International Trade in Services.pdf - DSpace at Khazar University

Assessing the Potential of Services Trade in Developing Countries 13
genuine competition, building the regulatory institutions that are needed to remedy
market failures, appropriately sequencing service sector reforms, and establishing
mechanisms that promote the availability of essential services, especially among the
poor.
While governments can initiate service reforms unilaterally, international
engagement can play an important catalytic role. Thus, in recognition of the rising
importance of the trade in services and the regulatory barriers in place, services
have been included in the multilateral trade architecture of the World Trade
Organization in the form of the GATS. Services have also featured prominently in
the process of World Trade Organization accession and in the large and growing
network of regional and bilateral trade agreements that have been concluded in
the past two decades or that are still under negotiation.
Common restrictions on service supply through
commercial presence
Restrictions on the establishment and operation of commercial presence (Mode 3
trade) by foreign companies are common in several of the sectors analyzed in this
volume. The limitations on market access revolve around ownership rules for foreign
companies, the type of legal entity that a foreign company is allowed to operate,
the number of suppliers allowed in a specific market, and the value of transactions
or assets. Trade restrictions revolving around national treatment include
registration, authorization, performance, and technology-transfer requirements;
licensing, standards, and qualifications; and nationality and residency requirements.
Restrictions on commercial presence assume particular significance if the
services cannot be delivered through crossborder supply. For example, in the
health service sector, rules may pertain to the form of establishment, foreign ownership,
and nationality and residency requirements.
Other sectors such as accounting are partially protected because of domestic regulations
on liability insofar as a local accountant is liable for the delivery of certain
services. In the case of legal services, rules reflect legal traditions and the legal heritage
and may be designed to achieve a broad set of public policy objectives. To overcome
these limitations, companies frequently use a combination of affiliations and
alliances to leverage the specialized expertise of professionals so that the professionals
can serve the international needs of clients. In construction and distribution services,
foreign companies may be required to deposit capital in a local bank and may
face discrimination in government procurement. Barriers to commercial presence
condition the degree to which the sector modernizes, and they delay the emergence
of the sector from the informal sector, with the result that tax income is forgone.