A. INITIATIVE FOR NEGOTIATIONS AT THE Uruguay Round
G. Russell Pipe, a telecommunications policy consultant, Amsterdam, Netherlands, wrote in 1989, in the midst of the Uruguay Round negotiations:
"To a considerable extent, the inspiration and pressure brought to bear on governments to launch multilateral negotiations on trade in services emanated from transnational corporations based in developed countries. TNCs and other enterprises are expected to be beneficiaries of an eventual agreement to create a liberalized environment allowing further globalization of their operations. International business has mobilized political and economic resources at the national level and through three principal international organizations. These are the Business and Industry Advisory Council (BIAC), a recognized body in the OECD: the International Chamber of Commerce (ICC); and Coalition of Service Industries, a confederation of national coalitions in ten countries."136
B. SCOPE AND FOREIGN EXCHANGE BALANCES
The field of services is wide. Those of importance in international trade include: transportation, travel, telecommunications, audio-visual activities (film, television and other media), business services, engineering and construction, banking and financial services. Conventional analysis also adds income from property, including intellectual property, interest, and income from labour (labour remittances); the latter may frequently result from engagement in services trade; but the former -- earnings from property and interest -- are a function of ownership rather than of current trading activities.
Developing countries have a negative foreign exchange balance in services.
| EXPORTS | IMPORTS | BALANCE | |
| All services | 111.7 | 205.7 | -94.0 |
| Shipping | 8.0 | 31.8 | -23.8 (a) |
| Travel | 20.1 | 16.1 | 4.0 |
| Passenger services | 14.1 | 12.7 | 1.4 |
| Other transportation | 10.3 | 9.2 | 1.1 |
| "Other" services | 23.5 | 32.1 | -8.6 |
It is possible that the enormous size of the deficit (US $ 94 billion in 1984) is in large part a function of interest payments, although they are not specifically identified in Table I. These payments amounted to US$ 68.4 billion in 1984. 137 Deducting these from the aggregate deficit, leaves a deficit of developing countries in services net of interest of US $ 25.6 billion -- still a formidable figure on any reckoning. In the assessment of UNCTAD analysts:
"Developing countries as a whole, and most developing countries individually, run deficits in trade in services, the main exceptions being the tourism sector, and the services rendered through the movement of labour abroad... In construction, for example, where a few developing countries have had a relative export success, this has been largely attributed to their ability to move persons across national frontiers."138
C. COMPARATIVE ADVANTAGE OF DEVELOPED COUNTRIES
Analysts seem to be unanimous that foreign exchange deficits reflect a generally weaker competitive position of developing countries in most services that are internationally traded:
"The competitive weakness of developing country vis-a-vis developed country firms in the world market appears to be a general phenomenon in all service sectors, thus underlying the need for any multilateral framework to take account of this situation and provide for compensatory action to increase the participation of developing countries in the world market for services." 139The reason for this situation is comparative advantage of developed countries derived from factors which are not "natural", but are a result of the level and pattern of prior development: their endowment is a function of the amount of resources invested in research and development and education, of the existing industrial and technological development, as well as the state of regulation."In all sectors, even where developing countries may show 'strength' based on balance of payments figures, developed country firms would seem dominant."140
"Developed countries overall are likely to be more competitive than developing countries in most services."141
Most of these elements are self-explanatory. Of particular
interest and widespread effects is the financial capacity of firms. "Financial
resources are the key factor in the competitiveness in the world market for
a variety of service sectors. The more obvious ones are banking, securities
trading and insurance, where the weakening of financial resources of developing
country firms has resulted in a decline in their participation in world trade
in these services, while even very large developed country banks are finding
it necessary to merge to strengthen their financial capacity so as to maintain
international competitiveness. Air transport is another sector where
financial resources are becoming crucial given the pressing need for airlines
to modernize their fleets. The provision of enhanced information services
may involve important expenditure on infrastructure, not to mention that necessary
to develop or acquire the technological capacity. Even in construction
and engineering consultancy services, where the competitive position of
developing countries may be somewhat stronger, financial resources, in the
sense of the sense of the ability to finance a package of engineering services,
construction and capital goods available to developed country firms, enables
them to dominate international markets. Such situations are obvious in most
service sectors where developing country firms simply lack the financial strength
to compete, particularly given that one of the main competitive factors is
the ability to move "upstream" and "downstream" and to offer a "package" of
services. Regardless of technical competence, firms cannot compete in world
markets without adequate financial backing. Asymmetries in the distribution
of financial resources thus constitute a major factor distorting the possibility
of an international division of labour in the service sector based upon comparative
advantage. This would imply that the ability of developing countries to compete
in trade in services, and thus to benefit from progressive liberalization
by their trading partners, will be related to broader solutions to their financial
and debt problems."143
D. DEVELOPING COUNTRY COMPETITIVE SUB-SECTORS
Three sub-sectors where developing countries have shown some competitive strength, or where such strength is emerging, are discussed below. They are tourism, construction, and data processing.
Tourism
which attract foreign tourists, on the one hand; and the poverty of broad masses of their population, which eliminates their capacity to travel abroad as consumers-tourists, on the other.
Most developing countries have promoted foreign tourism in recent years and
in the process eliminated most of the administrative and trade obstacles to
its development. Obstacles which have remained are mostly financial: lack
of resources for tourism and infra-structure development, such as roads, other
transportation, adequate water supply and reliable electricity. At the same
time, benefits from tourist development are unequally shared. The existing
statistics --the "travel" item in the balance of payments account -- underestimate
the size of the tourism market, as they omit much of the revenue obtained
from the tourist before he leaves his own country; thus, developing countries
are likely to have a much lower share of the overall "tourism" market than
that indicated in balance of payments data.144 More
important, world-wide tourist revenues are dominated by developed country
firms which have been able to establish information networks, hotel chains,
travel agencies and computer reservations systems (CRS).145
"The effect of these changes for the tourist industry in developing countries
is mixed. On the one hand, the potential increase in efficiency and international
contact is vital to a tourist industry that is distant from its clients. The
networks create certainty and security for the client and hotel. Tourist resorts
which are not able to get information into the network will find traffic diverted
elsewhere. On the other hand, the cost of participating in these networks
may be high in foreign exchange, serving as an added charge against potential
earnings. The networks are likely to reinforce the market dominance of the
larger hotels and tour operators, whose integrated management systems and
co-ownership with airlines and network operators give them a pre-eminent position."
146 It has been suggested that developing countries,
either singly or in cooperation with other developing countries, can set up
their own national or regional networks of information in order to maximize
their returns from tourism. 147
Construction and engineering design (CED)
Developing countries had great expectations in the early 1980s that both their volume and share in international construction will grown steadily. These expectations were based on the successes achieved following the oil boom in the producing countries, and the technological and managerial breakthroughs which several developing countries had made. In the judgment of a 1987 study of the U.S. Office of Technology Assessment, an agency of the U.S. Congress:
"Many foreign engineering and construction firms, including those in the Third World, can now adapt and apply a relatively broad group of technologies as needed. Once the backbone of the U.S. industry, technologically based strategies are now open even to firms from the NICs, many of which have become quite competent in design and engineering."148The results did not meet the expectations. Developed country firms have remained dominant in this field. Developing country companies are still important players, but the slow-down in massive construction in the open markets of the Middle East has stopped these companies' advance and led to a setback.
In engineering design services, the international market as measured by foreign billings of top 200 international design firms amounted to US $ 4.2 billion in 1988, compared to US $ 3.8 billion in 1983. About 70 percent of the international market is presently found in the developing countries, compared to 85 percent in the early 1980s. In 1988, Asia was the largest single market (US $ 1,150 million), followed by Africa ($ 824 million), the Middle East ($ 809 million), Europe ($ 622 million), the U.S. ($ 388 million) and Latin America ($322 million). In 1988, 10 of the 20 most attractive markets in the world were Asian countries, among them Indonesia, China, Thailand, the Philippines, India, Malaysia, Bangladesh, Australia and Singapore.
U.S. international design firms remain in a leading position with 25 percent of the aggregate market in 1988. Canada accounted for 16%. European firms as a group captured 47 percent, and Japan 6 percent. Among the developing countries' total of 6 percent, the Republic of Korea has maintained its share at around 1.5 percent. Firms from a few other developing countries have also been present in the international market, but their individual shares remain small. 14 out of the top 200 international design firms came, in 1988, from developing countries, compared to 17 in the previous year. Two such firms, Dar Al Handasah Consultants, previously located in Lebanon and now based in Egypt, and Energoproject Consultancy and Engineering from Yugoslavia, figured among the top 20 international design firms. The other firms in the 200 came from Korea (3), India (3), Brazil (2), Yugoslavia (1), Hong Kong (1), Taiwan (1) and Saudi Arabia (1). However, "firms from developed countries control over 90 percent of the market and as such remain the undisputed leaders in this branch of the CED services industry."149
The international construction market, as measured by the value of foreign contracts awarded to the top 250 international contractors, amounted to US$ 94 billion in 1988, more than twenty times the value of engineering designs billings in that year (see above). The 1988 construction total was an improvement over the previous several years, but was very much lower than the peak of US $ 134 billion reached in 1981 (Table II). Foreign contracts as a proportion of total contracts have been declining steadily since 1982: this proportion was close to 27% in 1987, compared to 52% in 1982. Developing countries accounted to 60% of the international construction market in 1988, down from 80% during the early 1980s. The largest part of the market in 1988 was in Asia (US $ 20.5 billion), followed by Europe (US $ 19 billion), Middle East ($ 17 billion), U.S. ($ 13 billion), Africa $10 billion) and Latin America ($7.5 billion). Low levels in the latter two regions reflect the debt crisis.
| Country | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | 1986 | 1987 | 1988 |
| United States | 48.3 | 48.8 | 44.9 | 29.4 | 30.1 | 28.2 | 22.6 | 18.1 | 25.9 |
| (45) | (36) | (36) | (31) | (37) | (35) | (31) | (24) | (27) | |
| France | 8.1 | 12.1 | 11.4 | 10.0 | 5.4 | 6.7 | 7.1 | 8.6 | 11.1 |
| (7) | (9) | (9) | (11) | (7) | (8) | (10) | (12) | (12) | |
| Germany, Fed. Rep. of | 8.6 | 9.9 | 9.5 | 5.4 | 4.8 | 5.4 | 5.5 | 5.9 | 8.1 |
| (8) | (7) | (8) | (6) | (6) | (7) | (7) | (8) | (9) | |
| Italy | 6.2 | 9.3 | 7.8 | 7.2 | 7.8 | 8.7 | 7.4 | 9.2 | 13.3 |
| (6) | (7) | (6) | (8) | (10) | (11) | (10) | (12) | (14) | |
| United Kingdom | 4.9 | 8.7 | 7.5 | 6.4 | 5.7 | 5.6 | 7.0 | 7.9 | 9.4 |
| (5) | (6) | (6) | (7) | (7) | (7) | (9) | (11) | (10) | |
| Other Europe | 9.2 | 12.6 | 10.3 | 9.1 | 7.2 | 6.2 | 6.7 | 8.9 | 7.3 |
| (8) | (9) | (8) | (10) | (9) | (8) | (9) | (12) | (8) | |
| Japan | 4.1 | 8.6 | 9.3 | 8.7 | 7.3 | 11.6 | 9.4 | 9.9 | 11.6 |
| (4) | (6) | (8) | (9) | (9) | (14) | (13) | (13) | (12) | |
| Rep. of Korea | 9.5 | 13.9 | 13.8 | 10.4 | 6.8 | 4.8 | 2.6 | 2.1 | 1.4 |
| (9) | (10) | (11) | (11) | (8) | (6) | (4) | (3) | (2) | |
| All other countries | 9.4 | 10.5 | 8.6 | 7.0 | 5.9 | 4.4 | 5.6 | 3.3 | 6.0 |
| (9) | (8) | (7) | (7) | (7) | (5) | (8) | (4) | (6) | |
| Total | 108.3 | 134.4 | 123.1 | 93.6 | 80.5 | 81.6 | 73.9 | 73.9 | 94.1 |
U.S. continues to be the world's largest individual exporter of construction services, although its share is declining. In contrast, the shares of Italy and Japan are rising rapidly. Among the developing countries, the Republic of Korea continues to be present in the international market, but with its share constantly declining since 1983. Yugoslavia has also built up an export capacity in this sector: the construction specialties of Yugoslav firms, figuring on the list of the top 250 international contractors, encompass various types of projects, ranging from such infrastructure as buildings, bridges and railways to power plants and manufacturing facilities. Firms from other developing countries have also penetrated the international market, but their individual shares are very small. They come from India, Brazil, China, Singapore, Argentina, Mexico and Hong Kong. "Some kind of specialization of specific CED services and sectors helped these few countries to develop an export capability. While Korea specialized mainly in infra-structure related services, Brazil built up specific competence in mining and petroleum-related CED services, and India in steel and metal work. Very often the success of firms from developing countries in entering the international market was very much dependent on their ability to move skilled and unskilled labour to the construction site from their country of origin and/or other third-world countries."150
The firms from the developed countries have, since the early 1980s, increased their control of the international market with a share at present exceeding 90 percent, while the position of developing countries has been worsening, with the decline in the share of the construction market from more than 15 percent to less than 5 percent.151 A part of this loss is due to unafavourable terms of contractor finance. "The financial packages offered by developing country suppliers are not as attractive as those provided by firms from developed countries. Financing remains one major obstacle for firms from developing countries to consolidate their position in international markets."152 It has been suggested therefore that effort would need to be made to facilitate access of developing countries to international financing, including a more explicit policy by international and regional financial institutions to promote further the participation of developing country engineering firms in the provision of CED services on projects funded by them in developing countries.153
The second factor has been the shrinking of the most dynamic export market in developing countries due to the fall in commodity prices and the debt crisis. Furthermore, partly as a result of government procurement policies, construction markets in developed countries tend to be relatively less open than in developing countries.154 Also, the decline in the developing market share of the international construction market might reflect to a large extent the existence of prohibitive barriers to the movement of personnel in developed country markets.155
"In the Uruguay Round discussions, developing countries
have consistently maintained the position that any liberalization of trade
in services, in the form of temporary movement of the factors of production,
should provide [for] symmetrical treatment to the capital and labour factors.
Although developed countries tend to view labour mobility as an issue that
is regulated by immigration laws and regulations which embody national policy
objectives, their submission to the GNS (Group of Negotiations on Services
in GATT's Uruguay Round) recognizes that the process of liberalization of
trade in services would have to cover temporary movement of persons. Such
proposals have referred to the category of 'senior management personnel',
but it is clear that to provide benefits to developing countries, any agreement
in the GED services would have to provide for movement of semi-skilled and
unskilled labour... It may be relevant here to note that the Canada/United
States Free Trade Agreement shows that movement of persons supplying services
can be effectively incorporated into trade agreements."156
New Fields: data processing, research contracts and educational establishment
"This advent of information technology has enabled corporations from the developed countries to relocate some of the labour-intensive segments of their service activities to certain developing countries that offer suitable conditions and have lower wages. Labour-intensive data processing operations of U.S. corporations have been carried out in Caribbean countries. This kind of service export can play a role as foreign exchange earner and generator of employment in some countries. Another service export of this kind of rapidly increasing importance is software."157
"Computer software is the pride of the Indian business services exporters, having grown very rapidly during the second half of the 1980s, owing to both government policies aimed at developing exports in that sector and to the ingenuity of Indian software entrepreneurs. Until recently, the bulk of software exports by Indian firms came in the form of 'consulting services', also referred to in the industry as 'body shopping'. Under body shopping, the software firm provides system analysts and programmers as staff on projects that are managed by other firms. To their credit, however, Indian software firms have been moving upstream in recent years, by increasing their volume of work as prime contractors on customized software and turnkey systems integration projects, and in a few cases, by breaking into the packaged software market with their own products such as accounting software packages, banking software products, etc."158 In May 1991, it was reported that Motorola, a well known U.S. electronics group, is seeking Indian Government's approval to set up an export-oriented company with a string of manufacturing units (semi-conductors, portable and mobile telecom systems, cellular mobile radio equipment and radio paging systems) and that it is setting up a software export center at Bangalore, South-Central India, which will largely cater for the requirements of the Motorola group. a href=#foot159>159 Bombay also has attractions, as a business and business-training center: in August 1991, Swissair announced that it is transferring its revenue accounting activities to Bombay.160 But not everything goes smoothly with foreign interests in India: a number of foreign companies in Bangalore still prefer to export highly skilled Indian nationals --body-shopping--it was reported earlier this year, rather than buy computer software.161
Barbados, Jamaica, the Philippines, Singapore and Ireland have emerged as among the most popular "back office" locations for major corporations. The jobs range from simple data entry to accounting, medical transcription, telemarketing, and technical support for high-technology products.162 The reason, like in India, is much lower labour cost than in the developed country corporate headquarters, but this contributes to local employment. The other side of the coin is vulnerability of this "labour-intensive high-tech" strategy to advances in information technology, which have resulted in the sudden elimination of labour-intensive segments of this industry.163 "One of the Ireland's chief competitors for foreign investment, Scotland, has deliberately steered clear of data processing. Robert Crawford, North American, says new technologies, director of the Locate in Scotland programme such as electronic scanning of printed material, will render many data-entry jobs obsolete. 'If you think this will create lots of jobs, you better be careful, you'll loose them' says Mr. Crawford...He says Scotland prefers to continue focusing on manufacturing, where the toe-to-toe battle with Ireland for foreign investment has raged for years, and continues."164
It is not only in data processing and information technology that export services jobs can be found. Bio-technologists in Belgrade, Yugoslavia, highly trained, work on contract for research institutes in the U.S. on projects of common interest. Both Colombia and Singapore export medical services from their newer medical and educational establishments. Some universities in Mexico and the Caribbean have large contingents of medial students from the United States.165
These developments in new service fields in the countries
listed are both impressive and promising despite risks they involve in view
of rapid technological changes in the newly established activities. But except
in very small countries where labour force is small, these developments cannot
change the fundamentals of unemployment and low real wages. In countries with
large and mega-large populations, a sustained and broad-based change affecting
agriculture, other primary activities, and manufacturing is needed in addition
to the welcome growth of modern export-oriented service industries.
E. RECIPROCITY
Analysts of services economics have been trying to find a solution to the problem of reciprocity of concessions between the developed and the developing countries within the Uruguay round. "The problem of reciprocity is that it is primarily developed countries which seek access commitments in developing country markets. The problem in the negotiations on trade in services is not the ability of developing countries to grant reciprocity, it is rather how developing countries will obtain reciprocity from developed countries in respect to any concessions they might agree to make...'Relative reciprocity' [concessions granted by developing countries matched by much more substantial liberalization by developed countries] has emerged in the negotiations as a means of calibrating developing country concessions in line with their development situation. However, the ability of developing country exporters to translate such liberalization into export gains appears extremely limited under the prevailing situation of asymmetry with respect to the factors on which competitiveness in trade in services depends."166
The answer provided by both the UNCTAD analysts and the OECD Secretariat is to search for solutions within the services sector.
"OECD Secretariat has recognized that 'the realization of developing countries' export potential in services will depend, in large measure, on the scope for acknowledgement [within] a services framework of the need for services to provide [for] mobility in the form of temporary relocation of essential personnel." 167
Suggestions offered by Messrs. Gibbs and Hayashi, UNCTAD analysts, are broader:
"If liberalization in services is to benefit developing countries, their firms will have to acquire [a range of] capacities [such as those listed on page 3 of this paper] which may only be possible in the context of solutions to the more general problems of debt and infrastructure development. It will also have to provide for access to foreign markets for their professional, skilled and unskilled labour, where this is essential to their ability to supply the service and compete against developed country firms."168
Messrs. Gibbs and Hayashi further suggest that possibilities
that could be explored might include:
(a) strict maintenance
of the principle of symmetry between movement of capital
and movement
of labour;
(b) obligation
of the developed country beneficiary of liberalization of service to transfer
service technology to the developing country;
(c) reciprocity
across service sectors, where market access concessions could be
provided in one sector to "pay" for liberalization in another (e.g. access
to
developing country financial service markets exchanged for concessions in
the areas
of construction, professional services, etc.).169
Going beyond the present discussion, three questions need to be answered in further analysis:
(a) What is
the degree of infant industry protection which developing countries need for
their service industries?
(b) In view of the
cyclical and other fluctuations affecting which the construction
industry, what allowance should be made for this instability in working out
the
services concessions which need to be offered to developing countries?
(c) It is quite possible
that reciprocity cannot be achieved within the services sector. It is
unclear whether the shortfall in services will be compensated by concessions
to
developing countries in access to markets for goods. An overall balance, maintenance
of peace and avoidance of massive migration from the developing to the developed
countries call for inclusion into the debate of the commodity problem and
its possible
solution, and of the issue of transfer of financial resources, its size
and modalities.
Where and how will all these different aspects of the problem be pulled together,
in
the interest of human development?
Footnotes:
136: G. Fussel Pipe, Telecommunications Services: Considerations
for Developing Countries in Uruguay Round Negotiations, in UNCTAD, Trade
in Services: Sectoral Issues, 1989, page 84.
137: As shown in World Bank Debt Tables 1990-91,
Volume 1, 1990, page 126.
138: Murray Gibbs and Michiko Hayashi, Sectoral Issues
and the Multilateral Framework for Trade in Services, in UNCTAD, Trade in
Services, op.cit., page 3.
139: B.L. Das, Coordinator of International Trade Programmes,
UNCTAD, Introduction, in UNCTAD, ibid., page XXXII.
140: Gibbs and Hayashi, ibid., page 8.
141: OECD, Trade in Services and Developing Countries,
Paris 1989, page 7, quoted in Gibbs and Hayashi, ibid.
142: Gibbs and Hayashi, ibid., pages 45-46.
143: Ibid., pages 9-10.
144: Gibbs and Hayashi, ibid., page 4.
145: Ibid., page 32.
146: UNCTAD, Trade and Development Report 1988,
page 183.
147: Ibid., page 184.
148: International Competition in Services, Office
of Technology Assessment, Congress of the United States, July 1987, page 145.
149: Yehia Soubra, Construction and Engineering Design
Services: Issues Relevant to Multilateral Negotiations on Services, in UNCTAD,
Trade in Services, op.cit. , pages 194-96.
150: Ibid., page 199.
151: Ibid., page 206.
152: Ibid., page 193.
153: Ibid., page 206-207.
154: Ibid., page 203.
155: Gibbs and Hayashi, op.cit., page 6.
156: Yehia Soubra, op.cit., page 208.
157: UNCTAD, Trade and Development Report 1988,
pages 181-82.
158: Thierry Noyelle, Business Services and the Uruguay
Round: Negotiations on Trade in Services, in UNCTAD, Trade in Services, op.cit.,
page 349.
159: As reported in Financial Times, 10 May 1991.
Bangalore has become a major center of the India's high technology industries,
thanks in part to extensive training and scientific facilities and concentration
of talent in the area.
160: International Herald Tribune, 15 August 1991.
161: The Economist, 4 May 1991.
162: The Wall Street Journal, 23 August 1991.
For software development in the Phillippines, please see The Wall Street
Journal, 10 May 1991.
163: UNCTAD, Trade and Development Report 1988,
page 182.
164: The Wall Street Journal, 23 August 1991.
165: UNCTAD, Trade and Development Report 1988,
page 184.
166: Gibbs and Hayashi, op.cit., page 43.
167: OECD, op.cit., page 8, quoted in Gibbs and Hayashi,
op.cit., page 31.
168: Gibbs and Hayashi, op.cit. , page 46.
169: Ibid., pages 43-44.