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tralac’s Daily News Selection

tralac’s Daily News Selection

09 Oct 2019

A special feature, profiling the annual flagship reports released today by the WTO and the WEF 

(i)  World Trade Report 2019: The future of services trade

On average, services account for about half of GDP worldwide. For developed economies, they account for around three-quarters of GDP and their proportion is increasing rapidly in developing economies. According to the report (pdf), services trade has grown 5.4% per year since 2005, while trade in goods has grown at 4.6% on average. Trade in computer services and research and development have recorded the most rapid annual growth over the past decade. According to the WTO Global Trade Model, a new quantitative trade model used by the WTO to make projections about global trade, the share of services in global trade could increase by 50% by 2040. This is thanks to lower trade costs and the reduced need for face-to-face interaction due to digitalization. It is also dependent on policy barriers to services trade being lowered. Many developing economies are becoming increasingly services-based and their share of world services trade has grown by over 10 percentage points since 2005. However, services trade is concentrated in five developing economies – China; Hong-Kong China; India; the Republic of Korea and Singapore – accounting for over 50% of developing economies’ services trade in 2017.

The report says that services trade may help women and micro, small and medium-sized enterprises play a more active role in world trade, particularly in developing economies, helping to reduce economic inequality. When MSMEs in developing countries start exporting services, they are on average two years younger than manufacturing firms. However, they export less than 5% of total sales. Services are the main source of employment for women. However, the service sectors that account for most women employment have been so far among the least traded. Despite their decline by 9% between 2000 and 2017, barriers to trade in services remain much higher than in goods trade. This is largely due to the limited possibilities to supply certain services across the border and the regulatory intensity of many service sectors.

Technologies are key drivers of services trade, enabling cross-border trade of services that have traditionally needed face-to-face interaction. Digital technologies are also reducing the cost of trading services. The report finds that if developing countries are able to adopt digital technologies, their share in world services trade could increase by about 15% by 2040.

The report notes that policy barriers to services trade – mainly regulatory measures –are much more complex than in goods trade. The authors of the report note that for services trade to be a powerful engine of economic growth, development and poverty reduction international cooperation will need to be intensified and new pathways will need to be found to advance global trade cooperation and make services a central element of trade policy.  

Note: To complement the survey of the empirical evidence, case studies describing successful developmental outcomes resulting from an expansion of trade in services in Ethiopia, India, Kenya, Mauritius, Mexico and the Philippines are discussed. These case studies are of salient interest given the geographical diversity of the economies involved, hinting perhaps at the strength of the link between increased trade in services and development. [Air transport in Ethiopia, ICT services in India, Financial services in Kenya, Health, tourism and financial services in Mauritius, Tourism in Mexico, The business process outsourcing sector in the Philippines] 

Remarks by DG Azevêdo: So, what can we expect in the years to come? And how can this untapped potential be realized?

Downloads: Individual chaptersIntroduction, Services trade in numbers, Why services trade matters, Services trade in the future, What role for international cooperation on services trade policy?, Conclusions]

Downloads: Commissioned pieces

Alan Beattie: The case of the missing services?

Sonja Grater, Ali Parry, Wilma Viviers: MSMEs and services trade - a pathway to inclusive growth in developing economies?

Matteo Fiorini, Bernard Hoekman: Services trade policy and the United Nations, Sustainable Development Goals

Rupa Chanda: Ensuring inclusive services trade - role of complementary domestic policies

Richard Baldwin: Digital technology and telemigration

Natallie Rochester: The potential of trade in services for developing countries

Jane Drake-Brockman: Why regulatory cooperation matters for business

(ii) Global Competitiveness Report 2019: How to end a lost decade of productivity growth

This year’s Global Competitiveness Report is the latest edition of the series launched in 1979 that provides an annual assessment of the drivers of productivity and long-term economic growth. With a score of 84.8 (+1.3), Singapore is the world’s most competitive economy in 2019, overtaking the United States, which falls to second place. Hong Kong SAR (3rd), Netherlands (4th) and Switzerland (5th) round up the top five. 

Extract (pdf):  Led by Mauritius (52nd), sub-Saharan Africa is overall the least competitive region, with 25 of the 34 economies assessed this year scoring below 50. South Africa, the second most competitive in the region, improves to the 60th position, while Namibia (94th), Rwanda (100th), Uganda (115th) and Guinea (122nd) all improve significantly. Among the other large economies in the region, Kenya (95th) and Nigeria (116th) also improve their performances, but lose some positions, overcome by faster climbers. On a positive note, of the 25 countries that have improved their Health pillar score by two points or more, 14 are from sub-Saharan Africa, making strides to close the gaps in healthy life expectancy. 

Chapter 2 features regional trends and selected country analysis from the 2019 edition of the Global Competitiveness Index 4.0 (see page xiii for the full rankings). Combining the GCI scores at a regional level reveals significant differences in both median competitiveness levels across regions as well as dispersion of performances within regions. 

Overall, the results show that East Asia and the Pacific (17 countries) achieves the highest median score (73.9) among all regions, followed closely by Europe and North America (70.9, based on 39 countries). However, within the East Asia and the Pacific region the competitiveness gap between the best and worst performers is significantly larger (34.7) than in Europe and North America (28.9). This shows that, while many countries in East Asia and the Pacific have come a long way to bring their competitiveness up to a high level, there are a few that need to progress faster to bridge their gaps. [Companion feature analysis, by Emma Charlton: The secrets of the world's most competitive economies]

Trade policy to catalyze export diversification: what should landlocked fragile countries do? (World Bank)

The landlocked and fragile countries Mali, Niger, and Chad have suffered, to varying degrees, from Dutch Disease, with high export concentration in natural resource commodities and in a few foreign markets, and little development of their non-resource economies. The three countries' ability to create a sustainable path to economic growth and poverty reduction is inextricably linked to their connectivity with external markets, in the region and beyond. Thus, Mali, Niger, and Chad are first challenged by their geography -- their landlocked nature creates a barrier to market access beyond their immediate neighbors, while their vast and thinly populated lands serve to isolate the most vulnerable communities from external and internal markets. 

Adding to these geographic disadvantages, the incentive environment -  defined by high and variable customs common external tariff regimes resulting from multiple overlapping regional trade arrangements - places a wedge between domestic and international prices that provides a disincentive to exports in favor of non-tradable and domestic-oriented sectors. By bringing greater coherence and convergence between the many common external tariff regimes in operation and the rationalization of their structures, and improving connectivity within and between markets, Mali, Niger, and Chad can better promote the reallocation of resources toward tradable goods and services, putting the countries on a path toward greater economic inclusion and sustainable growth.

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This post has been sourced on behalf of tralac and disseminated to enhance trade policy knowledge and debate. It is distributed to recipients across Africa and internationally, serving in the AU, RECs, national government trade departments and research and development agencies.

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