University of Southern California

Loosen Up Trade Barriers or Lose Billions
MBA Report Urges Pacific Rim Countries to Free up Service Sector
September 5, 2012 • by News at Marshall

A team of USC Marshall MBA students is calling on Pacific Rim economies to loosen or end barriers to trade in services, impediments that cost the region hundreds of billions of dollars in annual GDP.

The Marshall research team – which included Bertram Foster, James Connor Bascue, Carlos C. Canepa, Andrew Chen, Jonathan Choumas, Philipp Galkin, Hiroki Ito, Vikramjeet Kaur, Cristian Liu, Britt McEachern, Carolyn Lavelle Rearick, Sandeep Rajagopal, and Warren Wong – traveled to Vladivostok, Russia, in late August to present its report, “Trade in Services in the APEC Region: Challenges and Opportunities for Improvement,” to an advisory council of the Asia-Pacific Economic Cooperation (APEC).

APEC is an organization focused on promoting free trade and furthering economic growth among its 21 member nations spanning four continents, from Australia to China and Russia, from Chile and Papua New Guinea to the United States and Canada. APEC is the world’s largest regional cooperative, in a region that accounts for approximately 40 percent of the world’s population and nearly half of the world’s GDP.

The Marshall team represents the only business school invited to share its findings with the APEC Business Advisory Council (ABAC), a collection of 63 business leaders from each APEC nation, who meet to advise APEC on strategy.

Team leader Bertram Foster MBA ’13 said he is optimistic APEC business leaders will pass along report findings to the leadership in their countries.

"The idea is to provide some high-level recommendations and guidance that APEC could use to further initiatives over the next five to 10 years," Foster said. "The main goal of the report is to highlight the fact that services trade is woefully underdeveloped compared to goods trade, and to present some findings about how much economic growth could come if APEC took action to further liberalize trade."

Services trade, which includes everything from business and financial services to distribution and educational services, can be hampered by “at-the-border” hurdles, such as tariffs, and “beyond the border” challenges, which include a country’s industry standards and professional requirements.

In spite of those hurdles, services still represent the majority of GDP and employment around the world. Driving growth in the service sector is "an incredibly powerful way to promote regional growth, development and jobs creation," the report states.

In assembling their report, team members conducted interviews with 231 business executives, government officials, academics and thought leaders knowledgeable about trade services in APEC and throughout the world. Among their findings:

  • A 10 percent reduction in trade costs could result in $100 billion of additional services-related GDP within APEC.
  • In 2010, only 6 percent of total services produced within APEC were exported, compared with 63 percent of total goods.
  • Scarcity of data on trade in services has major implications for policy making. Differences in definitions, measurements and the lack of detailed service trade statistics for all economies make it difficult to identify trade pattern trends. Without reliable statistics, governments cannot assess the effectiveness of their policies.
  • Domestic regulations and efficiency of government agencies with services sector oversight have larger impacts on trade in services than do market access barriers.

Research team adviser Carl Voigt, professor of clinical management and organization at USC Marshall, said behind-the-border barriers can be driven by a fear among emerging economies that they will be exploited by developed economies. Additionally, because services delivery often involves moving people across borders, there are concerns that trade in services will result in job losses, he added. The reality is different, Voigt said.

"When you trade services, you also improve the competitiveness of your local markets, and that leads to better quality services at lower prices. It also leads to increased innovation," he said, "We could be providing so many different services if we could think about doing things differently."

About the USC Marshall School of Business
Consistently ranked among the nation's premier schools, USC Marshall is internationally recognized for its emphasis on entrepreneurship and innovation, social responsibility and path-breaking research. Located in the heart of Los Angeles, one of the world's leading business centers and the U.S. gateway to the Pacific Rim, Marshall offers its 5,700-plus undergraduate and graduate students a unique world view and impressive global experiential opportunities. With an alumni community spanning 123 countries, USC Marshall students join a worldwide community of thought leaders who are redefining the way business works.