WTO Gives Special Treatment For Service Providers From LDCs
19 March 2012
The stated objective of the World Trade Organisation (WTO) - to open trade barriers worldwide – upholds that this could benefit every country, poorer or richer. But developing countries, and especially the least developed ones, have farther to go to achieve trade liberalization. The service waiver adopted at the Eighth WTO Ministerial Conference last December in Geneva aims to support their efforts.
“Under WTO agreements, members have the obligation to give special priority’ to Least Developed Countries (LDCs) for fostering their participation in world trade,” Keith Rockwell, Director of the Information and External Relations Division at the WTO, told MediaGlobal. “Specifically, the new service waiver allows WTO Members to grant LDCs preferential market access in specific services sectors for facilitating their exports, a measure that would otherwise be contrary to the most-favored-nation (MFN) principle.”
The MFN principle lies at the basis of any WTO agreement: no member can discriminate between other trading partners. However, because of their specific economic situation and development, as well as their increased interest in world trade, developing countries are allowed some “special and differential treatments” in the agreements. This special treatment goes even further for LDCs, who account for 31 of the 153 WTO members, that already benefit from strengthened technical assistance, improved market access, and lowered quotas on their exports.
For the first time, legal positive discrimination in favor of LDCs is now allowed in the service sector under the 2011 service waiver. “The preferential access should allow LDC service suppliers to increase their exports in other developed or developing countries,” tells Rockwell to MediaGlobal. “The instrument targets in particular the temporary movement of LDC nationals in the host country, called Mode 4 in the General Agreement on Trade in Services (GATS).”
Compared with trade in goods, liberalization of trade in services, long considered a non-tradable sector, is still at an early stage, and is hampered by a wider array of barriers imposed by governments. The free movement of services suppliers is a much more sensitive issue than the movement of goods as human beings are directly involved.
However, as the service sector is significantly growing worldwide with the advent of modern communications and business services, trade opportunities are also on the rise. This is especially true for developing countries and LDCs, home to millions of low- or semi-skilled workers, available to fulfill expected labor shortages in OECD countries with ageing populations.
On average, the service sector represents more than 40 percent of GDP in the LDCs, while comprising only 18 percent of their total trade. According to the World Bank, service trade liberalization could generate up to $6 trillion as additional income in the developing world by 2015.
In 2003, when negotiations on the waiver were first launched at the WTO, Dr. Toufiq Ali, Bangladesh’s ambassador to the UN in Geneva, was already insisting that “the potential benefit of free trade in services may be several times that of free trade in goods.” As a frequent spokesman of the LDC group, Bangladesh has been actively involved in getting the waiver implemented, and is expected to be the LDC to benefit most from it in the coming years.
“With $12 billion a year as remittance income from its workers abroad, which is about ten times what it receives from foreign aid, our country has enormously to earn from increased trade in services,” Depapriya Bhattacharya, Distinguished Fellow at the Center for Policy Dialogue (CPD) in Bangladesh, told MediaGlobal.
With a population of 150 million, Bangladesh has the highest density of population in the world. This offers great comparative advantage in the service sector, which relies essentially on human resources, more than capital or natural resources.
“70 percent of our population are in the labor force, and the majority are young people,” said Bhattacharya. In the past three decades, Bangladesh has undertaken structural reforms to shift from an agricultural-based toward a service-based economy, respectively accounting for 19 percent and 57.5 percent of its 2011 GDP.
“The waiver will be an opportunity to increase the flow of Bangladeshi workers, in particular semi-skilled people in the telecommunication services, the construction sector, or the caring industry,” Bhattacharya continued. According to studies conducted by the CPD, Bangladesh alone can earn $3.5 billion additional income from exporting low skilled service providers, and $381 million from more skilled ones.
For its effective implementation, the WTO service waiver will require bilateral trade agreements specifying the sectors and levels of preferences allowed. For this to happen, trading partners will need to identify win-win situations.
For LDCs, benefits are evident: more than new employment opportunities, they will take advantage of improved skills learned abroad and transfers of technologies. “Domestic workers will have an impetus to improve their competences and education, and re-integrate them into the national economy when they come back home,” Bhattacharya told MediaGlobal.
Wealthier countries for their part have traditionally been more reluctant to open their barriers to services providers from poor countries. However, their potential gains from it are increasingly acknowledged.
By providing low-cost labor, workers coming from LDCs can significantly diminish costs of production in the host countries. UNDP expects them to take on jobs that locals no longer are interested in, such as care for the elderly, so as to avoid competition with local workers. As a whole, global gains from relaxing conditions on the temporary movement of workers are estimated to attain up to $200 billion.
The waiver is only the beginning of a long-term process from which developed, developing, and least developed countries alike can potentially benefit. “If effectively deployed, this instrument will significantly foster LDC’s development and their integration in the global economy,” said Bhattacharya. Its effectiveness will now depend on the readiness of countries to identify sub-sectors of interest in the service industry, and to conclude mutually beneficial trading agreements.
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