Opportunities and Risks of Liberalising Trade in Services in Pakistan
Trade in Services Series Series • Issue Paper 7
Eleven years after services were included in the multilateral trading system, the WTO’s General Agreement on Trade in Services (GATS) remains an unfinished project. It continues to arouse scepticism among its original proponents – given the arguably low level of liberalisation attained so far – as well as deep concern among others with regard to the policy orientation of its provisions. In the context of international negotiations, the GATS was the result of a complex process of political quid pro quos that catapulted services to the forefront of the Uruguay Round negotiations. By and large, major service providers in the US and Europe acted as demandeurs for rules and for a process that would lead to global trade expansion in the services sector. Their counterparts in developing countries were confused, and their development concerns – omnipresent in the process – were ultimately left appallingly vague. The absence of data, commercial insecurity and a crippling perception of an unfavourably tilted playing field prevailed in development circles throughout the negotiations. Broad public policy issues remained off the negotiating table. Difficult tensions – arising, for instance, from the fundamentally different approaches of diverse public law traditions to the role of the state in the provision of certain services – permeated the discussions. The eight years of talks to design the GATS represented a hugely rich, creative and analytical effort, characterised by complexity, technicality and a high degree of politicisation.
The implementation of the Agreement has perpetuated the pattern. In the past few years – as we continue to move into the liberalisation phase mandated as a built-in agenda in the GATS – policymakers in developing countries, academics, civil society analysts and advocacy organisations have expressed serious reservations about the potential implications of requiring developing countries to make greater market access concessions; the need to sequence liberalisation; the lack of adequate domestic regulatory frameworks; the imperative of universal access for essential services; and institutional reform and good governance. The unresolved discussion on whether liberalisation and further advancement of negotiations can proceed in the absence of the mandated impact assessment of implementation seems to be most troubling for practically all parties. Indeed, a comprehensive policy analysis of the implications of trade in services for sustainable development, and of the policy spaces available for implementing public policies, is still missing.
At the national level, the impact of services liberalisation on the local economy is among the most challenging and controversial issues. In many developing countries the services sector has grown in the last two decades to comprise roughly half of their gross domestic production. Yet trade in services continues to comprise only a small portion of total trade flow with most of the services being domestically generated and supplied. At the same time, the sector remains largely underdeveloped and the regulatory framework is inadequate.
At the international level, most developing countries have had difficulties articulating their negotiating positions beyond rhetoric and general statements. So far, only a small percentage of developing countries have submitted formal requests and offers. While it is true that there may have been posturing due to the perception of lack of progress in other negotiating areas, for some it is simply a lack of genuine understanding or familiarity with the GATS and the WTO negotiating context. For many, it is symptomatic of a lack of deeper, substantive knowledge of their interests in specific sectors and modes of supply and rules. However, as significant domestic support measures in agriculture nontariff barriers, preference erosion and supply side constraints continue to hamper the exports of Least Developed Countries (LDCs) and many developing countries to the markets of developed industrialised countries, services trade is steadily gaining momentum over the years as an alternative channel for providing new opportunities for diversification and export oriented economic growth.
To address this concern, ICTSD has commissioned, as part of its programme on Trade in Services and Sustainable Development, a series of studies on the opportunities and risks of liberalising services trade in selected developing countries, including, Bangladesh, Egypt, Guatemala, Mozambique, Nicaragua, Pakistan, South Africa and Tanzania. These studies have been carried out in co-operation with local researchers and experts through a participatory process involving a wide range of domestic stakeholders. As such, they are not intended to be an academic exercise but rather a practical tool for policy-makers and non-state actors with an interest in services trade. They have been designed as a contribution to understanding the reality of developing countries’ services economy and identifying both offensive and defensive negotiating interests.
Although facing institutional and capacity constraints as in many developing countries, Pakistan has been actively involved in the GATS negotiations by pursuing a strategy of “critical engagement” recognising the positive role that services liberalisation can play by improving the competitiveness of the goods sector and other services, as well as increasing export opportunities and improving the efficiency of domestic services. Pakistan has received several requests from its trading partners and has also tabled some. In order for Pakistan to strengthen both the multilateral and bilateral negotiating process for services, the study suggests the formalisation of a “bottom-up” consultation mechanism incorporating national stakeholders.
The present study, produced in collaboration with the Lahore University of Management Sciences, identifies construction and related engineering services, architecture, engineering and integrated engineering services, energy services and environmental services as priority sectors, and the temporary movement of natural persons (Mode 4) as a priority mode of supply for Pakistan. The construction sector, which represents a fundamental activity in Pakistan with strong forward and backward linkages, is seen to have potential import and export interest. Further liberalisation in the environmental services sector, including waste collection and recycling, would also benefit Pakistan. However, removal of existing restrictions on Mode 4 is seen to be of the greatest potential interest to Pakistan. This study comes at an opportune time for Pakistan in implementing concerted measures for macroeconomic stabilisation and structural reforms as its economy advances towards a higher degree of openness and export orientation. In this context, it provides a timely backstopping analysis for the definition of its negotiating interests in bilateral, regional and multilateral negotiations.
We hope you will find this pleasant and informative reading and an effective contribution to the debate.