Estimations of Tariff Equivalents for the Services Sectors

Abstract

Services is the largest sector in the global economy, representing 70% of world added value and over half of total employment. However its share in total international trade is only 21%, in part due to the high level of regulatory protection in domestic markets for services. Simulations relying on Computable General Equilibrium (CGE) modeling point to large gains associated with the partial liberalization of services in the rich economies, but also in some developing countries. Since these estimations rely on tariff equivalents of protection on services, accurate measure of the level of protection on services are a crucial issue for policy makers. One problem lies in the specific nature of services compared to goods. Proximity between producer and consumer and the intangible characteristics intrinsic to services produce different impediments to trade in services from those that apply to goods. They include limitations such as quotas, licences, interdictions of some activities to foreigners, and government regulations designed to reduce market access to foreign services and/or discriminate in favor of domestic firms. Hence, liberalizing national trade in services essentially requires a change in national regulation. Identifying the actual tariff equivalents of these regulations is not straightforward. Data on actual policies are scarce and transforming qualitative information into a quantitative measure of protection is difficult. Therefore, we depart from the inventory approach used to build indexes of the restrictiveness of policies in the service sector, and also from the so-called two-stage method, in which information on barriers faced by exporters of services on their destination markets is used to explain international differences in price-cost margins within the services sectors. The context is appropriate for an indirect approach consisting of computing tariff equivalents and revealing protection by comparing ...