Service Sector Protection: Considerations for Developing Countries

Abstract

The inclusion of services in the Uruguay Round of multilateral trade negotiations has focused attention on the protection of domestic service suppliers against competition from foreign suppliers. Issues arising from these negotiations, however, may obscure another and more important issue: the case for unilateral liberalization. This article first surveys methods of protection in the service sector, and then examines the likely cost of protection. Particular attention is given to developing countries. What evidence there is suggests that the costs of protection may be high. The article also discusses economic principles that could guide a review of policy toward international transactions in the service sector. Quantitative restrictions or bans on foreign service suppliers—whether they wish to supply through trade or establishment—cannot easily be defended in economic terms, and provide an obvious first target.