Survey of laws helps African countries remove hurdles to trade in services

Policymakers have traditionally focused on manufacturing-led development as the means to improve incomes and reduce poverty. But services are now taking center stage.

Services account for about half of the workforce in low and middle-income economies, up from about 40 percent in the 1990s. That increase has almost offset the decline in the share of workers in agriculture. The share of workers in manufacturing, meanwhile, has remained almost unchanged.

Services – ranging from transport and telecommunications to health and education – generate more than two-thirds of global GDP, create the largest number of jobs, and attract more than three-quarters of foreign direct investment. They account for a predominant share of women’s employment and a large share of small firm activity.

Increasingly, services are delivered across borders, and trade in services is becoming a key path for development – think India’s IT sector. Nevertheless, many countries retain multiple restrictions on cross-border trade in services, investment, and consumer and labor mobility.

Before such barriers are removed, they must be identified. That is what the World Bank and World Trade Organization (WTO) have done in conjunction with the secretariat of the African Continental Free Trade Agreement (AfCFTA) and with the financial support of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), the European Union, and the International Trade Centre (ITC).

Identifying restrictions on trade in services is difficult because unlike tariffs on goods, they are embedded in domestic laws and regulations that pursue legitimate public policy objectives. For instance, to prevent money laundering, many countries may require financial institutions to comply with a set of reporting requirements. Such measures in themselves do not hinder trade in services. However, they would become a barrier if applied only to foreign financial institutions on the mistaken assumption that the nationality of the service providers would be relevant for anti-money laundering controls.

The project to map restrictions on trade in services in all 54 AfCFTA signatories is the biggest undertaking of its kind in terms of the number of countries audited and the depth of the information collected. The exercise entailed examining all domestic laws and regulations in each country. The extent to which each law or regulation impedes trade can then be measured using the World Bank/WTO Services Trade Restrictiveness Index.

For the first time, African countries will be able to undertake a sector- and measure-specific dialogue with their stakeholders and examine whether there are less trade-distortive ways to pursue legitimate public policy objectives while promoting progressive trade liberalization. The project is part of the AfCFTA’s larger effort to reduce trade barriers among African countries and so spur economic growth.

At the beginning of AfCFTA trade in services negotiations in 2018, only a handful of countries had undertaken such an exercise; and for those that had, data were available for only a few sectors and only until 2012. This lack of data is precisely why most African countries do not appear in widely used indexes measuring the level of openness of trade in services and investment.

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