What is the relationship between trade in services and the development of developing countries? Have recent advances in the services trade strengthened development gains and how can the gains be widened and deepened?

On 17 June 2004, a Forum will examine these critical questions, which are at the heart of the multilateral trading system. Delegates will make an assessment of trade in services and development gains, and challenge some conventional beliefs from the perspective of trade and development.

UNCTAD Secretary General Rubens Ricupero has stressed the need for open and frank exchange of views to identify the right questions and share experiences, including approaches that worked and those that failed. The goal is to assess the trade conditions under which development can be advanced and how trade in services might act as a catalyst of development.

The Forum will launch a new joint initiative between UNCTAD, the World Bank and the Department for International Development of the United Kingdom and Northern Ireland on assessment of services reform in developing countries. Under this initiative, a number of national sectoral studies will be conducted drawing upon the expertise of the above agencies and on inputs from internationally renowned economists and development experts.

The assessment is required for developing countries in making policy choices and in pursuing trade in services liberalization, which would provide immediate employment opportunities, poverty reduction and human development.

The Forum aims to establish elements of methodology for assessing developmental gains from the services trade and ensuring a multi-stakeholder approach to assessment. That will help to identify the conditions needed to increase beneficial participation by developing countries in the world services trade and trade negotiations.

An UNCTAD study estimates that services now account for about 50% of GDP in developing countries as a whole, compared with 68% in developed countries. They provide about 16% of total developing country exports but Least Developed Countries (LDC) are being left out. Services are just 0.4% of LDC exports and 1% of their imports. Almost all developing countries are net importers of services.

Why assessment of trade in services is important

The slow integration of developing countries in the services trade is one of the reasons for mounting tensions over trade liberalization. Many are calling for mechanisms to transfer global benefits to local communities by providing the poor with access to essential infrastructural services and reducing poverty through trade.

A better understanding of services markets in developing countries is necessary to understand policy options available to their governments. For example, one challenge is knowing the importance of the service economy, which is often dominated by the informal sector. For Latin America as a whole, 46.3% of total non-agricultural employment in 2001 is in the informal sector, the share of which has increased from 42.8% in 1990. In some countries, this proportion is significantly higher, as Honduras (60.7%), Peru (59.5%) or Colombia (55.6%).

Strong regional differences also persist. Asia&apo;s share of world services exports rose from 10 percent in 1980 to 17 percent in 2002, while the relative positions of developing countries in Latin America and Africa stagnated. Their shares of world services exports remained at 4 and 2 percent respectively in 2002.

In particular, African countries are being marginalized. Out of 51 where information is available, 28 saw a fall in their services share of the GDP during the period of 1990-2001, while three remained unchanged. This trend was also visible in some developing countries in other regions.

In the context of the Doha Development Agenda, the outcome of services negotiations should ensure better prospects for developing countries to benefit from trade liberalization. Service trade liberalization will help overcome poverty only to the extent policy space is preserved in the international trading system for service suppliers from developing countries.

Serious gaps persist in knowledge about the services economy and trade, especially when international comparisons are required. Developing countries and economies in transition find it hard to assess the impacts of different policies on their major stakeholders.

There is growing concern that services are failing to deliver in developing countries, especially in areas with strong social content such as cultural services, education and health. Other areas of concern include fostering competitive supply capacities in developing countries, especially in business services and physical infrastructure and network services, such as energy, transportation and telecommunications. Achieving competitiveness in these infrastructure services and ensuring affordability and universal access to essential services are among the keys to success. They are likely to determine how effective developing countries will be in their integration into the international trading system, and how development gains could be transferred to the populations at large.