Workshop: 25th April 2013 “Servicification – Why free trade in services matter to manufacturing “ “Why Manufacturing companies should care about trade in services negotiations?” Pascal Kerneis ESF Managing Director

Size of global trade – Export of goods and services (21%)

But if we use the trade in value-added (TiVA) indicators, the share of services is 45% of the total world trade ! (more than 50% in the EU countries) Source: OECD-WTO TiVA database - 2012

World Economy: Percentage of GDP by Sector - 2011

Services Exports in Millions $US The importance of the EU in global services trade Services Exports in Millions $US If we take intra and extra EU together, EU export of services represent 42% of global export of services EU is by very far the biggest exporter of services: 24% of world export of services

EU Services Exports and Imports per sectors (2010 - € 1 000 million) 40%

High increase of Business services

EU = Biggest investor in the world

Services sectors = Biggest investors Table 3: Extra EU-27 FDI stocks by economic activity, EU-27, end 2009 (EUR 1 000 million) Source: Eurostat   Outward Inward Total 3662,1 2658,1 Agriculture, hunting and fishing 3,0 2,2 Mining and quarrying 233,6 59,2 Manufacturing (22%) 821,5 537,5 Food products, beverages and tobacco products 113,8 71,8 Textiles and wood activities 30,4 16,3 Petroleum, chemical, pharmaceutical products 319,8 216,2 Metal and machinery products 224,6 175,9 Vehicles and other transport equipment 58,0 18,4 Electricity, gas, steam and air conditioning 56,0 17,1 Water supply; sewerage, waste management 4,4 2,5 Construction 16,7 8,9 Services (57%) 2087,15 1672,1 Trade; repairs of motor vehicles and motorcycles 133,7 123,4 Transportation and storage 49,1 30,9 Accomodation and food service activities 22,2 13,1 Information and communication 108,7 76,7 Financial and insurance activities 1387,8 1054,8 Real estate activities 40,0 43,9 Professional, scientific and technical activities 295,4 243,0 Other services 50,2 86,3 Activities not allocated 409,1 329,0 Other 30,6 29,6

EU Trade policy & Servicification! In all Trade negotiations that the EU is running, the services and investment negotiations represent an important part: Multilateral: DDA GATS Negotiations (30 countries – collapsed in July 2008 despite good progress at the “Signalling Conference”. Plurilateral: « Trade in Services Agreement- TISA » - 1st Round : 18-19 March 2013: Australia, Canada, Chile, Colombia, Costa Rica, European Union (27), Hong Kong, Israel, Japan, Mexico, New Zealand, Norway, Panama, Pakistan, Paraguay, Peru, South Korea, Switzerland, Taiwan, Turkey, and United States.

On-Going FTA negotiations: EU- Canada Comprehensive Economic Trade Agreement (CETA) (started in 2008) (2013?) EU-India (TIA)(started in2006 - elections in 2014 - ???) EU-Malaysia FTA (started in 2011 - elections in May 2013) EU-Vietnam FTA (started in2012 – Third round: 23-26 April 2013) EU-MERCOSUR FTA (Argentina, Brazil, Uruguay, Paraguay) (blocked) EU-Japan (Summit: 25 March 2013 – 1st round: 15-16 April 2013) EU-Thailand (official launch on 06/03/2013 – 1st Round: 27 May 2013) + EU EPAs with ACP countries (+/- 60 pays) + EU with EuroMed : Egypt, Israel, Jordan, Morocco, Tunisia. + EU with Eastern Partnership: Armenia, Georgia, Moldavia + To come soon: UE-US TTIP (mandate: 14 June 2013? – 1st round : July 2013?) Philippines? Indonesia? Taiwan?...

EU Bilateral Trade Policy = “Deep and Comprehensive FTA” – Single Undertaking Goods: tariffs cuts (+95%), NTBs, Rules of Origin, Trade in services (Cross border, Movement of people) Investment (Pre-establishment market access, post establishment protection) IPR (copyrights, patents, data flows, etc.) Public Procurement (central, regions, local, public entities) Competition, dispute settlement Regulatory disciplines and cooperation  ”Servicification” of the economy!

Impact of trade in services negotiations: Example: EU Trade Policy and Express Delivery Services:  Need to look beyond the close definition of the sector

GATS & Postal and Express Services  Is it only about Section 2 A & B of CPC?

GATS & Express Delivery Services

Impact of EU Services Trade Policy on Manufacturing Industry Manufacturing industries consume/buy/outsource a lot of services => Embodied Services: In recent years, the application of enabling services such as telecommunications and IT has driven deeper segmentation of goods supply chains into production units which can be dispersed geographically, and yet be connected Embodied services are involved throughout the processing and manufacturing steps in the goods supply chain all traded goods embody services, on average around 25% embodied services represent a higher share (50% +) of value-add of high tech goods Manufacturing industries sell more & more services, as integral part of their activities => Embedded Services

Embodied services  Essential components of the supply chain of trade in goods

Embedded Services in the products Essential elements of creation of value added and benefits

Impact of EU Services Trade Policy on Manufacturing Industry In all manufacturing sectors, the companies consume and provide many services that improve the competitiveness of their daily activities In many instances, the services provided around the products are a major element to sell the products (part of the innovation) In many instances, the services provided around the products are generating an important part of the benefits of the companies (long term maintenance contract).  However, very few companies do look at the trade in services negotiations that are in fact vital for their companies !!!

 The European Services Forum can help! Conclusion: It is time for Manufacturing companies to closely monitor the trade in services negotiations, …  The European Services Forum can help!

THANK YOU FOR YOUR ATTENTION ! Pascal KERNEIS Managing Director European Services Forum – ESF 168, Avenue de Cortenbergh B – 1000 – BRUSSELS Tel: + 32 2 230 75 14 Fax: + 32 2 320 61 68 Email: esf@esf.be Website: www.esf.be