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Will trading more services help pull us out of the global recession?

By  Coletta Kemper

When you think about it, our daily lives depend on one type of service or another. I can’t imagine getting through the days without email, cell phones, ATM machines, taxis and a cleaning service.

Similarly, our industries couldn’t survive without insurance, transportation, financing and express mail services. It’s not surprising that the services sector accounts for more than two thirds of the world’s economic activity. It literally makes the business world go ’round.

Although services are a large part of the world economy, they represent only 20% of world trade. That’s the reason many are looking to commerce in services as the key to the economic recovery and future growth. Part of that challenge, however, is to get the world trade talks back on track and make services a priority at the negotiating table.

At the fall Global Services Summit, hosted by the Coalition of Service Industries (CSI), leaders from business and government spoke about the vital importance of services and the untapped potential in the marketplace.

“The service sector has yet to scratch the surface of its vast potential,” says Michael Ducker, president, international, FedEx Express, and immediate past chairman of CSI. Ducker believes the largest barriers to services are protectionist measures erected by countries wanting to insulate their local markets from competition. He’s not alone in his thinking. Protectionism is short-sighted. It limits domestic economic growth and opportunities, stifles competition and limits options for customers.

Anti-competitive practices, such as monopolies (government-owned or sanctioned), lack of regulatory transparency, limits on foreign investment, and government mandates are common. For example, many countries require insurance to be placed in the local market. This requirement restricts customers’ options, particularly for those with commercial risks that need to tap into an international market to find adequate coverage. It also makes it difficult for insurance brokers to efficiently use master insurance policies for customers with multinational risks.

At the Global Services Summit, Ducker called on leaders to take action to “unlock” the potential of the services trade to achieve sustainable growth for both developed and developing countries. His solution is a multinational trade agreement. But as he points out, the Doha Round, which was launched in 2001 to help developing countries prosper through trade, has failed to produce any meaningful results.

In fact, little progress has been made on services, and there is concern that the financial crisis is putting more pressure on governments to protect the local turf and roll back market access for services. Without a meaningful trade deal, this trend could continue.

U.S. Trade Representative Ron Kirk, who spoke at the summit, pledged there would be no deal on Doha without new opportunities for services. Kirk says the “biggest gains to the global economy are likely to derive from multinational services liberalization, but the offers on the table right now fail to deliver on that promise.”

At the summit, India’s commerce minister, Anand Sharma, agreed that negotiations on services should proceed alongside agriculture and manufacturing. Sharma said he was “optimistic” that a “fair and equitable” agreement was possible, but he said good offers have to come from everyone, including the United States.

It will take more than rhetoric to get talks moving. The negotiations collapsed last year largely because the U.S. and India failed to reach an agreement on tariffs and government subsidies. Although the talks resumed this summer, it’s still up to the U.S. and India to clear the impasse. So far they’ve produced words but no action.

Although Kirk’s comments struck the right note, the Obama administration has yet to issue a formal trade policy and a strategy for moving Doha forward. India also has made no concessions. Until that happens, don’t expect much in the way of progress.

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