What benefit? Preferential treatment to services and services suppliers of LDCs

A Nepalese doctor in Kathmandu received an invitation letter from a hospital abroad to join a special research team as a short term consultant for 3 months. He went to the embassy to apply for a temporary work visa, but his application was denied because the school he received his diploma from was not recognized by the host country. Moreover, he didn’t submit English test scores, although he had been educated in English for his school years.

The preferential treatment in service trade to LDCs aims to reduce difficulties like that. In 2011, Members of the WTO adopted the so called “services waiver” that exempts WTO members from the obligation of treating all members equally and allows them to grant market access preferences in services for LDCs. At the Nairobi Ministerial Conference in December 2015, the waiver was extended to December 2030 (WTO, T/MIN(15)/48). In 2015, LDCs made requests to WTO Members to remove restrictions in diverse sectors and modes. In response to that, 25 developed and developing countries identified sectors and modes where they intend to provide preferential treatment to LDCs (WTO, S/C/W/356, S/C/M/121).

Trade in services can be categorized into four different modes:

  1. Cross border supply, supplied from a country into another (e.g., software services);
  2. Consumption abroad, supplied in a country to the consumer of another (e.g., tourism, health, aircraft repair);
  3. Commercial presence, supplied through any type of business or professional establishment of a country in another (e.g., branch of a foreign bank);
  4. Presence of natural persons, supplied by national of a country in another (e.g., contractor entry visa).

The commitments of easing restrictions by 25 developed and developing countries are concentrated in Mode 2 (Consumption abroad). However, most countries place very few restrictions to travel to foreign countries or to consume other services abroad, so that the commitments under the services waiver may not change the status-quo much. There are far fewer commitments under mode 4, even though allowing nationals of LDCs to supply services in developed and more advanced developing countries could be more beneficial for LDCs as mode 4 is typically more strictly regulated.

As decade-long experiences with preferential market access in goods has shown, preferences only work if LDCs can develop productive capacities. Now, the first case studies are being conducted in a few LDCs to identify the constraints they face in exporting services, and how to realize the potential benefits from the Service Waiver. But so far, research seems to suggest that it is difficult to operationalize the waiver and to identify concrete and tangible benefits for service suppliers in LDCs.

Trade in service will no doubt play a critical role in achieving progress toward Sustainable Development Goals and implementing national development strategies, particularly for LDCs heavily dependent on service export. However, more detailed analysis at the country level is needed to identify ways to transform the legal text of the Service Waiver to actual benefits for service suppliers in LDCs.

Resources:

WTO, Trade in Services and LDCs 

UNCTAD, The LDC Services Waiver – Operationalized?

ESCAP, Waiting for Service? Progress in Preferential Market Access for Asia-Pacific Least Developed Countries’ Services Exports

Bangladesh, Attracting Investment in Bangladesh—Sectoral Analyses

Ethiopia, Potential Challenges and Prospects in Exploiting LDC Waiver in Service Sector

Nepal, WTO Services Wavier

Southern Africa, Trade in Services Negotiations