International trade in services Presented By: Keshav Goyal Roll no. 15 MBA (IB) (4 th sem)
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Transcript of International trade in services Presented By: Keshav Goyal Roll no. 15 MBA (IB) (4 th sem)
International trade in services
Presented By:Keshav GoyalRoll no. 15MBA (IB) (4th sem)
AGENDA
Introduction
Classification of services.
Modes of trade in services
Services and overall economic performance
Explanation for trade in services
Services and liberalization
Introduction : International trade and investment in services are
an increasingly important part of global commerce.
More and more people are travelling abroad to consume tourism, education, and medical services and to supply services ranging from construction to software development.
In fact, services are the fastest growing components of the global economy and FDI in services have grown faster than in goods over the past decade.
The Growing Importance of Services
Services are becoming the largest sector in most economies
They are important contributors to GDP
In 2010 services contributed on average:
- 72% of GDP in industrialized economies
- 49% of GDP in developing countries (DCs)
They also contribute largely to employment
The Growing Importance of Services (2)
Services play a key role in infrastructure building, competitiveness and trade facilitation
They are also vital inputs into other goods and services
The potential gains from more open service trade are greater than those from liberalizing goods
Classification of Services Proposed by the GATT
1. Business services 7. Financial services
2. Communication services 8. Health services
3. Construction services 9. Tourism services
4. Distribution services 10. Recreational
5. Educational services 11. Transport services
6. Environmental services 12. Other services
Source: Economic Survey 2010-12
Mode of Trade in Services
MODE MEANING EXAMPLE
Mode 1Cross-border trade
Trade takes place from the territory of country A into that of B
- Passing of information by means of fax or email
Mode 2Consumption abroad
Services consumed by nationals of country A in territory of country B
- Tourism- Consumers who cross borders to obtain medical treatment
Mode 3Commercial presence
A service supplier of country A crosses the border to establish and provide a service in country B
- Establishment of a private hospital by a European company in India
Mode 4Movement of natural persons
Temporary movement from country A to B to supply a service
- Doctors moving to another country to temporarily provide their services
Modes of trade defined by GATT
Sales by GATS Modes of Supply:Statistical Approximation
Mode of Supply Proxy rough estimatebillion US$, (%)
1 - cross-border supply
BOP : commercial services exports(excluding travel)
1,000(28%)
2 - consumption abroad
BOP : travel exports
500(14%)
3 - commercialpresence
FATS Statistics: Turnover
2,000(56%)
4 – movement ofnatural persons
BOP : compensation of employees
50(2%)
Source: WTO
1988 90 92 94 96 98
2000
2002
2004
2006
2008
2010
0
50
100
150
200
250
300
350
400
450
0
1500
3000
4500
6000
7500
9000
10500
12000
Exports of Goods and Services, 1980-2002
Services growth GDP growth
(19
80
=1
00
)
Bill
ion
$
Exports of goods and services
Some figures on FDI in servicesFDI in services as grown by 13 percent annually from 1998 to 2008, reaching $4 trillion
In recent years, services accounted for about two-thirds of total FDI flows
Share of services in total inward FDI stock rose to some 60 percent in 2008, from less than 50 percent in 1998
Developing countries’ share of inward FDI stock in services rose from 17 percent in 1998 to 25 percent in 2008
Share of services in FDI
Hong Kong: 93 percentPhilippines: 70 percentThailand: 57 percentMongolia: 41 percentCambodia: 36 percentChina: 31 percent
What explains trade in services?
Two major explanationsTrade based on differences between countries (comparative advantage-based trade)
Trade based on different forms of increasing returns to scale
Comparative advantage based trade
Sources of differencesLabor costs (e.g., call centers)
Natural endowments (e.g., tourism)
Technology (e.g., health services)
Regulation (e.g., financial services)
Price differences create incentives to trade
Trade based on increasing returns
Comparative-advantage based trade cannot explain trade between similar countries
Sources of increasing returns:Fixed costs combined with market niches
Firm-specific intangible assets
Networks
Services and overall economic performance
Share of services in GDP vs. income
10
20
30
40
50
60
70
80
90
4 5 6 7 8 9 10 11
ln(GDP per capita)
Perc
enta
ge s
hare
of s
ervi
ces
in G
DP
Source: Fink (2005)
Explanations for positive correlation
Demand effect:As economies grow richer, consumers spend a larger share of income on services
Supply effects:Increased “domestic outsourcing” of services
Faster productivity growth in goods than in services (Balassa-Samuelson effect)
Services and liberalization
Services liberalization and growth
Source: Mattoo, Rathindran, and Subramamian (2007)
Linear prediction
1 8.5
-.024
.059
ITA NZL
SLV
PAN
PRT
FIN
ISL
ARG
CHE
ESP
BEL NLD
NOR USA CAN SGP
EGY
FRA
SWE
GRC
GUY
AUS
GBR
AUT
CYP JAM
BOL
DNK
MLT
MWI
CRI
ZAF TUR
MOZ
KEN
IND
MAR
VEN
MEX PHL
NIC CHL
URY KOR PER
MYS
ECU
AGO
THA
HND
COL
TUN LKA
BRA
IDN
DOM
Composite services liberalization index
Growth rate (adjusted for other factors)
Barriers affecting services trade
Entry restrictions (e.g., public monopolies)
Quantitative restrictions on:Output or market share by foreign providers (e.g., cargo reservation, capacity limitations in bilateral trade)The number of individual service providers (e.g., quotas on the number of foreign workers)
The type of legal entity permitted to provide services (e.g., subsidiaries, branches)
Limitations on foreign equity ownership
Regulatory measures (e.g., qualification requirements, access to networks)
What are elements of successful services liberalization programs?
Phasing out of explicit barriers
Development of regulatory framework to address market failures and advance social objectives
Strengthening of competition policies
Ensure credible and stable policies
Appropriate sequencing of reforms
Examples of RTAs in services
Early agreements: EUNAFTA
Newer agreements:MERCOSURASEANBilateral FTAs: US-Vietnam, Thailand-Australia, Japan-Mexico, Singapore-Japan, many others
Many more service agreements are being negotiated
Example of preferences in services
Bilateral air service agreements: preferential allocation of output quotas
Preferential relaxation of foreign equity limitations (e.g., Thailand-US)
Preferential access to certain regions within a country (e.g., Hong Kong-China FTA)
Preferential recognition of foreign qualifications (e.g., EU mutual recognition)
Thank You