Korobka Y.A., Deshchenko A.Y.
Donetsk National University of Economics and Trade name M. Tugan - Baranovsky
Trade in Services refers to the sale and delivery of an intangible
product, called a service, between a producer and consumer. Trade in services
takes place between a producer and consumer that are, in legal terms, based in
different countries, or economies, this is called International Trade in
Services.
Trade in services is a new phenomenon. Economic scientists were looking
for an explanation of the international trade in complete goods. Due to recent
improvements in the transportation and communication technology, the trade in
services is currently increasing.
What exactly is ‘trade in services’? We follow the definition of the World
Trade Organization (WTO) and its ‘General Agreement on Trade in Services’
(GATS). The WTO identifies four modes:
1. ‘The supply of a service from the territory of one Member into the
territory of any other Member’. The supplier doesn’t leave the home country.
For example, an Indian software engineer stays in India and develops the
software for a foreign company.
2. ‘The supply of a service in the territory of one Member to the
service consumer of any other Member’ (of the WTO). This is the classical tourism
example. The tourists go to another country in order to consume leisure time
services. The service providers stay in there home country and the tourists
leave there home country.
3. A commercial presence of a home country company in the territory of a
foreign Country; i.e. a German company opens a new branch in the Ukraine.
4. Service supply through presence of natural persons in the territory
of any other country. The supplier leaves his home country in order to offer
and execute his service in a foreign country. The definition differs from
migration because the services supplier stays in the foreign country only to
perform the service and leaves it after fulfillment. Migration would mean a
change in residence intended to be permanent [2].
Services are an important input factor for physical goods. Most of the
trade theories examined trade in goods and not trade in input factors. There is
a need for new models, which can explain trade in services and implying
consequences.
We want to explain barriers for trade in services. We follow Banga who
distinguishes four barriers:
1. Product movement provides, for example, no guarantees for property
rights. E. g. software cannot be exported abroad, because exporters fear
illegal adoptions by the people of foreign countries.
2. Restrictions on capital movements can constrain investments in the
services sector, e.g. a company does not set up a new call centre in the
foreign country.
3. Restrictions on human movement, which concern especially ‘modus 4’.
They reduce factor mobility and can increase trade in goods.
– (Mode 1) Cross border trade, which is defined as delivery of a service
from the territory of one country into the territory of other country;
– (Mode 2) Consumption abroad – this mode covers supply of a service of
one country to the service consumer of any other country;
– (Mode 3) Commercial presence – which covers services provided by a
service supplier of one country in the territory of any other country;
– (Mode 4) Presence of natural persons – which covers services provided
by a service supplier of one country through the presence of natural persons in
the territory of any other country.
4. Restrictions for supplier subsidiaries, e.g. a services supplier
cannot establish a new branch in the foreign market [1].
A cut in these barriers for trade in services creates welfare effects
for the whole economy because services are an input for many physical goods.
So, trade in services has welfare effects. However, the reduction of
barriers has different effects, so that home and foreign countries can benefit
from the rising trade in services.
Literature:
1. Banga, R.: Trade in Services: A Review, Global Economy Journal, Vol.
5,
Issue 2, Article 3, 2005.
2. WTO: International Trade Statistics 2005, World Trade Organization, Geneva, 2005.