Journal 2018 (Publication 2)
International Peer-Reviewed Journal
RESEARCH HORIZONS, S.R. NO. 2, VOL. 8 NOVEMBER 2018
TRADE AND SERVICES
Vishal Acharya*
ABSTRACT
Services are a major component of global gross domestic product and employment, and a rising
component of global trade and investment flows. This is the largest sector of the Indian economy
contributing significantly to economic growth and foreign investment flows. India is among the top
ten World Trade Organization member countries in trade in services, and the country has a positive
trade balance in services. However, global trade in services faces a number of barriers at the
border and behind the border, which makes it difficult for service providers from developing
countries such as India to access key markets in their preferred modes of services trade. Given
this background, this paper examines how trade in services can be liberalized within the WTO
framework. It presents some of the recent estimates of trade costs related to barriers to trade in
services, and examines why it is difficult to measure trade facilitation in services.
Keywords : services, trade facilitation, trade costs, trade agreements, WTO, India.
Introduction
Services are a key rising component of global Gross Domestic Product (GDP) and employment. In
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015, the services sector contributed approximately 69 per cent to the global GDP. The contribution
of services to the GDP is even higher for developed countries. For example, in the United States
US), services account for 80 per cent of the GDP. In 2015, services contributed to 50.9 per cent to
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global employment.
Services are also a growing component of global trade and investment. Globalization, reforms,
liberalization, technological development, greater mobility of people, development of new business
models (such as business process outsourcing, etc.), among others have enhanced the growth of
international trade in services, which increased from USD 2,905 billion in 2001 to USD 9,502 billion in
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016. In the same year, according to the World Trade Organization (WTO), commercial services
accounted for approximately 22.8 per cent of total world trade (WTO, 2017).
Focusing specifically on India, service sector is a key component of India’s GDP, employment, trade
and foreign direct investment (FDI) flows. It accounted for approximately 53.1 per cent in India’s
gross value added (GVA) in 2015-16, making it the single largest contributor to India’s overall value
addition. The contribution of service sector in India’s GVA has increased from 49 per cent in 2011-12
to 53.1 per cent in 2015-16.The service sector is the second largest employer after agriculture, and
according to the Economic Survey of India (2016-17), it employed around 28.6 per cent of the total
workforce in 2016.
Trade in Services and GATS
Given the importance of services in global trade and FDI flows, the Uruguay Round (1986- 1994) of
WTO negotiations for the first time introduced services into multilateral trading system. The GATS, in
principle, covered all service sectors except services supplied in the exercise of government authority,
and aimed to progressively liberalize trade in services through successive rounds of negotiations.
The GATS classified services trade into four different modes as
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International Peer-Reviewed Journal
RESEARCH HORIZONS, S.R. NO. 2, VOL. 8 NOVEMBER 2018
1. Cross Border Supply: This includes all the services supplied from the territory of one member
into the territory of another member. For example, an economic consultant providing her services
overseas from her country
2. Consumption Abroad: This includes consumption in the territory of a member by a service
consumer of another member. For example, consumption of services by international tourists.
3. Commercial Presence: This includes the presence of service provider in the territory of another
member. For example, joint venture of a Foreign Service provider with a domestic business.
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. Movement of Natural Person: This includes provision of services through the presence of natural
persons of a member in the territory of another member. For example, doctors of one nation
travelling to another nation to provide their services.
The GATS contain two kinds of provisions
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General obligations – some of these are applied to all service sectors (for example, transparency)
and some only to scheduled specific commitments (for example, Article XI: Payments of Transfers)
Specific Commitments – these are negotiated undertaking particular to each GATS signatory
To ensure transparency, GATS Article III requires each member country to publish all measures
of general applications which pertain to or affect the operation of the Agreement. Countries are
also required to publish international agreements pertaining to or affecting trade in services. In
other words, the Council of Trade in Services will have to be informed, at least annually, of the
introduction of any new, or any changes to existing laws, regulations and administrative guidelines.
WTO member countries can make a request regarding specific information, which the concerned
country will have to provide promptly. Article III requires member countries to establish enquiry
points to provide specific information to other members.
Barriers to Trade in Services
A number of studies have shown that trade in services is subject to a number of across-the border
and behind-the-border barriers. With regard to market access barriers, GATS Article XVI presents the
following six limitations on
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The number of service suppliers
Total value of service transaction or assets
Total number of service operations/quantity of output
Type of legal entity
Number of natural persons supplying the service
Participation of foreign capital
Commitments under the GATS primarily address market access and national treatment related barriers.
It is possible for WTO member countries to make additional commitments in regulatory areas such as
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RESEARCH HORIZONS, S.R. NO. 2, VOL. 8 NOVEMBER 2018
licensing, qualifications and standards, which are outside the scope of market access and national
treatment as defined in the GATS. In the case of telecommunications sector there is a Reference
Paper based on which WTO members took additional commitments on procedural and administrative
matters. Trade Facilitation in services is precisely concerned with removal of procedural and
administrative bottlenecks. It is expected to make the market access commitments more transparent,
predictable and clear and reduce delays and cumbersome procedures.
Trade Facilitation in Services in India
The WTO defines trade facilitation as the process of “simplification and harmonization of international
trade procedures” including the “activities, practices and formalities involved in collecting, presenting,
communicating and processing data and other information required for the movement of goods in
international trade.” In December 2013, the WTO Members concluded negotiations on a landmark
TFA at the Bali Ministerial Conference. The TFA contains provisions for expediting the movement,
release and clearance of goods, including goods in transit. It sets out measures for effective cooperation
between customs and other appropriate authorities on trade facilitation and customs compliance
issues, and contains provisions for technical assistance and capacity building. Services such as
logistics services are key components of the TFA.
A number of studies have shown the benefits of a TFA in goods. For example, according to the OECD,
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the implementation of the TFA could reduce worldwide trade costs by between 12.5% and 17.5%.
Countries which implement the TFA in full will reduce their trade costs by between 1.4 and 3.9
percentage points more than those that do only the minimum that the TFA requires. The opportunities
for the biggest reductions in trade costs are greatest for low and lower middle-income countries.
Conclusion
Technological innovation is increasingly making services exportable at low prices and thus causing a
shift in a 60-year-old economic paradigm about tradable versus non-tradeable sectors. In that countries
do not need to build a domestic market or invest in a manufacturing sector, but rather to exporting
services. In such a case, service globalization new hope for countries at various stages of economic
development. Growing tradability of services may help with the strategies for resource-rich countries
and low-income countries that are highly concentrated exporters. For advanced economies, harnessing
the trade in services will likely remain a key factor to retaining their global competitive edge that
powers the internet, and high value components in global value chains.
References
Arnold, J. M., Javorcik, B., Lipscomb, M. &Mattoo, A. (2016). Services reform and manufacturing
performance.
Dash, R. K. &Parida, P. C. (2012). Services trade and economic growth in India: An analysis in the
post-reform period. International Journal of Economics and Business Research.
Mukherjee, A. (2008). Services liberalization in PTAs and the WTO.
*
PhD Research Scholar , Department of Commerce, University of Mumbai, Mob No.: 09867715855
E-mail Id: [email protected]
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