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Measuring Trade in Services

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1 Measuring Trade in Services
Training Module © WTO/OMC

2 Overview Characteristics and economic importance of services
Trade in services GATS and modes of supply Manual on Statistics of International Trade in Services BOP FATS Modes of supply and statistical domains © WTO/OMC

3 Services Intangible output of a production process PRODUCTS GOODS
USER’S NEED PRODUCTION Key role in the economy transport, telecommunications… long term effects - environmental, educational services… Services value added = 2/3 Global GDP © WTO/OMC

4 Share of Services Value Added in GDP 2005, Selected countries

5 Share of Services in Total Employment 1995-2005, Selected countries
* Except Brazil 2004, Egypt 2003 and China 2002. © WTO/OMC

6 Measuring Services Production (1/2)
Statistics on domestic activity Value added broken down by industry (of which services) within the National Accounts framework Employment in the services sector within employment statistics (also part of the National Accounts) Information on specific services sectors from business statistics © WTO/OMC

7 Measuring Services Production (2/2)
Quantitative indicators on specific services Complementary use of statistics: on international payments for telecommunications (source BOP) on international telecommunications traffic (source ITU) International telephone traffic BOP imports and exports © WTO/OMC

8 Goods Commercial services GDP

9 Specific Features of Trade in Services
Services represent 20% of total world trade and account for the 2/3 of GDP Intangible nature Many services require physical proximity of provider and consumer: services perceived as less easily tradable than goods Conventional trade statistics do not cover all international trade in services Services delivered by foreign affiliates > conventional international trade in services © WTO/OMC

10 The GATS Set of rules covering international trade in services GATS
Pillars Set of general obligations and disciplines Schedules of specific commitments Annexes on specific issues Commitments under GATS By services sectors By mode of supply © WTO/OMC

11 The GATS Modes of Supply (1/2)
COUNTRY A COUNTRY B Mode 1: Cross-border Service supply Service supplier Consumer The service crosses the border Mode 2: Consumption abroad Service supply Service supplier The consumer is abroad Consumer Consumer Mode 3: Commercial presence FATS + BOP construction Service supply Establish commercial presence $ $ $ $ $ Direct investment Commercial presence Consumer Company Consumer in C © WTO/OMC

12 The GATS Modes of Supply (2/2) intra-corporate transferee
COUNTRY A COUNTRY B Mode 4: Presence of natural persons Service supply An independent goes to country A Consumer Natural person An employee is sent by a company of country B Service supply Consumer intra-corporate transferee Juridical person Commercial presence Consumer C © WTO/OMC

13 The Manual on Statistics of International Trade in Services (2002)
Guidelines and recommendations on the measurement of trade in services Balance of Payments statistics Foreign Affiliates Trade in Services statistics Movement of natural persons © WTO/OMC

14 Short Presentation (1/2) Capital & financial account
BOP Statistics - Short Presentation (1/2) BOP summarises transactions of an economy with the rest of the world BOP Current account Capital & financial account Goods Services Of interest for GATS purposes but... 11 components Income Transportation Current transfers Travel Communications etc. © WTO/OMC

15 Short Presentation (2/2)
BOP Statistics - Short Presentation (2/2) More detail needed than 11 BPM5 services components MSITS introduces EBOPS (breakdown of BPM5 services) Most services delivered under Mode 3 and Mode 4 are not well covered or identified However, some BOP indicators helpful: Mode 3 Foreign Direct Investment Mode 4 Compensation of employees Workers’ remittances © WTO/OMC

16 FATS Statistics - Short Presentation
Coverage Operations of foreign affiliates, Particular focus on services Indicators Turnover Employment Value added Concepts & definitions Manual on Statistics of International Trade in Services © WTO/OMC

17 Correspondence between modes of supply measurement and statistical domains
Inadequacies Mode 1: Cross-border supply BOP: Commercial services (excl. travel, construction) No distinction between Modes 1 and 4 Mode 2: Consumption abroad BOP: Travel Contains goods and not divided into different types of services consumed by travellers Some Mode 2 transactions also in other BOP categories Mode 3: Commercial presence FATS BOP: Construction FDI (suppl. information) Very few countries produce FATS No distinction between Modes 3-4 FDI cover not only (majority) controlled companies Mode 4: Presence of natural persons BOP: Commercial services (excl. travel) Compensation of employees, workers' remittances (suppl. info.) No distinction between Modes 1 (3 for construction) and 4 No relationship with Mode 4 but of interest for labour mobility © WTO/OMC

18 Statistics on Resident-Non Resident Trade in Services (BOP)
Principles of recording Transactions and residence Other principles The Extended Balance of Payments classification Statistics by trading partner Allocation of BOP/EBOPS items to modes of supply © WTO/OMC

19 BOP Key Concepts Transactions between a country’s residents and rest of the World What is a transaction? What is a resident of a country? involves a real or financial resource, resource changes ownership. institutional units (individual, enterprise, association, government unit…) centre of economic interest, economic territory of the country. © WTO/OMC

20 What is an International Transaction?
Change in ownership of goods Provision of services Provision of labour Provision of capital Change in ownership of financial assets Residents / non-residents INTERNATIONAL © WTO/OMC

21 What is a Services Transaction?
International transactions in services International trade in services Country’s BOP Credit Debit Exports Imports Country’s residents © WTO/OMC

22 Country’s economic territory
Concept of Residence Transactors Households / individuals Enterprises Others Country’s economic territory Centre of economic interest flexible one-year rule Principal residence Geographic territory Territorial enclaves (e.g. embassies…) Significant and lasting economic activity © WTO/OMC

23 Valuation and Other Principles
of Recording Market prices (price agreed between seller and buyer) Valuation Time of recording Time at which services are rendered (accrual accounting) Unit of account Transactions converted to a common unit of account (national currency, USD) © WTO/OMC

24 EBOPS Extended Balance of Payments Services Classification What is it?
product-based classification, consistent with 11 BPM5 services components, more detailed than BPM5 services components, includes additional memorandum items. How can it be used in GATS negotiations? Manual provides a table of correspondence between EBOPS/CPC Rev.1/ GATS list of services GNS/W/120. © WTO/OMC

25 EBOPS Main Components Commercial services: 1. Transportation 2. Travel
Other commercial services 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 Government services (not in GATS) © WTO/OMC

26 EBOPS Detailed Components
Breakdown of main components 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 Postal & courier Telecommunication 1. Transport 2. Travel 3. Communications services …etc © WTO/OMC

27 EBOPS Memorandum Items and Alternative Aggregations
Memorandum items: useful additional information: Example Expenditure on goods Expenditure on accommodation and food and beverages All other travel expenditure Travel Aggregations of services and non-services transactions Example Audiovisual transactions Services: audiovisual services; audio-visual-related royalties and license fees Non-services: acquisition/disposal of audiovisual-related patents, copyrights… © WTO/OMC

28 Balance of Payments Statistics
by Trading Partner At least for... Services as a whole 11 main services components of BPM5/EBOPS Main trading partners If possible.... More detailed EBOPS level Common geographical basis for all trade in services data © WTO/OMC

29 Allocation of BOP/EBOPS Items to Modes of Supply
As a first step, Manual proposes a simplified approach: Items deemed to be predominantly delivered through one mode Transportation (except supporting and auxiliary services to carriers in foreign ports), Communications services Insurance services Financial services Royalties and license fees Mode 1 Travel (excluding purchases of goods) Supporting and auxiliary services to carriers in foreign ports Mode 2 © WTO/OMC

30 Allocation of BOP/EBOPS Items to Modes of Supply
Simplified approach (continued): Items for which significant elements of 2 modes of supply are involved Mode 1 ? Mode 4 Computer and information services Other business services Personal, cultural and recreational services Mode 3 ? Construction © WTO/OMC

31 Foreign Affiliates Trade in Services Statistics
Principles for recording FATS statistics The FDI universe Firms covered Statistical units Time of recording Economic variables Attribution (classification) of FATS variables By country By activity and by services products © WTO/OMC

32 Foreign Affiliate Trade in Services Statistics (FATS)
Guidelines for measuring the activity of foreign affiliates What are FATS statistics useful for? What do FATS statistics measure? Focus on services measuring Mode 3 (commercial pres.) Help understand the phenomenon of globalisation. Indicators that describe the activity of foreign affiliates Inward and outward FATS With a particular focus on services © WTO/OMC

33 Principles Underpinning
FATS Statistics In line with international standards SNA 1993 (National Accounts) BPM5 (BOP) OECD Benchmark Definition of FDI FDI statistics may be used as an interim indicator where FATS are not compiled © WTO/OMC

34 Owns >10% shares, voting power or the equivalent
The FDI Universe FDI: the direct investor makes an international investment to obtain a lasting interest in an enterprise abroad Country A Country B Direct investor Direct investment enterprise Owns >10% shares, voting power or the equivalent between 10 and 50% Associate Subsidiary Branch more than 50% wholly or jointly unincorporated enterprise individuals enterprises associated groups of individuals/enterprises governments... © WTO/OMC

35 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 branches Excludes associates © WTO/OMC

36 Statistical Units Units considered in FATS statistics may be
Enterprises Establishments of enterprises Establishment 1a Enterprise 1 Enterprise 2 Enterprise 3 Establishment 1b Establishment 2a Establishment 2b Establishment 2c Establishment 3a = Enterprise 3 © WTO/OMC

37 Time of Recording FATS Variables
Accrual basis Recording when the transaction occurs rather than when the related payment is made Period of recording Flow variables reference year Stock variables end of reference year Reference year Calendar year in principle If only fiscal or accounting year is available Explanatory note © WTO/OMC

38 Economic Variables for FATS
Concepts in the MSITS 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) Compensation of employees Taxes on income Research and development expenditures etc... Additional FATS variables © WTO/OMC

39 Geographical allocation
Inward FATS Foreign-owned affiliates in the compiling country Foreign investor Compiling country Operations of foreign-owned affiliates Majority ownership Majority ownership Immediate owner Foreign Investor Supplementary information Described Statistics on Inward FATS Ultimate Beneficial Owner (UBO) Operations allocated to © WTO/OMC

40 Geographical allocation Statistics on outward FATS
Foreign-owned affiliates of investors of the compiling country Foreign affiliate (holding company) Compiling country Majority ownership Resident Investor Majority ownership Operations of the foreign Affiliate Described Statistics on outward FATS Operations allocated to © WTO/OMC

41 Classification by Activity
and by Product FATS are classified by activity According to their primary activity According to ISIC categories for foreign affiliates (ICFA) ICFA can be linked to EBOPS Long-term priority… Disaggregation of FATS variables by product © WTO/OMC

42 The Movement of Natural Persons
The movement of natural persons in GATS Mode 4 service suppliers Temporary movement Relations to existing classifications Statistics for measuring Mode 4 BOP statistics FATS statistics Migration statistics Other possible sources Improving Mode 4-related statistics © WTO/OMC

43 Main Issues for Measuring Mode 4
Mode 4 in MSITS The Manual on Statistics of International Trade in Services (MSITS) recognises that a statistical framework needs to be developed for measuring Mode 4 Annex in MSITS as a first step Main statistical issues Determining the coverage of Mode 4 Only fragmentary indicators available Determining the indicators to measure Mode 4 © WTO/OMC

44 The Movement of Natural Persons in GATS
Relevant framework GATS’ main text: mode presence of natural persons GATS’ Annex movement of natural persons Description of Mode 4 in main text and annex Fulfilling directly a service contract, whether as a service supplier (self-employed) or as an employee Purpose of stay Indirectly: Presence instrumental to supply of service: through commercial presence or supply at a later stage Duration of stay Temporary: Measures regarding citizenship, migration, residence and permanent employment are not covered © WTO/OMC

45 Who is covered by Mode 4? Contractual service suppliers Self-employed (independent) service suppliers Employees of foreign service suppliers Intra-corporate transferees and persons directly recruited by the foreign affiliate Services sellers / Persons responsible for setting up commercial presence Areas of uncertainty difference between employment and service contract what does constitute a service? many commitments currently focus on highly-skilled workers © WTO/OMC

46 For which categories should Value of service trade flows
we measure the value of services trade? Natural persons Value of service trade flows Contractual services suppliers Self-employed Employees of foreign service suppliers Intra-corporate transferees and directly recruited by foreign affiliate Services sellers - Persons responsible for setting up commercial presence Yes No No © WTO/OMC

47 Options to assess Mode 4 delivery in surveys
1.Did the service delivery involve physical presence of service provider? Yes? Then, how was most of the service value provided (time/resources)? Mostly by fax, , etc. Natural person at the end (e.g. to supervise) Mode 1 Mode 4 The person’s knowledge was essential to deliver the service 2. Require in services surveys allocation by each GATS mode of supply 3. Require estimated share of services inputs for Mode 4 services trade © WTO/OMC

48 For which categories should
we measure the number of mode 4 persons? Natural persons Number of persons Contractual services suppliers Self-employed Employees of foreign service suppliers Intra-corporate transferees and directly recruited by foreign affiliate Services sellers - Persons responsible for setting up commercial presence Yes Yes Yes © WTO/OMC

49 Mode 4, migration and tourism statistics Non-Migrant categories
Categories of the UN Recommendations on Statistics of International Migration, revision 1: Non-Migrant categories Migrant categories © WTO/OMC

50 Mode 4 and Existing Classifications
Basis for classifying services as product of economic activity, including services delivered through Mode 4 UN CPC Distinguishes categories of employment: can facilitate linkages statistics/negotiations ISCO-88 Industrial classification: relevant if statistics by occupation are not available UN ISIC Status in employment: identifies « independent service provides » ICSE-93 © WTO/OMC

51 .... But other indicators of interest for analysis
Mode 3 and Foreign Direct Investment statistics (stocks and flows, important complement to FATS) Other FATS variables (number of service suppliers, employees, value of assets) Sectoral statistical frameworks: tourism , health Supplementary information from BPM6 linked to the movement of mode 4 persons Production, quantitative, employment indicators © WTO/OMC

52 Data Sources Data sources for BOP statistics
International Transactions Reporting System (ITRS) Enterprise surveys Combining ITRS and enterprise surveys Other sources Data collection systems for FATS statistics Key features for the collection of FATS statistics Examples of country practices Data comparability and reliability BOP asymmetries IMF initiatives related to data quality © WTO/OMC

53 Collection Systems for BOP Statistics
Main alternatives for the collection of BOP statistics International Transaction reporting System (ITRS) Enterprise surveys A combination of both systems Possible supplementary sources Surveys of travellers and household expenditure surveys Official sources and government transactions Partner countries and International Organizations © WTO/OMC

54 ITRS Coverage All services transactions Responsibility
(generally) the national central bank Respondents domestic banks (indirect reporting) residents holding accounts abroad or involved in clearing/netting schemes (direct reporting) Advantages timely, comprehensive, few respondents Limitations transactions proxied by payments, possible misclassifications © WTO/OMC

55 Enterprise Surveys Coverage all service transactions Responsibility
(generally) the national statistical office Respondents sampled enterprises who are international transactors Requisites high quality business register appropriate techniques for sample design, preparation of questionnaires, and processing of survey results © WTO/OMC

56 ITRS and Enterprise Surveys - Examples
System mainly based on enterprise surveys, with no use of ITRS e.g. United States, United Kingdom Systems mainly based on ITRS, using a limited form of enterprise surveys e.g. France Systems mainly based on enterprise surveys, using a limited form of ITRS e.g. Netherlands Great benefits to be drawn from co-operation between different institutions © WTO/OMC

57 Other Sources for BOP Surveys of travellers
Surveys conducted at borders (e.g. migration surveys) Household expenditure surveys Official sources Government transactions Statistics as a by-product of official institutions’ activities Other sources Data from partner countries Data from International Organizations Interest of BOP compiler to co-operate with other institutions © WTO/OMC

58 Collection Systems for FATS Statistics
Two different populations, requiring different approaches Inward: enterprises surveyed directly on their activity (easier to collect) Outward: resident parent companies surveyed on the activity of their affiliates abroad Different systems for collecting FATS statistics Surveys collecting FATS data Identify FATS in statistics on resident enterprises Only for Inward FATS Links with FDI in both cases (identification of the FATS population) © WTO/OMC

59 Surveys Collecting FATS
Two possibilities Specific surveys for FATS Add FATS variables to FDI surveys but... Burden on FDI-non-FATS enterprises Commonly considered preferable because FDI surveys: conducted frequently and require quick turnaround Information to be collected: key FATS variables at the greatest detailed level of ICFA © WTO/OMC

60 Existing Statistics on Resident Enterprises
Only for inward FATS Which sources? How can FATS statistics be obtained? Existing statistics on resident enterprises (employment, turnover…) identify inward FATS population within resident enterprises, and aggregate data collected across the foreign-owned population of resident enterprises © WTO/OMC

61 Examples of Country Practices for Collecting FATS
Inward and outward collected on the basis of FDI surveys e.g. United States Outward based on FDI surveys, inward on resident enterprise statistics e.g. Belgium Only inward collected, based on resident enterprise statistics e.g. Denmark, Spain Inward and outward collected through a separate survey e.g. Sweden © WTO/OMC

62 BOP Bilateral Asymmetries
BOP transaction Country A Country B BOP BOP Credit Debit Credit Debit Recorded import Recorded export import = export Difference = Bilateral asymmetry © WTO/OMC

63 Asymmetries: Types, Causes, Corrections
Different types of asymmetries Bilateral (two countries) Mutilateral (e.g. intra-EU) Global (World): for services, imports > exports Why? How can they be corrected? misallocations, different recording thresholds, difficult geographical identification... « bottom-up » approach: study of causes and reconciliation « top-down » approach: mathematical model allocates asymmetries © WTO/OMC

64 Data Quality: IMF Initiatives
Two initiatives to assess data quality SDDS Identifies best practices in the dissemination of data 4 dimensions: the data, public access to the data, integrity of the data, and data quality Concerns specific countries, which must observe specific standards GDDS Approach similar to SDDS with respect to data quality Open to all IMF Members Less prescriptive than SDDS Emphasis: long-term © WTO/OMC

65 Data Availability and Dissemination by International Organizations
BOP trade in services data BOP/EBOPS International dissemination Information available on commercial presence Availability and dissemination of FATS statistics Alternative: FDI data © WTO/OMC

66 Availability of BOP/EBOPS Data on Trade in Services
Compilation of trade in services is relatively well established and widespread BPM5 standard components widely compiled: the number of countries reporting these data has more than doubled since 1997 (breakdown of exports) Significant progress was made in compiling more detailed items, and in compiling a breakdown by partner country © WTO/OMC

67 International Dissemination of BOP/EBOPS Statistics (1/2)
Where can I find statistics on trade in services... … broken-down by type of service? … broken-down geographically? Eurostat, OECD, IMF, UNSD these organisations are collecting data on an EBOPS basis Eurostat OECD UNSD © WTO/OMC

68 International Dissemination of BOP/EBOPS Statistics (2/2)
Publication Coverage By type of service By partner country IMF Balance of Payments Statistics (+ITC Trade Map) (book, on-line and CD-ROM) IMF members BPM5 and EBOPS (provided to IMF on voluntary basis) No Eurostat Database (book, on-line and CD-ROM) EU members, total EU, euro area, EU candidate countries EBOPS Up to 115 partner economies and regions (270 for total services) OECD Statistics on Inter-national Trade in Services Volume 1 by Service Category Volume 2 by Partner Country OECD members; Hong Kong and Russian Federation for partner detail (and additional detail) UN ServiceTrade (on-line) 190 economies (around 40 with partner detail) WTO's International Trade Statistics All economies Summary data and analysis © WTO/OMC

69 Collection of FATS Statistics
Collected by Eurostat and OECD Common questionnaire to member countries: Inward and outward FATS: by activity (37 categories of ISIC) by country of origin/destination of investment Dissemination: OECD: Measuring globalisation: the role of Multinationals in OECD economies Eurostat: publication in the Statistics in focus series, and in the New Cronos reference database UNCTAD: World Investment Report © WTO/OMC

70 Availability of FATS Statistics

71 FDI Statistics as an Alternative
State of implementation Many countries collect FDI flows, with geographical and activity breakdown (more data for inward than outward) Fewer countries collect FDI income flows Collection and dissemination Eurostat and OECD: FDI inward and outward stock, flows and income (by industry and country) IMF: FDI positions, flows and income, no industry and partner breakdown UNCTAD © WTO/OMC

72 Current State and Prospects
Implementation: phased approach of MSITS 5 core recommendations 5 other recommended elements Recent progress and short-term plans Prospects for trade in services statistics Areas for improvement Future work © WTO/OMC

73 MSITS’ Phased Approach to Implementation
5 core elements Implement BPM5 recommendations for trade in services 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 © WTO/OMC

74 MSITS’ Phased Approach to Implementation
5 other elements (long-term) Full implementation of EBOPS Compile FATS additional detail Compile statistics on the presence of natural persons Split BOP trade in services among trade between related parties / trade with unrelated parties Allocate BOP trade in services by mode of supply © WTO/OMC

75 Recent Progress (1/3) Dramatic improvement of quality and quantity of statistics on resident/non-resident trade in services for BPM5 main items, but also for more detailed items a multi-country set of statistics available for major services categories FATS statistics are increasingly compiled © WTO/OMC

76 Recent progress (2/3) Eurostat: 2 regulations
on the compilation of FATS statistics on BOP statistics, embodying EBOPS FATS and EBOPS have become binding in EU member states IMF collect data according to EBOPS from 2003 on a voluntary basis © WTO/OMC

77 Recent progress (3/3) OECD:
expand the collection of BOP trade in services by partner country request BOP trade in services broken down by EBOPS UNSD: dissemination of EBOPS trade in services by partner country from for OECD and non-OECD countries UNCTAD: expand data collection on FATS © WTO/OMC

78 Areas Where Improvements are Needed
BOP trade in services Many countries still do not report the full BPM5 detail Lack of reliability Documentation on coverage and deviations from international standards rarely available FATS Lack of reliability and comparability Almost no FATS collected outside OECD Confidentiality severely limits data availability No framework for statistics by mode of supply, in particular for Mode 4 © WTO/OMC

79 Need for a revised Manual
Incorporate BPM6 and SNA revisions + ISIC, CPC, Tourism statistics.... New recommendations relating to activities of foreign affiliates: OECD Handbook on Economic Globalisation Indicators OECD Benchmark Definition of FDI Eurostat recommendations Manual Need for guidance for mode 4 and modes of supply generally ... 1st worlwide consultation in 2006 © WTO/OMC

80 Next steps for the Revision of MSITS
May 2006 – April 2009 Worldwide consultation on scope of update and issues TFSITS reviewed worldwide consultation responses Started drafting of Chapter on modes of supply and updating/drafting of other chapters Consultation with 2007 OECD-Eurostat Expert meeting and 2008 Working Party on International Trade in Goods and Services. Progress report to IMF BOPCOM and UN Statistical Commission Draft chapters agreed by TFSITS 2nd Worldwide consultation on complete draft of revised MSITS TFSITS to review comments and re-draft MSITS chapters TFSITS meeting: review comments and revised draft; cross-cutting issues Summer 2009: Finalize draft and chapters and post for final review November 2009: Prepare submission to UNSC March 2010: Draft submitted to UN Statistical Commission Revised Manual in 2010! © WTO/OMC

81 Future Work Interagency Task Force on Statistics of International Trade in Services need for technical assistance in the area of services statistics prepare Compilation Guide concentrate on further methodological work © WTO/OMC

82 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 © WTO/OMC

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