Priorities after Bali: LDCs need assistance to access global services markets
At the World Trade Organisation (WTO) Ministerial Meeting in Bali in December 2013, ministers agreed on a package for least developed countries (LDCs), including progress towards the operationalization of the waiver concerning preferential treatment on services. This could result in a substantial boost for LDCs, increasing their paltry 0.7% share in global services exports.
Trade services reform in the WTO has the potential to generate an estimated US$ 240 billion in additional annual services exports for developing countries, including LDCs, while services exports of developed countries would increase by US$ 110 billion per year, according to a 2010 study by the Centre for International Economics in Australia.
As the next step, LDCs will in the next few months submit a collective request identifying the kinds of services exports of particular interest to them. WTO members will then signal their intentions to provide services preferences to the LDCs based on this request. This is expected to happen at a high-level conference six months after receipt of the collective request, probably towards the end of 2014 or in early 2015.
This is a technically complex exercise. It also requires innumerable commercial reality tests with SME services business stakeholders in the field, themselves often poorly organised to give voice to their many export challenges.
LDC services exports reached US$ 22 billion in 2011, the last year for which data is available, growing at an average annual rate of 15%, compared to 9% for global services export growth. LDCs’ share in total world commercial services exports is increasing rapidly, but from the very low base of 0.7%, compared to LDCs’ 1% share in total world trade.
For the group as a whole, commercial services represent only 10% of total exports, which is less than half the global average percentage share. Despite their strengths in in-bound tourism, most LDCs run an overall services deficit.
However, LDCs can and do export a diverse range of services already. Many of them are net services exporters and are fundamentally dependent on these foreign exchange earnings. As a result, the trade aspirations and development plans of many LDCs include a strong focus on enhancing their export performance in services. Operationalization of the LDC services waiver could be of vital strategic importance to their services export growth prospects.
More needs to be done to help LDCs catch up in trade in services. This is especially true with respect to the category known as “other business services”, such as professional, technical and IT-enabled business-to-business outsourcing services. These knowledge-intensive services make up the fastest growing component of world trade today and could provide important growth opportunities for small and medium-sized enterprises (SMEs).
Recent rapid growth in this sector has been effectively confined to only a couple of LDCs, such as Bangladesh and Cambodia.
The LDCs services waiver, once implemented, is expected to provide special opportunities to LDCs to accelerate export-led growth. Any resulting market access openings or reductions in trade transaction costs will need to be accompanied by continued knowledge transfer to build the competitiveness of LDC services exporters, and help them take full advantage of emerging opportunities.
The time has come to focus on reaping the potential of the services sector.
This article did not appear in the print edition of the International Trade Forum magazine, Issue 1/2014.