This study analyses how domestic regulation affects trade in services through commercial presence and to what extent regulation, level and heterogeneity, has an impact on the choice of mode of servicing a foreign market for total services, financial services, transport, communication, computer, and other business services. Regulatory heterogeneity is found to have a relatively large impact on trade through commercial presence. If all countries in the sample harmonized or recognized each other’s regulation, total services trade through commercial presence could increase by between 13 and 30% depending on the country. The study also assesses what determines services suppliers’ choice of mode. Modes of supply are found to be complementary to various degrees. Commercial presence is more dominant the more similar a country pair is as far as regulation and business environment are concerned and countries sharing a common language are more likely to trade through commercial presence. For some sectors it is found that the disadvantage of remoteness is amplified by strict regulation. In most services sectors trade liberalisation generates meaningful market access only if commercial presence is allowed. Furthermore, absence of explicit barriers to trade and investment is not necessarily sufficient to attract foreign investors.
