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Services

Services have become an increasingly important topic in the WTO and in the world trade agenda as well as in the European Union (EU) and in the creation of an effective Single Market in Europe.

This importance flows firstly from the simple fact that services represent on average 70 percent of countries’ GDP, meaning that any change in services necessarily has a major effect on countries’ economies and on the world economy.

Secondly, this importance also flows from the fact that, even though trade in services has increased during the last decade, domestic services markets are still highly protected, compared to product markets. This situation prevails even within the EU—in fact, intra-EU liberalisation in services is largely coupled with liberalisation at the world level (the same was observed for trade in goods in the 1960s-1990s). A high level of protection in services means that massive efficiency gains can be expected from trade liberalisation in services, creating a strong impetus for growth and development.

Lastly, services liberalisation raises more complex problems than product market liberalisation. First, services are often protected by regulations which can have both desirable effects (for instance, providing some guarantee as to quality) but also undesirable consequences, such as protecting domestic service providers from foreign competition. More than ever, it is therefore necessary to evaluate the costs and benefits of existing or proposed regulations. Second, product liberalisation generates welfare gains and reduces administrative costs (because of fewer formalities, less red tape, less corruption, etc.). By contrast, services liberalisation creates welfare gains, but generally requires better regulations, and hence increases administrative costs, even though this latter evolution may be the price to pay for better governance.

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