how improved access to services Indeed, many SDGs explicitly refer to, or that are relevant to the achievement of various involve, specific services sectors, including SDGs, notably financial, ICT and transport health, education, sanitation, water distribution, services, are associated with less restrictive environmental, financial, ICT, transport, and services trade policies. Policy initiatives taken energy services. This underscores how to facilitate trade in services and reduce trade achieving the SDGs is – to a significant costs by tackling barriers to trade in services extent – a services agenda, such that boosting are key to improving the performance of, services capacity and the productivity of various and access to, services that are central to services, and their increased tradability, assume achieving SDGs. considerable importance. 2. Raising the bar on services trade policy regimes Despite the economic shift towards services heighten the contribution that services trade and the growing role of services in world trade, can make to development, overall productivity greater policy attention needs to be paid to the and trade performance, diversification sector – especially its trade and investment and inclusiveness. dimensions. Doing so could significantly (a) Services trade barriers remain high The services trade restrictions indices, integration are subject to trade restrictions developed by both the World Bank and the around the world. Sectors fundamental to the WTO Secretariat and also the OECD, suggest movement of goods within and across borders, that, despite continued efforts at unilateral pro- such as transport services, face significant competitive policy reforms in many countries, restrictions in a large number of economies. barriers to trade and investment in services trade remain high in overall terms, albeit with Similarly, despite the role of telecommunications significant variations across sectors, modes as a critical enabler of electronic supply of services of supply, regions and levels of development. and e-commerce more generally, a number of Sectors such as professional and transport countries restrict the sector’s trade via mode 3. services, for example, tend to be more restricted Barriers to trade in services that are important than telecommunications or distribution sources of value-added in manufacturing exports, services (see Figure 23). Economies of lower such as professional services, are also high. income levels have, on average, higher levels of restrictiveness in all sectors covered. Nevertheless, Borchert et al. (2020) show that the overall level of services trade restrictiveness STRI data also show the extent to which services had been decreasing globally between 2008 sectors particularly crucial to greater trade and 2016, albeit with different patterns across 66 Trade in services for development sectors. Looking at more recent policy changes enable digital trade, such as computer and across 46 countries, the OECD (2022a) finds telecommunications services, as well as a result that services trade restrictiveness tightened of mounting restrictions affecting the supply of during the pandemic, especially in sectors that services through mode 3. Figure 23. Services trade restrictiveness levels, by sector and income levels (STRI values) DISTRIBUTION FINANCIAL PROFESSIONAL TELECOMMUNICATIONS TRANSPORT Source: World Bank–WTO Services Trade Policy Database, available at http://i-tip.wto.org/services. Note: This chart depicts the average level of restrictiveness in the applied regimes of 129 countries in five broad sectors. Each individual graph depicts average STRI values by income group of 129 economies. LI – low income; LMI – lower-middle income; UMI – upper-middle income; HI – high income. The dashed line is the world average for that sector. The STRI values are from three periods of data collection: 2020-2021 for economies in Africa and the Pacific Islands; 2019 for parties to the Central European Free Trade Agreement and 2016 for all other economies. The index quantifies applied services trade policies on a scale from 0 (fully open) to 100 (most trade restrictive). The contribution of services trade policies 67 (b) Limited multilateral commitments on trade in services Barriers to trade in services are higher than Most WTO members have not scheduled for trade in goods and, at the multilateral level, commitments in a majority of sectors covered market access commitments are also more by GATS. On average, schedules of WTO limited than for goods, with many sectors members have specific commitments in roughly left unbound (i.e. free to limit both market a third of all services subsectors (see Figure 24). access or national treatment) by a number Sectoral coverage varies significantly across the of WTO members – and especially by original membership, with developed economies having WTO members. on average more commitments than developing economies (66 per cent compared to 31 per As a whole, WTO members have so far cent), which in turn have more than least- made limited use of GATS to encourage developed economies (21 per cent). lower services trade restrictiveness or to guarantee existing levels of access so as In sectors where market access commitments to ensure greater policy predictability and are scheduled, many remain unbound for certain to circumscribe recourse to trade- and modes of supply or allow for the continued use investment-restrictive measures. of existing restrictive measures (limitations). With the notable exception of members that Since the conclusion of extended (i.e. post Uruguay acceded to the WTO after its creation, GATS Round) negotiations in telecommunications and commitments tend not to bind the existing level financial services in 1997, WTO members have of openness. This implies that the level of policy not collectively improved their market access restrictiveness allowed by the GATS far exceeds, commitments through negotiations. The only on average, the restrictiveness of applied improvements that have been registered have services trade policy regimes.30 resulted from the commitments scheduled by newly acceding members. Figure 24. Average proportion of services subsectors subject to specific commitments under GATS, selected WTO member groupings All members 34% Acceded members 65% All original members 27% Developed economies 66% Developing economies (including least developed) 28% Least-developed economies 21% Developing economies (not including least developed) 31% Source: WTO Secretariat. 68 Trade in services for development (c) Preferential trade agreements secure deeper commitments, widening the gap with multilateral bindings The scheduled commitments outlined above relationships among WTO members, and largely contrast with commitments undertaken in fail to include trade with and among its poorer preferential trade agreements (PTAs) covering members. services, whose number has grown at a fast pace since the WTO was established (see Figure 25) Research suggests that services PTAs promote and where parties have undertaken, on average, GVC participation through both backward significantly higher levels of commitments than at and forward linkages. Lee (2019) finds that the multilateral level (see Figure 26).31 services PTAs increase GVC-related exports in manufacturing from developing to developed While services PTAs, unlike goods agreements, countries, as well as between developing typically result in marginal de novo liberalization countries. The effect of services PTAs on gross in practice32, most such agreements nonetheless exports is twice that of PTAs that cover only trade manage to bind existing levels of discriminatory in goods. Díaz-Mora et al. (2022) show that and market access impeding measures to a much services PTAs boost the services value-added greater extent than is the case under GATS.33 from partner countries that is embodied in manufacturing exports, with larger impacts from However, despite the substantial increase in deeper agreements covering a broader set of the number of services PTAs since 2000, behind the border issues (such as investment these agreements cover only part of all trading and intellectual property-related matters). Figure 25. 188 10 Number of preferential agreements notified under GATS Article V 176 12 18 4 158 149 5 154 142 7 133 9 126 7 114 12 14 14 100 76 10 86 67 9 16 43 8 51 38 5 31 7 26 5 20 6 13 7 5 3 8 5 5 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 00 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 -2 95 19 Source: WTO Secretariat, computed from http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx. Note: New Article V agreements notified in each year are illustrated in orange, while those notified in previous years are in blue. The contribution of services trade policies 69 Figure 26. GATS+ commitments in selected sectors in preferential trade agreements GATS/GATS Offer: Unimproved in PTA PTA: Improved PTA: New Source: Roy and Sauvé (forthcoming). Note: On the basis of 142 of the 193 regional trade agreements notified under GATS Article V as of 1 March 2023. Counting EU-25 as one. “GATS/GATS offer: Unimproved in PTA” means the number of members that have GATS commitments or that have made an offer in the WTO services negotiations in the relevant subsector, and that have not taken better commitments in RTAs. “PTA: Improved” means the number of members that have undertaken a commitment in RTAs that improve a GATS commitment or offer. “PTA: New” means the number of members that have undertaken a commitment in PTAs, where no commitment or offer had been made under the GATS. The subsector 1.B Computer and related services falls under the sector 1 Business Services, with the following categories: 1.B.a Consultancy services related to the installation of computer hardware; 1.B.b Software implementation services; 1.B.c Data processing services; 1.B.d Data base services; and 1.B.e Other computer services. The sector 6 Environmental services includes: 6.A Sewage services; 6.B Refuse disposal services; 6.C Sanitation and similar services; and 6.D Other environmental services. The sector 9. Tourism and travel related services includes: 9.A Hotels and restaurants; 9.B Travel agencies and tour operators services; and 9.C Tourist guides services. (d) The value of binding existing levels of openness in services trade agreements While trade barriers impose costs, uncertainty Recent studies corroborate that commitments stemming from the absence of, or relatively scheduled under the GATS and in PTAs limited, multilateral commitments carries also exert positive impacts on services trade additional costs. As in the case of FDI, and investment, even when controlling for research underscores that the predictability applied levels of openness. Moreover, services of market access conditions underpinned by commitments that bind the regulatory status quo WTO commitments has commercial value have been found to generate more trade than in itself. In the case of goods, trade policy commitments that have “water” in them (Ciuriak uncertainty – measured as the gap between et al., 2020; Lamprecht and Miroudot, 2018). bound and applied tariffs (also known as “water” in the tariff) – is considered as a significant impediment to trade.34 70 Trade in services for development Endnotes 1 Because trade in services extends, for example, 9 For background information, see Thomsen and to the presence of foreign-owned suppliers Mistura (2017) and UNCTAD (2006). or the movement of natural persons, services 10 For further research in this area, see Andrenelli et trade policies cover a wide range of government al. (2018) and Rouzet et al. (2017). measures that have a deep impact on the 11 See Arnold et al. (2008, 2011, 2016) and functioning of services markets and, also, on Duggan et al. (2013). The positive impact of domestic enterprises. Barriers to trade in services services trade is also linked to the quality of most typically involve government measures institutions and regulatory frameworks. Beverelli that discriminate between foreign and domestic et al. (2017) find that the impact of services services or suppliers in different modes of trade openness on a country’s manufacturing supply (GATS Article XVII: National Treatment). productivity is larger for countries with stronger Services trade barriers can also take the form of institutions. Similarly, Fiorini and Hoekman (2020) discriminatory or non-discriminatory measures find that the impact of openness to trade under that limit the total number of services suppliers, mode 3 on manufacturing productivity is greater operations, value of transactions, number of when accompanied by quality (pro-competitive) natural persons employed, or that limit foreign domestic economic regulation (see also Fiorini ownership, or restrict the type of legal entity and Hoekman, 2018a). through which a supplier may provide a service (as spelled out in GATS Article XVI: Market Access). 12 Export sophistication captures the productivity Taken together, market access and national level of a country’s export basket. A country is treatment measures largely determine the extent considered a more sophisticated exporter if it to which there is international contestability and exports more goods of higher productivity (Su et competition in a country’s services market. al., 2019). See also Hausman et al. (2007). 2 See the methodology described in Miroudot et al. 13 See Díaz-Mora et al. (2018), Liu et al. (2020) (2013). and Wolfmayr (2012). Further, the positive impact of services trade is linked to the quality 3 For further information on what determines total of institutions and regulatory frameworks. factor productivity growth in services, see van der Beverelli et al. (2017) find that the impact Marel (2012). of services trade openness on a country's 4 See Nordås and Rouzet (2016). manufacturing productivity is larger for 5 See Nordås and Rouzet (2016) and Raballand countries with stronger institutions. In a similar and Macchi (2009). vein, Fiorini and Hoekman (2020) find that the 6 Restrictions were found to increase shipping impact of openness to trade under mode 3 costs by 26-68 per cent and to reduce trade on manufacturing productivity is greater when flows by 48-77 per cent. accompanied by quality (pro-competitive) domestic economic regulation. See also 7 For a full account, see Teravaninthorn and Fiorini and Hoekman (2018a). Raballand (2009). 14 This is consistent with earlier research in 8 United Nations Conference on Trade and Kowalski et al. (2015) and OECD/WTO (2015). Development (UNCTAD) data on greenfield FDI projects shows that the services sector 15 For further information, see: Fernandes and accounted for 60 per cent of the value of Paunov (2012) for Chile; Arnold et al. (2011) for confirmed projects in 2020-2021, up from 42 the Czech Republic; and Arnold et al. (2016), per cent in 2003-2004. The services sector also Francois and Hoekman (2010) and Heuser and hosts the largest value of greenfield FDI projects Mattoo (2017) for India. targeting developing countries (52 per cent in 16 See Nordås and Rouzet (2016). 2021, compared to just 25 per cent in 2003). 17 See the research by Nordås and Rouzet, (2016). And greenfield FDI that originates in developing The negative impact of higher levels of services countries also increasingly concerns the services trade restrictiveness on exports may be due, sector (47 per cent in 2021). at least in part, to the fact that services trade barriers are not always discriminatory but rather include behind-the-border measures that impose costs on domestic suppliers as well. The future of trade lies in services: key trends 71 18 For further information, see Miroudot and Cadestin 30 For background information on bound level of (2017a). trade restrictiveness, see Miroudot and Pertel 19 For background information, see World Bank (2015). (2016) and OECD/WTO (2015). 31 For background information, see, for example, 20 Information on challenges in e-commerce and Roy (2014), Roy et al. (2007) and van der Marel connectivity in the context of Aid for Trade can and Miroudot (2014). be found in Marchetti (2018) and Roy (2017), 32 There are nevertheless some important respectively. exceptions (see Roy et al., 2007). 21 For an account, see ITU (2016). 33 While a number of PTAs following the GATS 22 For further information on the liberalization of positive-list modality to schedule commitments telecommunications, see Lestage et al. (2013). have yielded greater commitments than at the multilateral level, PTAs have innovated by 22 See Borchert et al. (2017) and Nordås and using negative-list modalities that, among other Rouzet (2016). things, bind existing levels of trade openness 23 For background information, see Balchin et across all sectors, unless provided otherwise. al. (2016), Djiofack-Zebaze and Keck (2009), Such standstill provisions, which are used by an Eschenbach and Hoekman (2006), Mattoo et al. increasing number of countries in PTAs, aim to (2006) and Nordås (2020). foster greater transparency and predictability, 24 For background information, see World Bank providing services suppliers with certainty on (2016). basic “rules of the game” allowing them to plan 25 See Lan and Shepherd (2019) and Sauvé and develop business operations in the long term (2019). (Echandi, forthcoming). In contrast, in positive-list agreements, liberalization obligations only apply 26 See also Trade in Services Related to the to sectors explicitly listed. Environment, OECD document COM/TAD/ENV/ JWPTE(2015)61/FINAL, 27 March 2017. 34 In a study covering 149 countries, Osnago et al. (2015) find that the elimination of “water” 27 Jones and Olken (2010) find that export growth in tariffs (i.e. the difference between bound of agricultural products and light manufacturing and applied tariffs) increased the probability of from least-developed countries decreases on exporting by 12 per cent. A 1 per cent decrease average by 2-5.7 per cent in response to a rise in in water increases export volumes by 1 per cent. the country’s temperature by 1°C (see also Dell The study also finds that, on average, trade et al., 2012). policy uncertainty is equivalent to a level of tariffs 28 One such example is Hello Tractor, which between 1.7 per cent and 8.7 per cent. operates in Bangladesh, India and Pakistan, as well as in seven African countries (FAO, 2022). 29 For background information on ICT in agriculture, see FAO (2017). 72 Trade in services for development 3 Fostering economic development through services trade Key points • Despite challenges linked to characteristics intrinsic to services and the heterogeneity of services markets, a deepened commitment to supportive domestic business environments and to trade openness in services form indissociable parts of a comprehensive growth-enhancing policy agenda. • Deepened international cooperation directed to increasing the predictability of policy regimes and of commitments made in trade agreements, lowering barriers to trade in services, and promoting the adoption of trade-facilitating regulatory practices, are all key to realizing the development promise of expanded services trade. • While a significant share of the gains from services sector reforms are typically secured through the unilateral actions of governments, trade agreements can play a useful complementary role. Disciplines on domestic regulation in trade agreements are also important by helping ensure that regulatory objectives are pursued in ways that limit adverse effects on trade. • Aid for Trade support which targets efforts to enhance international cooperation, reduce trade costs and improve the transparency and predictability of trading conditions could spur progress on the services trade agenda – particularly at the WTO. Aid for Trade could be a useful component in addressing the challenges many developing and least-developed economies face in services trade negotiations, implementing negotiated outcomes and exporting services to the global market. • A Trade in Services for Development initiative could help to mobilize more technical assistance and capacity building in five key areas with the aim to: (i) improve data and information sources on services trade; (ii) facilitate the participation of developing economies in international negotiations and discussions on trade in services; (iii) strengthen services-related regulatory frameworks and institutions; (iv) help developing economies seize the services trade opportunities offered by accelerating the pace of digitalization; (v) boost supply capacities and skill sets in developing economies to increase and diversify their services exports. 74 Trade in services for development 1. Deepening international cooperation in services trade A number of challenges, not least those arising policy regimes, scaling up commitments made from the sheer diversity of the services economy in trade agreements, lowering barriers to trade (see Box 11), confront governments as they and investment in services, and promoting the enact policies aimed at harnessing the potential adoption of trade-facilitating regulatory practices contribution of services trade to inclusive are all key to fulfilling this potential. In many economic growth and development. Deepened instances, a conducive domestic environment will international cooperation directed to increasing be a key determinant of the gains from expanded the predictability and credibility of domestic services trade. (a) Increasing policy predictability and lowering barriers to services trade Trade agreements can play a useful complementary Reciprocal liberalization role in securing the gains from services sector reforms, even though reform is typically secured Unilateral liberalization in services, while through the unilateral actions of governments. widespread, is far from uniform across regions, Negotiations on services trade are worth countries, sectors and modes of supply. pursuing for several reasons. Important barriers remain, including in areas of particular interest to several developing Demonstrating credibility economies, such as the movement of natural persons or professional services for example. Services trade agreements provide governments However enlightened, unilateral domestic reforms the opportunity to reap the benefits of are not designed to address barriers in foreign locking-in enacted domestic reforms. Binding markets. The only feasible means of doing so is commitments demonstrate the credibility of to pursue reciprocal liberalization opportunities domestic reforms and signal a commitment to with key trading partners. improved business and investment climates. The credibility enhancing properties of Reciprocity-based bargaining can help multilateral commitments rank among the most governments overcome domestic resistance to important features of the General Agreement change. Reform can be easier if a government on Trade in Services (GATS) and, more broadly, can demonstrate that its exporters will benefit of WTO rule making. Similar considerations from expanded market access opportunities, also apply to the binding commitments assumed including those brokered in other areas of a under preferential trade agreements (Ciuriak trade negotiation. et al., 2020). Services diversification Services trade agreements offer the possibility of committing to future policy reforms, which can Trade negotiations offer scope to diversify instil a greater sense of urgency about necessary services exports and identify export potential domestic regulatory reforms while also promoting that could gain from improved transparency an orderly adjustment path.1 A scheduled and policy predictability at home and abroad. commitment to future market opening may be Expanded two-way trade in services can yield more credible than an unbound domestic reform important gains by stimulating competition and announcement, particularly for countries saddled diffusing international best practices, particularly with higher risk premiums demanded by investors. in matters of domestic regulation, skills, technologies and investment capital. Fostering economic development through services trade 75 Attracting investment occurs through foreign direct investment, bring much-needed capital to host countries. The entry of foreign providers can supply better Affording easier entry conditions to foreign services to domestic consumers, improve the suppliers can also help to stimulate investment competitiveness of domestic firms confronting in infrastructure – an area that is often stifled by more contestable market conditions and, given public-sector budgetary constraints or limited that a predominant share of trade in services access to international capital markets. Box 11. Differentiation matters: Contending with the diverse nature of services Opening services markets to foreign competition Education and healthcare services, with their confronts policy-makers with a host of challenges linked important public good characteristics, are key to a to the high degree of differentiation characterizing the healthy, skilled and productive workforce. While the services economy.* The sector’s sheer diversity suggests healthcare sector traditionally has a strong public that policy reforms need to pay close attention to – and sector presence in many countries and is among the be informed by – differences in the nature and roles that lesser committed sectors in trade agreements, trade various services play, in the multiple ways they are traded, in both areas has experienced rapid growth in recent in the intensity of the regulatory scrutiny they command, in years and produced major export gains in a rising the broad range of public policy aims their supply pursues number of developing economies. and in the political economy forces they put in play. The high degree of regulatory scrutiny services command Services further differ in their skill and capital intensity, reflects the ubiquity of instances in which services the degree to which they are connected to other sectors, markets might fail to produce socially optimal outcomes their propensity to be supplied by micro, small and in the absence of regulatory measures pursuing legitimate medium-sized enterprises or by large multinational firms, public policy aims, such as consumer protection, and the degree to which they can be remotely supplied. the prevention of systemic risks in financial markets, Such differentiation explains why services-sector environmental degradation or undue market concentration governance rarely – if ever – proceeds on a one-size- in network industries. fits-all basis. It also explains why domestic reforms All are factors to take into account in the context of anchored in trade agreements typically proceed in a international cooperation. progressive manner. Differentiation is also central theme in services trade Services such as maritime, air and land transport, negotiations, which typically involve a broad and complex wholesale trade, logistics and express delivery are all set of policies and regulations, ministries covering central to the production and facilitation of goods trade the leading sectors, regulatory agencies and diverse and to the operation and resilience of cross-border stakeholders – domestic and foreign, public and private. production networks. A host of services, ranging Care is thus needed when assessing the nature, pace from energy, telecommunications, banking, insurance, and sequence of regulatory reform and market opening of business and professional services to transportation are services if they are to maximize an economy’s growth and embedded in all products – goods and services – that development prospects. economies produce, trade and invest in. The conduct of services sector reforms, whether pursued Tourism-related activities represent the leading autonomously or in the context of trade agreements, can source of export earnings for a large number of therefore prove more challenging than in other sectors developing economies, including many least- (see Sáez et al., 2014). This suggests that a strong developed economies. Across the world, a vast array development payoff can be expected from stepped of information and communication services provide the up levels of Aid for Trade targeting the nexus between backbone to e-commerce. domestic reforms and trade negotiations in the sector. * For a fuller discussion of the differentiated nature of services, see Nayyar and Davies (2023). 76 Trade in services for development Global value chains from increased technical and financial assistance to implement services sector commitments. Services trade negotiations can help countries Experience under the WTO’s Trade Facilitation secure greater value from their participation in Agreement has shown the usefulness of tying cross-border production networks by boosting the scheduling of commitments to economies’ the competitiveness of services involved in capacity to implement them – with technical and backward and forward global value chain financial assistance to support implementation (GVC) linkages. efforts. A similar approach is contemplated under ongoing plurilateral negotiations on Investment Technical and financial assistance Facilitation for Development (see Box 12). Developing economies can leverage binding commitments in trade agreements to benefit (b) Promoting the adoption of trade-facilitating regulatory practices Since services are subject to a high degree As recurring bouts of financial market instability of regulatory intensity, improved capacity have shown, inadequate domestic regulation to regulate services markets is of critical can give rise to serious internal distortions, importance for enhanced competitiveness. which in turn can entail equally severe social A sound domestic regulatory environment is dislocation with third-country ramifications, essential to reaping the benefits of expanded given the interconnected nature of financial services trade and investment. markets. Inadequacies in domestic regulation, for example in the field of professional licensing, Measures taken to promote greater market can also legitimize external barriers to trade, to contestability in services bring greater the detriment of developing-economy exporters rewards when rooted in and accompanied (OECD, 2023). by sound regulation and strengthened regulatory enforcement capacity.2 Technical support The establishment of an appropriate regulatory directed at building or strengthening domestic framework can enable a country to take regulatory capacity is therefore needed, including advantage of potential export opportunities in sectors where liberalization is undertaken by promoting the emergence of competitive autonomously by developing economies. domestic suppliers that meet world standards of services provision. For example, by Disciplines on domestic regulation contained facilitating the development of a safe and in trade agreements play a significant role in reliable healthcare system, a sound regulatory promoting and consolidating domestic reform framework can enable a country to take efforts in services markets and in ensuring that advantage of new opportunities to offer health regulatory objectives pursuing key public policy and wellness-related tourism services. objectives are achieved in an economically efficient manner. Such disciplines can also equip developing-economy exporters with the means to address regulatory barriers to their own exports in foreign markets. Fostering economic development through services trade 77 Box 12. Negotiations on Investment Facilitation for Development Investment facilitation at the WTO aims to anti-corruption measures. An IFD Agreement would promote more transparent, efficient and apply to investment facilitation in services and investment-friendly business climates by making non-services sectors, but would not cover market it easier for investors to invest, conduct their access, investment protection and investor–state day-to-day business and expand their existing dispute settlement. investments, as well as for host and home governments to work cooperatively to facilitate Providing special and differential treatment, including greater volumes of sustainable investment. technical assistance and support for capacity building, to developing and least-developed Following two years of preparatory work, economies is also a key component of a prospective participants (currently more than 110 WTO IFD Agreement. Echoing an approach pioneered in members) formally launched negotiations on the the WTO’s Trade Facilitation Agreement, developing Investment Facilitation for Development (IFD and least-developed economies would be allowed to Agreement) in September 2020. designate the provisions of a future IFD Agreement under one of the three categories (A, B, C) and An IFD Agreement could complement and reinforce request additional time or technical assistance and members’ existing efforts to facilitate investment by: capacity building for implementation. • creating clear and consistent global benchmarks for investment facilitation, thus ensuring that (minimum) common standards are applied across Three key pillars are sections on economies, reducing regulatory uncertainty, minimizing transaction costs, and making it easier for investors to invest; Transparency • anchoring domestic investment facilitation reforms of investment measures in shared international commitments, thus reducing policy uncertainty, strengthening members’ reform efforts and sending a positive signal to investors; • providing a global forum to promote best Accelerating and investment facilitation practices, thus enhancing cross-border regulatory cooperation and streamlining investment improving information exchanges; administrative procedures • supporting and strengthening the capacity of developing and least-developed economies to implement investment facilitation measures through technical assistance and capacity building. Enhancing international An IFD Agreement would also include a section on cooperation, information sustainable investment, which contains provisions sharing and exchange of to encourage the uptake of responsible business conduct principles and standards by investors and best practices enterprises, as well as the adoption of Source: See https://www.wto.org/english/tratop_e/invfac_public_e/factsheet_ifd.pdf. 78 Trade in services for development While an increasing number of developing “A sound domestic countries have been undertaking reforms to improve their domestic business and regulatory regulatory environments, technical support directed to improving regulatory design and enforcement environment is capabilities could further enhance their essential to reaping competitiveness at the international level. the benefits The Reference Paper on Services Domestic Regulation3, which a group of 69 WTO of expanded members agreed to in 2021, addresses services trade transparency and procedural aspects linked with the permission to supply services across and investment.” different services sectors (see Box 13). The reference paper disciplines build on adopted over the past two decades. They and consolidate important developments also represent an important building block in the field of good regulatory practice and for countries that want to engage in more drafting trends in preferential trade agreements substantive regulatory co-operation. 2. A Trade in Services for Development initiative: Aid for Trade priorities in services In addressing the deficits in negotiating, Box 14 offers insights on the nature of Aid for enforcement and supply-side capacities that Trade disbursements directed to supporting many developing economies face in services services-related activities. The figures reveal that, negotiations, a practical Aid for Trade component with the exception of Aid for Trade disbursements could usefully underpin domestic reform directed to banking and financial services, aid efforts and complement trade agreements disbursements in all other areas relevant to services by forming part of negotiated outcomes. This trade have either remained largely unchanged or was the case in the WTO’s Trade Facilitation decreased over the last 15 years, with the largest Agreement, where donor support has proven drop registered in Aid for Trade spending directed key to both reaching consensus on the accord to business and other commercial services. and supporting the generally rapid pace of its implementation. Just as trade agreements can be viewed as complements to domestic reform efforts in Similar approaches aimed at tying technical services markets, so too must Aid for Trade assistance to the implementation of agreed linked to heightened engagement in services negotiated outcomes is today at play in the negotiations complement efforts at improving the recently concluded agreements on harmful quality of domestic regulatory and policy-making fisheries subsidies and services domestic environments that are independent from trade regulation and is being discussed in other policy considerations. negotiating initiatives, notably in the area of investment facilitation for development. Fostering economic development through services trade 79 Box 13. Tackling regulatory barriers to trade in services: The outcome on services domestic regulation At the end of 2021, a group of WTO members Recent findings by the Organisation for Economic representing 92.5 per cent of the world’s services Co-operation and Development and the WTO trade agreed on a set of disciplines on services suggest that the benefits from implementing the domestic regulation to mitigate the unintended trade- disciplines on services domestic regulation would restrictive effects of measures relating to licensing result in significant reductions in trade costs, and qualification requirements and procedures, and particularly in important backbone services sectors, technical standards. Several business associations such as commercial banking, telecommunications around the world welcomed this WTO outcome as and insurance, as well as computer and professional a concrete answer to the challenges that suppliers services (OECD/WTO, 2021). – and especially micro, small and medium-sized enterprises and women entrepreneurs – regularly Implementation is likely also to generate broader face in services markets. trade benefits for the economy as whole, such as an increase in services trade by all modes of supply, as By focusing on procedural aspects of obtaining well as greater level of entrepreneurship and more authorization to supply services, the disciplines aim active involvement in global value chains (Baiker et to ensure that existing market access conditions al., 2021). are not in practice nullified by opaque and complex procedures that services suppliers have to navigate when seeking authorization to supply services. Three key objectives While preserving WTO members’ space to regulate services in accordance with their national policy objectives, the disciplines align closely to good Transparency regulatory practice developed at the international level under three key objectives: transparency, certainty and predictability of procedures, and regulatory quality and facilitation. Certainty and predictability of procedures One of the novel disciplines that has been agreed requires that authorization procedures for services suppliers do not discriminate against women. Based on the recognition that many economies still Regulatory quality and maintain barriers for women to operate in services facilitation markets, which do not find correspondence for men, this discipline seeks to provide a concrete avenue to support women’s participation in international trade in services. Source: See https://www.wto.org/english/tratop_e/serv_e/sdr_factsheet_jul22_e.pdf. 80 Trade in services for development Box 14. Documenting Aid for Trade in services The Synthesis Report annexed to the G20’s 2020 energy grids) rather than “soft infrastructure” at play Ministerial Communiqué* underscored that Aid for in services negotiations (e.g. policy formulation, Trade needs to be mobilized to provide new trade competitiveness diagnostics, institutional opportunities, reduce trade costs in services, and strengthening and services sector regulation). enhance connectivity by providing an enabling environment for services markets. Indeed, classification of Aid for Trade data does not provide sufficiently disaggregated information A significant part of Aid for Trade disbursements – to capture the extent to which development totalling US$ 48.7 billion in 2020 – interact with assistance qualitatively improves trade negotiating services, as suggested by the breakdown of broad capacities, strengthens regulatory institutions categories of disbursements (see table below). and improves services trade policy formulation Of the total, however, 54 per cent of Aid for Trade and implementation. Other categories, such as disbursements relate to transport and storage and communications, business and other services energy generation and supply. Both categories or tourism, account for a relatively small – and concern the hard infrastructure of services markets sometimes diminishing – share of total Aid for (physical installations such as roads, airports or Trade disbursements directed to the services. Fostering economic development through services trade 81 Aid for Trade disbursements, 2006-2020 (Value in US$ million and per cent of total) US$ million In per cent Categories 2006 2010 2015 2020 2006 2010 2015 2020 Trade policy and admin. 383.3 636.9 447.5 681.4 1.85 1.99 1.03 1.40 management Trade facilitation 71.9 354.9 446.8 362.1 0.35 1.11 1.03 0.74 Regional trade 60.2 108.2 102.0 48.8 0.29 0.34 0.24 0.10 agreements Multilateral trade 18.4 29.9 17.0 7.9 0.09 0.09 0.04 0.02 negotiations Trade-related 0.0 66.3 14.3 2.7 0.00 0.21 0.03 0.01 adjustment Trade education/ 9.7 35.2 34.2 25.1 0.05 0.11 0.08 0.05 training Transport and 5,835.1 9,463.6 11,893.7 11,053.2 28.22 29.54 27.43 22.68 storage Communications 511.2 538.7 478.3 874.3 2.47 1.68 1.10 1.79 Energy generation 4,178.0 6,988.6 10,394.5 11,784.7 20.21 21.81 23.97 24.18 and storage Business and 1,703.2 1,646.2 2,136.7 2,307.8 8.24 5.14 4.93 4.74 other services Banking and 1,527.9 2,498.7 5,999.1 7,354.2 7.39 7.80 13.84 15.09 financial services Agriculture 3,466.1 6,817.2 7,804.1 8,737.3 16.76 21.28 18.00 17.93 Forestry 504.5 758.9 801.4 1,159.9 2.44 2.37 1.85 2.38 Fishing 221.4 322.9 240.8 448.1 1.07 1.01 0.56 0.92 Industry 1,215.8 1444.2 1,904.3 2,685.4 5.88 4.51 4.39 5.51 Mineral resources 914.7 173.9 471.2 1,029.0 4.42 0.54 1.09 2.11 and mining Tourism 55.6 153.7 175.8 169.9 0.27 0.48 0.41 0.35 Aid for Trade total 20,677.1 32,038.0 43,361.6 48,731.7 Source: OECD/WTO (2019, 2022). * See https://www.g20.org/content/dam/gtwenty/gtwenty_new/about_g20/previous-summit-documents/2020/Final%20G20%20 FMCBG%20Communiqu%C3%A9%20-%20July%202020.pdf. Note: In the 2019 WTO-OECD Aid for Trade Monitoring and Evaluation exercise, most donor countries (66 per cent) and recipient countries (88 per cent) identified services as the sector where future support for economic diversification would be most required. 82 Trade in services for development Moreover, any call for increased Aid for Trade must • strengthen services-related regulatory feature a parallel call for its rigorous monitoring frameworks and institutions; and evaluation. The question of aid effectiveness • help developing economies seize the services in services trade remains an area where important trade opportunities offered by the accelerating information gaps remain and to which empirical pace of digitalization; attention could usefully be directed. • boost supply capacities and skill sets in developing economies to increase and A trade services for development initiative diversify their services exports, as called for could aim to: by GATS Article IV (Increasing Participation of Developing Countries) and as recently • improve data and information sources on reaffirmed by the outcome document of the services trade; WTO’s 12th Ministerial Conference.4 • facilitate the participation of developing economies in international negotiations and discussions on trade in services; (a) Improving the availability of services-related data and policy-relevant information The first area where increased efforts at Informed policy-making in services needs to be international cooperation can improve policy underpinned by credible data. Despite marked design and lend direct support to services trade improvements in the availability of services trade negotiations is addressing the often data relative to the situation prevailing during the acute deficits of data, information, analytical Uruguay Round, the statistical landscape governing capacity and expertise limiting the ability of services trade continues to exhibit important developing and least-developed economies to shortcomings. For instance, too few developing engage meaningfully in services trade policy economies gather, compile and publish data on formulation and negotiations at the national, bilateral services trade (on a balance of payments regional and global levels. This concerns, for basis), on the activities of foreign affiliates and on example, a lack of information on existing national investment flows in the services sector. policies that may be affected by the rules and commitments scheduled in different sectors and Such data inadequacies force recourse modes of supply. to mirror data to approximate the value of transactions, which is far from optimal given Some developing economies also have limited the many gaps in reported bilateral data. Many capacity to diagnose sources of comparative developing economies also confront a dearth advantage in services, identify the policy mix of disaggregated data on services traded at the best able to boost productive capacity or assess product level, on the value of services trade by the distributional impacts of various policy modes of supply, on digital trade as well as on choices (Engel et al., 2021). Also common domestic services output. are weaknesses in domestic institutional architectures for inter-agency coordination and Initiatives to broaden the availability of the above external stakeholder consultations given the large statistical sources in developing economies – in number of public and private sector actors at play particular least-developed economies, call for in services trade policy.5 All are areas in which more funding directed to technical assistance technical assistance directed at strengthening and statistical capacity building. In response to negotiating and analytical capacities in services these data gaps, the OECD, the World Bank can yield important benefits.6 and the WTO have developed experimental trade in services datasets. Fostering economic development through services trade 83 WTO–OECD Balanced Trade in compile TiVA data – in particular supply-use or Services dataset input–output tables, national accounts data by type of activity and detailed bilateral trade in services The WTO–OECD Balanced Trade in statistics. Services (BaTiS) dataset is a comprehensive and consistent matrix of trade in services Services Trade Policy Database and statistics (on a balance of payments basis) for Services Trade Restrictions Index 200 reporters and partners covering 12 services subsectors combining available The World Bank and the WTO have jointly national data with a range of estimations developed the Services Trade Policy Database and adjustment procedures. (STPD), a services regulatory database, and the associated Services Trade Restrictions Index Trade in Services by Mode (STRI), which quantifies levels of applied policy of Supply dataset restrictiveness in services markets (see Box 15). The Trade in Services by Mode of Supply (TiSMoS) Improving data coverage dataset was produced by the WTO and funded by the Directorate-General for Trade of the European While the above statistical advances significantly Commission. Covering 200 economies, it provides improve countries’ understanding of key an overall picture of international trade in services trends and the policies driving them, all require across the four modes of supply defined by GATS. deeper country coverage (particularly of poorer countries) and regular updates to serve useful Trade in Value-Added dataset diagnostic and analytical purposes. This in turn implies the need for continued donor support for Efforts are being made to better understand the the various international organizations to cover flows of goods and services in GVCs, since such the recurring costs involved in collecting and flows and interactions between economies are not analysing such data. reflected in conventional measures of international trade. The development of Trade in Value-Added Moving in this direction can be expected to (TiVA) estimates by the OECD addresses this produce the twin benefit of ensuring that policy information gap. However, such data are rarely choices rest on rigorous analysis and that the available for developing economies, given the comfort level required to engage more deeply in lack of underlying official statistics necessary to services sector reforms and negotiations is raised. (b) Strengthening developing-economy participation in international discussions on services trade Much capacity-building effort in services has However, equally important needs include: so far focused on helping trade negotiators and policy officials master the legal provisions of • acquiring the analytical tools to assess services agreements, such as GATS. For many alternative domestic reform scenarios; poorer economies, this remains an important • developing government-wide negotiating challenge, particularly where services expertise processes; is scarce in trade and foreign ministries and even • strengthening public–private dialogue on more so in relevant line ministries and regulatory services-related reforms and negotiations; agencies. Short-term training activities directed • helping domestic services providers take full to overcoming such knowledge gaps retains its advantage of the market access opportunities salience in many poorer settings. arising from regional and multilateral liberalization efforts. 84 Trade in services for development Box 15. WTO–World Bank Services Trade Policy Database and Services Trade Restrictions Index Since 2013, the World Bank and the WTO have (i) conditions on market entry; been developing the joint Services Trade Policy (ii) conditions on operations; Database (STPD) and the associated joint Services measures affecting competition; (iii) Trade Restrictions Index (STRI). This cooperation (iv) administrative procedures and regulatory builds upon earlier work on services trade policies transparency; by the World Bank in 2008-2011. The STPD, (v) miscellaneous measures not covered by the inaugurated in 2019 (Borchert et al., 2019, 2020), previous four categories (see table 1 of Borchert comprises two components: a regulatory database et al., 2020). and the STRI. Based on the regulatory information collected, the Originally, the database covered 76 economies and restrictiveness of countries’ policies in each of the the following services (with some of the listed sectors subsectors is quantified by means of the STRI – disaggregated into more detailed subsectors): an index that quantifies a country’s applied policies on trade in services on a scale from 0 (fully open) • professional services (accounting, auditing, legal); to 1 (completely closed to foreign services or • distribution; services suppliers). • financial (banking, insurance); • telecommunications; Drawing from the STPD regulatory information at • transport services (air, rail, road, maritime). the individual measure level, all key restrictions affecting trade in services are individually given a The database was significantly expanded between score from a six-level scale of restrictiveness that 2020 and 2022 to cover 54 African economies ranges from 0 to 1. All measures thus scored at the (all parties to the African Continental Free Trade country-subsector-model level are then combined Area) and six Pacific Islands. Sectoral coverage was and aggregated using an algorithm that is based on also increased (adding architecture, engineering, a constant elasticity of substitution function. computer, postal and courier, audiovisual, construction, health, tourism). Again, there was The STRI summarizes policy restrictiveness in an additional subsector detail in some cases. accessible and compact way that is impossible to achieve with text-based measures. It thus As of May 2023, the STPD covers 129 economies facilitates a comparison of regulatory stances and is in the process of being expanded to cover across sectors, countries and potentially over time, new ones. The database provides regulatory and it serves as crucial input into a wide range of information on around 500 measures affecting quantitative analyses. services supply in each economy through the various modes of supply. The regulatory information is Source: World Bank and WTO (forthcoming). displayed and organized according to a classification Note: The regulatory information is collected in two ways: of policies jointly developed by the WTO and the information for OECD economies is from the OECD STRI World Bank that comprises five broad categories: regulatory database. For other economies, the data are collected through primary surveys completed by local law firms or consultants. Mastering such skills can strengthen developing strategic roadmap for their services sector and the economies’ capabilities to fully take advantage of role that trade policy and trade agreements can play services trade. in pursuit of the sector’s development are especially important. This would help many developing Benefits could also be derived from having economies to better define their interests when roadmaps in place for services sector development negotiating on services in trade agreements at the in the context of national development strategies. bilateral, regional or multilateral levels7 and ensure Efforts directed at helping governments craft a their alignment with ongoing domestic reforms. Fostering economic development through services trade 85 Equally important are efforts directed at • market access conditions and opportunities in strengthening in-country capacity – within export markets; governments, policy research institutions • access to distribution channels; and academia – to produce the data and • information on product standards; analysis needed to inform trade policy • business-to-business dialogue; formulation and implementation. • networking. Defining national interests in services requires Support given to mapping the landscape of detailed information about the full range of measures competitive domestic services suppliers, the that prevent effective access to the markets of key majority of which are micro, small and medium- trading partners. The breadth of services trade and sized enterprises (MSMEs), can promote the diversity of sectors render information gathering heightened insertion in both regional and global a complex task that challenges many developing value chains and closer linkages with the lead economies, even larger ones. investor firms that typically drive GVCs. Trade-related technical assistance can provide Technical assistance and discussions on services suppliers in developing economies services-related analytical tools deserve greater with greater economic information on, among attention from multilateral agencies and the other things: donor community. Such support could build on South–South learning and involve dissemination of best practices by developed and developing economies that have been successful reformers. (c) Conducting regulatory audits on services trade As a significant part of services trade policy comprises behind-the-border measures, much of Examining the domestic regulatory regime the work involved in developing a services strategy will need to focus on the domestic regulatory regime. • How is it framed? An inventory or trade-related audit of key existing • What objectives does it pursue and with what domestic measures “affecting trade in services” degree of efficiency? can be very useful and pursued even in the absence of trade negotiations. This will strengthen • How rooted in international standards or the process of information sharing and inter- international best practice are domestic agency coordination and help to promote a healthy regulatory requirements? dialogue between officials involved in domestic and external policy matters, while also favouring a • How user friendly are domestic rules and culture of regulatory reform and periodic regulatory administrative procedures? impact assessment and review (see Box 16). • How are domestic regulations applied and Trade negotiations offer opportunities for who applies them? engaging in such an exercise and building trade- related capacity among regulatory officials about • How trade and investment friendly are international agreements, trade and investment law, domestic regulatory regimes? and international negotiating processes. Such an exercise can also improve knowledge among trade • Can domestic regulatory objectives be officials of the underlying policy rationale of sectoral attained in ways that are less trade or regulatory issues and policy reform challenges and investment restrictive? the impacts they hold for the nature and sequencing of commitments scheduled in trade agreements. 86 Trade in services for development Box 16. Regulatory Assessment of Services Trade and Investment The World Bank has developed the Regulatory sectors. It identifies institutional weaknesses and Assessment of Services Trade and Investment regulatory deficiencies that can impair services trade (RASTI) toolkit to help policy-makers assess and the development of an enabling services sector. regulations consistently, streamline regulatory frameworks to improve efficiency and establish a Supporting regulatory reforms sound process for introducing new regulations. Identifying laws and regulations that restrict Filling information gaps services trade and investment is the key first step in the process of regulatory reform. Where The first objective of RASTI is to fill information gaps data are available, a quantitative analysis on the regulatory framework for services trade. Many presents additional information on how regulatory developing countries have only recently embarked restrictions affect services sectors. This on services sector reforms. In some cases, market information can be used to identify the measures opening predates regulatory reform. This can pose and sectors that are most restrictive. sequencing problems and add to the challenge of regulating the domestic services market. Policy-makers can then consider alternative paths towards improved regulatory frameworks for RASTI provides comprehensive information on the services. RASTI can be conducted as part of a features of the regulatory framework for all services broader policy to attract foreign investment, as the “ Identifying laws and regulations that restrict services trade and investment is the key first step in the process of regulatory reform. Fostering economic development through services trade 87 streamlining of regulatory frameworks can identify sectors and measures that may conflict with a and eliminate unnecessary hurdles. proposed agreement. Once an agreement enters into force, a RASTI can support implementation Supporting trade negotiations by identifying inconsistent laws and regulations or sectors in need of new regulations aligned to new Countries engaged in international trade international obligations. negotiations can use RASTI to identify potential inconsistencies with international disciplines that Assessing regulatory performance may affect the negotiation process or compliance with agreed commitments. RASTI can also Analysis of the governance framework assesses help to identify regulations that serve legitimate regulatory institutions’ ability to develop a regulatory policy objectives and should not be affected by framework that stimulates the services sector while international trade agreements. achieving policy goals. It also identifies administrative practices that impair the services sector, such as A detailed mapping of regulatory frameworks excessively burdensome registration requirements, gives trade negotiators an accurate picture of the non-transparent licensing procedures, and weak sectors and measures requiring attention. It can, regulation monitoring and enforcement practices. for instance, inform trade negotiators of sensitive Note: For background information, see Molinuevo and Sáez (2014). (d) Strengthening regulatory capacities and facilitating the mobility of capital and labour Technical assistance relating to the services the predominance of commercial presence as a sector can make an important contribution in mode of supplying services. strengthening regulatory capacity – both of the institutions and their officials – in developing Assistance can also be directed at facilitating and and least-developed economies. Regulatory reducing the costs attached to the cross-border institutions are costly to establish and maintain mobility of services suppliers, including via mode and require staff with sophisticated legal and 4 trade, where barriers remain significant. This economic skills. However, sound domestic can be done by sharing best practices in the regulation is critical to realizing the full benefits of design and operation of trade-facilitating mutual open services markets, correcting market failures recognition agreements, as well as from initiatives and addressing potential distributional impacts. aimed at reducing the costs of complying with temporary entry requirements. An important step in enhancing regulatory governance in services was secured by the Developing economies also stand to benefit recently agreed disciplines on services domestic from enhanced assistance in designing regulation reached by a group of WTO members, reforms that properly factor the distributional whose provisions are intended to apply to all impacts that services trade may exert on WTO members on a most-favoured-nation poorer households, women, the youth or treatment basis (see Box 13). disabled workers by improving access to essential services, running the gamut from Assistance directed at enhancing the sanitation to transport, telecommunications, economy’s investment climate may also be banking, trade finance, education and particularly important in strengthening the vocational training – particularly digital literacy competitiveness of the services sector, given – as well as health. 88 Trade in services for development (e) Accelerating the pace of digitalization Digitalization and the related shift to services • greater regulatory convergence; is reshaping the geography of trade in • development and adoption of international or ways that present important opportunities regional standards; for developing economies. Digital trade • adoption of measures governing issues such opens new opportunities for firms of all sizes, as data privacy and network interoperability. anywhere in the world, to gain access to new and larger markets. Technical assistance for all these areas is being provided by international organizations to help Digital services do not require the usual scale or economies narrow digital divides, improve the capital intensity characteristic of manufacturing. digital regulatory environment and strengthen Successful digitalization strategies require their participation in digital trade negotiations not only investments in information and (see Box 18). communications technology (ICT) hardware, software and digital literacy but also a conducive Beyond efforts aimed at boosting digital readiness legal, regulatory and institutional enabling at the national level, a set of international rules environment for ICT services (see Box 17). for digital commerce is also needed to underpin the orderly growth of cross-border digital trade. Services supplied remotely over digital networks Negotiating such rules will once more require and platforms is growing in importance. To boost more international cooperation and enhanced cross-border trade in services, there needs to be: policy-making expertise (see Box 19). Box 17. Digital Economy for Africa Initiative Together with development partners and sector stakeholders, the World Bank Group’s Digital Digital Economy Scorecard Economy for Africa (DE4A) Initiative* supports the African Union’s Digital Transformation Strategy for 1. Digital infrastructure Africa** in identifying the key policy reforms and investments needed at the national and regional 2. Digital public platforms level for the countries in Africa to achieve their digital development ambitions. 3. Digital financial services The DE4A Initiative supports policy reforms and 4. Digital businesses leverages public and private investments to build digital economies in Africa. This commitment has 5. Digital skills been accompanied by a call for countries in Africa to increase their spending on the digital economy and prioritize critical reforms. * See https://www.worldbank.org/en/programs/all-africa- The DE4A Initiative includes the development of digital-transformation. “Digital Economy Scorecards” across the five key ** Available at https://au.int/en/documents/20200518/ pillars of the digital economy to track objectives. digital-transformation-strategy-africa-2020-2030. Country diagnostics offer a snapshot of the state of the digital economy at the country level across each of the five pillars. As of March 2023, 40 country diagnostics had been completed. Fostering economic development through services trade 89 “ Services supplied remotely over digital networks and platforms are growing in importance. Box 18. Digital Advisory and Trade Assistance Fund The Digital Advisory and Trade Assistance (DATA) The main focus of the DATA Fund is on projects that Fund* is a pilot programme managed by the World have a direct impact on the benefit trade in digital Bank as part of the Umbrella Facility for Trade**, services and e-commerce can bring to developing a multi-donor trust fund. With contributions from economies, including: Australia and Switzerland under the E-Commerce Capacity Building Framework***, the DATA Fund • legal, regulatory and institutional framework for was established to advance technical assistance in digital trade; digital trade and to support developing economies’ • development and analysis of digital trade statistics; participation by improving the domestic regulatory • border management and logistics for e-commerce; and business conditions for engaging in global • digital skills and entrepreneurship; digital markets. It will also support capacity building • fiscal regimes for e-commerce and digital services; in drafting international rules on digital matters • capacity building for policy-making and through specialized training for policy-makers and international negotiations. other stakeholders. * See https://blogs.worldbank.org/trade/digital-trade-talks-voices-least-developed-countries-are-missing. ** See https://www.worldbank.org/en/programs/umbrella-facility-for-trade. *** See https://www.wto.org/english/tratop_e/ecom_e/jiecomcapbuild_e.htm. 90 Trade in services for development Box 19. WTO Joint Statement Initiative on E-Commerce A group of 71 WTO members agreed in 2017 and Singapore) had issued streamlined text with to initiate exploratory work towards future convergence on ten articles: WTO negotiations on trade-related aspects of e-commerce.* In January 2019, 76 WTO members • paperless trading; confirmed in a joint statement their intention to • electronic contracts; commence these negotiations. • electronic signatures and authentication; • unsolicited commercial electronic messages; As of February 2023, there are 89 WTO members • online consumer protection; participating in these discussions, accounting for over • open government data; 90 per cent of global trade. Four least-developed • open internet access; economies are participating – Benin, Burkina Faso, • transparency; the Lao People’s Democratic Republic and Myanmar • cybersecurity; – alongside a significant number of developing • electronic transactions framework. economies from most regions of the world. Discussions are continuing on a range of additional The discussions aim to update the WTO rulebook on issues, including on provisions to enable and e-commerce to unlock the important opportunities promote the flow of data, such as on cross-border that the digital economy offers for members at all data flows, data localization and source code. levels of development, including by lowering the cost for businesses, particularly and micro, small and Recognizing the challenges faced by developing and medium-sized enterprises, to access and participate least-developed economies seeking to benefit from in global markets. Participating members seek the digital economy, Australia, Japan, Singapore and common disciplines to facilitate remote transactions Switzerland have launched the E-Commerce Capacity and strengthen trust in digital markets, while helping Building Framework**, which aims to strengthen to tackle digital trade barriers. digital inclusion and to help harness the opportunities of digital trade. The Framework will offer a range of Significant progress has been achieved in the technical assistance, training and capacity building to negotiations since 2019. By the end of 2022, the support the participation of developing and least- initiatives’ co-conveners (Australia, Japan developed economies in the e-commerce negotiations. * See https://www.wto.org/english/tratop_e/ecom_e/xcom_e/joint_statement_e.htm. ** See https://www.wto.org/english/tratop_e/ecom_e/jiecomcapbuild_e.htm. (f) Boosting supply capacity and the skills relevant to services trade Strengthening productive capacity Scaling-up domestic services capacity would provide benefits for employment, particularly Scaled-up support is needed to strengthen for women given their preponderant role in productive capacity in domestic services many sectors. It would also speed up the pace markets, including through improved access of digitalization and allow countries to take to technology and enhanced connectivity, both advantage of expanded export opportunities, digital and physical. Aid for Trade in services including in higher value-adding services activities. needs to target the very real constraints that many exporters in developing economies face in Such support may prove particularly important attempting to supply newly opened markets. in sustaining diversification efforts in countries characterized by high degrees of dependence Fostering economic development through services trade 91 on only a few sectors (e.g. extractive industries, Capacitating private actors tourism). While the fixed costs of entering foreign markets is often lower in services than On account of its central focus on the private in manufacturing, they may still prove prohibitive sector, supply-side capacity building involves for services suppliers in developing economies a different set of institutional actors from those – the bulk of which are MSMEs. involved in the strengthening of trade negotiating or regulatory enforcement capacities. Such Even in services sectors where developing differences matter for assistance design and economies export, suppliers face a number of inter-agency coordination efforts. common problems, including: Greater private-sector involvement from • lack of access to financing for export or services exporting firms and coalitions of business development; services sectors in industrial and emerging • difficulties in establishing credibility with markets could usefully complement the efforts international suppliers; of bilateral donors and regional and multilateral • lack of access to reliable and inexpensive agencies such as the International Trade Centre, infrastructure; the United Nations Conference on Trade and • inadequate access to a range of formal and Development and the World Bank, as well as informal networks and institutional facilities regional development banks. necessary for trade. Improving training and skills Strengthening the performance of trade and investment promotion institutions and adapting Boosting the capacity of suppliers to produce their promotional toolkits to the specificities of competitively priced services that meet the services trade can be especially important in this quality standards of global markets requires regard (ITC, 2022). a parallel investment in skills, for which targeted educational expenditures alongside Improving domestic services Aid for Trade interventions can be directed. standards Training and the acquisition of skills are key to sustained productivity gains by boosting the Significant development gains can be made capabilities of workers. by helping developing economies improve domestic services standards, notably by In services, low-skilled tasks generally require only strengthening their participation in regional basic digital literacy (Engel et al., 2021). For high- or global standard-setting initiatives. Similar skilled tasks in the services sector, a key challenge to poor compliance with technical barriers to is for tertiary education, particularly STEM trade and sanitary and phytosanitary standards subjects – science, technology, engineering and in goods trade, weak standards and related mathematics – and vocational skill development inadequacies in domestic regulation can programmes to become more responsive to frustrate services providers in developing changing industry demands, including for ICT- economies trying to access foreign markets. related skills such as software programming and coding or complementary engineering skills that Opening up markets are often in short supply in developing economies. Businesses which export services also have a At the same time, strengthening foundational stake in ensuring that markets are opened up, skills such as literacy and numeracy, as well as and that such opening proves sustainable and the soft skills that foster adaptability, problem proceeds in a stable regulatory environment. solving and initiative from an early age, also These objectives can be served by leveraging merits emphasis. Such skills can also be private sector support for strengthened bolstered through less formal forms of learning, regulatory institutions and improved services such as on-the-job training and the continued policy design, including through increased acquisition of skills through lifelong learning South–South dialogue and cooperation. (World Bank, 2019). 92 Trade in services for development Firms seeking to upgrade their production Targeting upskilling efforts at firms owned or processes and innovate require improved managed by women and young entrepreneurs managerial practices – not least because can yield important gains in inclusiveness – adopting new technologies can be disruptive and particularly in the digital realm, where both force managers to plan for and address change managerial profiles are particularly present. in processes. Managers also need to know how to take advantage of the potential that new technologies bring. “ Training and the acquisition of skills are key to sustained productivity gains by boosting the capabilities of workers. Fostering economic development through services trade 93 Endnotes WTO engagement skills. A precondition for policy discussions to yield development-enhancing outcomes is for The WTO’s deliberative function can play 1 For background information, see Mattoo (1999). developing and least-developed economies to 5 For background information, see ADB/ITD an important role in disseminating best (2009). more actively in such policy dialogue. participate 2 See the work by Delimatsis (2008, 2016). practice in the development of sound services 3 Reference Paper on Services Domestic 6 See the work by Sauvé and Lacey (2013). sector policies, including with regard to the Regulation , WTO document INF/SDR/1, successful upgrading of services-related 27 7 For further information, see Hollweg and Sáez September 2021. (2019). 4 MC12 Outcome Document, WTO document, WT/MIN(22)/24 WT/L/1135, 22 June 2022. 94 Trade in services for development Conclusion The composition of global trade in services has choices in services, conducting development- changed markedly in recent years, a period enhancing reforms in the sector and boosting that has seen developing economies register services exports remain complex endeavours significant export gains in the services sector that continue to prove challenging for many despite the severe impact of the COVID-19 poorer countries. Much more can be done pandemic. Such gains cover a host of through increased international cooperation to non-traditional, high-value adding, services that help developing economies take full advantage can be more readily supplied today through of the structural changes at play in the global digital means. economy and to unlock the benefits that expanded trade in services can bring. While important progress has been made in developing analytical tools to inform policy Services have the potential to transform economies Harnessing the benefits of services trade will way towards reducing trade costs, boosting require a shift in the policy attention governments productivity – offering new paths for export growth pay to services, particularly with regard to and increasing diversification and resilience. international trade and investment policy. The Greater focus on services trade policies will also difference that services – and services trade – be instrumental in reducing prevailing digital can make to growth and development warrants divides, promoting inclusivity by providing jobs greater policy attention. and business opportunities for women, youth and micro, small and medium-sized enterprises Policies that facilitate trade and investment in (MSMEs), including in least-developed services and reduce policy uncertainty at the economies, and contributing to sustainability and regional and international level can go a long the fight against climate change. Improving services trade policies through greater international cooperation Trade in services stands to benefit through Increased multilateral engagement on services increased international cooperation targeting trade will help to maximize the potential benefits three key dimensions: increasing the of expanded trade and investment in the sector. predictability of policy and commitments The deeper integration driven by preferential made in trade agreements; promoting trade agreements can also play an important trade-facilitating regulatory practices and role by encouraging “learning by doing” and strengthening regulatory capacity; and policy experimentation on trade issues arising lowering barriers to trade in services. from new challenges in the services sector. Conclusion 95 Multilateral engagement will strengthen services trade governance Greater multilateral engagement could provide Enhancing predictability of commitments on a major boost to strengthening services trade services at the WTO could focus on closing the governance. Digital technologies are expanding widening gap between “best” preferential and the opportunities to use trade in services for existing multilateral commitments. economic development. Important steps are being taken through ongoing plurilateral talks held by Closing the gap between preferential and WTO members on services domestic regulation, existing multilateral commitments appears e-commerce, investment facilitation and MSMEs. feasible when considering that, with few exceptions, services commitments granted Jump starting the WTO’s agenda on services preferentially tend to be implemented could result in a wider distribution of the on a de facto non-discriminatory (i.e. benefits of trade in the sector – notably for most-favoured-nation) basis. poorer countries, whose participation in preferential trade agreements remains more Meanwhile, the continued prevalence of limited. An effort to improve the transparency high barriers to trade in many key services and predictability of commitments on services subsectors recalls the considerable scope limited. An effort to improve the transparency that exists to roll back existing measures of trading conditions could take the form of standing in the way of improved economy-wide non-binding inventories of relevant measures. performance and gains. Mobilizing additional resources will be critical to strengthen services trade capacity The changing structure of services trade A “Services Trade for Development” initiative could and its growing importance for developing help to mobilize a coherent Aid for Trade package economies point to a need to rethink not only in services, targeting key challenges such as: the “why” but also the “how” of deepened international cooperation in services. Mobilizing (i) addressing data gaps in services trade; and deploying additional resources, knowledge and expertise directed to strengthening (ii) supporting greater participation of the services trade capacity of developing developing and least-developed economies in and least-developed economies will be critical policy discussions on trade in services; to harnessing the rapid pace of change in services markets and overcoming the (iii) strengthening regulatory frameworks and challenges associated with the sector. institutions; The ascendant role of services in development (iv) promoting diversification offered by digital and trade integration points to the need for services trade; increased multilateral engagement to be underpinned by scaled-up levels of Aid for (v) addressing key supply-side constraints and Trade in the services sector. improving the services-related skills of workers. 96 Trade in services for development Abbreviations BOP balance of payments CAREC Central Asia Regional Economic Cooperation FDI foreign direct investment GATS General Agreement on Trade in Services GVC global value chain ICT information and communications technology ILO International Labour Organization ITC International Trade Centre MSME micro, small and medium-sized enterprise OECD Organisation for Economic Co-operation and Development PTA preferential trade agreement SDG Sustainable Development Goal STRI Services Trade Restrictiveness Index Bibliography 97 Bibliography Amirapu, A. and Subramanian, A. 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Print ISBN 978-92-870-7541-3 Web ISBN 978-92-870-7540-6 WTO Online Bookshop http://onlinebookshop.wto.org World Trade Organization 154, rue de Lausanne CH-1211 Geneva 2 Switzerland Tel: +41 (0)22 739 51 11 WTO Publications Email: publications@wto.org www.wto.org World Bank 1818 H Street, NW Washington, D.C. 20433 United States of America Tel: +01 (202) 473 10 00 Printed by the World Trade Organization. © World Bank, World Trade Organization 2023 Report designed by Blossom.it, Milano The services sector has been the main source of economic growth in recent decades. Logistics, finance and information technologies are essential to the functioning of modern economies while business services, healthcare and entertainment are among the world’s fastest growing sectors. This publication – co-published by the WTO and the World Bank – underlines the contribution that trade and investment in services can make to economic growth and development. It highlights, in particular, the importance of re-energizing international cooperation on services trade and encourages reflection on how best to mobilize assistance for developing and least-developed economies in implementing services sector reforms so that they can reap the gains from expanded trade and investment in services.