The Financial Express

Enacting a comprehensive policy on services trade

Lankabangla and Fianancial Express Lankabangla and Fianancial Express
Enacting a comprehensive policy on services trade

In the middle of this month, the World Trade Organisation (WTO) released Services Trade Barometer (STB) to track the pace of global trade in commercial services.  This is the first time WTO introduced such a tool to monitor the trend in services trade.

The new indictor signals that services trade growth slowed down in the second quarter of the current year. The index's reading of 98.4 is below the baseline value of 100 which suggests that 'services trade continued to face strong headwinds leading into the second half of the year.' It means that services trade may face some hiccups in the coming days. WTO, however, expects that the ongoing trade tensions will not affect services trade like merchandise trade-the latter being more closely linked to the US-China tariff war.

Accounting for about 70 per cent of global GDP (Gross Domestic Product), services now constitute the largest sector in the global economy but trade in services is around one-third of the merchandise trade. In 2018, world trade in goods registered 10 per cent growth and its value reached $19.48 trillion. At the same time, trade in services stood at $5.80 trillion registering 8.0 per cent growth. Stronger demand in Asia drove the growth, according to WTO. 

Services trade is basically transactions of intangible goods between producers and consumers. Services usually include: transport (both freight and passengers), travel, different types of communications (i.e. postal, telephone, satellite etc), construction, insurance and finance, computer and information and also other business and government services.

WTO puts emphasis on services trade acknowledging its expansion and multi-level impact. The multilateral organisation is trying to remove the drawbacks in estimation of the services trade. As part of this effort, the organisation launched trade in services dataset by sector and mode of supply at the middle of this year. The dataset includes both official figures and unofficial estimates for missing data.

The General Agreement on Trade in Services (GATS) outlines four modes of services trade. These are: 'cross-border supply such as trading through the internet; consumption abroad such as tourism; commercial presence of an enterprise such as establishing an affiliate in a foreign country to serve the local market; and individuals travelling from their own country to supply services in another such as consultants.' Thus services trade is identified by its pattern of supply.

 BANGLADESH CONTEXT: Services sector contributes half of the country's GDP. Trade in services in Bangladesh almost doubled in the last five years. Annual value of the trade in services was $9.35 billion in FY15. It reached $17.73 billion in FY19 posting around 31.0 per cent growth over the previous fiscal year (FY18).

Earnings from services export, generally denoted as credit or receipt in the balance of payments (BoP) table, reached $6.87 billion in the past fiscal which was $4.53 billion in FY18. On the other hand, import payments for services reached $10.50 billion in FY19 which was $8.74 billion in the previous fiscal. 

Buoyant services export crossed the projection made in the Seventh Five-Year Plan (7FYP).  The document projected $4.05 billion receipts from services export in FY19 while the actual amount exceeded the projection by more than $2.0 billion. On the other hand, payments for services import stood below the projected value of $11.72 billion. As a result, deficit in services trade also halved from the projected figure of $7.67 billion.

Though trade data indicate that the country has strong potential in services trade, there are a number of challenges and barriers -- both internationally and domestically.

The major barrier as well as challenge in the global arena is market access, especially for the Least Developed Countries (LDCs) including Bangladesh.  It was around a decade ago when WTO members agreed on services waiver for these countries. Later in Nairobi Ministerial Conference of the WTO in 2015, members agreed to extend the waiver until December 2030. More than three years have passed; the waiver mostly exists on paper. So far, some two dozens of WTO members have notified the WTO about their intention to provide preferential market access to service providers from LDCs. But the offers are of complex nature, and LDCs are yet to tap the benefit.

However, lack of capacity, especially shortage of skills, is a big barrier for countries like Bangladesh to utilise the waivers offered by some developed and a few developing countries. It is similar to compliance of product standards. Service providers need to match with the criteria set by the importing countries.

Without domestic capacity building Bangladesh will not be able to tap the global services market. It will become more challenging when the country graduates from LDC category by 2024. The existing waivers will no longer be applicable then.

With the economy growing fast while domestic capacity is limited, import of services is rising. In FY15, payment for services import was $6.27 billion which increased to $10.51 billion in FY19.  Presence of a good number of foreigners in different sectors -- from education and health to textile and advertising - clearly show that foreign services providers are filling the domestic gaps. The consumers, however, are getting quality services through import of different services.

The country's trade policy regarding services is considered restrictive. In the 2017 World Bank's Services Trade Restrictiveness Index (STRI), the score of Bangladesh was 44.2 and it ranked 88th among 104 countries.

There is no dedicated policy in the country on services trade. The Export Policy Order simply gives a brief guideline to enhance the services export. Against this backdrop, it is imperative to enact a comprehensive policy on services trade which will gain in importance in the coming days. In fact, services trade plays a crucial role in any free trade negotiation. 

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