Basic Categories of Basic Categories of International Trade International Trade

in Servicesin Services

Basic Categories of Basic Categories of International Trade International Trade

in Servicesin ServicesChapter TwoChapter Two

Basic Categories of International Trade in Services

Learning Objective

• Grasp the definition and characteristics of international trade in services;

• Understand the classifications and features of international trade in services;

• Familiarize with the statistical methods of international trade in services.

1. Concept & Characteristics

1.1 Concept▲ Traditional definition:

When a labor in one country supplies service to the service demander (natural person, legal person and other organization) of another country to obtain foreign currency income following a compensated and voluntary principle, which constitutes the service export.

Trade in export service supply

gain forex income

one country another country

buy

pay fees

Trade in import service

LaborService

demander

LaborService

demander

On the contrary, the demanders of one country become the consumers of the services, supplied by the service producers of another country, thus service import has been formed.

The definition involves service suppliers (labors), nationality, national border, residents and non-residents.

So, three fields should be clarified:

(1)Connotation and extension of “Labor”: all the service suppliers, including individual suppliers

and group suppliers.

individual supplier group suppliers

(2) Different nationalities of “labors” and “services demanders”: direct investment and local employees

one country

Ps: Local labors: service suppliers, e.g. foreign investors who represent the foreign affiliation to supply services.

Direct local Investment labors

Local suppliers & local demanders

(3) Whether service crosses border and whether “national person” moves:

service needs to be crossed

Telecom: national person does not need to be moved

national person needs to be moved

Tourism &

medical care service does not need to be crossed

▲ Definition in US-Canada Free Trade Agreement:

Service is defined here as an “appointed service”, provided by a person representing other contracting

parties in its own territory or into territory of another contracting party.

Appointed services:

⑴ purchase activities: production, distribution, sales, etc.

⑵ restrictions of contracted countries: market permission & distribution systems

⑶ comprehensive process of forming commercial (business) presence, including distribution, sales transferring, etc.

⑷ investment or related activities: managing, organizing, maintaining or transferring, loaning, etc.

▲ Definition in BOP BOP :Balance of Payment ( 国际收支平衡表 )

Service in regular items in BOP refers to the trade in services between residents and non-residents.

BOP: currency balance of income and expense of one economic unity (one country or one region) to another economic unity within one year.

＊ regular item: non-invested item

＊ capital item: capital flow item

＊ reserve assets: national reserves

＊ errors and omissions: charge standard, currency translation, exchange rate

▲ Definition in GATSGATT 《关税与贸易总协定 》 & GATS 《服务业贸易总协定》(1) GATT : 《 General Agreement on Tariff and Trade 》

※ Definition: one multilateral international agreement on the relative regulations on tariff and trade

among different governments.

※ Time: Signed on 30th Oct,1947 in Geneva ( 日内瓦 ), put in trial effect from 1st Jan,1948

※. Goal: to eliminate the different treatment in the trade, promote the trade liberalization by reducing the trade tariff and barriers so that the world can make the best of recourses to enlarge the production and circulation of products.

Uruguay Round Talk

＊ Time: be hold in Sept.1986 by ministries of GATT; be the largest negotiation so far on trade, lastin

g for 7 years and half, with the end in April, 1994 in Morocco （摩洛哥） .

＊ Goal : be a new negotiation to reform the multilateral trade system;＊ Content: involve almost all the trade in the world, fro

m toothbrush to yacht, from bank to telecom, from wild rice gene( 野生水稻基因 ) to AIDS treatment

＊ The number of participants were from 103 to 125.

(2) GATS: 《 General agreement on trade in services 》

﹟ Definition: the business activities of cross-border service trade,

﹟ a kind of transaction action by which service suppliers from one country offer the service to consumers in another country and gain the foreign currency income in the form of business or in the way of commercial presence of natural persons.

﹟ This definition has been accepted popularly by all the countries, which contains four ways of trade in services:

⑴ Cross-border supply （跨境交付） : Suppliers in member country A supply service

from the territory of its own to customers in the territory of member country B.

supply service telecom internet computer

member country A member country B

Eg: audio, broadcasting, stock (share) finance, tele-message

Service suppliers

Service demanders

by BA

⑵ Consumption abroad （境外消费） : Suppliers in member country A supply service

inside its own country border to the coming consumers of member country B.

member country A member country B

Eg: ① tour reception (supply tour service to foreign tourists) ② patient reception (supply medical service & facility to foreign

patients ) ③ foreign students reception (supple educational service)

Service

suppliers (reception)

Service demandersgo to buy service

A B

⑶ Business presence （商业存在） : Suppliers in member country B move to

set up constitutions in member country A to supply service with gaining in country A.

member country A member country B

Eg: joint venture investment: cooperation: sole proprietorship:

Service suppliers ★ Service demanders ★

Move to set up

A B

★ Service suppliers ( labors):(1) From homeland(2) from host country

★ Service demanders (buyers):(1) From host country(2) from other countries

Individual service suppliers

⑷ Movement of personnel （自然人流动） :

Individuals in member country A move to member country B to supply service inside B country to the consumers, both of Country B and coming from member country C.

member country C member country B

member county A

Service consumers

Movement Out into

B

AAA

C

Individual service suppliers

A

Move to

1.2 Similar concept of international trade

in services

★ International trade in services ★ International trade in services & & International trade in goods Service industry

★ International trade in services ★ International trade in services & & International trade International service interflow in invisible services

★ International trade in services & that in goods

★Productive elements:Visible products

★ Productive elements:Personnel

capital TechnologyKnowledge

Additional service

Trade

accompany

★ Trade in services & that in invisible services

• Invisible trade

from the view of statistics

Direct investment(3/5)

Trade in services

Overseas indemnity Remittance ( 赔款 )

( 侨汇 ) donation

★ Trade in services & service industry

service industry trade in services

Productiveservice

Distributionservice

Consumerservice

Governmentservice

Consumer service

Distributionservice

Productiveservice

★ International trade in service &

international service interflow Service interflow

Service trade

Governmen

t

interflow

Job abroad

Consumption abroad

Cross boarder service

Income & expense

Cross broader flow

1.3 characteristics of international trade

in services

◆ intangibility( 无形性 ): Target species of service trade is

intangible.

◆ synchronism & internationalism ( 同步性和国际性 ):

Productions and consumptions simultaneously happen

◆ flexibility& elusiveness ( 隐蔽性 ):※ The approach of non-tariff barriers is the way to protect

service trade, which can make different regulations for different products, such as technical standard, accreditation ( 资格认证 )

※ The restriction to service trade means market permission and domestic legislation, which can not be negotiated among different countries.

◆ complexity: ※ wide range of trade ※ management of nature person movement ※ administrative regulation applying to trade

development

2. Classifications of

international trade

in services

2.1 statistic classification

▲ use: an operatively applicative classification ▲ aim: record and measure the scale and structure of the

trade from one country to other countries, in a certain period of time.

▲ approach: by the form of regulation and balance of payment account unified by IMF (International Monetary Fund 国际货币基金组织 )

▲ types: trade in factor services

trade in non-factor services

(1) Trade in factor services:

※ related capital items in the balance of international payment account: a trade flow in services related to international flow of capital or financial assets.

※ an international transfer in the flow of capital earnings

※ approach: A. international investment B. international credit

A. International investment ★ Direct investment: ＊ international investment to obtain

the control power in the direct management of capitals

＊ two earning flows:

--- flow of capital elements i.e. interests and dividends( 利息和股息 )

--- flow of administrative elements i.e. profit ( 利润 )

★ Indirect investment ( international portfolio investment 国际证券投资 ):

＊ international securities investment( 国际证券投资 ) to gain the interests or dividend yield ( 股息收益 ) of financial capitals

＊ in international stock market: buy stocks or bonds launched by foreign

enterprises buy government bonds ( 政府债券 ) launched by

foreign government

B. International creditThree types of credit:

＊ folk credit: commercial credit & bank credit

＊ international financial institution

credit: global & regional international financial institution credit, e.g. World Bank, IMF, Asia Development Bank, Latin-American Development Bank, etc.

＊ inter-government credit: credit to foreign government with preferential interest rate

(2) Trade in non-factor services: ● all the trade in services except the one in factor

services

● Formula:

Flow of non-factor service trade ﹦flow of international trade in service － flow of trade in

factor service ﹦(flow of regular item － flow of trade in goods －

unilateral transfer payment) － flow of trade in factor service

Illustration and tables are coming:

Balance of payment account (IMF format)1. Current items ( 经常项目 )

1 ） visible trade ( 商品 / 有形贸易 )

2 ） trade in services ( 服务贸易 )

3 ） unilateral transfer ( 单方面转让 )

2. Capital items ( 资本项目 )

1 ） long-term capital ( 长期资本项目 )

2 ） short-term capital ( 短期资本项目 )

3. Balance or settle accounts ( 平衡或结算项目 )

1 ） errors and omissions ( 错误和遗漏 )

2 ） official reserves ( 官方储备 )

illustration

International trade in services

international trade in non-factor services

International trade in factor services:

International direct investment& indirect investment

International trade in services

Statistic classification

International trade in services 国际服务贸易

Non-factortrade inservices accounts非要素服务贸易项目

Transportation/communication 运输、通讯 Tourism (hotels and restaurants) 旅游（旅馆和餐厅） Financial service 金融服务 Insurance service 保险服务 Professional services (intellectual property, consultation, management, technical services) 专业服务（知识产权、咨询、管理、技术服务） Privileged use items (license) 特许使用项目（许可证等） Other private services 其他私人服务

Factortrade inServicesaccounts要素服务贸易项目

Dividend (incl. profits) 股息（包括利润）Interests 利息Foreign re-investment earnings 国外再投资收益Other net capital earnings 其他资本净收益

(3) Features of statistic classification

Demerits:★ The definition of “factor” is in

narrow sense. It only refers to capital factor. The labor factor and land factor are not included.

★ Obscure the demarcation line( 分界线 ) between the im-export of service products & transnational investment ( flow) of productive elements in service industry. It is hard to tell the difference between trade and investment.

Merits:★ Make the contents of service

trade comprehensive; The will-be item will be classified either into factor or non-factor statistics.

★ Simplify the statistics of capital flow items (in the international balance of payment account );

★ Make statistics of investment earnings relatively independent (without the interference of international flow of investment and credit ).

Debate on two (for uttermost economic

benefit ) :

(1) Essence of “factor”: investment service or labor service

※ Developed countries: all the fields around international investment should be classified into international trade in services.

※ Developing countries: The flow of cross-border labors is the basic factor. This should be the core of trade in services.

(2) Contents of negotiation: cross-border trade in services or investment trade in services

※ Developed countries: international trade in services should include not only cross-border service trade but also investment which can promote the trade between countries.

※ Developing countries: The above idea shows the developed countries want to get the national treatment so that they can permeate into developing countries. The negotiation should be only limited into cross-border trade.

Statistic classification: ▲ practical classification ▲ more experienced ▲ in lack of theory

Logistic classification: ▲ theoretical classification ▲ more rigorous( 严密的 ) and reasonable ▲ easy to make the research

2.2 logistic classification(1) By the standard whether trade in services is

accompanied by trade in tangible goods （以是否伴随有形货物贸易为标准）

(2) By the standard of service industry （以服务业为标准）

(3) By the standard of factor intensity （以要素密集度为标准）

(4) By the standard of production process （以生产过程为标准）

(5) By the standard of goods （以货物为标准）

(1) By the standard whether trade in services is accompanied by trade in tangible goods （以是否伴随有形货物贸易为标准）

★ international trade in additional services refers to international trade in productive services put

into basic chain of productive management in the enterprises.

E.g.: ① in upstream: feasibility study, risky capital formation,

market research, product conception and design ( 产品构思与设计 )

② in midstream: quality control and inspection, equipment leasing and supplying, equipment maintaining and repairing

employee engaging and training, software collection, law, real estate managing, insurance, security, logistics services

③ in downstream: advertisement, transportation, direction for use, after-sale services including compensation

★ International trade in core services refers to service trade irrelative directly to

international trade in goods and investment. In the trade market, such trade itself is the core demands and supplies.

① long-distant services e.g.: international communication, internet,

telegram, fax, audio-service,

② face-to-face services e.g.: international medical services,

international tour services, third- country trade

(2) By the standard of service industry （以服务业为标准）

＊ bank and financial services

＊ insurance services

＊ tour services

＊ air parcel and port traffic services

＊ architecture and engineering services

＊ professional services

＊ information, computer and telecom services

(3) By the standard of factor intensity （以要素密集度为标准）

＊ capital intensive servicese.g.: air parcel, telecom, architecture and engineering servi

ces

＊ technical and knowledge intensive servicee.g.: bank, finance, law, accountant, audit( 审计 ),information s

ervices

＊ labor intensive servicee.g.: tour, construction, repairing, consumption services

(4) By the standard of production process （以生产过程为标准）

＊ service before the production processE.g.: feasibility study, risky capital formation, market research, pro

duct conception and design ( 产品构思与设计 )

＊ service in the production processE.g.: quality control and inspection, equipment leasing and supplyi

ng, equipment maintaining and repairing employee engaging and training, software collection, law, real es

tate managing, insurance, security, logistics services

＊ service after the production processE.g.: advertisement, transportation, direction for use, after-sale ser

vices including compensation

(5) By the standard of goods （以货物为标准）＊ services expressed by goods or materialization:e.g.: film, TV, books, computer, etc.

＊ services to supplement goods:e.g.: storage and transportation, financial management, advertisement

＊ services accompanying and replacing goods:e.g.: franchise management, equipment and finance

leasing, equipment repairing

＊ service with the function of goods but irrelated to goods: e.g.: telecom, tour, hotel and restaurant

3. Statistics of international trade in services

3.1 Development of statistics of international trade in service

＊ 1987: questionaire UNSO--United Nations Statistical Office( 联合

国统计局 )

IMFSO—International monetary Fund Statistical Office( 国际货币基金组织统计局 )

＊ 1988-1989: taking advices and modification improving the statistics

＊ 1993: independently listed in Balance of Payments Manual 5 (BPM5) BOP statistics (cross-border trade)

＊ 1995: after the end of Uruguay Round, GAT signed to be effective (4 ways to supply services)

＊ 1996 《 Manual on Statistics of International Trade in Services 》 drafted by experts from

UN (United Nations 联合国 ) ， EEC (European Economic Community 欧洲共同体委员会 ) ， IFM (International Monetary Fund 国际货币基金组织， OECD (Organizations for Economic Cooperation and

Development 经济合作与发展组织 ) ， UCTD (United Nations Conference on Trade and

Development 联合国贸易和发展会议 ) ， WTO (World Trade Organization 世界贸易组织 )

＊ 1999 ， deliberate and seek for opinions get reply from more than 70 countries＊ 2002, be ratified

⊕ range: follow GATS, 4 mode to cross-border trade, consumption abroad, business presence and natural person movement

⊕ operation: based on BOP (Services Transactions between Residents & Non-residents) and FATS statistics (Foreign Affiliates Trade in Services)

⊕ aim: based on <Manual>, enhance the statistics data collection and publish

⊕ effectiveness: over 140 countries report the statistics and 25 countries start FATS statistics

3.2 Statistic System

(1) BOP statistic : Balance of Payment

(2) FATS statistic: Foreign Affiliates Trade in Services

(3) Simplified statistics: Four modes in GATS

(1) BOP statistics (Balance of Payment): services transactions between residents and non-

residents

Residents refer to ＊ natural person who lives in the country for over 1

year ＊ enterprise legal person with business places to

supply goods and business.

i.e. Cross-border trade: cross-border supply, consumption abroad, movement of personnel

BOP statistics

International trade in services 国际服务贸易

Non-factortrade inservices accounts非要素服务贸易项目

①Transportation/communication 运输、通讯 ②Tourism (hotels and restaurants) 旅游（旅馆和餐厅） ③Financial service 金融服务 ④Insurance service 保险服务 ⑤Professional services (intellectual property, consultation, management, technical services) 专业服务（知识产权、咨询、管理、技术服务） ⑥Privileged use items (license) 特许使用项目（许可证等） ⑦Other private services 其他私人服务

Factortrade inServicesaccounts要素服务贸易项目

①Dividend (incl. profits) 股息（包括利润）②Interests 利息③Foreign re-investment income 国外再投资收益④Other net capital gains 其他资本净收益

(2) FATS statistics– Foreign Affiliates Trade in Services

trade in services by investment in foreign countries: all the affiliates transactions (goods and services) in host countries

i.e. transaction with home countries; transaction with other residents in host countries or from other countries

Core: service trade within the border

Illustration

cross-border trade cross-border trade

in goods & services in goods & services

Homecountry

Other countries

Host Country

(Affiliate)

residents residents residents

Core :Non-cross-border

transaction

Two ways of FATS:

＊ Import-FAT( 内向统计 ) : foreign investment inside home country

＊ Export-FAT( 外向统计 ): home investment in other countries

(3) GATS statistics: ＊ most authoritative definition＊ combined with BPM5 and FATS＊ only for the aim of statistics, not for legal

interpretation＊ the 3rd mode: affiliate ( if it is similar to

commercial presence) ＊ all of the 1st and 2nd transaction between part of the 4th residents and non-

residents

◆ Four modes in GATS

Modes （模式） Scope of statistics （统计范围）

Cross-border supply跨境供应

BPM5: transportation (large proportion), communication service, insurance service, financial service, components of fees for use of franchise and license 特许使用费和许可费组成部分 , computer and information services, other commercial services, private, cultural and recreational service

Consumption abroad境外消费

BPM5: travel (not including goods purchased by travelers), repairs of ships (goods) at foreign ports, part of transportation (support and auxiliary service for ships at foreign ports) （在外国港口对船只进行支持和辅助服务）

Commercial presence 商业存在

FATS: all categories in FATS and ICFA （ FATS 和 ICFA各类别）BPM5: part of building services

Movement of naturalPersons 自然人流动

BPM5: part of computer and information services; other commercial services; private, cultural and recreational services; building services FATS (supplementary information): employments expatriated to foreign affiliates 外派到国外附属机构的就业BPM5(supplementary information): flows related to labor Other sources: statistics from immigration and employment offices

3.3 Statistics of China International Trade in Service

▲ Background: ＊ started late＊ in-normative statistics: only BOP, no FATS＊ BOP statistics: not elaborate in data classification,

needs to be consummated

▲ Status quo:＊ China BOP is institutionalized.→1982, worked out and published

BOP data→1996, carried out gradually

《 Procedures Governing the Declaration and Statistics on International Receipts and Payments 》《国际收支统计申报办法》

→So far, set up a data collection system

＊ mature import FATS and export FATS:

Ministry of commerce has set up different statistics system for FATS.

＊ financial institutions :cover parts of FATS

中国银行监督委员会： China Banking Regulatory Commission 中国保险监督委员会 : China Insurance Regulatory Commission 中国证券监督委员会： China Securities Regulatory Commission

＊ lay the foundation: financial FATS

＊ 2008.01.01, put in effect《 Statistic System of International Trade in Services 》

＊ be subject to ： ①Foreign Trade Law of The People’s Republic of China 《中华人民共和国对外贸易法》 ②Statistics Law of The People’s Republic of China 《中华人民共和国统计法》

＊ be in accord with ① 《 General Agreement on Trade in Services 》 《服务贸易总协定》 ② 《 Manual on Statistics of International Trade in

Services 》 《国际服务业贸易统计手册》

Chapter Conclusion(1) International trade in services has different defin

itions: ＊ traditional definition, ＊ GATS definition, ＊ <US-Canadian Free Trade Agreement> definitio

n

(2) GATS has four modes of definition: ＊ Cross-border supply ＊ Consumption abroad ＊ Commercial presence ＊ Natural personnel movement

(3) Compared with trade in goods, international trade in services has the features such as: ＊ intangibility of trade target;

＊ synchronism & internationalism of production and consumption;

＊ flexibility & elusiveness of trade protection;

＊ complexity of management.

(4) The classifications of international trade in services are theoretical and logical:

＊ Theoretical classification (practical): ① trade in factor services and ② trade in non-factor services

＊ Logical classification (theoretical): 5 types ① by the standard whether trade in services is

accompanied by trade in tangible goods

② by the standard of service industry

③ by the standard of factor intensity

④ by the standard of production process ⑤ by the standard of goods

(5) Statistics of international trade in services are the bases for theoretical research and information resources for management.

＊ BOP statistics: transaction between residents and non-residents

＊ FATS statistics: commercial presence of affiliates

Chapter Quiz• Briefly review the GATS definition of

trade in services.

• What are the characteristics of international trade in services?

• Describe the merits and demerits of statistically operating classification and theoretically logical classification.

• What are the characteristics of BOP statistics and FATS statistics?

• Give a picture of the status in quo and features of China’s statistics on international trade in services.