While non-discrimination across trade partners is a core principle in the international trading system, exceptions are allowed in some cases (e.g. free trade agreements). For trade in goods, it has also been allowed since 1971 to given better market access to developing countries in order to promote development. In the current negotiation round of the WTO (World Trade Organisation), it has been suggested to introduce similar discrimination for trade in services. A waiver (temporary exemption) from WTO rules may allow discrimination to the favour of the Least Developed Countries. This report examines the implications.
Services can be traded across borders or via FDI or temporary movement of the service providers. In this report, we therefore undertake a study of global service trade flows of all types in order to assess the impact of preferences.
While developing countries are now net exporters of manufactured goods, developed countries have a comparative advantage for services, in the form of cross-border trade as well as FDI. In spite of India’s success in information technology services, the export performance of developing countries is generally weaker for services than for goods. The dominance of developed countries is particularly large for skill-based services. LDCs are marginal services suppliers in most areas.
Norway has relatively large services trade due to shipping and imports of business services from Europe, but trade with developing countries is relatively small due to Norway’s proximity to and integration with Europe. Registered services imports or FDI from the LDCs into Norway are close to zero.
Due to the limited services trade with LDCs, the assessment of the report is that better market access for LDCs in Norway will have modest economic impact. A possible exception is Mode 4 trade, which may be increased especially if access for less-skilled service providers from LDCs is allowed.
Due to the limited impact of preferential market access for LDCs, Special and Differential Treatment (SDT) should not rely too much on such discrimination, but include other approaches such as trade-related aid. FDI in the tourism sector of LDCs may also help, but this cannot be stimulated by market access in Norway.
Since Norway is a marginal export market for the exports of services from LDCs, the economic impact of a waiver will largely depend in its implementation in large nations such as the USA, or the EU. In the report, we show how the EU has granted better market access to Caribbean countries in one of its recent trade agreements.
Trade preferences for services are technically more complex than for goods and the actual future implementation of a waiver is uncertain. The overall impact of a waiver is therefore difficult to assess in advance, and a waiver should be considered as a temporary experiment in order to develop new ways of promoting development through services trade.
