# **1. Introduction**

Trade in services is important for countries across the world, especially small economies, which often derive a significant share of their foreign exchange revenues from services exports. According to data from the WTO, between 2010 and 2018, trade in commercial services grew by 42% for developed economies, by 60% for developing and emerging economies and by 49% for LDCs, while global trade in commercial services grew by 48%. In fact, exports of commercial services alone witnessed a 90% increase for LDCs over this period.

Services matter not just because they are a potentially important source of foreign exchange revenue and associated employment and household income. Many services are important for economic growth and development by virtue of their role as inputs into production in all sectors of economic activity. Realization of many of the Sustainable Development Goals (SDGs) also depends on the performance of a range of specific services sectors (Fiorini and Hoekman, 2018).

The quality, price and availability of services inputs is determined by a mix of factors, including infrastructure connectivity network investments, the restrictiveness of trade and investment policies for goods and services, and the investment climate/business environment. There is substantial empirical evidence that services trade and FDI in services foster productivity growth by inducing greater competition in domestic markets and providing firms access to higher-quality, more varied, and cheaper services inputs, which benefits producers of both goods and services. However, trade costs for services are higher than trade costs for goods, and the rate of decline that has been observed in services trade costs since the early 2000s has been much less than for trade costs for goods (Miroudot and Shepherd, 2016).

These costs are especially salient for services delivered by the temporary movement of natural persons (MNP) or Mode 4 trade in GATS parlance, which inter alia explains the low share of Mode 4 trade in total trade in services.<sup>2</sup> Barriers to trade in services in general do not take the form of border measures such as tariffs, but are rather embedded in regulatory frameworks. However, barriers to Mode 4 trade are often border measures in the form of visa requirements and quotas and are therefore more distinct. This said, regulatory measures in general affect cross-border trade and investment in services by increasing both the fixed cost of entering a market and the variable cost of servicing it. The importance and potentially trade- and investment-inhibiting impact of domestic regulation on service sector performance has received some attention in the services literature (for instance see Kox and Nordås, 2007, 2009; Nordås, 2016). At the same time, it is not just the incidence of restrictive regulation but also regulatory heterogeneity that imposes costs on services trade, including Mode 4. In fact, regulatory heterogeneity has also been shown to exert a significantly negative impact on bilateral services trade delivered via commercial presence or Mode 3 (Kox and Nordås, 2009; Nordås, 2016).

Against this background, this paper focuses on regulatory measures and compliance issues that can be included in an agenda to facilitate trade in services delivered by MNP. To do so, it uses OECD data on services trade restrictiveness indices (STRI) to differentiate between regulatory measures that may improve transparency or provide market access to service providers (e.g. the requirement to apply for a business visa) and those measures that just impede MNP (for

> 2 Estimates by the WTO Secretariat suggest, for instance, that this share could be as low as 5% (Maurer et al., 2016).

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