Global Services-3 Prof. Tarun Das

8/9/2019 Global Services-3 Prof. Tarun Das

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8/27/2010 Tarun Das- Services 2

Contents

1. Diverse and dynamic nature of services

2. No universal definition of services

3. Problems of measurement, classification,monitoring trends and analysis

4. Issues in Global trade in services

5. What did we learn?6. Review Questions


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1. Diverse and dynamic nature ofservices production and trade

Covers wide range of activities:(a) Capital intensive- telecom & transport(b) Knowledge intensive- informationtechnology (IT) and engineering

( c) Labor-intensive- repair and installation Highly dynamic with cross-border flows,

growing presence of multi-nationals, changesin pubic policies leading to deregulation,privatisation, regional blocks and multilateral

trade agreements. High growth of services trade with

advancement in e-business, cross-bordermovement of goods, capital and people.


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2.1 No universal definition of services

How is service different from goods?- Services are usually perceived asintangible, invisible, perishable; requiresimultaneous production and

consumption. Precise definition and coverage of

services are difficult. For analytical and operational purpose,

services have been grouped underdifferent heads by different economists.


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2.2 Browning and Singlemann (1975)classification of services

(a) Distribution services- transport, storage,retail and wholesale trade.

(b) Producer services- banking, finance,insurance, real estate, engineering,

architectural, accounting, legal.(c ) Social services- education, health, welfareand religious services, postal services,government services.

(d) Personal services- domestic, repair, barber,

beauty shops, hotels, restaurants,entertainment.


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2.3 United Nations International StandardIndustrial Classification (UN-ISIC)

1. Electricity, gas, water supply2. Construction, wholesale and retail trade3. Hotels and restaurants4. Transport (railway, water, air, pipeline),

storage and warehousing5. Post and telecommunications6. Financial services (banks and other

institutions), insurance and real estate

7. Business services- legal, accounting, auditing,engineering,management, scientific andtechnical consulting, R&D, architecture,urban planning, and public relations


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2.4 United Nations International StandardIndustrial Classification (UN-ISIC)

8. Machinery and equipment rental and leasing9. Public administration and defense services10. Sanitary and social services11. Social and related community services

(including education, research and scientificinstitutions, medical, professional and labourassociations)

12. Radio and television broadcasting,entertainment services

13. Personal and household services repairs,laundry, shopping services.


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2.3A Sectoral growth rates in India (% )Sectors 1980-90 1992-2000

1. Agriculture 3.1 3.3

2. Industry 7.2 6.5

--Mining 7.7 4.0

--Manufacturing 7.4 7.4

--Utilities8

.9

5.9

--Construction 4.6 5.7

3. Services 6.5 8.2

--Trade and hotels 6.2 8.3

--Trans & Telecom 5.8 8.5--Financial services 9.4 8.8

--Social sectors 6.0 7.4

4. All Sectors 5.5 6.4


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2.3B Sectoral shares in India (% in GDP)Sectors 1993-94 2002-03 2005-06

Agriculture 31

.0 22

.2 19

.9

Industry 23.9 24.6 19.3

Mining 2.6 2.2 2.0

Manufacturing 16.1 17.1 15.1

Utilities 2.4 2.5 2.2Services 47.9 56.0 60.7

Construction 5.2 5.3 6.7

Trade 12.7 15.6 26.2

Trans & Telecom 6.5 8.6

Financial services 11.5 12.7 13.5

Social 12.0 13.8 14.3

All Sector 100.0 100.0 100


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3.1Statistics on Trade in services

Given the growing importance of trade inservices, the need for reliable information onservices trade is crucial.

The only source of information on trade in

services is the Balance of Payments (BOP)Statistics published by the InternationalMonetary Fund (IMF).

However, there are difficulties in using these

statistics to study the impact of WTOagreements on trade in services, as theframework of WTO negotiated commitmentsdo not match the IMF structure of statistics.


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3.2Statistics on Trade in services

First, the General Agreement on Trade andServices (GATS) goes far beyond the tradeflow statistics and requires information onproduction, sales, employment, foreign directinvestment and activities of foreign affiliates

for meaningful impact analysis. Second, GATS definition of trade in servicesdeals with traditional notion of internationaltrade i.e. transactions between residents andnon-residents, while IMF deals withgeographical boundaries.

For example, under WTO definition, trade inservices includes local sales by residentforeign entities while such transactions arenot classified as trade in services according tothe IMF BOP Manual.


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3.3 Statistics on Trade in services

Third, the scheduled commitmentsunder WTO-GATS are based largely onthe UN Central ProductClassification

(CP

C).

However, the available servicesstatistics for different countries followthe IMF BOP classifications, which arenot based on the UN-CPC.


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3.4 Composition of service exportsof India (per cent)

Period Travel Trans Insurance Govt Misc1950s 8.6 32.9 7.7 23.4 27.31960s 10.5 34.6 5.2 29.7 19.9

1970s 25.5 37.3 4.7 10.8

21.8

1980s 5.9 17.1 2.4 3.1 41.11990s 33.0 20.3 2.3 1.8 42.62000-01 21.5 12.6 1.7 4.0 60.32005-06 12.9 10.4 1.7 0.5 74.5Note: Misc includes financial, software andother modern services.


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3.4 Problems in measurement and analysis

Under General Agreement on Trade inServices (GATS), World Trade Organisation(WTO) classifies services trade under fourmodes- Modes 1 to 4 as under:Mode-1: Cross-border trade (similar to

traditional goods trade, international calls)Mode-2: Consumption abroad (tourists,students going overseas)Mode-3: Commercial presence (FDI)

Mode-4: Movement of natural persons(professionals going abroad for short period) Balance of Payments Statistics by the IMF

donot provide such classifications directly.


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3.5 Problems in measurement and analysis

IMF BOP statistics classify services underthree broad heads viz:(i) Travel, (ii) Transport and (iii) other services.Other services include a host of services suchas insurance, software, government services,business and professional services etc.

Mode-1= BOP commercial services minus(travel and government services)

Mode-2= BOP travel services

Mode-3= BOP international FDI flows andincome stocks in financial accounting

Mode-4= BOP compensation of employees


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3.7 Other Problems in measurement1. Problems of measurement due to coverage,

classification and disaggregation problems.2. Services are embodied in transactions and inmany cases cannot be easily segregated fromgoods trade (shipping, insurance and freightcharges, pre-sale and post-sale services).

3. There are also overlapping of services(education fees and hostel charges).

4. Strong linkages with upstream and downstreamsectors.

5. Business Process Outsourcing (BPOs) bymultinational companies through extensiveproduction, distribution, finance and marketingnetworks.


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4.1 Issues in Global Trade of Services1. Regulatory challenges in the world particularly

related to hitherto monopoly sectors such astelecom, transport and financial services.

2. Countries are reforming many service sectorswith Delicensing, deregulation, decontrol of

prices, privatisation and liberalisation of tradeand investment regime.

3. Countries are establishing independentregulators and adopting international best

practices for operations and trade for manyservices like banking and insurance, capitalmarkets, power, telecom, ports etc.


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4.2 Issues in Global Trade of Services

5. International movement of persons leading toimmigration and visa problems.

6. Convergence of telecom, TV, internet and

other forms of media s leading to cultural andsocial invasion.

7. Problems of growing international terrorismand crimes, money laundering and financial

abuse, smuggling and drug trafficking,obscene material on internet and television,trade of immoral activities and objects etc.


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5. What did we learn in this session? Services cover diverse and dynamic sectors

growing at faster rates than goods. There is no universal definition of services.

In National Accounts, services coverconstruction, transport, storage, telecom,

hotels, tourism, real estate, financial, govt.,personal, legal, community services. There are issues on measurement due to

coverage, classification, overlapping anddisaggregation problems.

There are various constraints to globaltrade of services due to domestic and globalregulations on movements of services.


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6. Review Questions

1. What do services sectors cover in theNational Accounts Framework? What are thedifferent modes of services trade under theWTO General Agreement of services? Provideexamples for each mode.

2. Discuss various problems in themeasurement and analysis of servicesproduction and trade.

3. What are the various constraints in the globaltrade of services? What is being done byvarious countries to remove these obstacles?


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Thank you

Have a Good Day

Global Services-3 Prof. Tarun Das

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