Services Trade

Services trade has long been overlooked or assumed to be minimal. The formalization of the international General Agreement on Trade in Services (GATS) provided a common framework to describe services trade: cross-border (Mode 1), consumption abroad (Mode 2), commercial presence (Mode 3), and temporary business travel (Mode 4). But still, all too often, “trade” is assumed to mean merchandise trade.

One of the challenges has been the difficulty in measuring the volume of services traded. While in merchandise trade there is a point at which a product passes over a border and is counted by customs officials, there is no similar check point for services. People travelling across a border, as tourists or as business persons, can be counted; but there is no easy method of tracking how much the tourist spends (as part of Mode 2 trade) or the business person acquires. Services sold across border might be captured if they are reported as tax exempt, but many non-tourism businesses are unaware that their sales to foreigners in their domestic market are also exports (Mode 2). So difficulties arise not only because there is no clear point of capture but also because the business community may be uninformed regarding what constitutes a service export.

The World Trade Organization (WTO) reported that services comprised 21.1% of international trade in 2014. Of traded services, 55.6% were business and professional services while tourism (commonly assumed to be the bulk of traded services) comprised 25.1%. Given the difficulties in capturing services statistics, we can assume that these figures are an underestimate.

If an economy wishes to increase its services trade, service exporters need assistance both from trade development officers and their industry associations. Successful strategies to consider are discussed in the following handbooks written by Dr. Riddle: