Free trade for services--now

IBM's Christopher Caine says that by erecting protectionist measures, global trade ministers only hurt their economies.

4 min read
Amid the hype and hysteria over global trade, agricultural subsidies and industrial tariff barriers, one key piece of the global economic puzzle often gets lost in the shuffle: Trading services provide an accessible engine of growth for developed and developing economies alike.

Services create new businesses and boost trading opportunities. Services account for more than 60 percent of all new job creation netted in both middle-income and developed economies. The services sector accounts for two-thirds of the world's GDP and one-half of the employed workforce, but just one-fifth of international trade.

In a world integrated by powerful information technology and sophisticated communication networks, the crucial services sector will continue to rack up impressive gains in trade, job creation and economic growth in years to come. Or will it?

Policy makers must carefully weigh how they want their nations--and their citizens--to harness the economic potential of the services sector.

That's a decision world leaders grappled with at the World Trade Organization's 6th Ministerial Conference, in Hong Kong. World economic growth and prosperity will depend on countries making firm commitments to allow free trade, not only in manufactured goods and agricultural products, but also in services. Flourishing trade in services can open a route to economic expansion and rising standards of living. This opportunity must not be lost.

In our economically integrated world, policy makers must carefully weigh how they want their nations--and their citizens--to harness the economic potential of the services sector. Services, whether in banking, technical training, management consulting, architectural design, custom software development or customer support call centers, are a key means to sparking productivity, competitiveness, innovation and economic development.

A high-quality services infrastructure lies at the heart of productivity for all facets of a growing economy. For example, in most developed economies, services are embodied in the manufacturing processes and account for more than 20 percent of the added value of that sector. The efficient provision of services delivers a direct benefit to consumers, and it also enables an economy to become more competitive.

According to the World Bank, the distribution of economic wealth within the world remains "strongly correlated" with the level of employment in the services sector. "The wealthier economies are those with the largest share of total employment in services, whereas the poorer economies are largely agriculture-based," it said in its latest report on 2005 World Development Indicators.

In practice, information and communication technology and services allow global integration that enables an efficient supply of services and knowledge that benefits the economy and society at large. Oftentimes, restrictions in business services like accounting and legal services are impediments for many developing countries' productivity and growth.

An efficient business services sector cuts transaction costs. Health and education services are vital in making human resources part of the production process. A trusted financial sector allows an efficient flow of savings and investment. Transport services contribute to the distribution of goods inside a market, and are especially important in a country's global trade. Environmental services help create sustainable development by alleviating the negative impact of economic activity. Retail services, too, provide an essential tool for producers and consumers, and influence how resources are allocated to meet consumer needs.

The WTO Ministerial Conference in Hong Kong offered a rare chance for world leaders to start the engine of opportunity called services.

Every country should, naturally, consider its own special conditions and competitive advantages, whether the country is developing or developed, its main exports are manufactured or agricultural, and its economy is predominantly goods or services. Every country, of course, understands it is part of an increasingly integrated economy where each has an opportunity to harness the global growth in services to boost productivity and employment. Government leaders should work to:

•  Foster open and secure international markets for trade and foster investment in services by taking advantage of the WTO Doha negotiations.

•  Establish open services markets that create employment opportunities and promote productivity.

•  Focus on the development of human resources to foster innovation and ensure global competitiveness. A services-led economy, based on knowledge and execution, is human intensive, which favors social development, better quality jobs and a more skilled workforce.

•  Promote the competitiveness and use of the information and communication infrastructure to seize the benefits of services as a means to enable global integration and national competitiveness.

If country leaders open their markets for efficient supply of services, focus on their human resource development, promote the use of IT and foster innovation, then they will advance their economic growth, competitiveness and prosperity. The WTO Ministerial Conference in Hong Kong offered a rare chance for world leaders to start the engine of opportunity called services, and to provide their citizens with future employment and well-being. Now they should rise to the challenge.