Service liberalisation on its way to South Asia

By Dilshani Samaraweera
Pressure is building to open up service markets in the region, but economists say South Asian service providers are not ready to face the impending changes. Services liberalisation is now seen as inevitable, albeit a slow process. But South Asian countries are, for the most part, not equipped to open up their service markets. So trade experts are advising South Asian service providers to put their houses in order, to minimise damages and maximise gains.

It’s coming
Trade talks at global level, at the World Trade Organisation (WTO), are stuck, but economists say that bilateral and regional trade talks are now putting pressure to open up service markets.“Despite the temporary glitch in the Doha round of the WTO, South Asia will certainly have to face up to the prospects of service liberalisation in other forums,” said Dr Saman Kelegama, executive director of the Institute of Policy Studies (IPS) speaking at an international conference on trade in services, organised by the IPS and the Friedrich Ebert Stiftung in Colombo.

Sri Lanka and India for instance, are already trying to open up service markets. India also signed an agreement with Singapore in 2005 to eventually open up 126 service categories to Singaporean competition. “Under the Singapore-India Comprehensive Economic Cooperation Agreement (CECA) we have agreed to develop mutual recognition agreements for 126 professions. This will allow our people to work in Singapore and will allow Singaporeans to work in India,” said Professor Rupa Chanda from the Indian Institute of Management, Bangalore.

Mutual recognition agreements allow corresponding service categories in different countries recognise each other’s qualifications.
This allows service providers to work in each other’s countries. These mutual recognition agreements under the CECA are still not finalised but India is going ahead with more service agreements.

“India is also in the process of including service chapters in already negotiated agreements such as with Sri Lanka and Thailand and with BIMSTEC (The Bay of Bengal Initiative for Multi Sectoral Technical and Economic Cooperation),” said Chanda. While India’s labour force is big enough to hold its own against foreign competition, even smaller countries in the region can’t avoid the subject.

“The SAFTA (South Asia Free Trade Agreement) Ministerial Council Meeting in April 2006, assigned the Committee of Experts to produce a report on the feasibility of incorporating services in the SAFTA framework and to provide recommendations. So already, services are in the SAARC agenda. Given this situation there is a need to sensitise people before it comes into operation. People have to be made aware that service liberalisation is on the way,” said Kelegama.

Just misunderstood
Economists say opening up services is not always a bad idea. That it is mostly misunderstood and misrepresented as another liberalisation bogeyman. They point out that already services are a major share of South Asian economies. “Services have taken on an increasingly important role in South Asian economies, overtaking industries and agriculture as the largest contributor to GDP in most of them. For instance in Sri Lanka, services contribute 57.1% of GDP and the figures for India, Pakistan and Bangladesh are 53.8%, 53.3% and 51.5% respectively,” said Kelegama.

Some services are already competing with foreign service providers. For instance in Sri Lanka, local banks are competing with, and holding their own, against foreign banks. Opening up more service sectors is expected to boost industry growth and benefit local consumers.“More players in a particular service area mean more competition. So prices will come down, whether it is a professional service or any other service. So depriving the services sector of the benefits of liberalisation comes with an increasing opportunity cost,” said Kelegama.

Balancing act
But liberalisation can also have unexpected backlashes. So opening up service markets must balance the interests of consumers, businesses and domestic producers. Developing countries like Sri Lanka must also make sure poor populations do not lose out on the deal. “It is clear that liberalisation of services has profound impacts, both positive and negative. A country would be successful if it is able to reap benefits of liberalisation while controlling and minimising the harmful effects that could result,” said Kelegama.

But this balancing act is more difficult in the South Asian region than the developed west. The main reason is the lack of data on services, their operations and impacts on labour markets and national economies. Without enough data, it is difficult to work out liberalisation strategies that would maximise benefits while minimising damages.“One reason we are not prepared for opening up of services is because we don’t have enough data. Without the data we can’t do various economic modelling to see the impacts of liberalisation. So it is difficult to predict what would be the results of liberalisations and to give the most suitable recommendations for each situation,” says Chanda.

Disorganised service sectors add to complications. Most service sectors in South Asian countries do not have regulatory frameworks that set down service standards. This makes it difficult to ensure uniform quality of services from both local and foreign service providers. Consumers are also not organised in consumer groups to give inputs to governments and trade negotiators. Given this ground situation, economists are calling for better coordination between trade negotiators, service providers and other stakeholders, to get the best out of services liberalisation. Service providers in particular are advised to look sharp about putting their end of the business in order.