Services Trade Restrictiveness Index by OECD

Mains Paper 3 : Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : STRI

Mains level : Ease of doing business in India



News

  • India has found problems with the current method under which the Organisation for Economic Cooperation and Development (OECD) ranks countries based on their services trade policies, indicating the outcomes are biased and counter-intuitive.

Services Trade Restrictiveness Index

  • Launched in 2014, the Services Trade Restrictiveness Index (STRI), computed by the OECD, is now available for 2018 for a total of 45 economies (36 OECD and the rest non-OECD) and 22 sectors.
  • The STRI helps to identify which policy measures restrict trade.
  • It provides policy makers and negotiators with information and measurement tools to improve domestic policy environment, negotiate international agreements and open up international trade in services.
  • It can also help governments identify best practice and then focus their domestic reform efforts on priority sectors and measures.
  • The STRI database is based on regulations currently in force. STRI indices take the value from 0 to 1, where 0 is completely open and 1 is completely closed.
  • The STRI Simulator enables policy makers and experts to explore the impact of a change at a detailed level for each measure, and to compare a specific country with a range of other selected countries in a particular sector.

Issues with the Index

I. Bit of impracticality in the index

  • The index has a large number of problems associated with it, including some significant design issues that render it impractical for use, a study commissioned by the Commerce Ministry found.
  • For example, the index seems to show the Indian services sector as one of the most restrictive, particularly in policy areas like foreign entry..
  • This seems surprising as since 1991, the one area that has seen maximum liberalisation in India is FDI.”

II. Liberalisation of FDI not considered

  • There are both theoretical and empirical inconsistencies in the OECD methodology.
  • For example, change in regulatory measures in one policy area can lead to dramatic changes in the STRI in another policy area which is not very useful for policy purposes.
  • It seems obsolete that India’s foreign entry restrictions are being classified as being the most restrictive derecognizing the 1991 reforms.
  • In addition, the data seems to have been generated by rather arbitrary procedures and reflects a developed country bias.

Way Forward: Building consensus

  • India has approached several developing countries during the recently-concluded WTO talks in New Delhi to try to build consensus around the new method of measuring trade restrictiveness in the services sector.
  • The manufacturing trade has a well-documented system of classification of commodities through which we can tell exactly what the commodity is and also what the applied tariffs and effective tariffs are, and, hence, see how restrictive any country’s policies are.
  • The problem in services is that for a long time there wasn’t any way to know whether a country’s policies were restrictive.

Summary report for India:

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