For business services, figure 8 shows two interesting differences:

- Given the greater cross-border tradability or openness to trade of business services, there is less scope for an intermediate stage (for countries to populate the top left quadrant). When a country is not competitive in producing these services, it neither exports them nor do its goods sectors import them. When a country is competitive, it exports both directly and indirectly.

- In the bottom right quadrant, India offers an example of “premature deindustrialization,” where direct exports of business services are high but indirect exports are low, perhaps because of the relative weakness of goods sectors.

# **Policy implications**

Two types of policy issues inhibit an enhanced role for services in goods value chains and the emergence of services value chains: explicit restrictions on foreign services and services suppliers, and regulatory divergence across jurisdictions. Explicit restrictions on linking services, such as telecommunications, inhibit the emergence of all GVCs. Restrictions in other services—such as finance, business, education, and health services—either block the emergence of GVCs involving services or increase the associated transaction costs. Regulatory divergence reduces the intercompatibility of goods and services and services components that is needed to enable fragmenting production across jurisdictions. This divergence is one reason that GVCs have been slow to emerge in sectors like education and health. Regulatory cooperation is necessary not just to address regulatory divergence but also to facilitate the removal of explicit restrictions.

## **_National policy barriers to international trade in services_**

Unlike the rich information on policies affecting trade in goods, information remains limited on policies affecting trade in services.<sup>17</sup> The World Bank Services Trade Restrictions Database reveals interesting policy patterns. Although public monopolies are now rare, and few services markets are completely closed, numerous second-generation restrictions remain on entry, ownership, and operations. Even where there is little explicit discrimination against foreign providers, market access is often unpredictable because the allocation of new licenses remains opaque and highly discretionary in many countries. Regulatory discretion is accentuated by a lack of accountability in a number of countries where regulators are not required to provide reasons for rejecting a license application or where foreign providers do not have the right to appeal regulatory decisions.

Across regions, some of the fastest growing countries in Asia and the oil-rich Gulf states have restrictive policies on services, while some of the poorest countries are remarkably open—as measured by the 17 Two major initiatives to address this gap in information are in the OECD and in a collaborative project between the World Bank and the WTO. This section describes information on trade policies for services contained in the earlier World Bank Services Trade Restrictions Database. This database covers 103 countries, five major services sectors—financial services, basic telecommunications, transport, distribution, and selected professional services— and the relevant modes of services delivery. This information, collected in 2008–10, has been subsequently updated only for some countries. Even though there is evidence of few major policy changes in the last few years, the data presented here are best seen as indicating broad patterns rather than the precise current situation in specific countries.

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