Dr. Lucian Cernat Chief Trade Economist European Commission Trade in services: European and global issues
Dr. Lucian Cernat
Chief Trade Economist
European Commission
@Lucian_Cernat
1
Key points
• The role of services in competitiveness
– Value added, job creation and productivity
• Beyond GATS modes of supply: – Mode 5 "services in boxes" exports
• Comparative advantages
– The role of education
• Barriers to services trade
– Some policy priorities
2
The role of services in competitiveness
3
EU trade in services: stats at first sight
EU‐27 trade in services (extra‐EU)
100%
goods
80%
73%
78%
60%
40%
services
20%
27%
22%
Exp
Imp
0%
4
The EU Single Market : the relevance of services
Added value at basic prices by economic activity, 2010 (NACE Rev.2)
Employment by economic activity, 2010 (NACE Rev.2)
75.8%
80%
80%
71.0%
60%
60%
40%
40%
14.9%
20%
15.7%
20%
5.5%
2.3%
0%
0%
Agriculture (sections
A end B)
Manifacturing
(section C )
Services (sections
from D to T excluding
O ‐ PA)
shares of total empl (age 15‐74)
Agriculture (sections
A end B)
Manifacturing
(section C )*
Services (sections
from D to T
excluding O)*
Shares of total added value
Notes: Totals also include O84 (Public Admin and defence), U99 and NRP; Source: LFS and Eurostat ‐
National Accounts 5
Shares of total employment
0%
shares of total added value
T ‐ Activities of households as employers;
3.0%
S ‐ Other service activities
6.9%
R ‐ Arts, entertainment and recreation
3.2%
4.9%
Q ‐ Human health and social work activities
1.6% 2.4% 1.2%
6.4%
P ‐ Education
5.1% 4.4%
O ‐ Public administration and defence;
compulsory social security
10%
J‐N Business services
7.4%
I ‐ Accommodation and food service activities
10.3%
H ‐ Transportation and storage
20%
G ‐ Wholesale and retail trade; repair of motor
vehicles and motorcycles
Employment, 2010, shares
F ‐ Construction
30%
D‐E ‐ Utilities
T ‐ Activities of households as employers
S ‐ Other service activities
1.5%
R ‐ Arts, entertainment and recreation
Q ‐ Human health and social work activities
7.7%
P ‐ Education
14.1%
J‐N ‐ Business services
I ‐ Accommodation and food service
activities
H ‐ Transportation and storage
G ‐ Wholesale and retail trade; repair of
motor vehicles and motorcycles
10%
F ‐ Construction
D‐E ‐ Utilities
Within services industries: business services stand out
Added value (basic prices), 2010, shares
30%
30.7%
20%
14.9%
11.2%
5.2%
7.4%
1.3% 1.7% 0.5%
0%
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sh of total export
982 ‐ Services not allocated
291 ‐ Government services, n.i.e.
287 ‐ Personal, cultural and
recreational services
Business Services (approx)
249 ‐ Construction services
245 ‐ Communications services
236 ‐ Travel
205 ‐ Transportation
Business services is big business
EU‐27 services trade (share of total trade) ,2011 by EBOPS groups 16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
sh of total import
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Comparative advantages vary: countries need each other
Net trade in labour by educational categories, (2009)
200
150
50
‐150
High
Medium
Germany
Poland
United Kingdom
France
Portugal
Belgium
Spain
Netherlands
Italy
Japan
Canada
Russia
South Korea
‐100
Brazil
‐50
United States
0
China
bn US‐$
100
Low
source "Value Added and Factors in Trade: A Comprehensive Approach" Robert Stehrer, Neil Foster, Gaaitzen de Vries (2012) WIOD Working Paper no. 7 8
The EU Single Market: key lessons
• 1993 to 2003 – a decade of integration progress
– Over 2.5 million extra jobs
– nearly € 900 billion additional economic benefits
– about € 6000 per family in the EU
• Unique integration experience among a large number of countries
– Automatic recognition of professional qualifications
• Single Market is great but not complete!
– E.g. roaming charges, energy, etc.
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Canada: is grey matter the new commodity boom?
Comparison of International Education Services with Other Top Exports in Goods from Canada Selected countries , 2008 10
Beyond GATS modes of supply: mode 5 services
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Services: tradability and measurement
• Main source of services' trade data is BoP which includes transactions between residents and non‐
residents (Mode 1, 2 and 4)
– No data on Mode 3 – commercial presence
• ESTAT Foreign affiliates statistics – FATS as a proxy? ‐ we need to be very careful!
• Mode 3 can be as important as cross border trade (WTO 2006 estimates)
– No disaggregation by modes (1,2 and 4)
– Yes disaggregation by sub‐sector & bilateral but less detailed than goods
• Services are more tradable than measured?
– The top export of Canada to China is "education services" (1.3 bil. in 2008) – estimates
– "services in boxes" – mode 5 services exports
12
Trade, jobs and "servicification"
• New insights from studies on trade in value added: Services more and more embodied in trade of goods:
– Exports of manufactured goods supported around 15.7 million jobs in 2007
– 9 million jobs in the manufacturing sectors
– around 6 million jobs were actually created in services sectors. – Between 2000 and 2007:
– export‐supported employment in the manufacturing sectors barely increased (350.000 additional jobs) – in the services industries it increased by almost 3 million jobs.
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'Mode 5' and international trade
Country A
Pre‐manufacturing domestic services
Country B
Manufacturing
Process "services become goods"
G
A
T
T
"Services in a box"
Stages of production
The concept of 'mode 5'
Mode 1:
Direct cross‐border services
Exporting country
modes
of supply
Mode 3:
Cross‐border capital flow
Mode 4:
Cross‐border labour movement
GATT
rules
MODE 5: Services embodied in goods
Importing country
Mode 2:
Consumption abroad
GATS
'Mode 5' services exports*: Cross‐country comparison
€300bn – the EU27 'mode 5' services exports, in absolute value (based on latest available TiVA data)
Source: Own calculations based on OECD TiVA database,
Source: TiVA database
35%
1995
Mining
40%
Agriculture
Machinery
Other
manufactures
Basic metals
Chemicals &
minerals
Wood & paper
Electrical
equipment
Food products
Textiles &
apparel
Transport
equipment
EU 'mode 5' service exports:
Cross‐sectoral breakdown
2009
30%
25%
20%
15%
10%
5%
0%
Trade rules: GATS (and GATT)
18
Barriers: the WB ‐ STRI
70
66
60
50
50
43
40
35
37
30
30
20
18
20
22
23
23
23
25
26
26
10
0
Notes: the index is built considering 5 sectors (transport, retail, some professional services, telecommunication and financial services) and mode 1, 3 and 4 of supply
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'Mode 5' and customs valuation: from concepts to reality
 'Mode 5' service exports do usually pay duties.
Mode 1:
Direct cross‐border services
Exporting country
modes
of supply
Mode 3:
Cross‐border capital flow
Mode 4:
Cross‐border labour movement
GATT
rules
MODE 5: Services embodied in goods
Importing country
Mode 2:
Consumption abroad
GATS
 The same service export under mode 1 does not pay duties.
Example: software in a laptop and a CD‐ROM Mode 5 services and high‐tech products
• When does software exports pay duties?
• What about design?
• Electric cars are new but Art. 8 of WTO CVA is old but
relevant
Trade rules for the future
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What do we know so far….
• Services trade are relevant for EU employment and EU value added
• Services are traded less than manufacturing but given the measurement issues (mode 5, FDI, servicefication) this is only the "tip of the iceberg"
• Market access provisions, if well crafted, tend to matter
23
Recent FTAs (will) matter
• EU‐Korea FTA bound to create win‐win services gains
– Services market access closely intertwined with other rules (investment, procurement, TF, IPR, etc)
• Public procurement – additional coverage on infrastructure services
• Not just for MNCs: EU and Korean SMEs treated equally
• relax foreign ownership requirements
• non‐discriminatory treatment in the use of port services and infrastructure
• No obligatory subcontracting requirement for construction services
• Improved legal certainty in e‐commerce
• Similar examples in other FTAs
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Older FTAs matter too…
Chile's services exports to EU vs FTA commitments Source: ITAQA ex‐post evaluation. Available on Chief Economist's website http://ec.europa.eu/trade/policy/policy‐making/analysis/
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Fast FWD: past, present, future
 GATS, FTAs and trade rule matter across the board
 Tariffs, services, NTMs, government procurement, IPR, state aid, competition, etc.
 New goods‐services interface:
 'Mode 5' and future drivers of competitiveness
 Trade rules, GVCs, technology and innovation
 The (not so distant) future:  3D printing and 'the internet of things'