Outline

Trade in services facts and theory Case studies

Health services Construction services

The gains from trade Trade policy implications

Trade in services
25% of global trade Fastest growing sector (trade & FDI) Dominated by OECD (70%) Highly regulated Critical determinant of competitiveness

World service exports ($ millions)

0 ,00 00 0 ,00 00 0 ,00 00 0 ,00 00 0 ,00 00 00 0 0, 0 0 0 ,00 00 0 ,00 00 0 ,00 00 00 0 0, 0 0 0 ,00 00 0
0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

East Asia & Pacific Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa European Monetary Union

00 0 0, 0 0

00 0 0, 0 0

00 0 0, 0 0

00 0 0, 0 0

Application of trade theory

Trade in services, in general, display the same characteristics as trade in goods The theory of comparative advantage does apply to services trade Given high levels of regulation (protection) in the service sector, economic factors alone cannot explain the pattern of trade in services The removal or reduction of barriers to trade in services would contribute to major increases in global welfare

Developing countries

50% of GDP Fourfold increase in trade over last 15 years Important contributor to economy-wide efficiency and development Labour intensive More dependent on trade in services than industrialised countries
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Cape V erde Sao Tome Greece Ethiopia Seychelles Rw anda Croatia Tanzania Mauritius Latvia Uganda Spain Iceland Denmark Estonia United Kingdom A ustria Portugal Sw itzerland Ireland Norw ay Ghana Sw eden Madagascar Burundi Lithuania France Poland Italy Netherlands Hungary Namibia Czech Republic Germany South A f rica Finland Sw aziland Cote d'Ivoire Guinea Malaw i Lesotho Congo, Rep. Sudan

Congo, Rep. Rw anda Ireland Seychelles Guinea Cape Verde Sao Tome Denmark Iceland Norw ay Cote d'Ivoire Sudan Austria Tanzania Ethiopia Mauritius Sw eden Madagascar Greece Burundi Malaw i Uganda Germany United Italy Netherlands Estonia Finland Spain Croatia Ghana France Sw itzerland Hungary South Africa Portugal Latvia Poland Namibia Czech Sw aziland Lithuania Lesotho

0 %

0% 0

00 0%

00 0%

00 0%

00 0%

00 0%

0 %

0% 0

0% 0

0% 0

0% 0

00 0%

Service/merch. Exports
WDI:2002

Service/merch. imports
6

Constraints on liberalization
Domestic opposition Lack of expertise and resources Unable to improve access for domestic exporters Cannot fully address anti-competitive practices of foreign firms Inadequate stability or international credibility

What is GATS?
Implemented January 1995 140 member countries All sectors (except government and air traffic rights) Positive list approach All modes of supply

GATS: Modes of supply

Mode 1: Cross border supply
relatively few bound commitments

Mode 2: Consumption abroad

relatively open

Mode 3: Commercial presence

market access restrictions prevail

Mode 4: Movement of natural persons

most restrictive
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GATS: Coverage
Infrastructure services, capital intensive, scale economies Communication Transport Strong institutional & regulatory difference between jurisdictions Financial services Business services Health services Education

Traditionally liberal services Distribution Tourism

Other Environmental services Recreation Culture Sport Construction

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Source: Adlung (2000)

GATS: Obligations
General
MFN treatment Transparency

Specific
Market access National treatment

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SA exports of goods & services

Exports
0% 0 Merch x Service x

0% 0 Ave rag e an nu al gr ow th

0% 0

0% 0

0 %

0 % 1 1 's 11 1 1 's 11 0 0 's 00

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Exports of health services

Cross border
Call and claim centers

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Consumption abroad
Provider Country Knee Cataract Replacement Removal 00 0to , 0 00 0to , 0 0 0 0 0 00 0 0 ,0 , 00 0to , 0 00 0 0 , 00 0 0 , 00 0 0 , 00 0to , 0 00 0 0 , 00 0 0 , 0 0 0 Hernia 11 1to , 1 11 1 1 , 00 0to , 0 00 0 0 , 00 0 0 , 00 0 0 , Hip Cardiac ReplacementBy-Pass 00 0to , 0 0 0 0to ,0 0 0 0 0 0 0 0 0 0 ,0 ,0 00 0to , 0 00 0 0 , 00 0 0 , 00 0 0 , 0 0 0to ,0 0 0 0 0 0 ,0 00 0 0 , 00 0 0 ,

BUPA

UK

BMI

UK

Panorama Health Specialized Surgery

South Africa South Africa

www.medibroker.co.uk
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NHS health care contracts

900 cataracts in Lancaster
R10 million 45 personnel

12 000 ENT in Middlesex 300 hips and knees in Southport 1 000 orthopedics in Gosport

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Constraintsinternational
Portability of national health insurance Recognition/registration of medical professionals

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R billions (0000 ) 0 0 0 0 0 0 0 0 0 0 00 00 11 11 00 00 00 00 11 11 00 00 00 00 00 00 11 11 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 Private enterprises General government Public corporations 0 0

Construction works

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Exports of construction services

Civil engineers
20% of turnover offshore >90% in Africa

Consulting engineers
10% of turnover offshore >80% in Africa

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Exports and investment

Grinaker-LTA
50th largest international contractor* 5th largest contractor in Africa* Operations: Australia, United Arab Emirates (UAE), Angola, Nigeria and Mauritius

Murray and Roberts

54th largest international contractor* 7th largest contractor in Africa* Operations: Australia, UAE, UK, Botswana, Namibia, Nigeria, Tanzania, Zimbabwe and Indonesia
* Engineering News Record
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Constraints - international
Technical standards and regulations Nationality & residency requirements Ownership restrictions Government procurement
Tied-AID Export credit agencies

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Constraints domestic
Poor standards Poor regulations Expertise
Immigration

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Gains From Trade

Gains from exports

Employment Complementary exports Foreign exchange Knowledge and skills Economies of scale

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Gains from exports

Mode
Cross-border trade Consumption abroad Commercial presence

Health
High High Medium

Construction
Low Low High Medium Low

Temporary movement of people Medium Emigration Low

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Gains from imports

Knowledge and skills Product
Price Quality

Capital and infrastructure

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Gains from imports

Mode
Cross-border trade Consumption abroad Commercial presence

Health High Low Medium

Construction Low Low High Medium High

Temporary movement of people Medium Emigration

High

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Trade Policy Implications

Health services - WTO

40% of member countries have made some commitments
25% hospital services 33% medical and dental services

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Health services - SA
Sub-sectors Medical and dental services Market access None None None National treatment None None None 1 2 3 Mode

Unbound except as Unbound except as 4 indicated in horizontal indicated in horizontal section section

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Health service strategy

Remove domestic restrictions on investment and professionals Target foreign barriers to health tourism and electronic trade Access to the national health systems of importing countries is critical

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But first
Compulsory community service New National Health Bill (certificate of need) Restrictive immigration laws Poor working conditions in the public sector

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Construction & engineering services - WTO

Construction: between 51% and 64% of countries have made full commitments in modes 1 to 3 Architectural and engineering: between 46% and 66% of countries have made full commitments in modes 1 to 3 Within SADC, just South Africa and Lesotho have scheduled both sectors.

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Construction services - SA
Sub-sectors General construction work for buildings General construction work for civil buildings Installation and assembly Building completion and finishing work Market access Unbound (technical reasons) None None Unbound except as indicated in horizontal section National treatment Unbound (technical reasons) None None Unbound except as indicated in horizontal section 1 Mode

2 3 4

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Engineering services - SA
Sub-sectors Market access National treatment None None None 1 2 3 Mode

Engineering services None None None

Unbound except as Unbound except as 4 indicated in horizontal indicated in horizontal section section

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Construction service strategy

Remove domestic restrictions on investment and professionals Re-consider GATS exemption for Export Credit Agencies (ECAs) Engage in negotiations on government procurement to address tied AID

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But first
Foreign exchange controls Restrictive immigration policies Inappropriate procurement rules Weak standards and regulations

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Conclusion

Conclusion
Need to understand the economic gains from service liberalisation Need to understand the social costs of service liberalisation and protection Need to identify actual constraints to trade
Foreign barriers Domestic regulations (or the lack thereof)

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