ECON 331 INTERNATIONAL TRADE Chapter 9 International Trade

ECON 331 INTERNATIONAL TRADE Chapter 9 International Trade of Services and Factor Movements

Nature of Services Product Ø service are primarily a “process” or an “actvity” which is intangible contrary to goods and non storable Ø production and consumption has to be simultaneous which makes international trade of services difficult.

Four Modes International trade of services • Mode 1 - cross border supply where both supplier and consumer are located in their home countries (eg. call center. • Mode 2 - consumption abroad, which requires the movement of consumers to the location where the service is provided. • Mode 3 - the commercial presence where service suppliers are moving to the place of consumption to provide their services, either by establishing affiliates or through direct investment abroad. • Mode 4 - covers the movement of natural persons to provide their services broad. According to these definitions of international provision of services free movement of persons, capital and data is required.

Ø Services are the fastest growing part of international trade Ø Due to their intangible nature, trade in services is subject to more constraints than trade in goods

Agriculture Industry Services The Services sector generates 90% of new jobs in the EU 15

World Economy: Percentage of GDP by Sector, 2006

« The voice of the European Service Industries for International Trade Negotiations in Services» * Source: WTO International Trade Statistics – 2008 * : Includes significant re-exports or imports for re-export.

Trends in World Trade in Services

International Trade in Services 28. 9% 42. 2%

EU-27 International Trade in Services with non-EU Countries 2007, EUR bn Rank Country Trade Volume Exports Imports Balance 1 USA 266 852 139 135 127 717 11 417 2 Switzerland 105 490 61 503 43 987 17 516 3 Japan 6 China 33 183 31 535 19 378 13 805 5 573 17 766 13 769 3 996 4 Russia 31 268 19 238 12 030 7 208 5 Norway 30 920 19 008 11 912 7 096 7 Canada 21 343 11 695 9 648 2 047 8 Singapore 18 530 11 397 7 133 4 264 9 Turkey 18 517 6 617 11 900 -5 282 10 Australia 17 031 10 747 6 284 4 463

EU-27 International Trade in Services with non-EU Countries in 2006 (EUR bn) Rank Country Trade Volume Exports Imports Balance 11 Hong Kong 13. 584 6. 896 6. 688 0. 207 12 India 12. 526 6. 978 5. 548 1. 430 13 Korea 10. 367 6. 339 4. 028 2. 341 14 Brazil 9. 777 5. 162 4. 615 0. 548 15 South Africa 9. 662 5. 305 4. 357 0. 948 16 Egypt 7. 320 2. 294 5. 026 -2. 732 17 Croatia 7. 045 2. 283 4. 762 -2. 478 18 Mexico 6. 778 4. 091 2. 687 1. 403 19 Thailand 6. 517 1. 999 4. 518 -2. 519 20 Israel 5. 501 33. 112 2. 389 0. 723 21 Morocco 5. 172 1. 672 3. 500 -1. 828 22 Taiwan 5. 116 3. 066 2. 050 1. 016 23 Argentina 4. 049 2. 395 1. 654 0. 741 24 Malaysia 3. 888 2. 078 1. 810 0. 268 25 New Zealand 3. 138 1. 809 1. 329 0. 480 26 Indonesia 2, 483 1. 412 1. 071 0. 341

Trends of the EU International Trade in Services

EU International trade in Services (Trends in volume – Bio €)

Trade between Member States exceeds Extra-EU trade € 679. 6 bn € 498. 5 bn Source: Eurostat TOTAL EXPORT (intra + extra: 1178. 1 Bio €)

« The voice of the European Service Industries for the GATS negotiations » What ITS does not include? • The activities of the foreign affiliates within the country in which they are established are not taken into consideration (= part of local GDP), nor the self financed investments through benefits (reinvested earnings/income) (also local). • The flow of capital involved in mode 3 operations, i. e. the financing of the establishment of a new commercial presence in a foreign country; This is included in the Foreign Direct Investment (FDI) accounts, not in the balance of payment, hence not considered as services exports. • More than 65% of global FDI flows are invested in services sectors (see hereafter).

What does FDI include? • FDI Capital Flows • FDI income • FDI stocks in a country at the end of the year

Services contribute to the largest share of FDI (1) 444, 1 Bn € were invested in Services sectors by the EU in 4 years (63, 6 % of total 697, 5 Bn €) (extra EU)

Services contribute to the largest share of FDI (2)

86% of the investment coming to the EU are done in the Services sectors;