This session focused on multilateral trade rules in services and on the effects of these rules on poverty.

The speaker noted that, from a theoretical perspective, the basic premise is that well functioning service industries contribute to overall economic efficiency and higher long-run growth; ceteris paribus these should benefit the poor. In addition to ‘traditional’ gains due to comparative advantage, gains from service liberalisation may result from economies of scale and scope (especially important for small economies), and lower costs of service inputs used for the production of goods. Further, liberalisation in the service sector is often accompanied by the break-up of public monopolies. Long-term growth prospects should be improved through increased investment and greater diffusion of knowledge. Nonetheless there are risks, notably associated with possible ‘brain drain’. Empirical evidence on the link between service liberalisation and growth, though still limited, does point to a positive relationship.

Accomplishing successful reform of service markets entails liberalisation both domestically (e.g. elimination of barriers to cross border trade and commercial presence of foreign service providers) and in foreign markets (e.g. removal of restrictions on movement of individual service providers and consumption abroad). In addition, it is important that service reforms are credible. This may require strengthening domestic regulations to address market failures and social objectives, and the development of competition policy to address private abusive practices.

Alhough services liberalisation often lowers prices and improves access for the poor, there are a number of risks that may particularly affect them. Liberalisation may, for example, entail the elimination of (cross-) subsidies that benefit poor groups, or private firms may "cherry pick" in such a way that gains from liberalisation may be directed at the rich rather than the poor. The latter raises the issue of how to address universal service requirements/regulations to enhance or poor peoples’ access to affordable services. More research is necessary on the way service liberalisation affects the poor through employment, consumption and income effects.

In the discussion it was noted that, while the speaker had emphasised the effects of the liberalisation of imports (benefits from domestic market liberalisation), the focus in negotiations tends to be on exports. While it may be the case that developing countries can benefit from (cheaper) service imports, their capacity to produce and export internationally competitive services is limited and relatively little attention has been paid to export opportunities for developing countries. Most notably, the (free) movement of individual service providers (mode 4) and the movement of low skilled labour, in particular, is a neglected area of research and discussion. Most research has focused on high skilled labour (e.g. ICT) but the factor that developing countries have in abundance is low skilled labour. Moreover, it is with respect to this group that a direct link can be made from services trade through mode 4 to poverty (reduction).

The focus of attention in the GATS negotiations, and of research, on only a few services sectors of greatest interest to developed countries (e.g. telecommunications, financial services and transport) was raised as an issue. Though studies have shown the importance of sectors such as tourism, construction, health and education for developing countries, more work is necessary. In this respect, and in view of the very heterogeneous nature of services, greater dissaggregation in the analysis of service activities is required.

Turning to the provisions of the GATS, it was noted that these do not allow for Special and Differential Treatment. While two articles of the GATS (article 4 and 19) do make reference to developing countries, in practice it does not appear that these have helped developing countries very much. At the same time, due to the shortcomings of Balance of Payments data and the very limited date international services transactions, it is difficult to draw conclusions on the growth of trade in services.

For foreign direct investment, GATS makes a contribution by providing international credibility to domestic reforms and this would be increased if negotiations focused on binding the existing regime. At the same time, there may very well be legitimate concerns over high levels of market concentration in many services sectors, the risks of market failures, and the pursuit of social objectives (e.g. access of the poor to services). It follows that discussion of investment and competition policy cannot be separated. In these areas, however, it is often difficult for developing countries to formulate the right set of measures necessary to achieve an appropriate balance between regulation and protection. In this respect, many of the conditions currently imposed on foreign subsidies do not contribute to development aims, though there are others that do or could contribute (e.g. in the field of training and employment). More research of the effects of possible sets of conditions on the behaviour of foreign investors is required and this, in turn, may strengthen the negotiating position of developing countries.