Services trade can unlock the full potential of “mini multinationals”, IMF chief Christine Lagarde has said, underlining that by reducing trade barriers and increasing digitalisation, trade services could become the main driver of the global trade. Noting that services trade has been growing relatively fast and now accounts for one-fifth of global exports, International Monetary Fund Managing Director Lagarde said that according to some estimates, half of the global trade in services is already driven by digital technology. That said, this is an area where trade barriers are still extremely high—equivalent to tariffs of some 30 to 50 per cent, she said.
“We believe that by reducing these barriers and increasing digitalisation, services could become the main driver of global trade,” Lagarde said, in a major policy speech on ‘creating a better global trading system’ in the US city of Portland. Among the main beneficiaries would be certainly the US and other advanced economies—because they are globally competitive in many service sectors, especially financial, legal, and consulting. “But also developing economies such as Colombia, Ghana, and the Philippines—because they are promoting growth in tradable services, such as communications and business services,” she said. “Above all, services trade can unlock the full potential of the mini-multinationals. These are the millions of small businesses that are seeking to expand into the global marketplace. It also includes individuals who are using digital tools to leverage their skills and opportunities,” Lagarde said.
Today, service providers of all kinds are benefiting from a world that is becoming more interconnected and smaller, Lagarde said noting that she believes that the Wealth of Nations in the 21st-century could be built on trade in services. In her speech, she identified higher productivity, and greater inclusiveness as other building blocks of better trade and called for adapting the multilateral trade system. “Over the past three decades alone, this multilateral system has been instrumental in lifting hundreds of millions of people out of poverty, while boosting incomes and living standards in all countries. Today, governments have an opportunity to build on the progress made so far, and to adapt the system in this new era of trade,” Lagarde said.
“In other words, even as we fix the economic bridges, we must stick to the basic principles of engineering!” she said This means steering clear of protectionism, because import restrictions hurt everyone, especially poorer consumers. It means eliminating unfair trade practices—and leveling the playing field. It means trading by the rules—the WTO rules that all 164 members agreed upon, Lagarde asserted. Observing that many governments are struggling with major issues that do not currently fall squarely within WTO rules like various state subsidies, restrictions on data flows, and the protection of intellectual property, Lagarde said to address these issues, one could use “plurilateral” trade agreements—that is, deals among like-minded countries that agree to work within the WTO framework.
There is also room to negotiate new WTO agreements on e-commerce and digital services, she observed. Lagarde said the new 21st-century trade deals should be designed to facilitate data flows while protecting data privacy, promoting cybersecurity, and ensuring that financial regulators can access data as needed without stifling innovation.