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Trade in services holding up but protectionism rising

Business Online
Monday, July 6, 2009
TRADE IN SERVICES has so far weathered the global downturn better than the merchandise business, but protectionism in the guise of hiring conditions and disapproval of outsourcing may hurt the sector later, the World Trade Organization said in a report.

The Philippines' outsourcing industry, meanwhile, has not been hurt by the downturn and is expected to overcome protectionist policies by foreign governments, other experts said.

"With respect to trade in services, which accounts for over one-fifth of global cross-border trade, limited data shows that services trade appears to be weathering the global financial and economic crisis better than trade in goods," WTO Director-General Pascal Lamy said in report.

"Data are not available to permit global forecasts to be made, but preliminary indicators for some countries suggest that trade in services has been more resilient."

Mr. Lamy’s report has been submitted to the Trade Policy Review Body ahead of a July 13 meeting.

In contrast, global trade in goods is expected to shrink by 10% from 2008 levels while developing countries’ exports will sustain a less severe 7% drop, the report reads.

Mr. Lamy reckons that services has been partly insulated because demand is less cyclical and because services production — able to cross borders using electronic signals — is less dependent on trade finance.

Business Processing Association of the Philippines Chief Executive Officer and President Oscar R. Sañez concurred.

"That’s consistent with what we are saying. The services we do are operational functions like customer service, back office finance and human resources that have to continue despite the crisis, unlike new projects like software development in India. The other reason is there is pressure on companies to reduce costs," Mr. Sañez said in a telephone interview on Friday.

The industry group expects the sector’s sales to grow by 23% this year and generate 100,000 new jobs. Merchandise export sales, on the other hand, are expected to fall by 16%, according to the Export Development Council.

The Philippines’ special trade representative to the WTO, Jose Antonio S. Buencamino, said in another telephone interview that policies would not deter outsourcing as "there is a natural impetus for companies to cut costs."

But Mr. Lamy went on to say in the report that "the changing political and social climate, as well as increasing state intervention in crisis countries, could introduce a national bias regarding procurement and the location of economic activity."

"In this sense, outsourcing might be a sector negatively affected by this situation."

Mr. Lamy noted that while few restrictive actions had officially been taken against outsourcing, "implicit social and political disapproval of outsourcing may have an immediate chilling effect on demand."

Bailout packages for banks in exchange for buy-local hire-local conditions may likewise hurt outsourcing, he said.

The Philippines, however, continues to enjoy a rise in demand for offshored financial services, Mr. Sañez said. He noted, though, that there were indeed talks to retain local jobs in the US, UK and Australia.

Mr. Buencamino, for his part, said his office had yet to receive complaints against trade partners’ planned policies.

The Philippines, he said, will push through with its commitments to further free up trade within the Association of Southeast Asian Nations and via the Doha round.

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