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Conceptual Issues and Trends on Trade in Services
Luis Abugattas
JSMP TA Team Leader
National Conference
“Harnessing Services for Sustainable Development:
Opportunities and Challenges for Jordan”
21-22 September 2010
Grand Hyatt Hotel, Amman
Content of the presentation
What is trade in services?
Brief overview of trade in services global trends
Benefiting from services trade liberalization
Trade in Services
Defined by “modes of supply”
1.
Cross-border trade
2.
Consumption abroad
3.
Commercial presence
4.
Temporary movement of natural persons services
providers
Elaborated by Sampson and Snape (1985), Baghwati (1987), modified by
Sapir and Winter (1994), incorporated in the GATS
CROSS-BORDER TRADE: MODE 1
Exporting economy X
Importing economy Y
Financial flow: payment
X
client
provider
Information (digital bits)
Information
Back-office operations
Computer services
Professional services
Y
COMSUMPTION ABROAD: MODE 2
Exporting economy X
Importing economy Y
X
provider
client
payment
Tourism
Health services
Education
Y
Consumer: natural person
money
COMMERCIAL PRESENCE: MODE 3
Exporting Economy X
Importing Economy Y
Profits/licence fees
Y
X
provider
Capital
Know-how
Potential in all services activities
client
Movement of Natural Persons: Mode 4
Importing economy Y
Exporting econmy X
Remittances
y
X
provider
Natural person services provider
Professional services
Personal services
client
Services Trade
A Service can be delivered by any mode of supply
In many cases different modes of supply are involved
in a trade transaction
 There are positive (complementarities) and negative
(substitution) linkages between modes (OECD, 2006).
Barriers to trade in services emerge from “behind the
border measures” [domestic regulation, discrimination
against foreign providers denial of national treatment,
and non-quantitative market access limitations]
Trends in Services Trade
Statistical Limitations
Statistics improving, but no available data by mode
of supply [Balance of payments data and FATS]
Level of disaggregation not adequate in many
countries
Direction of trade data missing
Methodological developments Manual of Statistics
on Trade in Services but few developing countries are
implementing
Trade in Services: BOP and FAT
(billion US Dollars and %)
Total
Transport
Travel
“Other”
Commercial
presence
[FATS]
Total
750
9.2
855
1685
4935
10.4
20.4
60.0
8225
100.0
2000
23.5
2008
23.6
32.0
44.5
25.2
51.2
Long-term Trends in Trade in Services
(Balance of payments data)
Trade in Services: Average growth rate by
BOP category (2000-2007)
Computer and information
Financial
16.5
13.0
Insurance
Other business services
Communication
12.6
12.0
10.5
Total services
Transport
Construction
Travel
9.8
9.0
7.0
6.0
Cultural/personal
4.5
Sectorial Breakdown of Services Exports
[2005-2008]
Developed
Developing
Develop
Developing
Total
81
19
Transport
22
21
Transport
82
18
Travel
24
41
Travel
71
29
54
39
Other
Services
86
14
Other
services
As % of
world
total
As % of
the total
by area
Direction of Services Trade Percentage of
Total Exports
Importer/
exporter
OEDC
Non-OECD
OEDC
80.0
20.0
Non-OECD
54.0
46.0
Asia
42.5
57.5
LA
85.3
14.7
Asia/no-0ECD
LA/no-OECD
91.9
66.7
Trends in Trade In Services: Global Trade
Services share of total world trade (BOP) has remained
practically constant since 1970 (around 20%)
Mayor change occurring in the structure of services
trade: ”other commercial services” the most dynamic”
Trade concentrated on commercial presence.
Intra-industry trade [services differentiation] GrubelLloyd index high and stable 0.75
Increasing intra-firm trade [trade-FDI linkage]
Trends in Trade in Services: Global Trade II
Dominated by developed countries: 81% of total
exports, 86% in “other” services, North-North trade. (EU,
Canada 80%, US 65%)
Increasing industry concentration leading to global
oligopolistic competition
Accelerated internationalization of firms
Significant levels of state support to domestic firms.
Trends in Services Trade: Developing Countries
Increasing participation in trade. Reliance on travel and transport.
Asia accounts for 76% of total exports of developing countries.
Asia share of total world exports increasing (10.7% in 1980 to 19%
in 2008). All other developing regions have lost participation.
High concentration: 12 countries 75% of total exports of
developing countries. 9 Asian.
Concentration of exports to the region (except India)
Most developing countries are now promoting services exports.
Increased competition, risk of “fallacy of composition”.
Trends in Services Trade:
Developing countries
Increasing participation in trade
Asia accounts for 76% of total exports of developing
countries.
Asia share of total world exports increasing (10.7% in 1980
to 18.6% in 2007). All other developing regions have lost
participation.
High concentration: 12 developing countries 75% of total
exports. 9 Asian.
Concentration of exports to the region (except India)
Most developing countries are now promoting services
exports. Increased competition, risk of “fallacy of
composition”.
Trends in Services Trade:
Offshoring
Most outsourcing still domestic: 85-94% of total.
Offshoring market growing, but quantification difficult (157 billion in 2008,
OECD).
Concentration: US and UK 70% of purchases.
North-north trade (85% US imports from OECD countries)
Captive offshoring (US 70% of trade intra-firm)
Sellers concentration: 5 countries 84% (India 33%) (Ireland, Canada and
Israel 43%).
Opportunities for incumbents (incumbent advantages, agglomeration
economies); niches for new entrants (location, cultural, language advantages)
Success depends on flanking policies
Benefiting From Services Trade
Exporting:
Potential Sources of Competitive Advantage
 Labor-intensive services (construction, off shoring)
 Natural-endowment-intensive services (tourism, ports,
shipping)
 Exploiting market-niche effects (health, offshore finance,
wellness industry)
 High-end business services [requires developing firm
intangible assets].
 Firm internationalization (distribution and restaurant
services)
 Mode 4 (variety of services)
Benefits from Services Trade Liberalization:
Importing
A. Static: Resource allocation efficiency gains: “creative
destruction”; Most studies show limited effects [1-2 percent
GDP]
B. Dynamic gains:

Increasing investment [market-seeking and efficiency-seeking]

Firm level and technological upgrading [competition-driven;
and export-driven]

Positive spillovers of FDI [absorptive capacity]
Empirical studies are not conclusive about static or
dynamic
effects:
liberalization
has
not
been
unambiguously and universally linked to subsequent
higher sustainable growth rates, results are highly country
specific
Problems In Quantifying The Effects of
Services Trade Liberalization
Extrapolation of conventional theory to trade in services albeit significant
intrinsic differences (Deardorff,1985; Dee 2001; Brown et.al, 1995;
Markunsen, 2005; Mattoo, 2000; Horst and von der Ruhr, 2001).
Difficulties in quantifying “barriers “ to trade in services to be fed into CGE
models. Estimation of tariff equivalents. (Dihel & Shepper, 2007)
Modeling results are highly sensitive to assumptions, model specification
and data, and fail to adequately capture dynamic effects. Not adequate for
policy formulation (Taylor and Von Armin 2007; Dihel, 2002)
Conclusion: Results depend on methodology, are country specific,
depend on emergence or not of dynamic effects, effects conditioned to
sequence and phasing of trade and other reforms. Still many questions to
be answered.
Benefiting From Services
Trade Liberalization
Literature suggest that the effects of liberalization
depend on:
Speed and sequence of liberalization [between
different services sectors].
Sequence of liberalization within specific services
activities by mode of supply.
Prevailing regulatory framework [pro-competition].
Overall macroeconomic and business environment.