Aaditya Mattoo

March 7, 2016

Unleashing the Next Engine of Growth: An Agenda for Services Trade beyond

Doha and the TPP

http://econ.worldbank.org/policyresearchtalks

Services are different from goods but also from each otherBANKING TRANSPORTATION

COMMUNICATIONTOURISM

• Services transactions often require face-to-face contact. • There is a risk of market failure, especially because consumers are not well-informed about suppliers

Either producers must to move to consumers or vice versa…

PERSONAL SERVICESMEDICAL SERVICES

CONSTRUCTION SERVICES RETAIL SERVICES

…and regulation is often needed to protect consumers

Of course, services markets are changingDIGITIAL COMMUNICATION

RIDE SHARINGMOBILE BANKING

TELEMEDICINE

• Technology is reducing, but not eliminating, the need for face-to-face service delivery• “Over-regulation” is leading to the emergence of new services

The story ahead

• Defining characteristics of services transactions: • Face-to-face with more digital delivery

• Risk of market failure

• Influence: • How services are traded (Part I)

• How they are protected and regulated (Part II)

• Implications for:• National trade reform (Part III)

• International trade cooperation (Part IV)

Preview of findings

I. Digitization and aging are driving services trade but “divergent globalization”

II. Much unilateral liberalization, but still big barriers and big unrealized gains

III. Better regulation the basis for both success in domestic reform and exports

IV. Greater regulatory cooperation the key to successful trade negotiations

V. World Bank can help in each dimension

The importance of services for all countries…

ALB

ARG

ARM

ATG

AUSAUT

BDI

BEL

BEN

BFA

BGD

BGR

BHS

BIH

BLR

BLZ

BOL

BRA

BTN

BWA

CAF

CHE

CHL

CHN

CIV

CMR

COD

COL

COM

CPVCRI

CYP

CZE

DEU

DMA

DNK

DOM

ECUEGY

ESPEST

ETH

FIN

FJI

FRA

FSMGBR

GEOGHA

GIN

GNB

GRCGRD

HND

HRVHUN

IDN

IND

IRL

IRN

ITA

JAM

JORJPN

KEN

KGZKHM

KIR

KNA

KOR

LAO

LBNLCA

LKA

LSO

LTU

LVA

MAR

MDA

MDG MEX

MKD

MLI

MNG

MOZ

MRT

MUS

MWI

MYS

NAM

NER

NGA

NIC

NLD

NPL

PAK

PAN

PER

PHL

PLW

POL

PRT

PRY

ROU

RUS

RWA

SDN

SEN

SGP

SLE

SLV

SRB

SUR

SVK

SVN

SWE

SWZ

SYC

TCD

TGO

THA

TJKTKM

TONTUNTUR

TZAUGA

UKR

URY

UZB

VCT

VNM

VUT

ZAF

ZMB

ZWE

20

40

60

80

10

0

Sha

re o

f S

erv

ice

s in G

DP

0 10000 20000 30000 40000 50000 60000GDP/capita (Constant 2005 USD)

Line indicates the mean value

Share of Services in GDP:1995

Source: Work in progress with Aldo Pazzini Bortoluzzi drawing upon World Development Indicators

Share of services in GDP and GDP per capita, current USD, 1995

ALB

ARG

ARM

ATG

AUS AUT

BDI

BEL

BEN

BFA

BGD

BGR

BHS

BIH

BLR

BLZ

BOL

BRA

BTN

BWA

CAF

CHE

CHL

CHN

CIV

CMRCOD

COL

COM

CPV

CRI

CYP

CZE

DEUDMA

DNK

DOM

ECU

EGY

ESP

EST

ETH

FINFJI

FRA

FSM

GBR

GEO

GHA

GINGNB

GRCGRD

HND

HRVHUN

IDN

IND

IRL

IRN

ITAJAM

JOR

JPN

KEN

KGZ

KHM

KIR

KNA

KOR

LAO

LBN

LCA

LKA

LSOLTU

LVA

MAR

MDA

MDG

MEXMKD

MLI

MNG

MOZ

MRT

MUS

MWI MYS

NAM

NER

NGANIC

NLD

NPLPAK

PAN

PERPHL

PLW

POL

PRT

PRY

ROU

RUS

RWASDN

SEN

SGP

SLE

SLVSRB

SUR

SVKSVN

SWE

SWZ

SYC

TCD

TGO

THATJK

TKM

TONTUNTUR

TZA

UGA

UKR URY

UZB

VCT

VNM

VUT

ZAF

ZMBZWE

20

40

60

80

10

0

Sha

re o

f S

erv

ice

s in G

DP

0 10000 20000 30000 40000 50000 60000GDP/capita (Constant 2005 USD)

Countries in 1995 Countries in 2014 Line of fir for 1995 Line of fit for 2014

Line indicates the mean value

Share of Services in GDP:1995 and 2014

Source: Work in progress with Aldo Pazzini Bortoluzzi drawing upon World Development Indicators

Share of services in GDP and GDP per capita, current USD, 1995 and 2014

The importance of services for all countries is growing

Services matter even in the poorest countries

Source: WTO estimates on the basis of LDCs' National Accounts statistics.

Estimated breakdown of value added by main economic activity in LDCs, 2011

Defining “trade” in services: the four modes of delivery

Mode 1. Cross-border Trade

Outsourced IT and back-office services International transport

International communication

Mode 1: Services exports of some countries are growing rapidly

8.1

12.6

16.0

17.2

22.7

23.0

25.6

27.4

35.5

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0

Senegal

Mali

Mozambique

Benin

Cambodia

Zambia

Malawi

Uganda

Burkina Faso

Other commercial services Goods

9.3

10.2

11.2

11.9

13.4

14.6

15.3

15.3

17.8

18.0

22.6

0.0 5.0 10.0 15.0 20.0 25.0

Chile

Israel

Russian Federation

Argentina

India

Phillipines

Brazil

Korea, Republic of

Mauritius

China

Costa Rica

Other commercial services Goods

Commercial services exports of services, other than travel and transport, 2005-2014, annual % change

Selected Least Developed CountriesSelected Developing Countries

But for many countries, exports are small relative to internal services transactionsSource: Anderson James E., Ingo Borchert, Aaditya Mattoo, Yoto V. Yotov, (2015), "Dark Costs, Missing Data: Shedding Some Light on Services Trade," NBER Working Papers 21546

Defining “trade” in services: the four modes of delivery

Mode 2. Consumption Abroad

Tourism Education abroad Health care abroad

Mode 2: Tourism matters most for the poorest countries

AFG

ALB

AREARG

ARM

ATG

AUSAUT

AZE

BDIBEL

BENBFA

BGD

BGR

BHR

BHS

BIH

BLR

BLZ

BOLBRA

BRB

BRN

BTN

BWA

CAF

CAN CHECHLCHNCIV

CMR

CODCOG

COL

COMCPV

CRICYP

CZEDEU

DJI

DMA

DNK

DOM

DZA

ECU

EGY ESP

ESTETHFIN

FJI

FRA

FSM

GAB

GBR

GEO

GHA

GIN

GNB

GNQ

GRC

GRD

GTM

GUY HKG

HND

HRVHTI

HUNIDNINDIRLIRNIRQ

ISL

ISRITA

JAM

JOR

JPNKAZ

KEN

KGZ

KHM

KIR

KNA

KOR

KSV

KWT

LAO

LBN

LBR

LBY

LCA

LKA

LSO LTU LUXLVA

MAC

MAR

MDA

MDG

MDV

MEXMKDMLI

MMR

MNE

MNGMOZMRT

MUS

MWI

MYSNAMNER

NGA

NIC

NLD NOR

NPL

NZL

OMNPAK

PAN

PERPHL

PNG

POL

PRT

PRY QATROURUS

RWA

SAU

SDN

SEN

SGP

SLB

SLE

SLV

SRB

SSD

STP

SUR SVK

SVNSWE

SWZ

SYC

TCDTGO

THA

TJK TKM

TLSTON

TTO

TUNTURTUV

TZA

UGA

UKR

URY

USAUZB

VCT

VNM

VUTWSM

ZAFZMBZWE

020

40

60

80

10

0

Sha

re o

f T

rave

l in

tota

l go

od

s +

co

mm

erc

ial serv

ices

0 50000 100000 150000GDP/capita (Current USD)

Line indicates the mean value

2014

Share of travel in total exports of goods and services against GDP per capita, 2014

And a survey of the literature:Joseph Francois and Bernard Hoekman (2010), Services Trade and Policy, Journal of Economic Literature, 48, 642-92.

Defining “trade” in services: the four modes of delivery

Mode 3. Commercial Presence

Retail distributionBanking Telecommunication Education

In Africa, as elsewhere, most FDI is going into services

48

121

31

Services

Unspecified

Manufacturing

Primary

Inward FDI stock by sector for Africa, 2012

(Percentage of total inward FDI stock in region)

56

21

9

83

Finance

Transport, storage andcommunications

Business activities

Trade

Construction

Services FDI stock, by industry in Africa, 2012

(Percent of Africa's inward FDI stock in services)

Source: UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics).

Defining “trade” in services: the four modes of delivery

Mode 4. Movement of Natural Persons

Construction workers Doctors and nurses Performers

Services “trade” has a wide scope and potential impact

1. Cross-border

Trade

Outsourced IT and back-office services

International transport International communication

4. Movement of

Natural Persons

Construction workers Doctors and nurses Performers

2. Consumption

Abroad

TourismEducation abroad Health care abroad

3. Commercial

Presence

Retail distributionBankingTelecommunication Education

Openness to trade in services is associated with more rapid growth

Source: Aaditya Mattoo, Randeep Rathindran and Arvind Subramanian (2006), Measuring Services Trade Liberalization and its Impact on Economic Growth: An Illustration,, Journal of Economic Integration, vol. 21, 64-98.

Services trade matters

Goods trade stumbles, but services trade does not fall

100

150

200

250

300

350

400

-15

-10

-5

0

5

10

15

20

World Import Volumes of Goods and Services

Goods: Growth rates Services: Growth rates

Goods (1993=100, RHS) Services (1993=100, RHS)

Source: IMF World Economic Outlook

Services trade declined less during the crisis and has grown faster after the crisis

Source: Constantinescu, Mattoo and Ruta (2016), work in progress, building on “The global trade slowdown: cyclical or structural?,” World Bank Policy Research Working Paper 7158.

Michele Ruta

Cristina Constantinescu

Drivers of services trade 1: Demographic ChangeYoung and old have different patterns of demand, e.g. USA

0 10 20 30 40 50

other

services

manuf. goods

housing

food

Broad expenditure categories

0 5 10 15 20 25

utility

transport

social security

personal service

hotel

health

finance

recreation

education

domestic service

catering

Expenditure on services

Housing includes interest on mortgage and property tax

(USA, 2012)

Average of consumption shares. by HH types (in %)

Two Adults Two 65+

Source: Work in progress with Erhan Artuc, Zovanga Louis Kone, Maggie Liu and Caglar Ozden

Young and old have different patterns of demand especially within services: India

0 10 20 30 40

other

personal

hotel

catering

education

recreation

postal

transport

health

utility

Urban area

0 10 20 30 40

other

personal

hotel

catering

education

recreation

postal

transport

health

utility

Rural area

Hi, j, k denotes household of size i, with j children (i.e of age 0-17) and k elderies (i.e. 65+)

(India, 2011)

Average of consumption shares. by HH types (in %)

H200 H202

Source: Work in progress with Erhan Artuc, Zovanga Louis Kone, Maggie Liu and Caglar Ozden

Therefore, demographic change is influencing services trade

Shifting dependency ratios…

3035

4045

5055

60

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Japan South Korea China Malaysia Indonesia

Working Age Population Ratio: Japan, South Korea and China

vs. Malaysia and Indonesia

by affecting the demand and supply of services

China’s rebalancing and demographics are already shifting demand towards services

80

90

100

110

120

130

140

150

160

170

180

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

China: Imports of Goods and Services, bill. USD (index 2011Q1=100)

Services Imports

Goods Imports

Source: IMF Balance of Payments Statistics

10

12

14

16

18

20

22

24

20

11

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

12

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

13

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

14

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

15

Q1

20

15

Q2

China: Share of Services in Total Imports (percent)

Source: IMF Balance of Payments Statistics

Source: Constantinescu, Mattoo and Ruta (2016), work in progress, building on “The global trade slowdown: cyclical or structural?,” World Bank Policy Research Working Paper 7158.

Drivers of services trade 2: DigitizationThe international fragmentation of goods production

Driven by, and boosting demand for, information, communication and transport services

HR and payroll management

AccountingSoftware development

Product design

includes both goods parts and services tasks

In parallel, the international fragmentation of services production

Call Centre for customer service, etc. Medical transcription services

Web hosting and webmaster services

Outsourced consultations and diagnostics

is creating new opportunities for trade

Who is participating in services trade?

Comparative advantage in services is determined by the interplay between :

• Endowments, especially of skills

• Infrastructure, especially telecommunications

• Institutions, especially regulatory

Sebastian Saez

Arti Grover

Poonam Gupta

Skills matter: Evidence from Indian states

Skiil to labor ratios (%)

0

5

10

15

20

25

30

35

40

45

Wo

od

Beve

rag

es

Textil

e p

roducts

Le

ath

er

Min

era

ls

Textil

es

Basi

c m

eta

lsM

eta

l pro

duct

s

Paper

Tra

nsp

ort

part

s

Ch

em

icals

Tansport

serv

ices

Tra

de&

Hote

ls

Food

Busi

ness

& d

we

llin

gs

Bankin

g

Tele

com

Source: Amin and Mattoo (2006).

Services output and Education: averages over 1980-00

OR

AP

BH

HY KNKR

TN

UPWB

GJ

MPRJ

PJ

MH

0

1000

2000

3000

4000

5000

6000

0 0.001 0.002 0.003 0.004 0.005

Tertiary educated per cpaita

Serv

ices o

utp

ut

per

cap

ita

Skilled to total labor ratios across sectors Services output per capita against tertiary educated per capita

And the quality of institutions matter: Evidence from Indian States

Gini coefficient (%)

0

5

10

15

20

25

30

35

40

Textil

e p

roducts

Le

ath

er

Min

era

lsB

asi

c m

eta

lsT

ransp

ort

part

sM

eta

l pro

duct

s

Textil

es

Wo

od

Food

Beve

rag

es

Paper

Tele

com

Bankin

g

Ch

em

icals

Busi

ness

& d

we

llin

gs

Tansport

serv

ices

Tra

de&

Hote

ls

Source: Amin and Mattoo (2006).

T&D Loss and Services per capita: averages over 1980-00

BH

OR

TN

WB

PJ

KN

UP

MP

KR

GJ

AP

HY

RJ

MH

R2 = 0.45

0

1000

2000

3000

4000

5000

6000

10 15 20 25 30

T&D Losses (%)

Se

rvic

es

pe

r c

ap

ita

Diversity of input sources and output destinations across sectors as measure of institutional dependence

Services output per capita against a proxy for institutional weakness (T&D losses of electricity utilities)

Direct and indirect value added exports of financial services, share of GDP, 1995-2009

New value added trade data reveals evolution of comparative advantage and structural change

Source: Liu, Mattoo, Wang and Wei (2015)

IND

IDN

CHN

BGR

ROMBRA

RUS

LVA

MEXLTU POL

EST

HUN

SVK

CZE

MLT

SVNKOR

PRT

GRC

CYPESP

ITAAUSDEUFRA

JPN CAN

BEL

AUT

FIN

GBR

NLD

SWE

USA

DNK

TUR

0

.05

.1.1

5

Indir

ect V

alu

e A

dd

ed

Expo

rts/G

DP

0 .05 .1 .15

Direct Value Added Exports/GDP

Countries Turkey

Indirect and Direct Value Added shares of GDP (in constant 2005 USD) - Financial Services

Note: Does not include Ireland and Luxembourg

IND

IDN

CHNBGR

ROM

BRA

RUS

LVA

MEX LTU

POL

EST HUN

SVK

CZEMLT

SVN

KOR

PRT

GRC

CYPESP

ITA

AUS

DEU

FRA

JPN

CAN

BEL

AUTFIN

GBR

NLD

SWE

USA

DNK

IRL

LUX

TUR

0.1

.2.3

.4.5

Indir

ect V

alu

e A

dd

ed

Expo

rts/G

DP

0 .2 .4 .6

Direct Value Added Exports/GDP

Countries Turkey

Indirect and Direct Value Added shares of GDP (in constant 2005 USD) - Business Services

Direct and indirect value added exports of business services, share of GDP, 1995-2009

Skill endowments rather than skill intensity may constrain unskilled employment

The surprisingly high unskilled labor value added in services exports

Source: Joint work with Alen Mulabdic based on Cali et al (2016), "The Labor Content of Exports Database."

Labor value added (LVA) in $1000 of exports

II. What are the barriers to trade and how big are the gains from reform?

Policy barriers to services trade are heterogeneous and often opaque

1. Quotas, explicit and implicit, are pervasive

US Jones Act shuts out foreign tankers

Prohibition of foreign providers

Italy restricts non-EU players after dismal World Cup

Limits on foreign personnel

Zimbabwe to press ahead with controversial indigenisation scheme

Limits foreign firms and ownership

India raises foreign insurance stake limit to 49%

2. Explicitly discriminatory measures

Preferential procurementHow 'Buy American' Can Hurt U.S. Firms

Small Airlines Push for More Access at New York Airports

Preferential access to essential facilities

Gulf Airline Counters Subsidies Claims

Taxes and subsidies

3. Regulatory requirements can implicitly discriminate

Technical regulations

“Accounting standards are holding banks back” -FT

“Deutsche Bank avoids US capital rules” -FT

Prudential regulations

“Overqualified immigrants really are driving taxis in Canada” -PRI

Qualification and licensing requirements

The Services Trade Restrictions DatabaseWorld Bank Services Trade Restrictions Database covers 103 countries (of which 79 are developing)

Source: Borchert, Ingo, Batshur Gootiiz and Aaditya Mattoo (2014) “Policy Barriers to International Trade in Services: Evidence from a

New Database,” World Bank Economic Review, 28:162-188.

Ingo Borchert

Batshur Gootiiz

010

20

30

40

50

60

70

Serv

ices tra

de r

estr

ictiveness index

GCC SAR MENA EAP AFR LAC OECD ECA

Note: 103 countries included.

Financial Telecom Retailing

Transportation Prof.Services

STRI by sector and region

Source: Borchert, Ingo, Batshur Gootiiz and Aaditya Mattoo (2014) “Policy Barriers to International Trade in Services: Evidence from a New Database,” World Bank Economic Review, 28:162-188.

The persistence of protection

Engagement with the Bank’s India Team and India’s Trade Ministry

Deepak Mishra

SumantaChaudhuri Joint SecretaryMinistry of Trade

And India is a key player in setting the multilateral agenda

Services are central to India’s domestic reform and export agenda

Gains from reform (mode 3)

Payoffs from India’s incomplete reformNewly created index of services reform

0

0.5

1

1.5

2

2.5

3

3.5

4

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Banking Insurance Telecom Transport

Newly created index of services reform

0

0.5

1

1.5

2

2.5

3

3.5

4

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Banking Insurance Telecom Transport

0

5

10

15

20

25

30

35

40 Growth Rate (CAGR)

36%

20%

FDI in Services*

FDI in Non-services

India: FDI in services sector is growing faster than

in non-services . . .

(1992/93 values

are indexed to 1;

Unit: US$)

1992/9

3

1993/9

4

1994/9

5

1995/9

6

1996/9

7

1997/9

8

1998/9

9

1999/0

0

2000/0

1

2001/0

2

0

5

10

15

20

25

30

35

40 Growth Rate (CAGR)

36%

20%

FDI in Services*

FDI in Non-services

India: FDI in services sector is growing faster than

in non-services . . .

(1992/93 values

are indexed to 1;

Unit: US$)

1992/9

3

1993/9

4

1994/9

5

1995/9

6

1996/9

7

1997/9

8

1998/9

9

1999/0

0

2000/0

1

2001/0

2

Engagement with the Indian Government gave us an opportunity to build on: Arnold, Jens, Beata Javorcik and Aaditya Mattoo (2011), The Productivity Effects of Services Liberalization: Evidence from the Czech Republic,), Journal of International Economics, vol. 85(1), 136-146.

Fernandes, Ana and C. Paunov (2012). “Foreign Direct Investment in Services and Manufacturing Productivity: Evidence for Chile,” Journal of Development Economics 97 (1), 305-321.

India’s services reform boosted performance of downstream manufacturing industries

Gains in Annual TFP Growth After Services Reform

0

1

2

3

4

industries with

limited

dependence

on banking

industries with

high

dependence on

banking

industries with

limited

dependence on

telecomms

industries

with high

dependence

on telecomms

Percent Gains in Annual TFP Growth After Services Reform

0

1

2

3

4

industries with

limited

dependence

on banking

industries with

high

dependence on

banking

industries with

limited

dependence on

telecomms

industries

with high

dependence

on telecomms

Percent

40Source: Arnold, Jens, Beata Javorcik, Molly Lipscomb and Aaditya Mattoo (2014) “Services reform and manufacturing performance:

Evidence from India,” Economic Journal, vol. 126, 1–39.

Services reform as industrial policy

Modi to refresh ‘Make in India’ manufacturing driveFebruary 14, 2016

More open bilateral air service agreements could lead to more traffic on existing routes and more cities being served

Source: Cristea, Hillberry and Mattoo (2015), 2015 Open Skies over the Middle East, forthcoming in the World Economy.

Gains from reform (mode 1)

Services reform as trade facilitation

Existing flights in 2010

Counterfactual flights in 2010

Sibel Kulaksiz

Access to markets (mode 4)

The elusive license to practice

• In the US, professional licensing is generally the responsibility of state boards.

1. The verification of educational qualifications, training and

experience to establish eligibility to take the professional examination

2. The remedying of any gaps in education, training and

experience before taking (all or part of) the examination, with the

remedial steps to be taken in large part in the United States.

3. Passing the professional examination(s), held entirely or in significant part in the US

4. The fulfillment of additional requirements, such as experience or

local residency, in order to obtain a professional license

The steps involved in getting a license are:

The regulatory tax on foreign professionals in the US

Profession

Number of Indian professionals

coming to the US annually

(average for the 1995-2000

period)

Visa, examination

and licensing fees

paid per

professional

Average income

foregone per

professional due to

differential requirements

Total Income/ fees paid or lost

by Indian professionals due to

regulations (US$ in million)

(A) (B) ( C) (D)

Physicians and Surgeons 1092 $4,640 $100,000 114

Civil and Mechanical Engineers 683 $2,270 $60,000 43

Accountants 518 $5,600 $30,000 18

Architects 350 $3,030 $25,000 10

Total for all professionals 10234 614-768$60,000-$75,000

Source: Mattoo and Mishra (Working paper, 2006; published 2009) Foreign Professionals in the United States: Regulatory Impediments

to Trade, with Deepak Mishra, Journal of International Economic Law, vol. 12, 435-456.

Economics of mobility thrives on rising demand •Saikat Neogi, Updated: May 07, 2007 23:04 IST

Access to markets (mode 1)

Privacy regulation - a European Damocles sword

11%

33%

22%

11%

6%

Below 1 million

1 million - 10 million

10 million - 100 million

100 million - 500 million

500 million - 1 billion

Estimation of Opportunity Loss (in USD)

33%

67%

No

Yes

Non-fructification of deals becouse of data protection related concerns

Source: NASSCOM-DSCI Survey (2013)

NASSCOM-DSCI Survey of the Impact of EU Privacy Regulation on India’s Services Exporters

Aaditya Mattoo and Sacha Wunsch(2004), Pre-Empting

Protectionism in Services: The WTO and Outsourcing, Journal of

International Economic Law, vol. 7, 765-800.

The US could save over $1.4 billion annually even if only one in ten US patients chooses to undergo treatment abroad.

Procedure US inpatient

price ($)

US

inpatient

volume

US outpatient

price ($)

Estimated US

outpatient

volume

Foreign price

including travel

cost ($)

Savings if 10% of

US patients

undergo surgery

abroad instead of in

the US ($)

Knee surgery 10,335 399,139 4,142 60,000 1,236 380,604,366

Shoulder Arthroplasty 5,940 23,300 7,931 N/a 2,204 8,704,809

TURP 4,127 111,936 3,303 88,064 2,385 27,581,317

Tubal Ligation 5,663 78,771 3,442 621,229 1,248 171,065,574

Hernia Repair 4,753 40,553 3,450 759,447 1,608 152,655,706

Skin lesion excision 6,240 21,257 1,696 1,588,884 812 151,952,860

Adult Tonsillectomy 3,398 17,251 1,931 102,749 1,010 13,588,218

Hysterectomy 5,783 640,565 5,420 N/a 1,869 250,704,845

Haemorrhoidectomy 4,945 12,787 2,081 137,213 781 23,160,663

Rhinoplasty 5,050 7,265 3,417 N/a 1,906 2,284,315

Bunionectomy 6,046 3,139 2,392 41,507 1,487 5,186,290

Cataract extraction 3,595 2,215 2,325 1,430,785 1,133 171,078,116

Varicose vein surgery 7,065 1,957 2,373 148,043 1,393 15,618,521

Glaucoma procedures 3,882 - 2,292 75,838 1,017 9,670,440

Tympanoplasty 4,993 754 3,347 149,246 1,261 31,408,685

Total savings 1,415,264,725

Source: Mattoo and Rathindran (2006), How Health Insurance Impedes Trade in Healthcare, Health Affairs, vol. 25, 358-368.

May 21, 2006

Outsourcing Your Heart

Trade proposal would open up foreign health coverage By Adam Behsudi | 2/4/15 3:02 AM EST

Access to markets (mode 2)

How health insurance inhibits trade in health care

Collaboration between India’s Trade Ministry and the Bank

Who’s thinking of services reform?

Beata Smarzynska Javorcik and Aaditya Mattoo

Services: An Opportunity India Must Not Miss

Aaditya Mattoo and Deepak Mishra

Collaborative research led to proactive positions by India with multilateral benefits

WTO Hong Kong Ministerial DeclarationAdopted on December 18, 2005

Annex C: Services Objectives

1. …Members should be guided, to the maximum extent

possible, by the following objectives :

(a) Mode 1 and Mode 2 commitments at existing levels of

market access

(b) Mode 3 commitments on enhanced levels of foreign

equity participation and removal or substantial reduction

of economic needs tests

(c) Mode 4 new or improved commitments

7. ..request-offer negotiations should also be pursued on a

plurilateral basis…

…a small group of Members… would:

• Lock-in the currently open regimes for cross-border trade

• Eliminating barriers to foreign investment either immediately or in a phased manner

• Allow greater freedom of international movement for individual service providers

III. How is reform best implemented?

Elements of services trade policy reform

3 goals

• efficiency

• stability/reliability

• access

3 instruments

liberalization – ownership, competition

regulation

policies to improve access

3 issues• Sequential epiphany on importance• Tension between goals• Sequence of implementation

Boutheina Guermazi

Telecommunications

Charles E. Schlumberger

Air Transport

Mohammad Amin

Temporary Migration

Jens Arnold

Macroeconomics

Jose De Luna-Martinez

Finance

Samuel Munzele Maimbo

Finance

Olivier Cattaneo

Tourism Overview

Lucy Payton

Request from Zambian Trade Minister for support on trade in services

Services trade matters for the least developed countries: Zambia

And produced some clear benefits• Mobile telephony: dramatic growth since

competition and foreign entry in 1995• Tourism: investments by Sun International

have created jobs

• Insurance: improved access since liberalization in 1992

But despite openness, access to services in Zambia was limited and unequal

National air carrier liquidated and sector opened; but domestic traffic declined 5 per cent per annum.

Foreign banks dominated but credit to the private sector only 8 per cent of GDP -lower than in 1990

Only 5,000 people held 90 percent of loans.

Even by poor country standards, access to telecommunications is low.

80 percent of fixed lines in Lusaka and the Copperbelt, where only 30 percent of the population is

Source: Carsten Fink, Aaditya Mattoo and Randeep Rathindran (2003), An Assessment of Telecommunications Reform in Developing Countries, Information Economics and Policy, vol. 15, 443-466.

Where Zambia could have liberalized unconditionally, it did not

Why? Understanding the political economy of liberalization

Zamtel’s de facto monopoly in the international telecommunications gateway deprived households of access to telephones.

“When fee was reduced from $12m to $350,000, international and local call charges fell by more than 50%.” -Darlington Mwape, Zambia’s Ambassador to the WTO:

February 12, 2016 “After a bilateral open-skies deal, fares between South Africa and Zambia fell by almost 40 % and passenger numbers rose nearly as much.”

Denial of Fifth Freedom rights by Zambia and South Africa undermined competition and hurt horticulture and tourism.

Burdensome licensing in tourism (74 licenses and a year’s wait) cost Zambia nearly 300,000 more tourists every year. And Zambia’s tax system discriminated against services, the small firm and the poor regions

Where other reform’s were first needed, liberalization was rushed

Zambian Govt Caused Meridien Bank

Closure, Reveals SardanisLusaka —

…former chairman of Meridien BIAO

International Andrew Sardanis has denied

ever siphoning US $90 million to the

Bahamas.

Banking liberalized before strengthening regulation. 1991-1994, ten new bank licenses issued; 1995-2001: nine bank failures, causing estimated losses equivalent to 7 percent of GDP. Durable effect on financial development.

Agricultural output markets liberalized before the development of markets for services inputs. Durable effect on agricultural development.

Regulatory inadequacy persists and undermines the benefits of openness

Weakness:The Communication Authority of Zambia The Pensions and Insurance Authority The Civil Aviation AuthorityCompetition Authority of Zambia

Inappropriateness:In banking, burdensome “Know Your Customer” rules, In accounting, demanding International Financial Reporting Standards (IFRS)

Absence:After independence, clumsy instruments to widen access; after liberalization, none

Why? Understanding the political economy of regulation

FROM COLONIALISM TO KAUNDA’S SOCIALISM

FROM CONDITIONALITY

Should we reinstate NAMBOARD?

Yes - according to National Farmers Union president Jarvis Zimba:

THE ZAMBIAN ECONOMISTGovernment will soon revive the national airline-Commerce Minister Mwanakatwe

The PF government will renationaliseZAMTEL-Opposition leader Michael Sata

TO STATE CAPITALISM?

If we cannot implement efficient instruments to widen access to services

Elements of successful services trade policy reform

• Emphasis on competition

• Effective but appropriate regulation

• Efficient instruments to widen access to services

In appropriate combination and sequence

58

Developing countries with stronger institutions are pushing the frontiers of services trade: Chile

Expenditure on innovation by sector, (Average 2005-2006, using weights)

Leonardo Iacovone, Aaditya Mattoo and Andres Zahler (2014), Trade and innovation in services: evidence from a developing economy, with, World Economy, vol. 37(4), Pages: 953–979.

Services firms in Chile spend nearly as much on innovation as manufacturing firms

Leonardo Iacovone

Andres ZahlerChief, División de InnovaciónGovernment of Chile

59

Enaex has become a global pioneer in providing rock blasting services to mining companies

• Milodon is the world's largest truck for mixing and loading of explosives.• Inteliblast software processes input data and determines the type of rock

fragmentation strategy• GPS device mounted on the arm allows location of the perforation and

development of customized designs of the blasting processes based on field data.

60

The port terminal in the region of Arica and Parinacota has innovated along multiple dimensions to increase productivity

• Improvement of the port’s layout, • More efficient slot allocation for management of trucks at the port,• Automation of electronic records of the port loads entered, and • New system to efficiently trace loads.

61

Cencosud has innovated in retail, creating a new client interface to enhance customers’ shopping experience

For example, in the electronics section, no more in-store brand promoters but:• An initial adviser who advises clients on the best product suited for

their needs • An expert who is available to answer technical questions and • Comprehensive training in-store to costumers on product use

62

Mutually reinforcing relationship between trade and innovation

Propensity to spend on innovation of exporters and non-exporters

Exporters in Chile spend much more on innovation than non-exporters

Are current IP and innovation assistance regimes biased against services?

Trade and innovation in services are seen as a way out of the middle income trap

A key issue for policy research:

Leonardo Iacovone, Aaditya Mattoo and Andres Zahler (2014), Trade and innovation in services: evidence from a developing economy, with, World Economy, vol. 37(4), Pages: 953–979.

IV. Why have services trade negotiations disappointed, and can we do better?

What does international cooperation on services trade offer?

Key policy question - where can and should these gains be realized: in a regional or multilateral context?

64

• Regulatory cooperation

• Deeper liberalization at home and abroad through reciprocity-based market access negotiations

• Enhanced credibility ofo current trade regimeo commitment to future reforms

Multilateral negotiations have struggled to eliminate protection

ZAF

KENNGA

MUS

PHL

CHN

IDNMYS

THA

ALB

CZE

TUR

LTU

HUN

POLBGR

BHR

OMN

DOM

MEX

CHL

BRAPE R

BOL

TTOGTMHND

ARG

URY

PAN

CRI

COLNIC PRY

JOR

MAR

TUN

EGY

NZL

USA

DNK

AUS

GRC

FIN

JPN

PRT

AUTIRL

SWEDEU

NLDCANGBR

KOR BEL

ESP

ITAFRA

LKA

IND

PAK

ZAF

KEN

NGAMUS

PHL

CHN

IDN MYSTHA

ALB

CZE

TUR

LTU

HUNPOL

BGR

BHR

OMN

DOM

MEX

CHL

BRA

PE R

BOL

TTOGTMHND

ARG

URY

PAN

CRI

COLNIC PRY

JOR

MAR

TUNEGY

NZL

USADNK

AUS

GRC

FIN

JPN

PRT

AUT

IRLSWEDEU

NLD

CAN

GBR

KOR

BEL

ESP

ITA FRA

LKAIND

PAK

ZAFKENNGA

MUS

PHL

CHN

IDN

MYSTHA

ALB CZETUR

LTU

HUN

POLBGR

BHROMN

DOM

MEX

CHL

BRAPE R

BOL

TTO

GTMHND ARG

URY

PAN

CRI

COL

NIC

PRY

JOR

MAR

TUN

EGY

NZL

USA

DNK

AUSGRC

FIN

JPN

PRTAUT

IRLSWE

DEU

NLD

CAN

GBR

KORBEL

ESP

ITAFRA

LKA

IND

PAK

02

04

06

08

01

00

Serv

ice

s tra

de r

estr

ictiveness inde

x

0 10000 20000 30000 40000GDP per capita,PPP

Restr ictive ness of GATS co mmitment Fitted values

Restr ictive ness of DOHA Offers Fitted values

Restr ictive ness of actual policy Fitted values

STRI for 61 countries, excluding Qatar and 31 countries that did not submit offers

Uruguay Round Commitments, Doha Offers and Actual Policy

Ingo Borchert, Batshur Gootiiz and Aaditya Mattoo (2011), Services in Doha: What is on the Table?, in Will Martin and Aaditya Mattoo (eds.), Unfinished Business: The WTO’s Doha Agenda, CEPR and World Bank, London.

Regional negotiations too have had limited liberalizing impact

Ahmad Ahsan

Sebastian Saez

Martin Molinuevo

025

50

75

100

Se

rvic

es

tra

de

re

stric

tive

ne

ss in

de

x

MMR BRN THA PHL IDN LAO MYS SGP VNM KHM

AFAS commitment

Applied policy

Blueprint goals

Note 1: Applied policy information for Brunei is missing. Note 2: MMR =Myanmar, BRN =Brunei, THA =Thailand, PHL =Philippines, IDN =Indonesia, LAO =LAO PDR, MYS = Malaysia, SGP =Singapore, VNM =Vietnam, KHM =Cambodia.

Source: Gootiiz and Mattoo (2013)

AFAS commitments, applied policy and Blueprint

goals for each country

The TPP has delivered credibility but not much liberalization0

2550

7510

0

Ser

vice

s tr

ade

res

tric

tive

ness

inde

x

BRN MYS CHL SGP MEX VNM CAN USA PER JPN AUS NZL

Note: For Brunei, applied policy information is missing.Absense of a bar means the score is zero

Overall STRI

Doha TPP Policy

Services Trade Restrictiveness Indices for TPP Countries Doha Offers, TPP Commitments and Applied Policy

Source: Batshur Gootiiz and Aaditya Mattoo (2016), Does TPP Bring More Openness in Services?

Example: 1. “The US reserves the right to adopt or maintain any measure…”

• Transport: “…relating to the provision of maritime transportation services …”

• Cross-Border Trade: “…that is not inconsistent with the US’ obligations under the GATS….”

Mode 4: “the United States is not undertaking any commitments in this area.”

• MFN: “…that accords differential treatment to countries under any bilateral or multilateral international agreement in force or signed prior to the date of entry into force of this Agreement.”

2. Malaysia: licenses based on “prudential considerations and “the best interest of Malaysia.”

Why? Security is a growing concern in an insecure world

• Digital trade and informational security

• Financial internationalization and financial security

• Labor mobility and security

• Demographic change and health and old-age security

And this concern affects multiple services markets

Services trade held back by a combination of protectionist and legitimate regulatory concerns

Which conventional negotiations modeled on goods trade cannot disentangle

Needed: a mechanism to protect consumers from international market failure Proposed: regulatory commitments by exporters to protect foreign consumer interests in return for market access commitments by importers

Conventional approach: negotiations about exchange of market access commitments by importers Does not work for services

Conventional vs Proposed Approach

Inability to protect consumers leads to:• protection (esp on modes 1 and 2) or • burdensome requirements (esp on modes 3 and 4). The Costs of Data Localisation:

A Friendly Fire on Economic Recovery

For services to be global, regulation cannot be national

How exporting country regulatory commitments work: data flows

The problem

Exporting country commitments to adhere to importer standards of privacy in return for free data flows

The necessary bargain

•EU-US Safe Harbor Agreement; renegotiated as EU-US privacy shield;

•TPP provisions on data flows matched by provisions on protecting privacy and preventing fraud

Examples

How exporting country regulatory commitments work: labor flows

The problem

Source country commitments to certify character and qualifications, facilitate repatriation, combat illegal migration in return for freer labor mobility

The necessary bargain

• Bilateral labor agreements between Spain-Ecuador; Korea-Philippines;

• APEC Business Travel Card

Examples

How exporting country regulatory commitments work: financial services

The problem

Dodd-Frank ends

capital

exemptions for

European banks

Financial crisis: Banks reduce credit supply in emerging Europe

Exporting country commitments to protect interests of foreign consumers, financial stability, and avoid “financial nationalism”, etc. in return for market opening

The necessary bargain

• EU efforts to preserve the internal financial market EU-US markets

• EU-US discussions under the TTIP

• Vienna Initiative, for macroeconomic stability in emerging Europe

Examples

How exporting country regulatory commitments work: competition policy

The necessary bargain

Exporting countries to enforce competition rules to protect interests of foreign consumers in return for market opening

Rigging of Foreign Exchange Market Makes Felons of Top Banks

The problem

• EU-US cooperation on price rigging by financial institutions,

• EU-US action on collusive arrangements in air and maritime transport;

• APEC initiatives on competition policy;

Airlines Come Under EU-US Cargo Cartel Probe

European Commission -Press release

Competition: EU and US celebrate 20 years of cooperation; agree to advance cooperation

further

ExamplesEU, US exemptions from competition policy for export cartels

Source: Carsten Fink, Aaditya Mattoo and Ileana Cristina Neagu (2002), Trade in International Maritime Services: How Much Does Policy Matter?, World Bank Economic Review, vol. 16, no. 1, 81-108.

A positive initial reaction to the proposed approach

2nd APEC Structural Reform

Ministerial Meeting7-8 September 2015

Cebu, PhilippinesSession III: Regulatory Reform and

Cooperation in Services

Dr. Aaditya Mattoo

Cebu, Philippines, 8 Sep 20152015 Structural Reform Ministerial Meeting Joint StatementStructural reform and servicesThe final challenge is mitigating regulatory externalities, or accounting for the effects of regulation in one economy on the consumers of the service in another economy.

We support regulatory cooperation as one of the mechanisms for facilitating market opening...

We, therefore, instruct the Economic Committee to conduct dialogues with sectoral regulators, policy makers, and business

-0.5

-0.2

0.1

0.4

0.7

1.0

Harmonization Mutualrecognition

with restrictiveROO

Mutualrecognition

withoutrestrictive

ROO

Percent

Impact on trade volumes with non-members

Recognition without restrictive rules of

origin promises the greatest benefits to

third countries

Source: Chen, Maggie Xiaoyang, and Aaditya Mattoo (2008), Regionalism in Standards: Good or Bad for Trade, Canadian Journal of Economics, vol. 41, 838-863Notes: ROO = Rules of origin.

Watching out for the risk of excluding developing countriesRisk of trade based on mutual trust rather than comparative advantage

Resisting the tyranny of harmonization to avoid exclusion within countries

Source: Xavier Faz (2013), Mexico’s Tiered KYC: An Update on Market Response, CGAP

In Mexico, the introduction of simplified bank accounts with less burdensome information requirements is associated with an increase in the number of deposit accounts

Three concluding suggestions

• Addressing the risk of exclusion

• Reaffirm relevant WTO MFN-related provisions (GATS Article VII).

• Restrain use of exclusionary rules of origin

• Support development of appropriate standards in developing countries.

• Strengthening national regulation• Identify sectors where regulation matters for trade liberalization• Diagnose and remedy regulatory inadequacies• Country- and sector-specific advice and assistance on sequence of regulatory reform and liberalization

• Advancing International regulatory cooperation• Identify sectors where absence of regulatory cooperation matters for trade liberalization • Facilitate cooperation and ensure coherence with trade negotiations; developing country participation. • Country- and sector-specific advice on sequence of regulatory cooperation and liberalization.