Reducing barriers to international trade in services — the opportunity of the century?

In the context of globalization and integration of national economies, interna­tional trade in services plays an increasingly important role. Reducing barriers in this area may become a key factor determining the economic development of the BRICS+ countries. In this regard, careful analysis and new regulatory approaches are needed, as lowering barriers can be a catalyst for economic growth and social progress in these countries. International trade in services such as tourism, infor­mation technology, training and finance plays an important role in shaping the global economy. As a consequence, reducing barriers to free import and export assistance between countries is required.

Within the framework of analyzing barriers to international trade in services, we can distinguish three main categories: tariff, non-tariff and regulatory. Tariff bar­riers include import, export and anti-dumping duties, which are used to regulate trade turnover and protect national interests. Non-tariff barriers, in turn, include import quotas, licensing and certification, which limit the access of foreign goods to the domestic market. Regulatory barriers encompass differences in legislation and normalization mechanisms, such as safety standards and labor regulations, which complicate international trade.

International normalization in import and export activities includes a number of agreements such as the General Agreement on Trade in Services (GATS) and the World Trade Organization (WTO). These organizations aim to reduce barriers to trade in services and create more favorable conditions for access to world markets. Thus, Articles I, II, III, XVI and XVII of the General Agreement on Trade in Services (GATS) establish fundamental principles and rules for international trade in ser­vices aimed at ensuring non-discriminatory and transparent treatment for service suppliers fr om all member countries, as well as the obligation of member countries to accord services fr om other countries treatment no less favorable than that which they accord to services fr om any other countries.

The specificity of regulation in the BRICS countries and international trade is due to differences in national legislation and support mechanisms, which, how­ever, does not prevent member countries from striving to reduce trade barriers and create favorable conditions for imports and exports, thus contributing to the devel­opment of the economy and trade both within and outside the bloc. Within the BRICS framework, there is multilateral cooperation based on the principles of an open, transparent, non-discriminatory and inclusive trading system, as enshrined in documents such as the Declaration of the 2016 BRICS Summit in Goa. One of the key areas of cooperation is the regulation of digital platforms, which plays an important role in the development of digital trade. In addition, BRICS has a Cus­toms Cooperation Committee, which aims to coordinate customs procedures and standards to facilitate trade between member countries, which in turn requires taking into account the specifics of each country’s national customs legislation. For example, Brazil’s Customs Law regulates the importation of goods by provid­ing for import customs duties, industrial products tax and tax on the circulation of goods and services, Russia has a Customs Code regulating customs procedures and duties, and India, in addition to national customs laws, participates in regional trade agreements such as the agreement with MERCOSUR.

An important aspect of BRICS cooperation is the harmonization of invest­ment law, as each member country has a unique legal framework governing the attraction and protection of foreign investment, which creates both opportunities and challenges for investors. All BRICS countries are parties to key international agreements such as the 1965 Washington Convention on the Settlement of Invest­ment Disputes between States and Foreign Persons (ICSID) and the Agreement on Trade-Related Investment Measures (TRIMs) under the WTO. However, dif­ferences in national legislation and practice of its application remain significant. For example, in Russia, the main investment law norms are enshrined in Federal Law No. 160-FZ “On Foreign Investments in the Russian Federation”, which pro­vides for national treatment of foreign investors, except for restrictions in strategic industries such as energy and defense. In India, foreign investment is regulated under the Foreign Exchange Management Act (FEMA) of 1999, which sets limits on foreign capital stakes in various sectors, such as retail (up to 51%) and insurance

(up to 74%). In Brazil, the main regulation is Law No. 13.097/2015, which allows foreign investment in most sectors of the economy, but maintains restrictions in areas such as aviation and telecommunications.

China regulates foreign investment through the 2020 Foreign Investment Law, which introduced a “negative list” system that lists industries closed or restricted to foreign capital, such as education and health care. These differences in approaches to regulating foreign investment create challenges for investors seeking to operate in BRICS markets. For example, Russian companies investing in India’s energy sector face restrictions on the share of foreign capital, while Chinese investors in Brazil may face difficulties due to bureaucratic barriers in obtaining permits. Nevertheless, reducing investment law barriers and harmo­nizing legislation within the BRICS framework could be the “opportunity of the century” for member countries. The creation of common standards for invest­ment protection, simplification of project approval procedures and unification of approaches to dispute resolution, for example, through the establishment of a BRICS arbitration center, could significantly increase the bloc’s attractive­ness to foreign investors. This, in turn, will contribute to the growth of mutual investments, infrastructure development and technological exchange, which will strengthen the BRICS position as one of the key centers of the global economy. Thus, overcoming differences in the area of investment law could be an important step towards deeper economic integration and turning the BRICS into a global driver of investment growth.

The modern world economy is increasingly oriented towards trade in services, which is confirmed by statistical data. Over the past five years, the share of services in world trade has grown to 25%, according to WTO and UNCTAD reports. The contribution of the BRICS+ countries is particularly notable, accounting for 15% of global services exports in 2023. However, despite this progress, barriers to trade in services remain significant. For example, the average level of restrictions in the services sector in BRICS+ countries is around 30%, significantly higher than in advanced economies. This creates barriers to further growth, especially in promis­ing sectors such as IT, education and health care. For example, in India and China, IT services are growing at 10-15% annually, but persistent constraints such as com­plex licensing procedures and restrictions on foreign investment are holding back their full potential.

China and India, as key BRICS+ members, have shown significant progress in services sector development, but still maintain a number of barriers that lim it their full potential. In China, despite the rapid development of IT services and the digital economy, restrictions on foreign investment in sectors such as telecommunica­tions and financial services remain. For example, under the PRC’s 2020 Foreign Investment Law, foreign companies face joint venture requirements and foreign equity restrictions, making it difficult for them to enter the market. In addition, China has strict data transfer rules enshrined in the 2017 PRC Cybersecurity Law, which requires companies to store user data within the country, creating additional challenges for international IT companies.

India, on the other hand, is actively developing its IT sector, which already accounts for a significant part of its services exports. However, barriers in the form of complex licensing procedures and bureaucratic hurdles are holding back further growth. For example, in the education sector, foreign universities face restrictions imposed by the Foreign Educational Institutions Act 2010, which requires multiple permits to open branches. At the same time, India is actively working to reduce barriers in sectors such as healthcare, wh ere simplified certification procedures for medical devices, enshrined in the Medical Devices Amendment Act 2020, have already led to increased foreign investment.

Comparing the two countries, China places more emphasis on protecting the domestic market, while India is gradually moving towards liberalization, especially in IT and education. However, both countries face common challenges such as the need to harmonize regulatory frameworks and remove discriminatory measures. Reducing these barriers, as envisioned in the WTO Agreement on Trade in Ser­vices (GATS), will not only strengthen their position in the global services mar­ket, but will also be an important step towards a more open and competitive global economy.

The World Bank and the International Monetary Fund (IMF) have projected that lowering barriers to trade in services could lead to a significant increase in trade in BRICS+ countries. For example, it is expected that by 2030, liberalization of the IT, education and health sectors could increase trade in services in these countries by 20-25%. This will be possible due to increased foreign investment, improved market access and increased competitiveness of domestic firms. In par­ticular, it is predicted that China and India could increase their share of global ser­vices exports to 10% and 7% respectively, emphasizing their key role in the global economy.

A number of innovative solutions are proposed to further reduce barriers and stimulate the growth of trade in services in BRICS+ countries. First, the digitali­zation of services trade processes can significantly simplify interactions between countries. For example, the introduction of e-visas, digital contracts and online learning platforms will reduce bureaucratic costs and speed up market access. Second, harmonization of standards in key sectors such as education and health care will be an important step to ensure mutual recognition of qualifications and certificates. This is particularly relevant for health services, wh ere harmoniza­tion of standards can promote medical tourism and the exchange of specialists. Finally, to strengthen cooperation within the BRICS+ framework, an initiative to establish a free trade area for services is proposed. This approach would allow member countries to eliminate discriminatory measures, harmonize legal and regulatory frameworks and create an enabling environment for the devel­opment of key sectors. For example, a common services market within BRICS+ could become a platform for joint projects in IT, education and health care, which would strengthen their position in the global market and ensure sustainable eco­nomic growth.

The reduction of barriers to trade in services in the BRICS+ countries will lead to a significant economic effect. According to experts’ estimates, an increase in services exports could contribute to GDP growth in these countries by 1.5-2% annually. This will be possible due to increased access to international markets and attraction of foreign investment in such promising sectors as IT, education and healthcare. In addition, the development of these sectors will create new jobs, which is especially important for countries with growing populations, such as India and South Africa. For example, the IT sector is expected to create up to 5 million new jobs by 2030, which will significantly reduce unemployment and improve liv­ing standards.

The social impact of liberalizing trade in services will also be significant. Improved access to quality educational and health services will be a key factor in raising the level of human capital. For example, simplification of procedures for for­eign universities and medical institutions will allow citizens of BRICS+ countries to receive world-class education and treatment. In addition, the development of small and medium-sized businesses in the service sector, such as tourism, consult­ing and digital services, will contribute to poverty reduction, especially in rural and remote regions.

The implementation of the proposed measures will lead to an increase in the share of BRICS+ countries in global trade in services from the current 15% to 20-22% by 2035. This will strengthen their position in the international arena and promote economic integration among the member countries. For example, the establishment of a BRICS+ free trade area for services will remove existing barriers and harmonize standards, which will facilitate interaction between countries.

The proposed measures can be implemented within the framework of exist­ing BRICS+ agreements and adapted to the specifics of each country. For exam­ple, China and India could focus on IT and educational services, while Brazil and South Africa could focus on medical tourism and environmental services. Such an approach would provide flexibility and take into account the unique needs of each economy, making the liberalization process more effective and sustainable.

Thus, reducing barriers to international trade in services is a strategi­cally important task for the BRICS+ countries, which requires a comprehensive approach and harmonization of regulatory frameworks. The analysis has shown that existing restrictions, such as complex licensing procedures, restrictions on foreign investment and heterogeneity of standards, significantly hinder the devel­opment of key sectors, including IT, education and health care. However, as the examples of China and India demonstrate, gradual liberalization and introduction of modern solutions, such as digitalization of processes and unification of stan­dards, can become a powerful catalyst for economic growth.