1

Measuring Trade in Services

Training Module

Carsten Fink

Based on the presentation by Andreas Maurer (WTO) at the World Bank Trade in Services

Course in Washington, DC, April 2004

2

Which statistical framework do we need to measure international trade in services flows?

What is the current state and which improvements can we expect?

What do available statistics show?

How to improve the collection of data?

Overview

3

35

45

55

65

75

1990 1995 2000

Share of Services Value Added in GDP by Economic Groups

Developed countries

Developing countries

World

Economic activity

percent

4

Exports of Goods and Services, 1980-2002

0

50

100

150

200

250

300

350

400

450

(19

80

=1

00

)

0

1500

3000

4500

6000

7500

9000

10500

12000

Bill

ion

$

Goods Services

Services

Goods

GDP

Services and TIS

5

Specifics of Trade in Services

Services represent 20% of world trade, however, account for 2/3 of world GDP only

Intangible nature of services

Conventional trade statistics do not cover all international trade in services, because of the

• Many services require the physical proximity of provider and consumer: GATS therefore distinguishes 4 modes of delivery

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The 4 Modes of Supply Under GATS

COUNTRY A COUNTRY BMode 1: service transactions

Mode 2: service transactions

Mode 3: service transactions

Consumer from A

Consumer from A

CompanyForeign affiliate

Consumer from A

Supplier

Direct investment in country AService supply

Consumer from A

Supplier The service crosses the border

The consumer goes abroad Service supply

GATS

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The 4 Modes of Supply Under GATS

Mode 4: service transactions

Mode 4: employment

Service firm

Natural person

Temporary employment

Consumer from A

Naturalperson

Naturalperson

Service supply

Self-employed goes to country A

or employee sent by firm from B

COUNTRY A COUNTRY B

GATS

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What is the problem for the statistical framework?

Goods“cross-border”

response: - International Merchandise Trade Statistics (IMTS), Rev.2 - Compilers Manual

Services• mode 1: “cross-border” • mode 2: consumption abroad• mode 3: commercial presence• mode 4: movement of natural

persons

response: - Manual on Statistics of International Trade in Services (MSITS)- Compilation guidance

Manual

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The Manual on Statistics of International Trade in Services

Guidelines and recommendations on the measurement of trade in services

Balance of Payments statistics

Foreign Affiliates Trade in Services statistics

Manual

Annex: Movement of natural persons

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Principles of recording BOP transactions

The Extended Balance of Payments classification

Statistics by trading partner

Availability of BOP/EBOPS trade in services statistics

Statistics on Resident-Non Resident Trade in Services (BOP)

BOP

11

Of interest to trade negotiators

but...

BOP Statistics

BOP summarises transactions of an economy with the rest of the world

BOP

Current account

Capital & financial account

GoodsServicesIncomeCurrent transfers

11 componentsTransportationTravelCommunicationsetc.

BOP

12

BOP Statistics

• More detail needed than the 11 BPM5 services components

MSITS introduces EBOPS (breakdown of BPM5 services)

• Most services delivered under Mode 3 and Mode 4 are not covered

However, some BOP indicators helpful:

• Foreign Direct Investment

• Compensation of employees• Workers’ remittances• Migrant transfers

Mode 3

Mode 4

BOP

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• What is it?

• product-based classification,

• consistent with 11 BPM5 services components,

• more detailed than BPM5 services components,

• including additional memorandum items.

• How can it be used in the framework of GATS negotiations?

• MSITS provides a table of correspondence between EBOPS / CPC Rev.1 / GATS list of services GNS/W/120.

EBOPS

Extended Balance of Payments Services Classification

BOP

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EBOPS Main Components

3. Communications services

4. Construction services

5. Insurance services

6. Financial services

7. Computer and information services

8. Royalties and licence fees

9. Other business services

10. Personal, cultural and recreational services

Commercial services:

1. Transportation

2. Travel

3. -10. Other commercial services

11. Government services (not in GATS)

BOP

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Structure of Other Services Exports, 2001BOP

Communications4%

Construction4%

Insurance4%

Financial services14%

Computer and information

7%

Royalties and license fees

12%

Other business52%

Personal, cultural and recreational

3%

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EBOPS Detailed Components

2. Travel

1. Transport

3. Communications services

…etc

• Sea transport (passenger, freight, other)

• Air transport (passenger, freight, other)

• Other transport (passenger, freight, other)

• Space, Rail, Road, ...

• Business travel• Expenditure by seasonal and border workers• Other

• Personal travel•Health-related expenditure•Education-related expenditure•Other

• Postal & courier

• Telecommunication

…

Breakdown of main components

BOP

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Allocation of BOP/EBOPS Items to Modes of Supply

As a first step, MSITS proposes a simplified approach:

• Items deemed to be predominantly delivered through one mode

Mode 1

• Transportation (except supporting and auxiliary services to carriers in foreign ports),

• Communications services

• Insurance services

• Financial services

• Royalties and license fees

Mode 2• Travel (excluding purchases of goods)

• Supporting and auxiliary services to carriers in

foreign ports

BOP

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Allocation of BOP/EBOPS Items to Modes of Supply

Simplified approach (continued):

• Items for which significant elements of 2 modes of supply are involved

• Construction services

• Computer and information services

• Other business services

• Personal, cultural and recreational services

Mode 1

?

Mode 4

Mode 3

?

BOP

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Statistics by Trading Partner

MSITS recommends to

• Compile international trade in services statistics on an individual trading partner basis

• At least for :• Services as a whole• 11 main services components of BPM5/EBOPS• Main trading partners

• If possible:• At more detailed EBOPS level• Common geographical basis for all trade in services data

BOP

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International Dissemination of BOP/EBOPS Statistics

Publication Country coverage By type of service By partner country

IMF Balance of Payments Statistics Database(book and CD-ROM)

IMF members

YesBPM5 and

EBOPS* (provided to IMF on voluntary basis)

No

Eurostat New Cronos Database(on-line and CD-ROM)

EU members, total EU, euro area,

EU candidate countries

YesEBOPS*

Yes40 partner countries and partner regions

OECD Statistics on International Trade in Services (a joint publication of OECD and Eurostat)(book, on-line and CD-ROM)

OECD membersYes

EBOPS*No

OECD Statistics on International Trade in Services, Detailed Tables by Partner Country (book, on-line and CD-ROM)

26 OECD members and Hong Kong

Total servicesTransportation

TravelOther commercial serv.Government serv. n.i.e.

Yes60 partner countries and partner regions

WTO's International Trade Statistics(book, on-line and CD-ROM)

All countriesYes

Summary data and analysis

YesSummary data

* From 2003. Joint OECD-Eurostat Trade in Services Classification up to 2002.

BOP

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Foreign Affiliate Trade in Services Statistics (FATS)

• Focus on services measuring Mode 3 (commercial presence)• A range of indicators on the activity of foreign affiliates• Inward and outward movements• Statistics by trading partners

Overview

• What do FATS statistics measure?

FATS

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The FDI Universe

FDI: the direct investor makes an international investment to obtain a lasting interest in an enterprise abroad

Owns >10% shares, voting power or the equivalentDirect investment

enterprise

• Associate

• Subsidiary

• Branch

between 10 and 50%

more than 50%

wholly or jointly unincorporated enterprise

individualsenterprisesassociated groups of individuals/enterprisesgovernments...

Country A Country B

Directinvestor

FATS

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Firms Covered in FATS

• Ownership criteria

Majority-owned foreign affiliates (a single foreign investor owns more than 50% of their ordinary shares or voting power):

• Types of producers

Affiliates producing goods, services

Includes subsidiaries and branchesExcludes associates

FATS

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Economic Variables for FATS

• Sales (turnover) and/or output

• Employment

• Value added

• Exports and imports of goods and services

• Number of enterprises

Basic FATS variables(minimum recommended by MSITS)

Additional FATS variables

• Assets

• Compensation of employees

• Net worth

• Net operating surplus

• Gross fixed capital formation

• Taxes on income

• Research and development expenditures

Most are drawn from SNA 93

FATS

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Geographical Attribution

Foreign-owned affiliates in the compiling country (inward FATS)

COMPILING COUNTRY

Operations of foreign-owned

affiliate

Majority ownership

Foreigninvestor

Operations allocated to the country of

Majority ownership

Statistics on inward FATS

Immediate owner

Foreigninvestor

UBOSupplem

entary in

formatio

n

Described

FATS

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Geographical Attribution

COMPILING COUNTRY

Operations allocated to the country of

Statistics on outward FATS

Operationsof foreignaffiliate

Majority ow

nership

Foreign affiliate (holding company)

Majority ownership

Resident investor

Described

Foreign affiliates of investors of the compiling country (outward FATS)

FATS

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Classification by Activity and by Product

• FATS variables classified as a first priority on an activity basis

• Foreign affiliates classified by their primary activity

• According to ISIC Categories for Foreign Affiliates (ICFA)

• ICFA can be linked with EBOPS (to a limited extent)

• Long-term priority…

• FATS variables such as sales, imports and exports should also be broken-down by product

FATS

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Availability of FATS StatisticsInward Outward

Number ofemployees

Turnover Valueadded

Number ofemployees

Turnover Valueadded

Austria x x x xBelgium x x x xCzech Republic x x xDenmark x x xFinland x x xFrance x x x xGermany x x x xHungary x x xIreland x xItaly x x x xJapan x x xLuxembourg x x x xNetherlands x x xNorway x x xPoland x xPortugal x x x x x xSweden x x x xTurkey x x xUnited Kingdom x x xUnited States x x x x x x

FATS

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FDI Statistics as an Alternative

State of implementation

• Many countries collect FDI flows, with geographical and activity breakdown (more data for inward than outward)• Correlation between FDI flows/stocks and sales of foreign

affiliates is not perfect

Collection and dissemination

• Eurostat and OECD: FDI inward and outward stock, flows and income (by industry and country)

• UNCTAD: Foreign Direct Investment Database

• National sources: Central banks, statistical offices

FATS

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Availability of FDI and TNCs statisticsSelected countries

FATS

Inward Outward

Flows Stocks Flows Stocks

Albania x x x

Brazil x x x Inward InwardChina x x x x Inward x x x ActivityChinese Taipei x x x x x x x x x ActivityColombia x x x x x xCroatia x x x x Inward xFYR Macedonia x x x xMoldova x x x x InflowsHong Kong China x x x x x x x x ActivityIndia x x x x x x x x xKazakstan x x x x x xPapua New Guinea x x x Inward xRomania x x x xRussian Federation x x x x x InwardSingapore x x x x x x x x x xSouth Africa x x x x Inward st. xTunisia x x x x Inflows x

Activity breakdown

FDI

Value added

Activity and geographical breakdown

TNCs, Inward

Geographical breakdown

Employ-ment

Turnover

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The movement of natural persons in GATS• Mode 4 service suppliers

• Temporary movement

• Statistics for measuring Mode 4BOP statisticsFATS statisticsMigration statisticsOther possible sources

• Improving Mode 4-related statistics

The Movement of Natural Persons

MODE 4

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Mode 4 Service Suppliers

From the point of view of the recipient/importing country…

Mode 4 comprises services delivered in the framework of:

service contracts with foreign service suppliers (the individuals themselves or their employer)

employment contracts between enterprises established in the host country and foreign individuals

Areas of uncertainty

• employment only with foreign-owned companies?

• what does the supply of a service refer to?

• many commitments currently focus on highly-skilled workers

Mode 4

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Mode 4 and “Temporary”

GATS does not define “temporary”

• In WTO Members’ schedules of commitments

Varies between about 3 months (businesss visitors) and 2 to 5 years (intra-corporate transferees)

• In international statistical standards (BPM5, SNA, migrations)

One-year rule distinction between residents/non-residents

Statistics on residents also include Mode 4 service suppliers

Mode 4

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BOP and Mode 4

BOP Items Relevance Limitations

Services (especially computer & information, other business, personal cultural & recreational, and construction services)

Service contracts with the importer

Include other modes of supply

Mode 4

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BOP and Mode 4

BOP Items Relevance Limitations

Compensation of employees

Employment contracts, generally < 1 year

Includes workers not relevant for Mode 4 (non-services, and non-temporary)

Workers’ remittances

Indirect valuation for employment > 1 year

Indirect indicator, and includes permanent migrants

Migrants’ transfer

Supplementary information

 

Mode 4

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Why relevant?

How could it help?

FATS and Mode 4

Relevant variables

• Employment• Compensation of employees

• A number of trade commitments relate to intra-corporate transferees

• Separate identification of foreign non-permanent employment

Mode 4

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Migration Statistics and Mode 4

Relevant framework

UN Recommendations on Statistics of International Migration

Why relevant?

Which categories could be relevant?

Include temporary migrations for the purpose of work

• Foreign border-workers• Visitors and foreign business travellers• Some sub-categories of other migrant workers (within limits of occupation/activity): seasonal migrant workers, project-tied workers and temporary migrant workers

Mode 4

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Other Possible Sources

• Statistics on the number and type of work permits granted (e.g. by duration / occupation)

• Information from social security systems / health insurance schemes in which foreigners may be distinguished

• Statistics on arrivals and departures from migration or tourism authorities

(origin/destination, length of stay, purpose of stay...)

• Household surveys / population censuses

Mode 4

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Improving Mode 4 Related Statistics

Main difficulty in measuring Mode 4

Identify in available statistics the relevant subset of services and workers

Indicators on the value of Mode 4 services

• Identify Mode 4 in services sub-items• Identify the services sector in compensation of employees

Migration/labour statistics

but little seems feasible at present

Sounder ground for improvementHowever not in short-term, and GATS Mode 4 not translated in precise statistical requirements

Mode 4

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Summary: Modes of Supply and Statistical Domains

Mode of Supply Relevant Statistical Domains

Mode 1: Cross border supply

BOP: commercial service (excluding travel and construction services)

Mode 2: Consumption abroad

BOP: Travel

Mode 3: Commercial presence

FATS statistics BOP: FDI data, construction services

Mode 4:Presence of natural persons

Insufficiently covered

BOP: commercial service (excluding travel) BOP Statistics: Compensation of employees and workers' remittances

Modes of supply

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Sales by GATS Modes of Supply: Statistical Approximation

M o d e o f S u p p ly P r o x y r o u g h e stim a te

b illion U S$ , (% )

1 - c ro ss -b o rd e r su p p ly B O P : c o m m e rc ia l se rv ic e s e x p o rts (e x c lu d in g tra v e l)

1 ,0 0 0 (2 8 % )

2 - c o n su m p tio n a b ro a d B O P : tra v e l e x p o rts 5 0 0 (1 4 % )

3 - c o m m e rc ia l p re se n c e

F A T S S ta tis tic s : T u rn o v e r 2 ,0 0 0 (5 6 % )

4 – m o v e m e n t o f n a tu ra l p e rso n s

B O P : c o m p e n sa tio n o f e m p lo y e e s 5 0 (2 % )

Modes of supply

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Areas Where Improvements are Needed

• Few countries report the full BPM5 detail • Lack of statistics by partner countries• Lack of reliability• Documentation on coverage and deviations from international standards not available

• BOP trade in services

• Lack of reliability and comparability• No FATS collected outside OECD• Confidentiality severely limits data availability

• FATS

• No framework for statistics by mode of supply, in particular for Mode 4

Prospects

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Implement BPM5 recommendations for trade in services

MSITS’ Phased Approach to Implementation

5 core elements to improve international comparability

Compile BOP services according to EBOPS, starting with items of major economic importance to the country

Compile FDI by ISIC categories of activity

Compile basic FATS variables broken down by ICFA categories of activity

Compile statistics by partner country

Prospects

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Full implementation of EBOPS

MSITS’ Phased Approach to Implementation

5 other elements to improve detail of available information

Compile FATS additional detail

Compile statistics on the presence of natural persons

Split BOP trade in services between trade among affiliated parties and trade with unrelated parties

Allocate BOP trade in services by mode of supply

Prospects

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Keys for Improvement of Statistics

• Efforts by national agencies in charge of statistics

• Governments’ willingness to allocate resources to statistics

• Co-operation between national institutions

• Co-operation between international and regional institutions, and support to national initiatives

• Effective technical assistance

• Compilation guidance

Prospects