Lower transport costs are associated with integration of markets within an economy and of those domestic markets with the rest of the world. These linkages support economic development. Determinants of transport costs include policy choices by government. A wide set of policies affects the performance of the transport sector, but the focus in this chapter is the contribution of trade policy and its reform. GATS provides a structure in which policy makers can commit to policy changes in the transport sector. Foreign participation in the transportation sector offers gains from specialization and trade, from competition, and from making available a wider variety of services. Reform in the transport services sector can lead foreign suppliers to establish local operations. There are some special features of the transport sector that complicate the application of trade-policy reform that indicate that successful trade-policy reform in this sector will demand a high level of capacity in government to design a trade-policy reform strategy. Support in this is an item for economic cooperation between developed and developing countries. A further concern linked to policy reform in the transport sector will be its impact on poor areas. International negotiations and the related commitments made through the GATS has added credibility to domestic policy, which is important because of the nature of the investment necessary in the transport sector, to suggest the direction of changes in regulatory reform, and perhaps to offer additional market-access opportunities that ease the adjustment costs in domestic markets that are becoming more open. The addendum to the chapter discusses issues and trade-offs for competition and reliability in trade in transport services.
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