BRIEF

Trade in Services

April 21, 2014

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Helping Countries Optimize Services in Trade
  • Services are increasingly important to trade in the 21st Century
  • Services are both becoming more tradable and more vital as inputs to traded goods and services
  • Developing countries, in particular, have an interest in tapping into this growing sector

Increasingly, as we forge ahead in the 21st Century, services will define the ability of countries and their firms to compete on international markets. The World Bank Group responds to the needs of countries facing this rising trend. We help clients make informed policy choices to better their chances of benefiting from the increasing prominence of services in international trade. Growing and hiring domestic industries, as well as foreign investment, are key components of many countries’ strategies for economic growth, job-creation, and, ultimately, poverty-reduction.

There are two aspects to the rise of services. First, thanks to improvements in information and communications technology, services have become more and more tradable – service-providers, such as computer programmers or call-center operators, no longer need to be close to their customers. They can operate from a location that provides skilled labor at low costs.

But there’s a second component. Not only are more services crossing borders; domestically produced services are also emerging as vital inputs to the production of traded goods and services. Neither a factory nor a call center can operate without reliable electricity and water, for example. And as more and more production enters the just-in-time value chain model, crossing multiple countries in the transition from raw material to finished good, reliable services can mean the difference between a firm’s profit and loss. The level of services can also make the case for a firm’s investment in one country over another.

This phenomenon touches middle-income as well as low-income countries and has important implications for development and for the World Bank Group’s twin goals of eradicating poverty and improving the incomes of the bottom 40 percent of populations everywhere. Already, many developing countries export a diverse range of services. They might provide transport services to their neighbors and back-office business services to developing countries, for example. The falling costs of information technology and increasing access to the internet suggest that this trend will only grow, offering the possibility that more and more jobs in the developing world will be in the services sector.

Just as they want to see their exported services thrive, policymakers in many developing countries would like to do more to ensure that all of their industries – producing both goods and services – can be competitive on the world market. The cost and quality of services inputs are major determinants of how much countries can benefit from globalization. Firms need efficient and reliable services to compete in the world economy. Opening markets to trade and investment flows is an important channel for giving domestic firms access to better services and expanding export-oriented investment and associated employment.


Toolkit for Practitioners: Regulatory Assessment on Services Trade and Investment

International trade in services is subject to a wide range of domestic laws and regulations that govern access and operations by both domestic and foreign suppliers. While such regulations are essential where market failures or externalities exist and to ensure non-economic objectives, an unnecessarily restrictive regulatory framework limits the potential of the services sector to develop, and undermines the export opportunities and competitiveness of domestic businesses.

The Regulatory Assessment on Services Trade and Investment (RASTI) toolkit offers a practical guide to assess the impact of services regulations. It lays out a methodology for identifying restrictions to trade and investment in services within a country, assessing the impact of those restrictions, and developing suitable regulatory alternatives. Because the way in which governments administer and implement laws and regulations can affect trade, a RASTI also scrutinizes the institutional backdrop for reforms.