Domestic and Regional Policies to Promote Services Trade in China

Transcription

1 Domestic and Regional Policies to Promote Services Trade in China Richard Newfarmer Julia Nielson Longyue Zhao World Bank

2 Key messages Even though China is running a deficit in services trade, it has expanded its share of the global services market but it could probably do even better Expanding services exports requires supportive domestic policies and these are arguably more important in stimulating exports than are regional trade agreements Regional trade agreements offer an opportunity to expand services trade, but only ambitious, US-style agreements have led to new liberalization

3 Trade in services represents a small fraction of overall trade and and has lagged goods performance US $ billion Trade of Goods and Services, Exports of goods Imports of goods Imports of services Exports of services

4 Business services are now growing rapidly, though travel and transportation are the largest exports Composition of China's Services Export ( ) Other business services Travel Transportation te: "Other business services" includes: construction, computer and information, communications, government, insurance, financial, royal and license fees, merchandising and other trade related services, operational leasing services, and miscellaneous, business, professional, personal, cultural and technical services. Source: IMF Balance of payments and international investment position statistics August 2006.

5 China s s share of the world services market has grown and only slightly less than India 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: IMF IFS India China

6 and export portfolio is becoming more diverse Composition of China's Services Export 2003 Construction 2.8% Travel 37.2% Transportation 16.9% Computer and information 2.4% Communications 1.4% Other business services 37.3% Government, n.i.e. 0.8% Insurance 0.7% Financial Royalties 0.3% and licence fees 0.2% Personal, cultural, recreational 0.1% te: "Other business services" includes: "merchanting and other trade related services", "operational leasing services", and "miscellaneous, business, professional and technical services", w hich include: "legal, accounting management, consulting, public relations services", "advertising, market research, public opinion poll services", "research and development services", "architectural, engineering, other technical services", "agricultural, mining, and on-site processing".

7 China is beginning to invest abroad US $ billion Source: MOFCOM, China. 2006

8 and more 40 percent is in services China s s outward direct investment flows by industries in 2004 (Percentage) Transportation and storage 16% Others 5% Mining and quarrying 35% Wholesale and retail trade 15% Business service 14% Manufacturing 15% Source: MOFCOM, China.

9 What are the determinants of services exports? Sources of comparative advantage differ 1. Structure of the economy (All modes) Services in GDP (level of development) Openness Attractions for visitors Language and cultural affinities with export markets 2. Education and skill levels (esp. modes 1 & 2, 4) 3. Cost and access in key producer services (e.g., telecoms, air transport, and internet) (esp. mode 1,2) 4. Imports of services is correlated with exports (all modes) 5. Outward foreign direct investment (mode 3) 6. Barriers in foreign markets (esp. mode 4 and some mode 3)

10 China has a smaller service sector than its per capita income would predict 80 Percentage of Service in GDP by Country Groups (2004) China High Income Middle Income Low Income Source: The World Bank WDI 2006

11 Openness to services imports are key to China s services exports US$ billion Imports of Services Exports of Services

12 One indicator openness: WTO Commitments in Trade in Services Country Group Least developed economies Developing and transition economies Developed Countries Accessions since 1995 China Average Number of sub-sectors committed per-country Range (Lowest/highest number of scheduled sub-sectors) te: Total number of sub-sectors: 160; Total number of Members: 146. Source: WTO Secretariat, from Juan A. Marchetti 2004.

13 Domestic policies, though more open than before, still impede services trade Domestic policies, though improving, still restrict foreign competition Regulatory framework still has gaps that prevent full competition Fiscal incentives channel investment into good productions rather than services VAT and excise taxes partial rebates for certain export of goods Reduced income tax for firms exporting more than 70% of their production volume, and foreign enterprises SEZ and other development zones lower income taxes for most FIE in SEZ and for exporting domestic companies Tariff protection, though lower, creates incentives to invest in domestic market

14 Potential services exports and possible domestic constraints Audio visual: + Super film industry in HK; TV is opportunity - Weak enforcement of IPR; state control of media; restrictions on openness Business services: + Product development centers; strong technical skills - Language; IPR; restriction on foreign consulting firms Engineering and construction + large scale civil infrastructure - state ownership low technology, slow adaptation to market conditions; FDI restrictions; rictions; barriers in foreign markets Distribution + Lianhua in EU; Wumart; ; openness to foreign competition at home; diaspora - Distribution highly regulated for small companies Internet services + Alibaba - Restrictions on information flows and content Source: up-dated and adapted from Nielson

15 Regional trade agreements can help provide access to foreign markets

16 Regional trade agreements can reduce barriers to services exports RTAs are broadly similar around the world Scope and coverage (similar carve-outs e.g. air transport, public services) Disciplines are also typically similar In some cases, RTA disciplines are stronger than WTO disciplines on non-discriminatory quantitative restrictions (i.e. market access) Two models and some in-between Positive list approach of the GATS (e.g. Mercosur), including in terms of approaches to liberalization (hybrid scheduling) US- style negative list approach first developed in the NAFTA, including through scheduling on the basis of negative lists of nonn on- conforming measures

17 The US approach has stronger disciplines in RTAs Services Investment Agreements Pre-establishment & Limitations Market Access Exceptions Right to provide Services w/o establishment Ratchet Mechanism Ownership Limitations Ban on Performance Requirements Invest-State Dispute Settlement U.S. U.S.-Jordan TRIMS+ U.S.-Chile TRIMS+ U.S.-Singapore TRIMS+ U.S.-Australia TRIMS+ U.S.-CAFTA TRIMS+ U.S.-Morocco TRIMS+ NAFTA TRIMS+ EU EU-South Africa EU-Mexico Standstill EU-Chile Positive-list South-South MERCOSUR Positive-list TRIMS+ Andean Community Positive-list TRIMS+ Source: The World Bank, Global Economic Prospect 2005

18 RTAs can increase market access beyond GATS commitments Sector Coverage of PTAs in comparison with GATS Offers and GATS Schedules Average % of sub sectors committed for countries reviewed With PTA With GATS offer GATS Mode 1 Mode 3 Source: Roy, Marchetti, and Lim, 2006

19 RTAs can expand market access beyond GATS commitments Proportion of sub-sectors sectors with new and improved commitments under Mode 3, per WTO Member 100% 80% Commitments 60% New commitments 40% Prior commitment but improved 20% Prior commitment 0% CHL : GATS CHL : PTA CR : GATS CR : PTA IND : GATS IND : PTA KOR : GATS KOR : PTA MEX : GATS MEX : PTA Source: Roy, Marchetti, and Lim, 2006

20 Service and Investment: China and the United States Provisions Agreements The United States Australia Chile ASEAN China Chile Market access Negative list Negative list Service Cross-border trade Financial services Telecommunications Temporary Entry for business persons Under negotiation Cooperation Provision: Service, Investment, and Intellectual Property Right Investment Intellectual Property Right Institutional Arrangement Joint Committee Free Trade Commission A Permanent Body Free Trade Commission Source: Newfarmer and Zhao, 2006

21 In conclusion, expanding services export requires action in two domains Domestic policy is the primary driver of services exports Accelerate liberalization consistent with Chinese development strategy Review incentive framework for bias in favor of goods and non-tradeable activities and against services exports Review sector specific constraints to sectoral growth Using trade agreements to access services markets Agreements w/ strong provisions can lock in openness to foreign markets (i.e., US-style) In RTAs,, liberalization at home is best on an MFN basis WTO may hold greater promise for generalized access Study bilateral agreements for applicability to Chinese trade strategies, including service sectors

22 Domestic and Regional Policies to Promote Services Trade in China Richard Newfarmer Julia Nielson Longyue Zhao World Bank