Quantification of Services Trade Restrictions - A new Approach

The gradual transformation in the structure of trade with services contributing to almost two-thirds of the global GDP, has made the design and implementation of services trade policy a high-profile issue for many countries. With the process of regulating commodity trade being known, it is expected that most of the future trade negotiations at the WTO will also be centred around services. In fact, a services trade chapter is already being included in some RTAs like TTIP, TPP, India-ASEAN along with the related issue of foreign investment. It is now well known that though the RCEP negotiation’ details are not publicly known, a sticking point is the extension of the agreement to services trade. However, in comparison to the extensive literature available on regulations affecting commodity trade, very limited attention seems to have been paid on assessing services trade restrictiveness. Recently, the OECD has come up with an objective indicator of services trade regulations, known as the OECD STRI. However, its methodology suffers from various theoretical and empirical shortcomings, which makes it inadequate for policy purposes. To this end, the paper proposes a new and theoretically sounder approach for quantifying services trade restrictions, which is both consistent and country neutral.