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