Services - Australia and the WTO
Trade in services is an increasingly important part of global trade and in coming years, the services sector is likely to be the most strongly growing sector in global trade. Developing and developed countries alike have recognised that efficient services industries are central to vibrant and resilient economies, making the World Trade Organization's (WTO) current Doha Round of negotiations an important opportunity to increase prospects for economic growth.
Why is it important to open services markets?
Services play a major role in all modern economies. Indeed, it would be difficult for any economic activity to take place without services such as telecommunications, banking and freight logistics. Services trade accounts for 40-50% of GDP for developing countries and around 80% for developed countries.
An efficient services sector is critical to trade and economic growth
Encouraging greater trade in services through open markets and non-discriminatory treatment can lead to higher employment levels, higher incomes and higher standards of living.
The opening of certain sectors to competition provides consumers with access to a broader range of services and a greater depth of expertise from here at home and overseas. Freer trade also encourages local providers to be more innovative and efficient in delivering competitive services.
How is trade in services regulated?
The rules for international trade in services are set by members of the World Trade Organization (WTO) and are contained in the General Agreement on Trade in Services (GATS). Under the Agreement, individual WTO members make specific undertakings on the degree of access foreign service providers will enjoy in their market, and whether they are treated differently than local service providers.
The GATS is different to other WTO Agreements, in that there is not one rule to which all Members must adhere. Under GATS, each WTO member makes their own individual commitments on opening up their markets to competition from foreign service suppliers.
The Australian Government, like other WTO members, retains the right to regulate and fund public services, such as water supply, public health and public education.
The nature and extent of GATS commitments are strictly a matter of choice for WTO member governments.
Services in the Australian economy
Australia is a world-class provider of a range of services, such as telecommunications, travel, banking and insurance. Services exports play a significant role in our economy and represented 7 2 per cent of Australia's gross domestic product (GDP) in 2006. Over the last five years Australian exports of services have increased by an average of almost 5.5 per cent per year. Furthermore, services industries employ 84 per cent of all Australian workers.
There are multiple ways (called "modes" in the WTO) for services to be delivered:
- Cross-border supply: where a service is supplied from one country to another, for example, an international phone call uses telecommunications services in both the caller's and the receiver's countries.
- Consumption abroad: where consumers from one country purchase a service in another country. The best example of this mode is tourism.
- Commercial presence: where a company from one country establishes an office and provides a service in another country.
- Movement of natural persons: where individuals travel to another country to provide a service, such as a business consultant undertaking an IT contract overseas.
Australia is a world-class provider of services…
At 11 billion in 2006, personal travel (tourism) was Australia's largest services export industry, creating employment in other areas such as hospitality and car rental.
Education services are Australia's fourth largest export, reaching almost $10.4 billion in 2006 — more than many of Australia's traditional exports including gold, beef and wheat. International trade relies heavily on telecommunications. Australia's pro-competitive regulatory environment for telecommunications is a model for the world.
Australian professional services exports, such as legal, architectural, accountancy and engineering services, are growing strongly and in 2006 were valued at more than A$4.5 billion.
Australian experience and skills in environmental services such as waste-water treatment, recycling, energy efficiency and pollution prevention are building a new and promising export sector.
Financial services are a dynamic area in the Australian economy. Finance and insurance services generated around 8 per cent of Australia’s GDP, and exports in 2006 amounted to A$1.7 billion.
Negotiations to improve conditions for global services trade are an important part of the WTO’s Doha Round. Given the importance of this sector to the Australian economy, Australia takes a leading role in the negotiations.
The services negotiations are conducted on a request-offer basis, whereby a WTO member requests better access to a particular services sector in another WTO member's economy. This is followed by an offer to grant all, some or none of the additional access requested. The process upholds the voluntary nature of GATS commitments, whereby each member is entitled to decide their own levels and sectors of liberalisation. An important element of the process is that any offer made is non-binding and can be amended or withdrawn at any time during the negotiations.
Australia submitted its revised offer in May 2005.
Services are an important driver of growth, especially in developing countries
Developing countries are increasingly aware that efficient services industries, supported by good domestic regulatory systems, are an integral part of economic growth. Services sectors already make major contributions to the GDP of many developing countries. The World Bank has found that services made up 24 per cent of GDP in Nigeria, through to 88 per cent of GDP in Hong Kong SAR in 2003. Services trade, such as tourism, is also an important income source in the economies of the 50 least developed countries (LDCs).
The Organisation for Economic Cooperation and Development (OECD) has found that the potential gains for developing countries from services liberalisation are five times the potential gains from goods liberalisation.
While overall services trade is currently dominated by developed countries, developing countries have considerable expertise in a number of fields, such as port and shipping services and construction services. With their lower labour costs, developing countries have a comparative advantage in many of the more labour-intensive services.
Services negotiations in the Doha Round offer important opportunities for developing countries. By opening their own services industries to foreign suppliers, they are able to increase the efficiency of their economy. This is especially important in sectors such as freight logistics, power and financial services, which are all critical to inducing greater foreign investment, and economic growth.
Developing countries also benefit from the market access commitments made by other WTO members.
For more information, visit Trade in services pages or email us at: services.negotiations@dfat.gov.au
Download brochure (pdf)