-
Infrastructure Services Liberalization in Developing
Countries:Key to Growth and Global CompetitivenessOffice of the
U.S. Trade RepresentativeThe international competitiveness of
traditional sectors of developing economies is heavily dependent on
access to services at world prices. The best guarantee that
services will be supplied at world prices is to open an economy to
the pressures and opportunities of international competition or
trade and investment liberalization.UNCTAD, Study Series No.
19Logistics Infrastructure Services: Distribution and Express
Delivery ServicesOctober 24, 2006
-
Importance of infrastructure servicesAs services play an
increasingly larger role in growth of developing country economies,
liberalization of infrastructure services becomes
paramount.Infrastructure services are the building blocks of
commercial activity and everyday life, including financing and
insuring transactions, communicating by phone, fax, and Internet,
providing computer networks, supporting exploration and generation
of energy, and ordering and delivering a product or
service.Logistics is a particularly useful example of an
infrastructural service. Developing countries that maintain
barriers to infrastructure services are blocking their own economic
growth and global competitiveness. Key to real growth and
competitiveness is market opening and binding market openness.
-
Services: The backbone of developing country economies World
Bank World Development Report, 2006Sector Share of GDP
2004Low-income countries
GDP and Services Average Annual Growth Rates, 1990-2004
Chart4
0.0280.029
0.0490.061
GDP
Services
Sheet1
GoodsAgricultureServices
Low Income Countries, 200428.122.149.8
GoodsAgricultureServices
Middle Income Countries, 200437.31052.7
GDPServices
World2.8%2.9%
Low-Income Countries4.9%6.1%
Sheet1
28.1
22.1
49.8
Low Income Countries, 2004
Sectoral Share of GDP in Low-Income Economies, 2004
Sheet2
00
00
00
Middle Income Countries, 2004
Low Income Countries, 2004
Sectoral Share of GDP in Middle-Income Economies, 2004
Sheet3
00
00
GDP
Services
GDP and Services Average Annual Growth Rates, 1990 - 2003
-
Services generate more FDI and new jobs in developing
countriesUNCTAD, World Investment Report, 2006Share of total
developing country employment in servicesFDI stock in developing
countries, 2004(Billion U.S. Dollars)ILO, Global Employment Trends
Brief 2006
-
Problem: Developing countries tend to maintain more restrictions
on foreign services than developed countriesAverage restrictiveness
score in services tradeThe index scores are the average
restrictiveness scores for banking, distribution, maritime,
professions and telecommunications. Adapted from McGuire, 2002.
-
Restrictions in developing countries prevent them from gaining
dynamic benefits from liberalized tradeIncreased
investmentTechnology transferEnhanced
competitionInnovationEconomies of scale
-
Logistics a critical infrastructure serviceInternational trade
facilitated by freight logistics services providing efficient
integrated management of point-to-point supply and distribution
chains. The availability of competitive logistics services, namely
on a global basis, will enhance overall economic efficiency and
competitiveness. This is particularly the case for developing
countries, for which freight costs can be up to 40% of total export
value (World Bank, 2004). Developing countries have significant
interests in export of goods ranging from agricultural products to
industrial goods, and which could benefit from timely, reliable and
efficient supply chain, distribution and inventory management for
their exports. Barriers are particularly a problem in
infrastructure services like logistics. Useful to look at two
aspects of logistics: distribution and express delivery.
-
Distribution ServicesVirtually every good or commodity makes its
way to the market through distributors. Wholesalers, retailers,
commissioned agents and franchisers provide the domestic
infrastructure for moving goods to consumers. The value added in
the distribution stages can greatly exceed the value added in
production; for example, the value created in distribution accounts
for 70% of total value for textiles and over 75% for food products
(UNCTAD).Frequent barriers include limitations on the purchase of
real estate, restrictions on equity holdings, exclusions of
products or services due to state monopolies or national interest,
nationality quotas, and residency requirementsExcess profits
enjoyed by uncompetitive distribution firms come at the expense of
consumers and producers.Delays for imports and exports not only
reduce trade volumes, but also reduce the probability that firms
will even enter export markets for time-sensitive products.
-
Benefits of liberalizationDistributors manage inventories
efficiently, minimize spoilage and wasteProducers assume lower
riskConsumers pay less, have greater choice.Liberalization, trade
facilitation reform, and domestic regulatory reforms in
distribution can be implemented at relatively low cost in
low-income countries. The gains from these reforms can be
substantial. Distribution Services
-
Case study: Lithuania
Lithuanias first law on trade, introducing the notion of retail
trade and wholesale and provisions on competition, adopted in 1995.
By 2003 wholesale and retail trade had become the third most
important sector in the economy, accounting for 17% of all FDI
flows. Over the last four years, five domestic chains have emerged
as the key players in the distribution sector, accounting for 70
per cent of food retail sales. The leading national chain in food
and consumer-care products has expanded into regional markets.
UNCTAD, Distribution Services, 2005
-
Express DeliveryHelps improve competitiveness of all aspects of
companies operations, including sales, production, customer
support, and logistics and storage.Directly employs 1.25 million
people in 200 countriesmore than the petroleum refinery industryand
indirectly supports another 2.65 million jobs. Growth is twice that
of the global economy; jobs expected to grow to 2.1 million by
2013, with a majority in developing and transition economies. The
express delivery integrators are a vital link in creating a
globally competitive logistics environment.Common market access
barriers include exclusion of competition to government-owned or
sanctioned provider, preferential treatment, arbitrary licensing
requirements, and restrictions on foreign investment.
-
Benefits of liberalization
Express services particularly important for geographically
remote countries or where domestic transport infrastructure is
poor. Liberalized express delivery offers secure services that can
leap over entrenched inefficiencies of mail delivery,
transportation, and logistics in many developing countries. Express
delivery reduces need for warehousing. Developing countries could
reduce the unit cost of production by as much as 20 per cent by
reducing inventory holdings by half (Gaush and Kogan, 2001).A
liberalized express delivery industry in China would result in
estimated increases of US$3 billion in investment, US$85 billion in
output, and 800,000 new jobs over five years. (U.S.-China Business
Council).
Express Delivery Services
-
Once they liberalize, why should developing countries bind their
commitments?GATS commitments to investors are like money-back
guarantees for consumers: provide assurances that increase
confidencean important factor in differentiating options over where
to investOverall business environment more important than specific
costs, e.g. labor.Anchors reform in a international legal
framework, and provides momentum
-
Myths blocking liberalizationServices liberalization is not de
facto deregulation: Liberalization means removing requirements that
discriminate against foreign service suppliers and providing
transparent regulation. It is consistent with maintaining the right
to regulate and promotes good governance. It also creates an
attractive business and investment climateServices liberalization
should be viewed as part of the solution to economic dislocation
rather than a cause of dislocation: Developing country transition
from subsistence farming and agriculture to greater reliance on
services and manufacturing is essential to produce real increase in
living standards. Overall GDP and employment growth from services
liberalization is key to enabling this transition to occur and to
create new jobs and opportunities for those who suffer economic
dislocation.
-
Moving to the head of the linePattern is clear: developing
economies opening up services sectors are moving to the head of the
line in global logistics competitivenessAttracting
investmentAttracting barrier-breaking technologyLowering costs and
risksIncreasing availability and choiceStimulating activity in
related sectorsMaking binding commitments in logistics and other
infrastructure services will further enhance this competitiveness.
Certainty of commitments helps keep costs predictable, which is
especially important in logistics.
The aim of this presentation is to suggest that there is a suite
of services sectors that, because of their very influential roles
as inputs to production and overall economic growth, are themselves
critical infrastructure of the modern economy. Financial services,
telecom, energy services, and logistic services such as
distribution and express delivery are what we are calling
infrastructure services. Generally speaking, these sectors are far
more liberalized in developed countries than developing countries.
The point I will make is that liberalizing these sectors should be
a priority for developing countries, not because of what else they
might get in return in trade negotiations, but because of what they
gain themselves from having competitive and dynamic infrastructure
services. Before I discuss infrastructure services specifically,
want to provide a brief overview of the trends in services as a
whole. Open services markets have become the foundation for global
growthThe service economy is no longer synonymous with just the
richest nationsthe services sector is now the largest sector of GDP
in not only high- and middle-income counties, but in low-income
countries as well. It is also driving the impressive growth rates
of low-income countries.
The stock of FDI in services in developing countries is double
that of manufacturing, and flows are also significantly higher in
services. Most of the new jobs in developing countries are opening
up in the services sector, and research has shown that many move
from agriculture directly into services; the path is not always
through industry.While services continue to play an ever larger
role in developing countries, services trade is still hampered by
numerous government-imposed barriers.These barriers prevent
countries from seizing the full benefits of dynamic service
sectors. This chart shows an index of trade restrictiveness
covering a range of service sectors.
(Source: McGuire: TRADE IN SERVICES MARKET ACCESS OPPORTUNITIES
ANDTHE BENEFITS OF LIBERALIZATION FOR DEVELOPING ECONOMIES UNCTAD
POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIESSTUDY SERIES
No. 19)
The greatest benefits from competitive markets come from the
dynamic gains in efficiency and productivity generated by
investment, technology transfer, innovation, and economies of
scale. In developing countries, where productivity levels lag
behind international best practice, there is substantial scope for
rapid catch-up economic growth through technology transfer.This is
especially the case with infrastructure services.Start with
distribution services. [slide text]Lowering these trade barriers
would have many benefits. [Slide text]Lithuania has undergone a
drastic reform process since 1990 in the transition from a planned
to market-oriented economy. [slide text]Like distribution, express
delivery is an important component for the efficient delivery of
inputs to business and outputs to customers. [slide text]
In some way, the role of express delivery in distribution and
logistics is analogous to the impact of cellular technology in the
telecom sector, helping step over traditional infrastructure
constraints. These traditional constraints have made transport
costs relatively much higher for developing countries. The other
benefit of express delivery is the ease with which it is accessed
by SMEs, improving their competitiveness. Many countries say, Im
liberalizing my sectorswhy do I need to make GATS commitments? Our
answer is like this: Investors and entrepreneurs have many options
for where to invest. Where all else is essentially similar, where
is an investor more likely to go: to a country with commitments or
without?This is because [slide text]As with most trade, the biggest
gains come from what you do yourself. But if making GATS
commitments facilitates improved market access elsewhere, all the
better. This is not to suggest that sectors be deregulated. Far
from it. [slide text]
[slide text]