Statement at the High-Level Meeting on Operationalising the LDC Services Waiver
Speech by Ms. Arancha González, Executive Director, International Trade Centre
Delivered on 03 December 2013 at the High-level Meeting on Operationalizing the LDC Services Waiver Trade and Development Symposium, Bali, Indonesia
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Chair, Your Excellences, Ladies and Gentlemen,
The global trade community has an agreed, shared agenda to deliver improved market access openings specially designed for service providers from least developed countries (LDC).
This is the clear, unequivocal message behind WTO Ministers’ adoption at MC8 of the agreement on a waiver for services preferences for LDCs.
Thanks to dedicated efforts on the part of the LDC group at the WTO, this message is being reinforced by ministerial action underway here in Bali this week to give the waiver decision higher profile and greater urgency.
The objective behind the waiver decision was equally clear – to boost the services export contribution to sustainable LDC growth and development.
The underlying discussion therefore relates not only to improving international market access in services but also to improving LDC services capacity and competitiveness.
This is where the International Trade Centre comes in, as a joint technical assistance agency of the WTO and the United Nations, with a niche focus on building the competitiveness and export readiness of small and medium-sized enterprises (SMEs) in developing and transition economies.
Services and Development
I want to start with a quick reminder on why it is important to focus on development of the services sector.
The key elements of the story, based on the results of World Bank research over recent years, are as follows.
First, services have become a dominant driver of economic growth in developing countries, delivering both GDP growth and poverty reduction.
In fact, services make a stronger contribution to overall growth than other sectors.
And that growth is relatively more strongly correlated with poverty reduction than is growth in other sectors.
High services shares of employment are also associated with high female participation rates. And female employment has itself been shown to be a critical ingredient in poverty reduction.
Second, there is evidence that developing countries are shifting towards services sooner, at a lower per capita GDP than had been the case in the traditional development trajectory.
This suggests that services could provide an alternative engine for development, enabling some latecomers to ‘leapfrog’ the traditional approach.
Third, it is worth recalling that UNCTAD’s World Investment Report 2013 shows that despite an 18% in global FDI in 2012, the services sector was the least affected, and FDI inflows to LDCs hit a record high, an increase led by developing country investors.
Services industries are continuing to drive FDI growth and the LDCs are key services investment destinations.
Turning specifically then to LDCs
In 2011 services accounted for 47% of GDP for LDCs as a group.
And the services sector is growing faster in LDCs than it is elsewhere.
(For the LDCs as a group, the services sector grew at an average rate over 13% over the period 2000 to 2010, compared with less than 5% for the world average.)
Earlier this year, for the 4th Global Aid for Trade Review, ITC published a technical paper on the services export performance of the LDCs.
I have been specifically asked to share with you some of our key quantitative findings.
First, and many may find this surprising, but without exception, all LDCs (for which there is data) are exporting commercial services.
Not only do all LDCs export services, but nine of those for which we have data, i.e. nearly one quarter of them, are in fact net services exporters.
This contradicts commonly held assumptions that export opportunities in trade in services are marginal in the trade aspirations and development trajectory of LDCs.
As a group, LDCs also export a highly diversified set of services, recording exports in all ten categories of services in the balance of payments.
Several individual countries (Bangladesh, Burundi, Cambodia, Mozambique, Sudan and Vanuatu) record exports in all ten aggregate categories. And a few more (Uganda, Ethiopia, Guinea, Tanzania) record exports in eight of the ten categories.
LDC export success is nevertheless, as we all know, most common in travel.
As we might also expect, the LDCs typically run an overall services deficit, but as a group they tend to record a surplus in travel, reflecting the importance of in-bound tourism in their economies.
Other than travel, LDCs most frequently do well in construction, finance, and personal, cultural and recreational services. Thirty-eight LDCs export financial services and/or insurance.
Export Trends
If we look over the six years to 2011, we see that LDC commercial services exports have more than doubled (to US$22 billion), growing at an average annual rate of 15% nearly twice as fast as the world average of 9%.
The LDC share in total world commercial services exports is therefore increasing, but admittedly from a very low base.
About half the LDCs experience a services share of exports above the global average. This is very evident for the small island economies, especially in the Pacific.
But for the LDCs as a whole, commercial services are only 11% of total exports - about half the global average.
Our research has also showed that whereas at a global level, the traditional transport and travel sectors are diminishing in importance and the other commercial services categories are increasing, neither of these global trends hold true for the LDCs.
The transport and travel sectors both continue to grow in relative importance for LDCs.
And only a few LDCs are reported as exporting other business services, including for example professional, technical and IT-enabled B2B outsourcing services.
So while other commercial services have grown to more than half of world services exports, they have declined to less than a quarter of LDC services exports.
This is a wake-up call for the bulk of the LDCs and an alert flag to the Aid for Trade community.
Other business services are among the fastest growing components of 21st century trade and the entry key to global services value chains.
While LDCs are definitely participating in this knowledge-intensive trade, their overall performance is below average compared with other developing countries.
I should add that for the LDCs as a group, the services export contribution to GDP value-added is increasing - and relatively fast, but it is still well below world average.
So while the LDCs are on the services growth path, more needs to be done to help them catch up.
The objective then, and also the single biggest challenge facing developing countries, is to become more competitive.
Fortunately, there is much that developing country governments can do to enhance their chances of successfully exporting services.
None of the factors that drive services competitiveness are givens.
All of them, whether it be education and skills, digital infrastructure, the efficiency of domestic regulation, openeness to international trade and investment, technical interoperability, mutual recognition and global standards conformity can be adjusted by deliberate policy interventions.
It is essential that developing countries are helped therefore to intensify their efforts to build a more enabling export environment.
This is the essential message in Aid for Trade in services.
In closing, I would like to reaffirm ITC’s commitment as an organization:
First, to continue, of course, our informal support - and the contribution of our expertise and experience - to the research underway, including by ICTSD/WTI Advisers and ILEAP, in support of the LDC Group’s efforts to prepare collective request material for the GATS Council.
Second, to ensure appropriate sustained focus and high priority is given, in ITC’s own technical assistance activities, to Aid for Trade specifically in the services sector.
As an implementing agency of the Enhanced Integrated Framework, ITC will offer customized programmes to help LDCs build their services industry capacity and meet prospective international client requirements.
Our efforts will be based on ITC’s newly reinvigorated Services Export Strategy, which has been carefully designed
- to help build LDC services sector competitiveness,
- to enable greater enterprise-level services export readiness and
- to improve responsiveness to and connection with destination markets.
Third, there is need to focus on ensuring a domestic environment, which is conducive to greater services trade.
Fourth, there is also need to improve data collection to better understand where the potential for services trade growth lies.
Finally, we commit to continue to work in close collaboration with our partner organizations, with donor and preference-giving governments and with LDC beneficiaries, to develop mechanisms which help to bring the demand and supply sides of this important issue together to achieve measurable export results.