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Home > Business > PTI > Report

World Bank supports outsourcing strongly

T V Parasuram in Washington | April 23, 2004 13:02 IST

The World Bank has strongly favoured outsourcing of jobs and free movement of temporary workers in the mutual interest of high-income countries like United States and developing countries like India and China.

In a paper titled Global Monitoring Report assessing the progress in achieving the Millennium Development Goals, the World Bank said countries like India, the Philippines, China and South Africa have vast capabilities in information technology.

It has been prepared ahead of Sunday's meeting of the Development Committee of the World Bank and the International Monetary Fund.

Stressing that a successful, pro-development outcome of the Doha Round of trade talks is critical, the paper said agreement on some focal points or targets for trade policy reform would give it an impetus.

Such focal points could include 'commitments to ensure free cross-border trade in services delivered via telecommunications networks, complemented by actions to liberalise the temporary movement of service providers.'

It also mooted 'complete elimination by high-income countries of tariffs on manufactured products by a target date; removal of agricultural export subsidies and complex de-coupling of all domestic agricultural subsidies from production; and reduction of agricultural tariffs.'

The World Bank said services sector is the fastest growing component of world trade. Developing countries have expanded export of services nearly four-fold in the last decade -- a faster rate than export of goods.

Thanks to the services sector, developing countries increased their share of the global market to 18 per cent, up from 14 per cent in the early 1990s.

In large part, this reflects growth in the business process outsourcing services. Within BPO activities, the more advanced developing countries are moving from providing only low-end back-office services to more integrated and higher-end service bundles in fields such as customer care, human resource management, and product development.

Greater access to developed countries' markets for the temporary movement of natural service providers and commitments to maintain liberal policies towards cross-border trade through telecommunications networks would be both valuable in themselves and assist developing countries in pursuing beneficial domestic reforms, the World Bank said.

Meanwhile, the movement of service-supplying personnel remains a crucial means of delivery even for the Indian software industry -- close to half of Indian exports are still supplied through the temporary movement of programmers to the client's site overseas, it added.

The potential gains from successful liberalisation of trade in services are huge, it said. The US banking industry alone is estimated to have saved more than $8 billion over the last four years, and annual savings of the world's top 100 financial institutions could be as high as $138 billion.

Analysis suggests that the real income gains associated with pro-competitive reforms that increase variety and quality and lower the costs of services could be a multiple of the gains resulting from liberalization of trade in goods.

The World Bank study said remittance flows associated with migration are now a major source of external funding for developing countries. Remittances received by them are estimated at $93 billion in 2003, up 14 per cent from the previous year.

There is little doubt that despite dramatic developments in technologies for electronic delivery of services, movement of workers will remain important, it said.

As their populations age and their average levels of training and education rise, developed countries will face an increasing scarcity, in particular, of moderately and less skilled labour. Given that there is no substitute for human labour in some activities (like caring occupations, personal services, and a range of professional services), the demand for temporary workers is likely to increase over time.

However, a major problem is that the temporary movement of service providers invariably is affected by regulations imposed by multiple authorities, immigration legislation and labour market policy, it said.

To date, only limited progress has been made to liberalize international service transactions, it added.

For developing countries, the World Bank said, what matters most in terms of what developed countries can do on trade in services -- as in goods -- is improved market access.

Specific commitments to open markets through liberalisation of temporary movement of natural service suppliers would also be very valuable, although more difficult to achieve, it said.

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