Title: Trade and FDI in Services in Asia
1Trade and FDI in Services in Asia
- Kailas Karthikeyan , UNCTAD
- Fostering Trade through Private-Public Dialogue
- Expert Meeting on Regional Integration in Asia
- 28th and 29th March 2007
2Contribution of Services Sector
- It has been theoretically argued and empirically
estimated that as economic growth proceeds as the
services sector grows. - In 1990, the services sector contributed more
than 60 of GDP in most of the developed
countries while in developing countries of Asia
it ranged between 40 to 45 in 1990. - In the period 1990 to 2005, we find that the
share of services in GDP remained more or less
the same in many East and Southeast Asian
countries while there has been a rise in its
share in most of the South Asian countries
3Growth rate in manufacturing sector has been
higher in ASEAN countries because of which the
contribution of services sector has not been high.
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5Trade in Services
- An important reason for growth of services sector
has been trade in services. - There has been a substantial increase in services
trade as a proportion of GDP in most of the ASEAN
countries in period 1990 to 2005. - In most of the South East Asian countries it
averaged around 20. - However, for most of the South Asian countries,
except Maldives, trade in services as a
proportion of GDP has not been very high (less
than 10)
6 7Trade in services in South East Asia
- Almost all the ASEAN countries witnessed an
increase in their trade in services in the latter
half of the 1990s compared to the early 1990s. - Liberalisation of their financial sector led to a
rapid increase in trade in financial services in
these countries. - But the financial crisis of 1997 led to a
lowering of trade in services, especially in the
case of the Philippines, Malaysia and Thailand.
8Trade in services in South Asia
- In South Asia, tourism has been the main form of
trade in countries like Nepal and Maldives. - The proportion of trade in services to total
trade therefore has remained high in these
countries, except for periods of political
unrest. - India, on the other hand, has witnessed a steady
growth in the proportion of services trade to
total trade, which can be solely attributed to
trade in IT and ITES. - Pakistan, Sri Lanka and Nepal, on the other hand,
have experienced a fall/stagnation in the average
percentage of trade in services in total trade.
9South Asia in Global Services Trade
- South Asia as a whole has been able to increase
its exports of commercial services between 1993
to 2003 by almost four times, i.e., US 7.9
billion to US29 billion. But out of this US25
billion is from India. - However low growth from other South Asian
countries is largely attributed to substantial
underestimation of the real flows. - 40 of remittances to Bangladesh are through
illegal hundi sources. - In Pakistan, out of a total US 10 billion only
US1billion is through formal channels. - Of the other South Asian countries, Sri Lankas
remittance receipts were larger than its tea
exports, and in case of Nepal, the remittances
accounted for 12 percent of its GDP in 2004.
10RCA Analysis for Asian Countries
- RCAij(Exports of i in jth service sector /Total
Exports of i in services) / ( Exports of Asian
countries to world in jth services sector / Total
Exports of services of Asian countries to world ) - Year 2003 (UNCTAD Stats 2006)
11Countries which had RCA in sector more than 1
TRANSPORT SERVICES COMMUNICATION SERVICES CONSTRUCTION SERVICES OTHER BUSI SERV TRAVEL SERVICES FINANCIAL SERVICES
China, Hong Kong SAR Bangladesh China China Cambodia China, Hong Kong SAR
Korea, Republic of India China, Hong Kong SAR China, Hong Kong SAR China Korea, Republic of
Philippines China, Hong Kong SAR India Singapore China, Macao SAR Singapore
Singapore Indonesia Malaysia Indonesia
Sri Lanka Pakistan Philippines Malaysia
Philippines Sri Lanka Maldives
Sri Lanka Thailand Myanmar
Nepal
Philippines
Sri Lanka
Thailand
12Intra-Regional Complementarity
- Complementarity in competitive advantages in
services between South Asia and East and South
East Asia. - South Asia competitive with respect to
Communication services and Travel services while
ASEAN competitive with respect to financial
services and other business services.
13Services Trade South Asias Major Strengths
- South Asia is the second largest recipient of
remittances in the world. In 2005 it received US
32 billion dollars. - The region therefore has comparative of advantage
in Mode 4 of GATS, in both high skill and low
skill workers. - Cross border trade in services under Mode 1 is
important for India and countries like
Bangladesh, Pakistan and Sri Lanka are also
emerging as regions for BPO outsourcing.
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18Market Access Barriers to Services Exports
- Barriers in Cross-Border Trade
- The growing business of outsourcing is creating a
more efficient global division of labour and
bringing significant welfare gains - But simultaneously it is affecting the structure
of employment in a number of importing countries
and impose adjustment costs. - This has led to big concerns and apprehension in
the US and the UK about the IT job loss. - 112 bills were passed till first three months of
2005 in US restricting government offshoring.
19Market Access Barriers in Mode 1
- a) The US Congress included in the fiscal 2004
omnibus spending bill a provision that prohibits
federal agencies from outsourcing some kinds of
work to private companies that use workers
abroad. - b) Prohibits a company from receiving state or
local contracts, grants, loans, or bonds, if the
company has a net loss of employees in the state
during the prior calendar year caused by the
company relocating jobs from the state to a site
located outside the United States. - c) Only individuals who are either US citizens or
authorised to work in US permitted to perform
certain contracts.
20Market Access Barriers Mode 1
- In Europe also there were legal norms designed to
protect workers in outsourced deals known as
TUPES (Transfer of Undertakings and Protection of
Employees), which also have an inhibiting
effects. - EU even gave wide ranging directives to safeguard
the privacy of personal data of EU citizens by
backing power to cut data flows to countries that
the EU judges not to have adequate data
protection.
21Barriers for Temporary Movement of Natural
Persons from Asia to developed economies
- Wage-parity requirement discourages import of
cheap labour - strict visa procedures
- Economic Needs Tests
- Non-recognition of professional qualifications
- Imposition of discriminatory standards or
burdensome licensing requirements, - payment of social security without corresponding
benefits like medical and pension insurance
schemes - requirements of registration with or membership
of professional organisations.
22- Asian Regional Integration can compensate / make
up for lack of liberalisaton seen in developed
countries.
23Trade in Mode 4 Services within Asia
- Source Countries Bangladesh, Cambodia, China,
Indonesia, Lao PDR, Myanmar, Nepal, Phillipines,
Sri Lanka Vietnam - Destination Countries West Asia and Persian
Gulf, Brunei, Hong Kong, Japan, South Korea,
Singapore, Taiwan - Both Source Destination Countries India,
Malaysia, Pakistan and Thailand. - (Wickramasekara, ILO, 2002)
24Need for Mutual Recognition Agreements - I
- Mutual recognition of qualification is considered
to be the main obstacle affecting trade in
professional services. - Commitments on market access and national
treatment are not always sufficient for a foreign
service supplier to be able to supply a market
because if a profession is regulated, no one can
practice it without a license. - Some professions such as law, health care,
engineering, architecture, and accountancy fall
into the category of accredited or regulated
professions in most countries.
25Need for Mutual Recognition Agreements - II
- Article VII of GATS allows Members to enter into
mutual recognition agreements (MRAs), enabling
them to recognise the education or experience
obtained, requirements met, or licenses or
certifications granted in one or several other
countries. - The article further requires that negotiations to
such agreements be open to all Members that can
demonstrate that their qualifications are
equivalent. - However, to date, the number of MRAs and their
impact on services trade have been rather
limited.
26Services Trade Restrictions in Asia The example
of telecom
- Indonesias telecom policy restrictions that
enable state enterprise domination only partial
liberalisation in 1990s. - Similarly Malaysias commitments also limited
important to study reservations for Bumiputras
whether this had a buffer effect in 1997 crisis.
Similarly Thailand. - Case for regional openness success of India in
sequential liberalisation a case in point.
27Conclusions
- Complementarities exist in Asia- regional
integration in services likely to improve
competitive exporters earnings as well as induce
efficiencies in importing countries. - Evidence already suggests high intra-Asian FDI
movement in services sector - Compelling groundss to explore Asian services
integration no significant new opening of
traditional services export markets plus
restrictions in accessing these. - Importance of learning lessons within region
both successes (India telecom) and failures
(financial services liberalisation in SE-Asia and
1997 crisis)