The contribution of services trade policies

Impediments to trade and investment in services shield domestic suppliers from competition, leading to higher prices and reducing incentives to invest, innovate, and improve; sectors facing lower trade costs tend to be more productive and have higher productivity growth; in developed economies, services policies can explain differences in total factor productivity and productivity growth; trade restrictions negatively affect performance in services sectors. (pp. 48-49)
Services trade restrictions reduce foreign investment inflows and lower output of foreign affiliates; deterrent effects of barriers to foreign investment are larger in the services sector; investor confidence and FDI flows increase with reduced regulatory risk. (pp. 51-52)
Openness in services trade increases productivity and exports in manufacturing; services trade restrictiveness, including on inward FDI, has a negative impact on manufacturing exports, including on their sophistication; policy restrictions raise costs, limiting cross-border services trade; higher restrictions lower shares of services value-added within GVCs. (pp. 53-54)
Telecommunications and computer services, including the Internet, allow digital supply of services; countries with effective pro-competition regulations are more successful in stimulating market growth and digital readiness; higher entry barriers and restrictive regulations on services mean less investment in digital technologies and ICT and less ICT development; restrictive data policies result in fewer imports of data-intensive services. (pp. 55-58, Figure 22)
Policies that enable services and services trade aid in women’s economic empowerment and can help economies transition to a low-carbon economy and meet UN Sustainable Development Goals; restrictive policies inflate costs and reduce access to environmental goods and services; climate change will trigger many adjustments in economic activities; countries with greater openness to trade can better adjust to climate-induced shocks. (pp. 58-60, 64-65)
Access to services increasingly matters to agriculture production and exports; services sector inputs account for 30% of the final value of agri-food products in high-income economies, and 23% in middle- and low-income economies; the contribution of services to agricultural production and exports is increasingly linked to digital services designed to make agriculture more efficient allowing greater access to timely information and resource sharing. (pp. 62-63)
Sustained diversification of an economy relies on services; sound services trade regimes are key parts of a policy framework and business climate facilitating competition and investment in new activities, boosting private sector expansion, and speeding up reallocation of resources toward higher productivity activities; leveraging digital, business, and financial services is key to driving structural transformation. (pp. 63-64)
Barriers to trade and investment in services remain high overall, with variations across sectors, modes of supply, regions, and levels of development; trade restrictions on sectors vital to the movement of goods and supply of services – transport, telecommunications and computer services – remain high and were tightened during the pandemic. (pp. 65-66, Figure 23)
Under WTO rules, market access commitments are more limited for services than goods; since 1997, WTO members have not improved their market access commitments for services and have made limited use of GATS to lower services trade restrictions or guarantee existing levels of access to ensure greater policy predictability and circumscribe trade restrictive measures; commitments under preferential trade agreements (PTAs) covering services have grown at a fast pace and parties have undertaken significantly higher commitments than in multilateral agreements; services commitments binding the regulatory status quo generate more trade than commitments with a gap between bound and applied restrictions. (pp. 67-66, Figures 24-26)