metadata: authors: 0: author: Gootiiz, Batshur
1: author: Mattoo, Aaditya
count: World
docna: 0: docna: Services in Doha : what's on the table ?
docty: Policy Research Working Paper
theme: Other trade and integration
majtheme: Trade and integration
subtopic: Telecommunications Infrastructure,Trade Policy,International Trade and Trade Rules,Rules of Origin,Transport Services,Trade and Multilateral Issues
teratopic: Law and Development,Transport,Private Sector Development,Public Sector Development,International Economics and Trade
abstracts: cdata!: Services trade reform matters, but what
            is Doha doing about it? It has been hard to judge, because
            of the opaqueness of services policies and the opaqueness of
            the request-offer negotiating process. This paper attempts
            to assess what is on the table. It presents the results of
            the first survey of applied trade policies in the major
            services sectors of 56 industrial and developing countries.
            These policies are then compared with these countries'
            Uruguay Round commitments in services and the best offers
            that they have made in the current Doha negotiations. The
            paper finds that at this stage, Doha promises greater
            security of access to markets but not any additional
            liberalization. Uruguay Round commitments are on average 2.3
            times more restrictive than current policies. The best
            offers submitted so far as part of the Doha negotiations
            improve on Uruguay Round commitments by about 13 percent but
            remain on average 1.9 times more restrictive than actual
            policies. The World Trade Organization's Hong Kong
            Ministerial had set out ambitious goals for services but the
            analysis here shows that much remains to be done to achieve them.
repnme: repnme: Services in Doha : what's on the table ?
display_title: Services in Doha : what's on
            the table
listing_relative_url: /research/2009/04/10455617/services-doha-whats-table
topicv3: Transport m1326661 135,Trade m1326924 698,Telecommunications and Broadband Access
            m1327340 286,Trade Policy and Integration m1327407 775,Trade Policy m1327640 776
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Law and Development,Transport,Private Sector Development,Public Sector Development,International Economics and Trade
no_of_pages: 20
model_extractions: WPS4903 Policy ReseaRch WoRking PaPeR 4903 Services in Doha What’s on the Table?

_Batshur Gootiiz Aaditya Mattoo_ The World Bank Development Research Group Trade Team April 2009
Policy ReseaRch WoRking PaPeR 4903

# **Abstract**

Services trade reform matters, but what is Doha doing about it? It has been hard to judge, because of the opaqueness of services policies and the opaqueness of the request-offer negotiating process. This paper attempts to assess what is on the table. It presents the results of the first survey of _applied_ trade policies in the major services sectors of 56 industrial and developing countries. These policies are then compared with these countries’ Uruguay Round commitments in services and the best offers that they have made in the current Doha negotiations. The paper finds that at this stage, Doha promises greater security of access to markets but not any additional liberalization. Uruguay Round commitments are on average 2.3 times more restrictive than current policies. The best offers submitted so far as part of the Doha negotiations improve on Uruguay Round commitments by about 13 percent but remain on average 1.9 times more restrictive than actual policies. The World Trade Organization’s Hong Kong Ministerial had set out ambitious goals for services but the analysis here shows that much remains to be done to achieve them.

This paper—a product of the Trade Team, Development Research Group—is part of a larger effort in the department to understand services trade, policy reform and international cooperation. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at bgootiiz@worldbank.org and amattoo@ worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Services in Doha:   What’s on the Table?**

Batshur Gootiiz and Aaditya Mattoo* Keywords: services trade, policy, liberalization, WTO, Doha Agenda JEL codes: F13, F15, F21, F22

*Development Economics Research Group, World Bank, 1818 H Street, NW; MSN MC3-303; Washington, DC 20433, USA. Email: bgootiiz@worldbank.org, <u>amattoo@worldbank.org.  The authors are</u> grateful to Bernard Hoekman and Will Martin for valuable guidance and comments, and for useful comments to the participants in the workshop on “The Doha Development Agenda: What’s on the Table?,” held at the World Bank, Washington, DC, June 19, 2008. The views expressed in the paper are those of the authors and should not be attributed to the World Bank, its Executive Directors or the countries they represent.
# **SERVICES IN DOHA:  WHAT’S ON THE TABLE?**

In the Doha negotiations, the focus is primarily on agriculture and manufactured goods. Services are mentioned, but more out of a sense of obligation than conviction. This is a puzzle. Some 80 percent of GDP in the US and the EU originates in services. Together they account for over 60 percent of world services exports. The business service exports of India, China and Brazil have grown by well over 10 percent every year for the last decade, and India may soon export more services than goods.

The potential gains from reform of trade in communications, finance, transport and business services are large – probably larger than those from comparable liberalization of goods trade. Even exploiting the opportunities arising from goods trade liberalization will require better services: Sub-Saharan African exporters today pay transport costs many times greater than the tariffs they face in industrial country markets.<sup>1</sup> Moreover, without progress in services there simply may not be enough on the table to allow progress in other market access areas: services are the strongest export interest of WTO members like the EU, India and US that are the focal point of efforts to liberalize agricultural trade.

So services matter. But what is Doha doing about it? It has been hard to judge, because of the opaqueness of services policies and the opaqueness of the request-offer negotiating process. This paper tries to assess what is on the table. It begins by summarizing what we believe is the first survey of _applied_ trade policies in the major services sectors of 56 industrial and developing countries. These policies are then compared with these countries’ Uruguay Round commitments in services and the best offers that they have made in the current Doha negotiations.

The bottom line: At this stage, Doha promises somewhat greater security of access to services markets but not an iota of liberalization. Ironically, two of the most protected sectors, transport and professional services (involving the international mobility of people), are either not being negotiated at all or not with any degree if seriousness. Uruguay Round commitments are on average 2.3 times more restrictive than current policies. The best offers submitted so far as part of the Doha negotiations improve on UR commitments by about 13% but are still on average 1.9 times more restrictive than actual policies. At present, Doha offers not greater access to markets but a weak assurance that access will not get worse.

Negotiators have been content to let services lag. The “request-offer” negotiating process has resulted in a low-level equilibrium trap. As important, services have not been given the political attention their economic significance deserves. The WTO’s Hong Kong Ministerial had set out ambitious goals. Our analysis shows that those goals are still remote.

Section I of this note describes our survey and the policies on the ground in the countries surveyed. Section II describes how Doha improves on the Uruguay Round, and how far offers are from reality. Section III concludes with unsolicited advice on how we might do better.

> 1 A recent World Bank book shows that Indian horticultural producers receive on average only one-sixth of the price consumers pay because of inefficient storage, transport and distribution. Providing farmers better access to services would enhance the economic gains from, and strengthen the political case for, agricultural trade liberalization.

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# **_Source of data and methodology_**

An ongoing research project by the World Bank is compiling data on _actual or applied_ trade policies in services. To date surveys have been conducted in 32 developing and transition countries and comparable information obtained for 24 OECD countries.

The following sectors were included in the survey: financial services (includes retail banking, life and automobile insurance, and reinsurance), telecommunications (includes fixed and mobile), retail distribution, transportation (air passenger, road and railway freight, maritime international shipping and maritime auxiliary services), and selected professional services.<sup>2</sup> In each sector, the survey covers the most relevant modes of supplying that service: cross border trade in services (mode 1 in WTO parlance) in financial, transportation and professional services; commercial presence or FDI (mode 3) in each services sector; and the presence of service supplying individuals (mode 4) in professional services.

In each of the 32 developing and transition countries, the surveys were completed by local law firms which were familiar with the policy regime in the sectors. For the 24 OECD countries, the comparable policy information was collected from various publicly available sources, including their GATS commitments and the most recent offers, and other sector specific databases such as Economic Intelligence Unit Country Finance reports, IMF Annual Report on Exchange Rate and Exchange Arrangements, and the AXCO insurance database. The survey information and the OECD policy summaries are confirmed by the government trade officials during 2008. Government officials from sixty per cent of the countries covered responded and confirmed the accuracy of the policy information. Some revisions were made to the policy summary after the follow up with the governments.<sup>3</sup> The UR commitments and the Doha Offers came from the WTO.

To capture the broad restrictiveness of services trade policies and commitments, a summary of key restrictions was prepared for each sector-mode. Then, each summary was mapped on a 5- point scale ranging from 0 (for no restrictions) to 1 (highly restricted)<sup>4</sup> , with three intermediate levels of restrictiveness (0.25. 0.50 and 0.75) (Annex Table 2).<sup>5</sup> Furthermore, sector results are aggregated across modes of supply using weights that reflect judgments of the relative importance of the different modes for a sector (Annex Table 3). For example, mode 4 (temporary movement of suppliers) is important for professional services, but not for telecommunications, where mode 3 is the dominant mode of contesting a market. Sector restrictiveness indices are

> 2 The survey also covered air transport services, but we do not describe the findings in this paper because air traffic rights were excluded from the scope of the GATS.  Maritime auxiliary services cover cargo handling, storage and warehousing, customs clearance, container station and depot services, agency, and freight forwarding services. The professional services consist of accounting, auditing, and legal advisory services for domestic and international law.

> 3 For the list countries that sent the policy confirmation, see annex table 4.

> 4 In the quantification of GATS commitments and offers, if a country did not schedule a sector or if it entered “Unbound” for a particular mode, the maximum score of 1 is assigned to the relevant modes.

> 5 The list of restrictions included in the summary is not exhaustive, but selected to facilitate a comparison with restrictions scheduled during the Uruguay Round and the Doha Agenda.  For example, an excessively high fee for establishing an international gateway in telecommunications emerges from our survey as a significant impediment to entry, but is not treated as a restriction because this measure is not scheduled under the GATS.

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aggregated using sector GDP shares as weights<sup>6</sup> . Finally, the regional services trade restrictiveness indices (STRIs) are the simple averages of the country indices within respective regions.

# I. THE STATE OF ACTUAL POLICY IN SERVICES

An evaluation of what Doha offers in services is much harder than in goods. First, there is no database of actual trade policies in specific services sectors – i.e. the counterpart of “applied” tariffs. Second, the Doha negotiations in services are not based on an agreed formula for cuts in protection but on offers by each member of market access (and national treatment) in specific sectors. Third, it is hard to quantify services trade policies, which are akin to non-tariff barriers and include prohibitions, quotas, and discriminatory regulation. We describe here efforts to overcome these difficulties and construct a picture of what Doha offers in services.

Figures 1 to 4 summarize information on actual policies. Figure 1 is a scatter diagram where the location of each country reflects the overall restrictiveness of its services trade policies and its per capita income. The rich countries are clustered together at the bottom-right showing that they are quite open overall (though as we see below, some sectors remain restricted). There is much more variation in the restrictiveness of services policies for low-income countries. Some of the poorest countries, like Cambodia, Ghana, Nigeria, Senegal, and Mongolia are remarkably open – with World Bank-IMF reform programs and accession to the WTO probably playing a significant role.

Interestingly, some of the most restrictive policies today are visible in the fast-growing economies of Asia, including China, India, Indonesia, Malaysia, Philippines and Thailand, as well as in the Middle East, including Egypt, Saudi Arabia and Tunisia. Figure 2, confirms that in terms of regions, the most restrictive policies are observed in MENA and Asian countries. Policies are much more liberal in Latin America, Africa, Eastern Europe and the OECD countries.

The survey reveals that developing countries have significantly liberalized a range of service sectors over the last couple of decades, but in some areas protection persists (Figure 3). In fact, the overall pattern of policies across sectors is increasingly similar in developing and industrial countries. In telecommunications, public monopolies seem in most countries a relic of history, with at least some measure of competition introduced in both mobile and fixed services. In banking too, domination by state-owned banks has given way to increased openness to the presence of foreign and private banks. Very few countries restrict foreign investment in retail. However, even though the markets for these services are now more competitive, they are in most countries some distance from being truly contestable. In telecommunications, governments continue to limit the number of providers and, particularly in Asia, the extent of foreign ownership. In both banking and insurance, the allocation of new licenses remains opaque and highly discretionary. In retail, a range of domestic regulations, such as zoning laws and single brand retailing, severely impede entry in both developing and industrial countries.

> 6 The same sector shares are used for all countries for comparability.

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Transport and professional services remain a bastion of protectionism in high-income countries and are also subject to high barriers in developing countries. In maritime transport, even though international shipping is today quite open, entry into cabotage and auxiliary services such as cargo handling is in many countries restricted. In professional services, even though there is increased scope for international trade through electronic means, there remain restrictions on foreign presence, particularly of individual service providers. In general, accounting and the practice of international law tend to be more open than auditing and the practice of domestic law. In the sectors and modes covered here, the restrictions on foreign investment are generally less stringent than the restrictions on cross-border trade, and far less stringent than the presence of foreign professionals (Figure 4).

**Figure 1: Restrictiveness of Services Trade Policies by GDP per capita, 2005**

<!-- Start of picture text --> IND<br>PHL<br>TUN<br>IDN<br>EGY THA<br>CHN<br>MYS<br>SAU<br>JOR<br>RUS<br>LKA VEN<br>TZA MAR KOR<br>PAK BRA<br>ARG ITA<br>KEN MEX PRT FRA<br>GHAKHMSENNGA UKRCOLPERECUZAF CHL HUN CZE ESP JPNBELSWEDNKAUT IRL<br>MNG POLLTU TTO GRCFINDEUGBRAUS NLDCAN USA<br>NZL<br>0 10000 20000 30000 40000<br>GDP per capita PPP, 2006<br>Note: GDP per capita, PPP is in constant 2005 international USD<br>60<br>50<br>40<br>30<br>20<br>Restrictiveness of services trade policy<br>10<br><!-- End of picture text --> Note 1: There are in total 56 countries, of which 32 are developing and 24 are OECD countries and the following sectors are covered: financial, telecommunications, retailing, maritime, air passenger transport<sup>7</sup> , and professional services.

> 7 For air transport, the policy information for mode 1 (BASA) came from the QUASAR database of the WTO.

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**Figure 2: Restrictiveness of services trade policies by region**

<!-- Start of picture text --> South Asia (SAR) 40.7<br>Middle East (MENA) 39.5<br>East Asia (EAP) 36.5<br>World 23.9<br>Latin America (LAC) 21.2<br>Africa (AFR) 20.2<br>Eastern Europe (ECA) 18.6<br>OECD 16.9<br>0 10 20 30 40<br>Restrictiveness of services trade policy<br><!-- End of picture text --> Note: World represents the simple average STRI of 56 countries

**Figure 3: Restrictiveness of services trade policies by region and sector**

<!-- Start of picture text --> SAR MENA EAP World LAC AFR ECA OECD<br> Financial Transportation<br> Telecom Professional<br> Retailing<br>80<br>60<br>40<br>20<br>Restrictiveness of services trade policy<br>0<br><!-- End of picture text --> Note: Financial services include banking and life and non-life insurance and reinsurance, telecommunications include fixed and mobile telecom, transportation includes air passenger, maritime shipping, and auxiliary services, and professional services include accounting, auditing, and legal services.

6
# **Figure 4: Restrictiveness of services trade policies by mode**

<!-- Start of picture text --> SAR MENA EAP World LAC AFR ECA OECD<br>Cross border<br>Commercial presence<br>Temporary movement of people<br>80<br>60<br>40<br>20<br>Restrictiveness of services trade policy<br>0<br><!-- End of picture text --> Note: Mode 1 includes financial, air passenger, maritime shipping and professional, mode 3 includes financial, telecommunications, retailing, air passenger and maritime shipping, maritime auxiliary, and professional, mode 4 includes accounting, auditing, and legal services.

# II. WHAT DOES DOHA OFFER?

Most services liberalization all around the world has so far been undertaken unilaterally. Multilateral negotiations on services began in the Uruguay Round. These negotiations reduced policy uncertainty by inducing countries to begin to lock-in unilateral liberalization, but the negotiations produced little additional market-opening (Hoekman, 2006). The same is true for most regional agreements on services, with a few exceptions.

What is currently on the table in Doha? Consider first what is not. Doha offers as they stand today do not offer any liberalization of actual policy in the sectors and modes of supply examined here. Ironically, two of the currently most protected sectors, transport and professional services, are either not being negotiated at all or not with any degree of seriousness. The Annex to the GATS on Air Transport Services excludes from the scope of the GATS all measures affecting air traffic rights and services directly related to the exercise of air traffic rights. The maritime negotiations are notionally on (with offers from some countries) but have never really got off the ground because the United States is unwilling to accept GATS disciplines (particularly the MFN principle) on maritime transport and has not made any commitments or offers in this area. As far as professional services are concerned, a vital mode of supply, the presence of natural persons, faces almost insurmountable barriers in most countries because trade negotiators have had little liberalizing influence on immigration policy and domestic regulations such as licensing and qualification requirements.

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Given that liberalization is not on the table, the question is whether the current Doha offers involve any greater security of access than the Uruguay Round (UR) commitments under the GATS. What has so far been accomplished in this respect can be assessed by comparing actual policy with UR Commitments and the offers submitted so far as part of the Doha negotiations.

Of the 56 countries surveyed, Russia was excluded from the comparative analysis because it is not yet a WTO member. Of the remaining countries, 45 submitted Doha Round Offers, 7 (Ecuador, Ghana, Mongolia, Nigeria, Senegal, Tanzania, and Venezuela) have not submitted offers and 3 (Cambodia, Saudi Arabia, and Ukraine) have recently submitted Accession Schedules. For these latter ten countries, as well as for other countries which did not improve their UR commitments, the scores assigned for the offers are the same as those for the UR commitments. For each country, there are 26 sector-modes<sup>8</sup> (that is a specific mode of supply in a specific sector) for which the actual policies are compared with the UR commitments and Doha Offers. Of the maximum possible number of sector-modes (26x55), countries did not make any commitments or entered “unbound” in 36 per cent of sector-modes. In 85 per cent of the sectormodes, Doha Offers do not improve the UR commitments.

As Figures 5, 6 and 7 show, in all regions of the world, _actual policy is substantially more liberal than the UR commitments_ . Uruguay Round commitments are on average 2.3 times more restrictive than current policies (Table 1; Annex Tables 1 and 3), in other words, the binding gap (UR commitment minus actual policies) remains on average 130 per cent more restrictive than the policies. As Figure 5 shows, the poorer countries have on average bigger binding gaps between commitments and actual policy.

_Doha offers improve on the UR commitments, but the Offer gap between offers and actual policy is large_ . Doha offers are on average 1.9 times more restrictive than the actual policies (Table 1; Annex Tables 2 and 3), meaning the Offer gap (Doha Offers minus actual policies) remains on average 99 per cent more restrictive than the policies. Interestingly, as Figure 6 shows, the absolute improvement in offers is on average the same at all levels of income. At present, Doha does not offer much liberalization, rather some reassurance that access will not get worse.

> 8 For the list of 26 sector-modes, please see annex table 3. The survey covered road and rail freight in mode 3 and air freight and air passengers in mode 1 and mode 3.  The latter were, however, excluded from the comparative analysis.

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**Figure 5: Restrictiveness of GATS (UR) commitments, Doha offers and actual policy by country**

<!-- Start of picture text --> TZA<br>IND<br>TTO<br>KENSEN PAKIND PHL IDNIDNLKAMARLKA EGY COLCOLTUNTUN ECU THA MYS CHLCHL TTO<br>GHANGA<br>IND THA<br>MNG MAR BRA<br>P AKPH CHN CHN L<br>VEN KOR<br>IDNEGY PT ERTHAUNBRAZAFVENMEXMMYSEX PR SAU SAU KORT FRABELDNK<br>JOR ZAF ARG AR RUSG POL KOR ITA SW E CAN<br>TZ GK K KHMSENNGAENHA HM PAK A MNMARLK G J A O UKR UKRR COPPE ERERLC U BRA ZAF VE ARGNMEX CH POLPOLLLTULTULTU HUNHUNHUNTT O PRTPRTCZECZECZE NZLNZNZL L ESPESPEITAITA SP GR GG RC RC JPNJJPNFINDEUDEUFIN DEFIN FRAFRAC P GBRG GN BEL AUSBEL AUAUUSW SBBR WRSS E DN DNK EA AUTAUT N NLDNLDUTCANCANKLD IRLIRLIRL USA USA<br>0 10000 20000 30000 40000<br>GDP per capita, PPP 2006<br> Restrictiveness of GATS commitment Fitted values<br> Restrictiveness of DOHA Offers Fitted values<br> Restrictiveness of actual policy Fitted values<br>100<br>80<br>60<br>40<br>20<br>Services trade restrictiveness indices 0<br><!-- End of picture text --> At the regional level:

-African countries have actual policies that are significantly more liberal than their UR commitments, and comparable to those of OECD countries.  Four of the six African countries considered here (Nigeria, Ghana, Senegal, and Tanzania) did not submit Doha offers. The offers of the other two countries, Kenya and South Africa, did not make a significant improvement over their UR commitments in the sectors covered in this survey.  During the Uruguay round, most low-income countries did not schedule commitments in their major sectors. For example, Tanzania scheduled only the tourism sector.

-Eastern European countries have actual policies, UR commitments, and Doha offers that are much more liberal than those of the other regions. The gap between their commitments and policies, and the gap between their offers and policies is not large. This is because the initial commitments of the ECA countries were quite liberal and ambitious (see for example the accession schedule of Ukraine). In the Doha Round, Poland, Hungary, Czech Republic, and Lithuania did not make independent offers, but were covered by the offer of the European Community (EC).

-The OECD countries and those in the LAC region have actual policies which are more liberal than their Uruguay Round commitments.  Their Doha offers improve somewhat on their UR commitments and narrow the gap with actual policies. The offer gap in the LAC region remains very large, while the offer gap is small for the OECD.

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-Countries belonging to South Asia (SAR) have the most restrictive policies and the UR commitments. However, the offers made by the region significantly improve on the commitments. Compared to the other non-OECD partners, countries in SAR have made greater improvements in Doha.

-Countries in EAP and MENA offered little in the Doha Round. Their applied policies are restrictive and their offer gap is smaller.

# **Figure 6: Uruguay Round commitments, Doha offer and actual policy by region**

<!-- Start of picture text --> SAR AFR LAC EAP MENA OECD ECA<br>Offer Improvement (Uruguay Round commitment-Doha Offer)<br>Offer gap(Doha Offer-Actual policy)<br> Actual Policy<br>80<br>60<br>40<br>20<br>Services trade restrictiveness index<br>0<br><!-- End of picture text --> Note: Where a country did not make a Doha offer, the sector index reflects the Uruguay round commitments.

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**Figure 7: Uruguay Round commitments, Doha offer and actual policy by sector**

<!-- Start of picture text --> Financial Telecom Retailing Maritime Professional Overall<br>Offer Improvement (Uruguay Round commitment-Doha Offer)<br>Offer gap(Doha Offer-Actual policy)<br> Actual Policy<br>80<br>70<br>60<br>50<br>40<br>30<br>20<br>Services trade restrictiveness index 10<br>0<br><!-- End of picture text --> At the sector level:

-Financial and telecommunications services are relatively open, and the Doha offers have significantly improved on the Uruguay Round commitments but still do not reflect actual policy.

-Policies in retailing are quite open. Offers do not improve significantly on the UR commitments and the gap between Doha Offers and the actual policies remains one of the largest.

-In maritime transport, there is a huge gap between UR commitments (or the lack of them) and actual policy, which Doha offers have narrowed but only by about half. Most improvements were made in the maritime auxiliary services and cross-border maritime shipping, offered for example by the EC Member States. Most OECD countries kept the status of “unbound” in maritime transport through mode 3. From the OECD, only the US did not make any improvement in maritime transport.

-In professional services, actual policies are highly restrictive (especially for the presence of natural persons), and Doha offers have narrowed the gap between UR commitments and actual policy. Since both actual policies and the Doha Offers are restrictive, the gap between Doha Offers and policies is small.

There is a reasonable prospect that offers will be improved. The latest report on the status of the services negotiations (WTO, 2008) noted that further discussion was needed on issues relating to participants' level of ambition, their willingness to bind existing and improved levels of market access and national treatment, as well as specific reference to Modes 1 and 4 with respect to the treatment of sectors and modes of supply of export interest to developing countries. The chair of the Trade Negotiations Committee (TNC) also held a “signaling exercise” among a group of ministers, at the time that “modalities” in agriculture and non-agricultural market access 11
(NAMA) were being discussed. At the signaling exercise, participating ministers indicated that they might significantly improve their services offers.

**Table 1:  Offer improvement, offer gap and binding gap**

||**Actual**<br>**policies**|**Overall Offer**<br>**improvement**<br>**(UR**<br>**commitment**<br>**-Doha Offer)**|% of UR<br>commitm<br>ent|**Overall Offer**<br>**gap (Doha**<br>**Offer -Actual**<br>**Policy)**|% of<br>policy|**Overall**<br>**Binding gap**<br>**(UR**<br>**commitment -**<br>**Actual Policy)**|% of<br>policy|
|---|---|---|---|---|---|---|---|
|SAR(3)|36.0|15.5|18%|32.3|90%|47.8|133%|
|EAP(7)|36.8|1.7|3%|24.3|66%|26.0|71%|
|MENA<br>(5)|36.9|3.8|7%|17.4|47%|21.2|57%|
|AFR(6)|16.9|0.7|1%|52.9|314%|53.6|318%|
|LAC (9)|16.6|6.3|10%|41.9|253%|48.2|290%|
|OECD<br>(20)|14.9|9.4|46%|3.8|25%|13.1|88%|
|ECA(5)|10.6|5.4|19%|4.4|41%|9.8|93%|
|World<br>(55)|21.0|6.4|**13%**|20.8|**99%**|27.2|**130%**|

Note: The numbers in bracket indicate the number of countries covered per region. See annex table 4 for the list of countries in each region.

# III. CONCLUSION

Our analysis suggests that negotiators have been content to let services lag. The best market access offers do not even reflect the liberalization that has already taken place. The “requestoffer” negotiating process, bilateral and plurilateral, seems to have resulted in a low-level equilibrium trap.

More effort to liberalize trade and investment in services at the multilateral level is needed. Perhaps greater progress could be made by turning the negotiating progress on its head, and instead of the incremental and unproductive request and offer process, Members could strive directly to define a final package. To be both worthwhile and attainable, such a “package” on services would have to be balanced from a mercantilist perspective, commercially relevant from a business perspective, and offer substance rather than rhetoric from a development perspective (Mattoo, 2005). Indeed, the WTO’s Hong Kong Ministerial Declaration sketched out similar ambitious aims. An agreement could follow the precedent of the WTO’s Information Technology Agreement, where participation is limited to a “critical mass” of signatories who would extend the benefits also to non-participants.

Such a package could have three elements. First, a promise not to impose new restrictions on trade in services. This would dispel the specter of protectionism that hangs over outsourcing of business services – which is producing huge cost savings in the North and ever-widening export opportunities for the South.

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Second, a commitment to eliminate barriers to foreign direct investment, either immediately or, in sectors where regulatory inadequacies need to be remedied, in a phased manner. The greatest benefits of securing openness to FDI, especially in infrastructure services, would accrue to the South while offering increased business opportunities to the North.

Third, agreement to allow somewhat greater freedom of international movement for individual service providers (mode 4 in WTO parlance) in order to fulfill specific services contracts. Research shows large potential benefits to both the North and the South from the liberalization of mode 4, as it offers a way to realize the gains from trade while averting social and political costs in host countries and brain drain losses for source countries. Progress on mode 4 is critical to overall balance.

For there to be a reasonable prospect of achieving these goals, more attention needs to be given to the regulatory context in which services liberalization takes place.

First, negotiators could focus primarily on securing “national treatment”, i.e. ending all discrimination on the entry and operation of foreign services providers, rather than on creating more intrusive disciplines. This will reassure regulators that multilateral commitments deprive them _only_ of the freedom to discriminate, and not limit their freedom to regulate in any other way or adopt policies that improve sector performance.

Second, the development and trade community need to work together to establish a credible mechanism to provide regulatory assistance to support liberalization commitments by developing countries. This will reassure developing country policymakers that regulatory inadequacies that could undermine the benefits of liberalization will be remedied before any market-opening commitments take effect.

Third, it should be possible to make temporary entry of foreign services providers conditional on the fulfillment of specific conditions by source countries. Immigration authorities in host economies need to be assured that source countries will cooperate to screen services providers, to accept and facilitate their return, and to combat illegal migration.

The gains from properly managed liberalization of services trade are substantial. World Bank analysis has shown this to be the case even in very poor countries. An ambitious package in services may provide new dynamism to multilateral trade cooperation. Doing so may also allow the Doha Development Agenda to live up to its name.

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