--By Hom Nath Gaire

 

Today service sector has become one of the most important determinants of national income and trade worldwide. On an average, services account for more than 60 percent of the national income in industrial countries and 50 percent in developing countries, and constitute 20 percent of the total world export. 

 

Before 1980s large segments of the services economy, from hotels and restaurants to personal services, were considered as domestic activities that do not lend themselves to the application of trade policy concepts and instruments. However, services have recently become the most dynamic segment of international trade. Since 1980, world services trade has grown faster, albeit from a relatively modest basis, than merchandise flows. Defying wide-spread misconceptions, developing countries have strongly participated in that growth. Given the continued momentum of world services trade, the need for internationally recognized rules became increasingly pressing.

 

The General Agreement on Trade in Services (GATS) was the first multilateral trade agreement to cover trade in services. Its creation in 1995 was one of the major achievements of the Uruguay Round of trade negotiations, from 1986 to 1993.The turning point moment was almost a half century after its equivalent in the goods area, the General Agreement on Tariffs and Trade (GATT). Since then, over 50 bilateral and multilateral agreements have been signed which contain rules on the liberalization of ‘trade in services’.

 

 

Definition of Trade in Services 

Article I: 2 of the GATS define the concept of “trade in services” as “the supply of a service” within one of four defined “modes of supply”. This definition of “trade in services” through the four different modes of supply is fundamental to understanding the scope and operation of the GATS. It is especially important when in relation to specific commitments inscribed by members in their GATS Schedules relating to market access and national treatment. 

 

Trade in Services under WTO 

The GATS mandates World Trade Organization (WTO) member governments to progressively liberalize trade in services through successive rounds of negotiations. Under the mandate of Article XIX, the latest round of negotiations began in January 2000, the Council for Trade in Services adopted the guidelines and procedures for the negotiations on trade in services. 

 

The WTO's services agreement specifies that each member shall provide non-discriminatory treatment to services and service suppliers of other WTO members. The service waiver by council for trade in services allows WTO members to deviate from their most-favoured nation (MFN) obligation, allowing members to undertake preferential market access commitments in favour of Least Developed Countries (LDCs) like Nepal. 

 

The waiver recognizes that the special economic situation of LDCs, and their development, trade and financial needs, amounts to an exceptional circumstance. The waiver prevents the LDCs for securing an adequate share in the growth of world trade in services.

 

WTO-GATS and Nepal

Nepal entered WTO in 2004 as its 147th member. It has made commitments to liberalize service sectors by ensuring National Treatment and MFNprinciples. Nepal is committed to open all twelve service sectors listed in GATS. Available data shows that the developing countries are highly specialized in exports of services and have comparative advantage in many service sectors. This also indicates that the importance of service in Nepal's economy has also been increasing. 

 

Current scenario of Service trade in Nepal is as follows: 

• Service sector is emerging as a robust precinct of the Nepali economy in recent years. It accounts for around half of the GDP and absorbs around 20 percent of total employment. 

 

• Trade in services accounted for 69.9 percent of total convertible foreign exchange earnings whereas merchandise trade shared only 13.1percent in average during the period between 2004/05 and 2010/11. 

 

• An average income from remittance, tourism and interest on investment abroad is recorded at 83.7 percent, 12.4 percent and 3.9 percent respectively of total service income of convertible foreign exchange during the period 2004/05 - 2010/11. 

 

• Average ratio of remittance to GDP during that period is 16.8 percent reaching 24.3 percent in 2011/12. Similarly, the tourism earnings ratio to GDP is 2.5 percent on an average, which increased from 2.2 percent in 2004/05 to 2.8 percent in 2009/10. 

 

As trade in services mostly does not require transport and transit facilities, Nepal has more potentialities to promote service trade than merchandise trade and get benefit from it. Nepal could behighly competitive in service trade.The availability of human resources at low cost in almost all areas of service sector is an additional advantage to Nepal to develop thissector. 

 

In the area of services, key issues for Nepal are the temporary movement of people across border to supply services (Mode 4 liberalization). Additionally, travel related activities that constitute nearly two-thirds of Nepal's commercial export are also important for Nepal. The most potential sectors/subsectors of trade in service for Nepal are as follows: 

 

Remittance

The migrant worker sub-sector alone amounts an equivalent of one fifth of GDP. At the moment, remittance from migrant workers has been contributing to stabilize the national economy. The remittance has contributed to help reduce poverty significantly all over the country. However, making foreign employment sector more secured, systematic and decent is a big challenge to the Government as it involves many factors. Promoting foreign employment in a systematic and productive manner and utilizing remittance in productive sectors are still challenging tasks. 

 

Tourism 

Tourism is a highly potential sector contributing to national economy in terms of income, employment, foreign exchange and extending market for domestic production of both commodities and services. It is the second largest source of foreign exchange earning of the country. 

 

Water Resources/Hydroelectricity

Nepal is one of the richest countries in water resources. According to an estimate, it has the capacity of producing 83000 MW of electricity, of which 43000 MW is technically viable. Despite huge hydro potentiality, presently Nepal is facing severe energy crisis. There is increasing daily power outage mostly in dry season due to both the low production and high demand. At the same time, electricity has huge potentials in international market, especially in India. 

 

Information and Communication Technology (ICT)

During the last two decades, the ICT has made a turnaround to the extent never experienced before. Taking the world into a different arena of connectivity, ICT sector is emerging as the fastest growing industry in Nepal. If developed properly, it has a potential to emerge as an important trading item. Nepal has already created a niche market in medical analysis and reporting to meet the increasing needs of the global health industry. Although the market is small, the prospects are enormous and even the ability to get a small share will go a long way towards speeding up the pace of economic development by creating conducive employment opportunities within the country. Ability to develop world class human resources along with necessary infrastructure and establishing linkage with the global markets will go a long way in promoting ICT based trade. 

 

Education and Health 

Nepal, in view of its climatic condition and location, does have the potential to be developed as an education/health centre. Development of world class educational and health institutions at appropriate locations will give the feeling of difference. Adding to comfort and ease of attracting students, health care seekers, aging population as well as promoting education and health based tourism, some of which have already started to emerge albeit at a small scale. 

 

Nepal Trade Integrated Strategies (NTIS) has rightly identified health sector as one of the potential exportable services. In addition, the traditional Ayurvedic system of healthcare has taken modern approach and a few hospitals are providing healthcare service mainly to foreign patients. 

 

Conclusion 

It is argued that free trade in services enables countries to better enjoy the benefit of globalization and improve economic efficiency just as free trade in goods does. It is said that it contributes to job creation, higher income, more consumer choice, downward pressure on inflation and a better quality of life. Further, the proponents of trade in services believe that imports of services and foreign investment in services stimulate production and competition that improves the efficiency of domestic service industries and contribute to technological advancement. 

 

However, liberalization of trade in services has in fact led to job losses, increases in prices of services, and discontinuation of service provisions to the poor where suppliers chose to focus on the more profitable segments of society. This can be especially contentious where public services such as water, electricity, health services, and education are involved. Similarly, it is also argued that many services should be regulated to ensure a certain level of quality, to protect consumers or the environment, and in financial services sector, to ensure a country's 'financial stability'. But such regulation whether for economic or social purposes, can be designed, implemented, or enforced in more transparent and efficient ways with positive synergy effects.