The International Monetary Fund, the World Bank and the World Trade Organization Sunday collectively sought liberalisation of the global service sector.
The International Monetary Fund, the World Bank and the World Trade Organization Sunday collectively sought liberalisation of the global service sector, asserting that the barriers to these services trade currently is roughly as high as those to trade in goods about a half century ago.
The report “Reinvigorating Trade and Inclusive Growth” brought out collectively by the IMF, the World Bank and the WTO, comes at a time when the Trump administration has taken a tough stand on the H-1B visas issue, a move which has badly hit not only the technology professionals and highly skilled individuals from India, but also pioneering Indian IT companies.
Services comprise some two-thirds of global GDP and employment. Yet the limited opening of service sectors to foreign competition impedes trade and productivity growth throughout the sector and the broader economy, the report said.
“As innovation further shapes which services can be traded across borders it is becoming even more important to address obstacles to that trade,” it said.
“It is also important that countries open up to international competition in services provided in other ways, including through foreign direct investment and the operation of foreign affiliates, and the temporary movement of workers across borders for the purpose of supplying services,” the IMF, the World Bank and the WTO said in its latest report.
Asserting that improved access to services from trade reform promotes economy-wide productivity and income growth, the report said given the sector’s size, the role of services productivity in overall economic performance is evident.
“Less appreciated, though, is the interplay between services reform and manufacturing performance,” it said.
Services comprise significant shares of the value added of all sectors in the economy, and this is reflected also in trade figures: while only a quarter of global trade is traded as services, on a value-added basis half of the value of global trade originates in service sectors, said the report.
Citing a 2017 study, the report said that full services trade liberalisation could raise manufacturing productivity by an average of 22 per cent across a sample of 57 countries, with larger benefits for countries with stronger institutional environments.
The WTO Deputy Chief Economist Alexander Keck, told reporters during a conference call that service sector has an enormous contributor to growth and to trade including manufacturing trade.
“It is very, very clear that we’re still sort of living off, here at the WTO, the services commitment that were made in the Uruguay round. And that the gap between those commitments and the actual services policies applied is enormous,” he said.
Noting that the report points out that in some regional agreements, that this gap has been narrowed, Keck said countries have moved further to simply narrow the gap sometimes even without changing the applied policies such as narrowing this gap outside the WTO in order to increase the certainty of the services trade environment.
“This is one of those concrete suggestions in a time where economic uncertainty has increased a lot and you will perhaps have a look at our trade forecast yesterday where we also showed that the economic uncertainty indicator has actually increased to levels higher than before the financial crisis,” the WTO economist said.
The joint report between the IMF, the World Bank and the WTO identifies areas where trade has the potential of contributing particularly strongly to productivity growth and economic growth overall.
According to the report, despite a recent rebound in trade, a prolonged slowdown in the pace of trade reform is leaving in place widespread trade distortions and putting at risk the strength and durability of the global economic recovery.
Noting that as new trade reform initiatives lagged and the benefits of past reforms levelled off, trade growth has slowed, the report said it is time to reinvest in open, rules-based global trade. At the same time, it acknowledges that extending rules-based trade openness poses new challenges and could require fresh thinking and exploring all available approaches.
Observing that the digital economy revolution is opening new opportunities for cross-border trade and investment, the report says that this is changing the nature of trade, elevating the roles of policies relating to electronic commerce, investment, and services trade.
“This reflects the international nature of supply chains and complementarity of foreign direct investment (FDI) with trade in goods and services—the ‘trade-investment-services’ nexus. The effectiveness of this nexus, and of international supply chains, is also grounded in secure property rights, including for intellectual property. The growing overlap between trade regimes and domestic policy puts extra emphasis on effective regulatory cooperation,” it said.