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Thinking aloud about a services
trade roadmap for Pakistan
Pierre Sauvé
World Trade Institute
University of Bern
[email protected]
Key trends
• Services trade offers enormous potential for welfare gains
and economies everywhere are becoming more servicecentric
• Yet, there has been limited negotiating traction so far,
especially in the WTO (alongside far-reaching unilateral
liberalization and deeper, if uneven, PTA commitments)
• The political economy of novelty…even after 25 years, we
are still in discovery mode and the Uruguay Round is not
yet finished in services
• Novelty breads precaution, especially in a world where
many stakeholders seek the protection of regulatory
sovereignty
On the rise: Services to GDP ratios
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
73.4
64.6
43.1
44.5 45.8
1990
49.6 46.4
53.6
2008
Low income
Lower middle income
Middle income
High income
Source: World Bank, World Development Indicators
INTERNATIONAL TRADE IS NO LONGER EXCLUSIVELY ABOUT
GOODS CROSSING BORDERS
1600
25%
21%
1400
20%
1200
1000
16%
15%
800
10%
600
400
5%
200
1980=100
0%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0
Goods
Other Commercial Services
Share Total Services/Goods
Source: World Bank, World Development Indicators
70
STRI by p.c. income
60
IND
50
PHL
IDN
MYS
40
CHN
EGY
TUN
THA
SAU
30
JOR
LKA
TZA
FRA
MAR
VENMEX
RUS
20
KEN
10
PAK
KHM
SEN
GHA
NGA
MNG
BRA
ZAF
PER
UKR
COL
PRT
KOR
CZE
ARG
LTU
POL
ITA
GRC
ESP
NZL
TTO
BELDNK
CAN
AUT
DEU
JPN GBR
SWE
FIN
AUS
NLD
IRL USA
CHL
0
ECU
HUN
0
10000
20000
30000
GDP per capita, 2007
Note: GDP per capita, PPP (constant 2005 international USD)
Source: Gootiiz and Mattoo (2009)
40000
Services Trade Restrictiveness
by Sector and Region
SAPTA STRI: Overall
38.25
Sri Lanka
26.68
Pakistan
42.06
Nepal
69.34
India
33.83
Bangladesh
0
10
20
30
40
50
60
70
80
STRI of Pakistan by Mode of Supply
55
Mode 4
26.68
Mode 3
38.54
Mode 1
28.3
Overall
0
10
20
30
40
50
60
STRI: Cross-country differences
STRI/Country
Pakistan
India
China
USA
EU
Mode 1
38.54
70.75
39.22
14.14
34.17
Mode 3
26.68
69.34
37.27
19.78
26.18
Mode 4
55.00
70.00
75.00
70.00
60.00
Overall
28.30
65.70
36.60
17.70
26.10
Banking
50.00
50.00
32.50
21.30
2.69
Insurance
46.7
45.00
38.30
21.70
13.46
0
50.00
50.00
0
3.57
Mobile telecoms
25.00
50.00
50.00
0
3.57
Retail distribution
0
75.00
25.00
0
7.14
Transportation
25.30
62.40
19.30
7.9
37.10
Air
50.00
65.00
67.50
22.50
32.50
Maritime
35.00
42.50
15.00
25.00
15.00
Maritime aux.
50.00
0
25.00
0
0
0
100.00
0
0
75.00
Rail
100.00
100.00
0
0
50.00
Accounting
27.50
90.00
45.00
52.50
40.00
Legal services
61.70
85.80
80.00
55.00
41.09
Fixed telecoms
Road
Learning from others
• The overriding importance of human capital
– Attracting a leading foreign university
– Paying attention to vocational skills
• The central importance of attracting FDI
– MNE R&D centers in India and China
– Costa Rica and supply linkages to Intel
• Three ongoing experiments in services reform
– China
– Colombia
– Mauritius
China
•
•
•
•
•
China 2.0 – the quest for a new growth model
A controlled experiment: the Shanghai Free Trade Zone
Other zones are being contemplated
Internationalization of the renmibi a key parameter
Central role of physical infrastructure and
education/training
• No recourse to financial/fiscal incentives but relaxation
of existing competition and entry restrictions
Colombia
• Incubation of IT-related start-ups at the municipal level
in the city of Medellin through the provision of free
office space and high speed internet connections, no
corporate taxes for 5 years for incubated start-ups who
export beyond agreed threshholds
• Goal: help insert Colombian start-ups in regional
supply chains in various services – IT, BPO, KPO, audiovisual/animation; smartphone applications
• Parallel work on language training (english) and quality
certification of services
Mauritius
• Promotion of IT and education services via a cyber city
and the attraction of a leading Indian engineering
faculty
• Active use of fiscal incentives and infrastructural
support to attract FDI and foreign talent
• Building a cyber campus in Port Louis
• Working with India on diaspora investment
• Making Mauritius an IT education hub in Southern
Africa but also offering scope for insertion in IT-related
value chains in three languages (English, French and
Hindi)
• Significant growth in IT and business services exports
Challenges in Pakistan
• Fighting the stigma: adverse investment climate perceptions and
important hurdles for skilled worker movement beyond the Gulf
region – need to focus on Mode 1 exports and Mode 3 imports
• Identifying growth bottlenecks and deciding which combination of
unilateral reform and external liberalization forms the optimal
response
• As in most other countries, service firms in Pakistan are mostly
SMEs , which face particular difficulties in access to finance and
show a weaker propensity to export – hence an active role for
government to promote trade and FDI, grow a venture capital
market and/or designate support programs tailored to SME needs
in services (weak collateral, intangible assets)
• No need to reinvent wheels: updating, reassessing and/or
implementing your TRTA-I produced 2007 National Roadmap for
Services
Needed:
a proper trade formulation architecture
• Two key elements:
– A whole of government approach vested in the PM’s office
since there is no Ministry of Services able to coordinate
inter-agency work and overcome the vertical resistance of
specific ministries or regulatory agencies – link wetween
domestic and external liberalization
– A proper set of consultative mechanisms to seek regular
input from the private sector and other key stakeholders
(industry associations, academia, consumer groups; need
for diversity and representativeness)
– Think of nurturing a Pakistani Coalition of Service
Industries – you need a horizontal voice for the sector
– Take the consultation process on the road, not centralized
in Islamabad
Benchmark your regulatory regime
• Performing a trade-related regulatory audit to
better understand the source of lingering
protection and its underlying political
economy rationale
• Asking the World Bank to run their newly
launched Services Competitiveness Toolkit in
Pakistan to properly identify sources of export
competitiveness in services
([email protected])
Key questions to address in conducting a
regulatory audit
 What is the policy objective
pursued by the relevant
regulatory measure?
 Is the policy objective pursued
by the specific measure still
consistent with overall
government policy?
 How transparent is the
regulatory measure and the
process to adopt and amend
it?
 Are private sector
stakeholders, domestic and
foreign, consulted prior to the
enactment or reform of new
policy measures?
 When was the policy measure,
law or regulation enacted?
 When was the measure last
invoked?
 Is it periodically reviewed?
 Is the government satisfied that
the policy objective is being
achieved and has it developed a
framework to assess the
effectiveness of its regulatory
regime?
 Can the policy measure be
achieved in a manner that might
lessen its restrictive impact on
trade and investment?
17
Identfying priority sectors
• Islamic finance, with training (learning from
Malaysia)
• Construction and engineering: key role for
procurement liberalization in your PTAs, joining
the WTO GPA or embedding procurement
disciplines in TISA?
• IT-related services (including in medical, legal and
other high value KPO services – key importance
of language skills and quality certification)
Key need to strengthen trade and
investment support institutions
• SMEDA
• TDAP
• Investment promotion also holds a central
role
• Competition policy activism in service
industries – promote new entry where
feasible and supply pro-competitive regulatory
regimes
What to make of Pakistan’s participation in TISA
• Adapting to a novel negotiating architecture
• Rule-making advances: in what areas?
• Market access priorities: are they clearly defined
and aligned to Pakistan’s key growth bottlenecks?
• What domestic reforms in services need to
command priority attention?
• Trading more in the hood: what can be done to
promote closer trade ties with your neighbours?
Thank you!
[email protected]