CAIRO: The liberalization of trade in services on a global scale has lagged behind that of goods, but the potential gain is significant for many countries.
In Egypt, services account for nearly half of the nation s economic output, and opening up the market to foreign competition and investment can support the growth of other sectors.
Tourism is a good example of the interrelation between different sectors. Most observers agree that Egypt is far below its potential in tourism, with only 8.5 million visitors last year compared to over 20 million in Turkey.
The official target of 15 million visitors per year by 2011 cannot be achieved without increasing airline capacity. However, the national carrier EgyptAir is unlikely to be able to raise sufficient financing to meet the expected demand, according to Adla Ragab, assistant professor at Cairo University.
In addition to opening the skies to foreign carriers, a stable and predictable regulatory environment is necessary to attract investment from abroad.
Liberalization means gaining access to markets and giving national treatment … It s all about competition under a stable regulatory framework, says Abdel-Hamid Mamdouh, director of the trade in services division at the World Trade Organization.
Such a regulatory environment has already helped the development of the call center industry in Egypt.
Adel Danish, chairman and CEO of call center operator Xceed, says that the privatization of Telecom Egypt combined with the liberalization of broadband services and the reduction of tariffs on telecommunications equipment contributed to the reduction of telecommunications costs, paving the way for growth in offshore operations.
Being in a state of mind of a liberal economy in general, and specifically in our case with the liberalization of telecommunications, opened the market for us, says Danish.
These broader implications are a distinctive feature of trade negotiations related to services.
When we speak about services, what s important is not customs duties but processes, says Mona El-Garf, lead economist at the Ministry of Trade and Industry.
Egypt has made specific commitments to the WTO to reform its regulatory environment and open its markets in the fields of financial services, construction, tourism, maritime transport and telecommunications sectors.
The next period is very important for us … We have made many commitments [and] we have a huge stake, says Taher Helmy, president of the American Chamber of Commerce in Egypt and partner at law firm Baker & McKenzie.
Helmy adds that the availability of skilled personnel suitable for a more competitive environment is questionable. It s a chicken and egg situation, so it s very serious, says Helmy.
This is exacerbated by overstaffing at many state-owned enterprises that are slated for privatization.
We cannot underestimate the challenge of trying to deal with the unemployment problem relating to the reform process. It s going to be painful, says Mamdouh.
But such transitory pains may be unavoidable if the nation is to integrate into a competitive global trading system.
Historically, a substantial portion of services, including electricity and transport, were considered public utilities provided by the state.
Over the past 25 years, these services have increasingly shifted to the private sector, while regulations and trade agreements have not responded fast enough to this trend.
Services are now an important part of many bilateral trade agreements. They have also been incorporated into WTO negotiations with the signing of the General Agreement of Trade in Services in 2000.
The experience of other countries also demonstrates the commercial risks in the process of liberalization.
The privatization of the electricity market in the United Kingdom had disastrous results, with energy companies accumulating enormous losses. The United States also witnessed the bankruptcy of major airlines following the deregulation of its airline sector in 1978.
The liberalization of services therefore presents significant opportunities and challenges for local businesses, but the benefits of a reformed environment are not restricted to commerce.
In the absence of a sound regulatory environment, decisions relating to business oversight are left to government officials. This creates room for arbitrary government supervision and corruption, while reforming the regulatory environment eliminates such possibilities.
Improving the quality of services also has a clear effect on all aspects of the economy, including manufacturing and agriculture.
You can have an economy without an agricultural sector. Take Singapore and Hong Kong, for example. But you can t have a functional economy without a services sector. It s the backbone of an economy, says Mamdouh.