The four main economic indicators show that service trade accounts for 70% of GDP, 64% of FDI, 49% of trade measured in value added terms, and 45% of employment worldwide. Also known as “tertiary” sector, the service sector often supports other sectors of the country: agricultural and mining (primary sector) and manufacturing (secondary sector).
Goods export is almost always dependent on services such as marketing, distribution and other sorts of services for successful trade. Due to the inherent nature of service trade, being intangible, it becomes rather difficult to measure them. In addition, only certain types of services can be offered from a distance with the development of the Information and Communication Technologies (ICT) and some services require the consumer and he service provider to be in the same place or a reasonable proximity.
Relationship is central to the service sector
The service sector mainly provides solutions that meet the consumer’s needs. Therefore, the relationship between the service provider and the consumer plays an important role in the quality of the service and its degree of customization, differentiation, and eventually competitiveness. The more distant and isolated the service provider and the consumer, the less practical and solution-based the service. A smart service takes into account the needs and wants of the consumer of the product, puts itself in their shoes and offers a solution that leads to efficiency. A large percentage of international service trade is offered through commercial presence.
WTO Classification of Services
The World Trade Organization (WTO) has classified services into 12 sectors and 160 subsectors based on the United Nation’s (UN) Central Product Classification (CPC). These include:
- Business services and professional services
- Communication services
- Construction and related engineering services
- Distribution services
- Educational services
- Environmental service
- Financial services (including insurance and banking)
- Health-related and social services
- Tourism and travel-related services
- Recreational, cultural and sporting services
- Transport services
- Other services not included elsewhere
General Agreement on Trade Services (GAT)
Four categories are introduced by the WTO General Agreement on Trade Services (GATs). The first, known as cross-border, involves providing services of a country across its border and into another one, mostly from the home country over the internet. On the other hand, commercial presence requires the establishment through acquiring of an office or creating branches or subsidiaries in another country.
Movement of natural persons is another method which allows service providers to offer their assistance by temporarily having suppliers move to the consumer’s country. It is imperative to remember that the labor market and those known as expatriates do not belong to this category. The last and perhaps also the least familiar one considered as international service trade is known as consumption abroad. Consumption abroad involves services offered in the home country of the service provider to students, tourists, and medical patients. To learn more about the GAT, download Introduction to GAT.
For those interested in the service trade and those working in the service sector, knowledge of this kind and the service sector’s relation to other ones strengthens their capabilities in offering more practical solutions by doing some research on how such services may be offered. It also allows them to be able to collect data relative to their services and come up with data-driven decisions and solutions.