Service Sector Protection: Considerations for Developing Countries

The inclusion of services in the Uruguay Round of multilateraltrade negotiations has focused attention on the protection ofdomestic service suppliers against competition from foreignsuppliers. Issues arising from these negotiations, however,may obscure another and more important issue: the case for unilateralliberalization. This article first surveys methods of protectionin the service sector, and then examines the likely cost ofprotection. Particular attention is given to developing countries.What evidence there is suggests that the costs of protectionmay be high. The article also discusses economic principlesthat could guide a review of policy toward international transactionsin the service sector. Quantitative restrictions or bans onforeign service suppliers—whether they wish to supplythrough trade or establishment—cannot easily be defendedin economic terms, and provide an obvious first target.