The importance of services Why exporting isn’t just about shipping
By Andrew Walker
The future of international trade has leapt up the agenda.
The British vote to leave the European Union is one central reason. There is also the election of Donald Trump after a campaign in which he was highly critical of some US trade agreements.
Much of the debate has focused on trade in goods. Will there be tariffs on British exports to the EU and vice versa? President Trump has threatened carmakers with a 'border tax' if they expand operations in Mexico.
But what about services? After all, the service sector dominates most economies.
It accounts for 78% or more of national economic activity in the UK, France and the US. Those are well known as service-driven economies. But in Germany, that great manufacturing powerhouse, it's getting on for 70% and even in China it is close to half.
When we look at cross-border trade, however, it is a rather different story. The value of global trade in goods still exceeds services by a factor of more than three.
But services trade is growing and it is important for many economies.
Barriers to services trade have proved to be harder to deal with.
They come in the form of regulation – not the tariffs or taxes that impinge on commerce in goods.
Countries sometimes impose limits on the percentage share of ownership that foreign companies can have in a business that provides services. In China, for example, the limit is 50% for insurance and some telecommunications services.
There can also be nationality requirements. In China again, the chief partner in auditing and accounting firms must be a Chinese national.
In just about all countries practitioners of many professions require approved qualifications (often for very good reasons). The extent to which there is mutual recognition of other countries' qualifications varies.
There are also sometimes licensing and residency requirements which can stand in the way of cross-border provision.
It is also the case that the nature of many services does make trade intrinsically rather more challenging. You can't put a service on a container ship and send it around the world the way you can with goods.
But it is possible to trade services internationally. A stockbroker in London can buy and sell shares for German investors. People can travel abroad for health treatment. Firms can establish a commercial presence in other countries. And individual practitioners can go abroad and work as an independent supplier – perhaps as a plumber – or as an employee of, for example, an insurance company.
So, liberalizing services trade is more complicated than it is for goods.
But there have been efforts.
The World Trade Organization's rulebook includes something called the General Agreement on Trade in Services, or GATS.
WTO member countries have made commitments during past negotiations about the extent to which they allow foreign suppliers access to their services markets. These vary from country to country and are listed in 'schedules' attached to the agreement. The GATS also has rules that promote transparency, to make it easier for businesses to navigate any rules that affect them. There are also rules that prohibit discrimination between different trade partners.
Governments in many of the big service-driven economies – Europe and the US in particular – have seen the GATS as a useful start, but as very much unfinished business.
So there is also a separate negotiation under way called the Trade in Services Agreement (TiSA). It is not yet complete and so it is not yet an 'agreement', strictly speaking.
The negotiations involve 23 WTO members. That counts the European Union as one, so it will probably rise to 24 when the UK leaves the EU.
TiSA does not have a high profile in news terms, but has been very controversial.
Critics accuse the governments involved of negotiating in secret. They also criticise the 'ratchet clause' that the agreement is likely to include, which would prevent countries from reintroducing trade barriers that they had removed.
Critics say that would make it harder for any government involved to reverse the privatization of any services that had been transferred to the private sector. They also say it would undermine the rights of governments to regulate in the public interest.
The European Commission – which negotiates on trade policy for the EU – rejects this.
"Quite to the contrary, the right to regulate services will be enshrined in TiSA. Rather, the objective is to tackle discrimination that currently prevents service suppliers from operating in another TiSA party," a spokesperson says.
On the ratchet clause the Commission says it won't have the effect that critics allege. And it says the EU won't make commitments on allowing foreign suppliers to provide some key publicly funded services, including health and education.
Service industries are also likely to be an important area for British trade negotiators looking at opportunities for UK business after leaving the European Union.
Financial and business services account for about half the total of British services exports, which is in the region of a quarter of a trillion pounds ($300bn). It will be an important factor for UK commercial relations with the EU, and for any new agreements that might be done with countries outside the EU, including the US.
The UK still exports more goods than services, but that lead has narrowed dramatically. Research commissioned by Barclays Bank projected that services could account for more than half of British exports within a decade.
So barriers to cross-border trade in services really will matter to the British and many other economies.
Proposed crippling countrywide strike TO SAVE ECONOMY, ASSETS, NATURAL RESOURCES– D.J. RAJAKARUNA
- Harmony needed for religious freedom – Minister 1646
- CMC property taxes 1643
- Proposed tax on EPF, ETF ICEU seeks urgent meeting with Minister 1644
- Car plunges into river Two dead, three critically injured 1645
- Arson attack on schoolgirl’s house Minister promises new home 1646
- Australian gender advocate in Lanka Broderick to meet business, public leaders 1643
- Fire at Weligama textile store 1641
- Protest planned on Matale A9 Road Compensation demand for lost property 1643
- Rs 128,250,000 spent on survey Samurdhi union demands reimbursement 1642
- NEC to boost economy – President Shot in the arm for agriculture sector 1643
- Driver who killed 13 in Barcelona rampage Spanish police in manhunt 1639
- NLB, DLB back with Finance Ministry 1637
- Govt. has failed says Sampanthan Complains in letter to UNSG 1636
- New LG Draft Bill in Parliament on 24 August 1637
- Travis Sinniah appointed Navy Chief Holder of highest combat medal 1641
- Solution to ethnic issue New Constitution the only way – Mano 1637
- 18-year sentence sought for Lankan Convicted of human smuggling 1637
- SIS man on the mat Nabbed with gold at BIA 1637
- Dullas defends Wijeyadasa 1639
- Student leader Ryan remanded Surrenders to Court through lawyers 1637
- No mandate for foreign judges – Marapana 1637
- Floods, landslides cost Rs 109 B Rs 70B needed to rebuild houses – PM 1637
- China and Turkey aspiring for Greatness in the World 3259
- General Wanasinghe’s 84th birthday today 3357
- Wiggy blasts Thavarajah 3419
- Bribery and corruption pervasive malaise in Sri Lanka 1645
- Schoolboy publisher Notching up half a century in business 1642
- Spirits Nether world inhabitants visiting us 1644
- Persisting pseudo ideals 1638
- LAW OF CRIMINAL PROCEDURE 1914
- Seven countries compete 1640
- Saparamadu wins gold medal in Taiwan 1643
- Theekshana, Ranasinghe emerge champions 1641
- Doluweera and Sayuni win in chess 1644
- Singer Cup’ U-17 Division II Cricket St. Peter’s meet Galahitiyawa Central 1641
- Ronaldo nominated for FIFA player award 1641
- Halep advances 1637
- Ton-up Cook and Root give Windies hard day’s night 1637
- England power to semi finals 1637
- More Floodlights for Dambulla 1658
- Political commentary What’s next? Who’s next? 3676
- THE SHADOWS IN THE CB SCAMS 4463
- Turmeric eaten on daily basis reverses cancer Confirmed by new scientific evidence 3936
- Drivers welcome stiffer traffic fines 4688
- What the FCID have achieved since 2015 3772
- Proposed crippling countrywide strike TO SAVE ECONOMY, ASSETS, NATURAL RESOURCES– D.J. RAJAKARUNA 2586
- No taxes on EPF withdrawals– John Seneviratne 3294
- Zero support for Justice Minister within UNP – Ajith P. Perera 3338
- Recent increase in security has caused fear among Northerners – Ramanathan 2637
- Lanka should gain from OBOR - Dr. Jayasuriya 3897
- China cracks down on VPN vendors 1644
- Roaming downtime hits customers on Three in Europe 1644
- Very few girls took computing A-levels 1643
- Chatbot helps students to choose courses 1644
- Game of Thrones struck by fresh leak 1642
- Peanut allergy treatment ‘lasts up to four years’ 1642
- Anger and hatred can make us feel happy, says study 1638
- Japanese fungus spreading in UK hospitals 1638
- Plants ‘hijacked’ to make polio vaccine 1639
- Disruption is over, and Facebook won 1638
- A time of gifts Staying on 1397
- Manuka honey:The superbug killer 2230
- A time of gifts Trying to settle down 2127
- Chithral releases his latest song 1396
- Florals: A Fashion Favourite 1394
- Be a lioness not a lamb 906
- Places to visit in Kandy 1262
- Dhothalu Oya Sandaraja Forest amidst tea estates 1390
- Understanding and Interpreting their results 1859
- Two lunar eclipses in August 1730
- Undergoing an Erashtaka period ? 1717
- Aging with Venus 1673
- Gemstones empower aura 1682
- Correlation Between Social Formation and Text 3765
- The global and local in Hong Kong cinema-part 05 3671
- Commendations or Brickbats 4313
- Why we should listen to Jane Austen in the age of Tinder 4457
- Lullaby of the Ever-Returning Love universal yet coloured by culture 4461
- A story of Palestinians without Palestine 3647
- First impressions, are they important? 3652
- Oscar nominee to perform in Sri Lanka 3644
- Healing the helpless 1728
- Winging it overseas 1713
- From the hospital to the news room 1732
- India revisited 1702
- Showers of blessings 1720
- Healing from port to port 1696
- Master gamers 1717
- The flawed beauty 1705
- The second best in Asia 1708
- Young robotics engineers 1667
- A quest to fight evil 1673
- NCT Dream 1670