Barriers to International Trade in Services and Government Policy
 
Prachi*
Ph.D. Scholar (Economics), ISBM University, Gariyaband, Chhattisgarh, India
Email: nandlalshah@ymail.com
Abstract - When governments and regulatory agencies put up obstacles to the free flow of services across borders, we say that they are barriers to international commerce in services. Legal, cultural, technical, or regulatory hurdles are only a few examples of the many possible types of such challenges. Government policies have a major impact on the prevalence of these obstacles. Strict licensing requirements, bans on foreign ownership, and discriminatory laws are examples of protectionist policies that governments may implement to safeguard indigenous service providers and industries. But these rules could limit competition, hurt foreign service providers' ability to reach customers, and obstruct free service exchanges. The only way to eliminate these barriers and create a more inclusive and transparent global services trade environment is to implement liberalizing measures in tandem with international cooperation and discussion.
Keyword: Barriers, Liberalization, Trade
INTRODUCTION
The increasing significance of international commerce in services is a result of recent technological developments that have made it possible to provide services in new ways beyond national borders. It is generally acknowledged that the favorable impact of trade in services on economic growth and sustainable development can only be achieved via suitable deregulation and worldwide implementation. A country's ability to grow and stay competitive is defined by its service industry. The service industry has grown to become a major contributor to India's GDP in recent years. The services industry is vital to the production of other products and services, and it also generates the majority of revenue and employment in India. This has led to a shift in the policy agenda, with an increased focus on services. This encompasses liberalization, marketing campaigns, and regulation on a global and national scale.
A growing component of the global economy is international trade in services, which encompasses a wide range of sectors such as banking, telecoms, transportation, and professional services. But there are a lot of roadblocks that regulatory agencies and countries set up that make it hard for services to flow freely across borders. Some examples of such barriers are protectionist legislation, regulations, and limitations that make it difficult for international service providers to enter the market. The degree to which these challenges are magnified is substantially influenced by governmental policies and initiatives. This article delves into the main obstacles to cross-border trade of services and how government regulations affect the global services trade environment. By keeping these concerns in mind, lawmakers may be better able to create a friendly environment for international services trade.
Over the last several decades, there has been a meteoric surge in the amount of international commerce including services, driven by factors such as the growth of globalization, improvements in technology, and the growing significance of services to the global economy. Financial services, transportation, instruction, healthcare, and other professional services are all examples of services. One distinctive and ever-changing facet of global trade is the bartering of services. Knowledge is frequently at the heart of this kind of transaction, as opposed to the actual objects involved in product trade.
There are several obstacles that prevent the free movement of services across borders, even though this sector is becoming more important in international commerce. Laws, regulations, cultural norms, and technology limitations are only a few examples of the ways in which governments and regulatory agencies might erect these barriers. Government laws, which seek to balance local interests while preserving particular service sectors, greatly influence the breadth of these impediments.[1]
This article aims to examine the many forms that international commerce in services takes and how these forms are influenced by government policy. Businesses, governments, and other stakeholders may get a better understanding of the global services trade market's potential by analyzing these problems and policy responses. This knowledge can then be used to create a trading environment that is more open and fair.
Types of Barriers to International Trade in Services
Governments apply various restrictions and requirements through legislation and regulatory frameworks, which collectively constitute legal impediments to international trade in services. These could include discriminatory laws that give preference to domestic businesses over international rivals, severe licensing requirements for Foreign Service providers, and limitations based on nationality. Legal obstacles may pose serious challenges and restrict market access for Foreign Service providers looking to expand into new areas.
Regulatory Barriers:
Government laws that differ dramatically from one nation to the next give rise to regulatory barriers, which cause uncertainty and complexity for service providers. Different regulatory environments can lead to difficulties with compliance, extra expenses, and delays in service delivery. Mitigating these obstacles and promoting cross-border commerce in services can be accomplished by harmonizing legislation or implementing mutual recognition agreements.[2]
Cultural Barriers:
Especially in fields where communication, trust, and interpersonal interactions are vital, cultural variations might affect the trade of services. When dealing with international clients, service providers may face difficulties in understanding and satisfying their demands due to language obstacles, cultural conventions, and differences in business processes. In order to overcome these obstacles, companies must have cultural intelligence and employ efficient methods of intercultural communication.
Technological Barriers:
The delivery and consumption of services across borders have been transformed by the digital era. The spread of digital services to new areas can be impeded by technological constraints such as limited internet connectivity, inadequate digital infrastructure, and data localization regulations. It is imperative that policymakers find a middle ground between easing digital trade and resolving data privacy and security issues.
Government Policy and Its Impact on International Trade In Services
Protectionism and Trade Restrictions:
Domestic service providers and related industries are frequently the targets of government protectionist policies. Policies that impede foreign service providers' access to the domestic market include tariffs, quotas, and non-tariff barriers. Potentially motivating factors for protectionism include concerns over the economy, national security, and trade imbalance. However, the service sector as a whole may see less efficiency, innovation, and competition as a result of these regulations.[3]
Foreign Ownership Restrictions:
Domestic service providers cannot be owned or controlled by foreign nationals in certain nations. Foreign investors seeking to set up shop or increase their footprint in the host nation may find these regulations to be a substantial obstacle. A more dynamic and effective services sector can be achieved by easing limits on foreign ownership, which attract investment and encourage healthy competition.
Trade Agreements and Liberalization:
The World Trade Organization (WTO) and its trade treaties, such as the General Agreement on Trade in Services (GATS), facilitate liberalization and international trade in services and bring about changes like these. Governments may liberalize their service sectors via negotiated agreements, which can provide Foreign Service providers broader access to domestic markets. One potential result of trade liberalization is an increase in competition, a diversification of services, and operational efficiency.
Supportive Policies for Service Exporters:
Export promotion programs, capacity-building initiatives, and financial incentives are all things that governments may provide to help exporters. In order to develop their export capabilities, service providers may find these guidelines helpful in overcoming early difficulties. In order to make it easier for qualified people to travel freely across the world, governments should try to have their professional credentials recognized more widely.
The significance of removing obstacles to cross-border commerce in services
Economic Benefits:
There can be significant economic gains for countries if they lower barriers to international commerce in services. Productivity increases, innovation, and general service sector efficiency can all be fueled by more competition. Service providers can boost economic growth and development by increasing revenue and job possibilities through expanded market access.
Consumer Welfare:
When obstacles are removed, consumers have access to a wider selection of services, frequently at lower prices. By gaining access to top-notch services from all around the globe, consumers can enhance their overall happiness and contentment.[4]
Global Value Chains:
The provision of services is essential to global value chains since it enables the production and movement of goods and services across borders. These value chains may be strengthened and brought in line with customer desires if obstacles to international trade in services were to be removed.
Services Trade In India
There has been a noticeable structural shift in India's economy and workforce towards services over the past few decades. India is an important component of knowledge-based economies around the world because its service sector contributed 57.2% to GDP in 2009–10. Indian exports currently consist of services, which account for around 36.68 percent of the total. However, a significant chunk of India's services sector is still underserved by both domestic and foreign researchers.
Over the last decade, India's trade in services has skyrocketed, thanks in large part to the country's liberalization efforts at home and its increased access to the rapidly expanding global service market.
Indian service exports have grown at a faster rate than global average and India's goods export growth rate over the last fifteen years. Due to this upsurge in service exports, India's global service market footprint has grown at a quicker clip than its products market presence. For example, in 2008–09, India sent about US$ 102 billion worth of services abroad. In 2008, India participated in the export of more than 2.67 percent of the world's services, although it only exported 1.11 percent of the world's products. Exports of Indian services increased in value from US$10.871B in 1991 to US$159.503B in 2008, a growth rate of 80.43 percent per annum. In addition, India's services industry and related exports and imports have grown at a faster rate in the last decade when compared to the 1990s. Trade in services is booming in India, a reflection of the country's dynamic service industry.[5]
Table 1: Export of Goods and Services
Table 2: Global Trade in Services of India
Terms of Trade
Another fundamental idea in the field of theory of international commerce is the "terms of trade." Lessening the trade balance deficit, which is the amount of exports required to cover a certain number of imports, is good for a country's economy. The level of living in a nation might rise or fall depending on the state of its commerce.
Let us pretend for a second that the United States sells planes to Japan and that the Japanese buy a thousand televisions. The United States stands to gain more if a single jet can buy 2,000 televisions than if it can buy 500.
The status of international commerce might be affected by changes in government regulations, changes in supply and demand, and other causes. To illustrate how improving trade circumstances may help the US, consider a scenario where Japan's demand for aircraft surges and the country is able to bargain for extra TVs per plane. A shift in the terms of trade would be beneficial for Japan if the nation began producing aircraft, given the increasing demand for them and the need to diversify its supply sources.[6]
Increasing a country's production can make its trade circumstances worse. For example, Japan's terms of trade would deteriorate if its television manufacturers were more efficient and sold their products at cheaper costs. This is because the nation would want more TVs to compensate for the decrease.
As an example of "beggar-thy-neighbor" methods, one country might gain an unfair edge in international business by manipulating its currency or imposing an optimum tariff. Dominick Salvatore argues in his economics textbook that a reasonable tariff is necessary to mitigate the negative effects of falling trade volume and optimize the good effects of improved trade conditions. When one nation puts tariffs on another, it improves its own trade situation while the other country's trading situation worsens. More action is likely to be taken by a trading partner when their wellbeing decreases due to deteriorating terms of trade and decreased trade volume. Because the nation that imposes the tariff earns less money than its trade partner, everyone loses when one country sets the best tariff. This is one manner in which free trade boosts world wealth. This duel will end in defeat for both nations. One country can reap the benefits while another pays the price if this approach were to be implemented by only one.
International Trade and Environment
The idea of "comparative advantage," upon which free trade is built, posits that nations can maximize their competitiveness by trading only in the goods and services in which they excel. Theoretically, this should subsequently benefit the planet's ecosystems. Since trade aids countries in making the most of their resources, it follows that it should encourage ecological sustainability.
However, commerce can sometimes have negative and unforeseen consequences for the environment. When it comes to gaining a competitive edge, many economists see environmental preservation as a surplus good. Neglecting to account for environmental externalities when making economic decisions and setting prices may lead to trade exacerbating unsustainable economic patterns like rising pollution and diminishing resources. To strengthen efforts to safeguard the environment, product pricing should reflect the whole spectrum of resources used in making and using them, including those that worsen environmental degradation.[7]
A large portion of the trade-environment link may be explained by the "critique of the economic growth" paradigm, which posits that international commerce boosts growth.
Think about this scenario: The development of the economic subsystem due to trade liberalization comes at the expense of the ecological subsystem, which is already under stress from increased production and consumption, and the demand on resources is only going to grow as a result. This makes one wonder whether the drawbacks of higher wages, which would allow for more money to be allocated toward environmental conservation, outweigh the benefits.
Causes of Environmental Degradation
Sustainable development is based on the idea that market and regulatory failures are to blame for environmental deterioration. A market failure occurs when the interplay between supply and demand does not lead to a solution that is good for everyone. A common occurrence is the so-called "environmental externalities," which occur when individuals or organizations inflict harm to the environment without facing financial consequences. Spending on cleaning up after polluting activities is outweighed by the amount of money that goes into polluting them. The issue of ambiguous property rights often arises in relation to natural resources. If everyone are free to take and use natural resources as they choose, a "tragedy of the commons" will ensue. [8, 9]
Environmental economics, which is based on the polluter-pays concept, argues that proper environmental regulations should be put in place so that business and consumption 'internalize' all of their environmental costs. Policy fails when governments do not address inefficient markets through taxation and regulation. When they subsidize things like electricity, farming, and fishing, for example, they might make things worse instead of better.[10]
Finally, appropriate taxes and regulations could solve market failures directly, while the elimination of policy failures like the subsidization of polluting and resource-degrading sectors is possible. Freer trade would benefit society if this were the case. Trade liberalization may worsen the effects of ecologically harmful policies, which is a shame because this isn't always the case.
CONCLUSION
There are both regulatory and non-regulatory barriers that prevent the free flow of services across international borders. Because they slow down the transfer of services across borders, these obstacles may mitigate some of globalization's positive effects. How large and pervasive these problems are is, to a large extent, determined by the actions of the government. The international trade of services may be boosted if governments are more open, lessen the burden of red tape, streamline the transfer of data across borders, and fortify international cooperation via trade agreements and multilateral forums. Changing our mindset to be more tolerant and cooperative could have positive effects on the economy, jobs, and global competitiveness. International trade in services is the bedrock of the modern global economy. However, its growth and usefulness might be hindered by governmental limitations and legislation. Trade conditions may be improved for all parties involved if we have a better grasp of the challenges, their effects, and how government actions shape the international services trade environment. Economic development, consumers, and global value chains may all benefit more from governments that embrace trade liberalization, unify rules, and encourage service exporters in realizing the potential of international commerce in services. To benefit from trade services in the modern day, a global market that is more open and competitive is required.
SUGGESTIONS
In the same way that governments can negotiate and sign trade agreements to handle the trade of products, they can also do the same for the trade of services. More market access, fewer obstacles, and trade regulations for services can all result from these accords.
Foster an Optimal Regulatory Climate: Governments can take steps to simplify and standardize rules that impact the exchange of services. Reduced uncertainty for service providers and increased cross-border trade can be achieved through consistent legislation across borders.
Governments should put money into strong digital infrastructure, which includes things like trustworthy internet connections, data protection systems, and cybersecurity safeguards, because digital services are growing in popularity. The supply of digital services across borders can be made easier using this.
Mobilize Skilled Labor: Improving service delivery in international markets is possible through policies that make it easier for qualified experts to migrate across borders. Simplified visa procedures and mutual recognition of credentials can promote skilled labor mobility.
Governments can help service providers who are interested in exporting their services by offering export promotion services, which include guidance and resources. Various forms of export finance, trade missions, and market research fall under this category.
RECOMMENDATION
Negotiate Favorable Services Trade Agreements:
Harmonize Regulations:
Invest in Digital Infrastructure:
Facilitate Skilled Labor Mobility:
Provide Export Support:
REFERENCE
  1. Su, X., S. Anwar, Y. Zhou and X. Tang (2019), "Services Trade Restrictiveness and Manufacturing Export Sophistication", North American Journal of Economics and Finance, available online 27 August 2019.
  2. Van der Marel, E. and S. Miroudot (2014), "The Economics and Political Economy of Going Beyond the GATS", Review of International Organizations 9(2), pp. 205–239.
  3. Wolfmayr, Y. (2012), "Export Performance and Increased Services Content in Manufacturing", National Institute Economic Review No. 220, April 2012, pp. 36-52.
  4. Brooks, Doug and Benno Ferrarini (2010) “Changing Trade Costs between People’s Republic of China and India”, ADB Economics Working Paper Series No. 203, Asian Development Bank (ADB), Manila
  5. IMF (2009) Balance of Payments Statistics Yearbook 2009 CD ROM, International Monetary Fund, Washington, D.C
  6. De, P. (2008a) “Trade Costs and Infrastructure: Analysis of the Effects of Trade Impediments in Asia”, Integration & Trade Journal, Vol. 12, No. 28, pp. 241- 266.
  7. Deardorff, A. V. and R. M. Stern. (2008) “Empirical Analysis of Barriers to International Services Transactions and the Consequences of Liberalisation”, in Mattoo et al. (2008).
  8. Santos Silva, J.M.C and Tenreyro, S. (2006) "The Log of Gravity," The Review of Economics and Statistics, Vol. 88, No. 4, pp. 641-658
  9. Cheng, I.-H, and H. Wall (2005) “Controlling for Heterogeneity in Gravity Models of Trade and Integration”, Federal Reserve Bank of St. Louis Review, Vol. 87, pp. 49-63
  10. Feenstra, R. (2004) Advanced International Trade: Theory and Evidence, Princeton University Press, Princeton.