Dodwell in SOM3 Medan - Post 12

July 08, 2013

CTI Chair John Larkin and the delegates at CTI meeting in Medan

Keeping the best for last. Services liberalization is close to Hong Kong’s heart, and so the presentations in Medan to the Group on Services and the CTI on our ABAC Services agenda – in particular the headway made in Surabaya in our “Services Dialogues” – were deeply gratifying.

Since the Surabaya Dialogues, which allowed ABAC and PECC together to table for APEC officials the reasons why we believe services liberalization is so fundamental to our region’s future competitiveness, recent research from the OECD and the WTO has made steadily clearer how high a price economies pay for denying their manufacturers access to competitively priced services – in particular logistics and communications services.

The story had been brilliantly articulated in Surabaya by Chatib Basri, now Indonesia’s Finance Minister, who elaborated how Indonesian companies – in particular SMEs - would remain permanently vulnerable to foreign competitors, and could never successfully compete in foreign markets, while they had to pay such high prices for services inputs.

Since then, OECD work has shown that the majority of global trade is now locked into global production chains, with services accounting for more than half of the value along the chain. According to the OECD work, companies with uncompetitive services inputs are unattractive as partners along these supply chains, and so fail to become exporters. Lesson: ensure your companies have competitive input costs, in particular in services, and they have a good chance of docking into global supply chains that assures them a place in international trade. If you fail, your companies will not succeed in docking into these chains, and will remain constantly vulnerable to foreign competition.

These massages give empirical substance to the story ABAC has been describing for many years: trade is increasingly bundled along global supply chains, with fewer and fewer goods made in economy A for export to economy B: trade is increasingly in components and intermediate goods and services, not in finished products; key success factors for successfully exporting are a company’s success in embedding in production chains, not in producing finished goods.

These messages clearly form part of the ABAC services agenda going forward, though the data are so recent that few have had chance fully to assimilate their implications. In ABAC, we will be mining the data further to discover the full implications of the OECD findings. Almost certainly, the Public Private Dialogue on Services requested by the SOM for 2014 will focus on discovery from this work.

Meanwhile, our services agenda remains rich and dynamic: continue strong advocacy; elaborate on insights from the OECD-WTO work; publicise findings from the ongoing Marshall School study on obstacles to foreign investment; continue to press for an “Expert Group” focused on services liberalization; and prepare the agenda for next year’s services dialogue.

The old macho mantra was that Real Men don’t do Services: today if you don’t do services, you will never become a real man. The message may not be very macho, but an economy ignores it at its peril.

⇒  More blog posts from the SOM3 Medan meetings series.

⇒  Dodwell's other meetings blogs.

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