1. ECON 331 INTERNATIONAL TRADE
Chapter 9
International Trade of Services and Factor Movements

2. Nature of Services Product
service are primarily a “process” or an “actvity” which is intangible contrary to goods and non storable
production and consumption has to be simultaneous which makes international trade of services difficult.

3. Four Modes International trade of services
Mode 1- cross border supply where both supplier and consumer are located in their home countries (eg.call center.
Mode 2 - consumption abroad, which requires the movement of consumers to the location where the service is provided.
Mode 3- the commercial presence where service suppliers are moving to the place of consumption to provide their services, either by establishing affiliates or through direct investment abroad.
Mode 4 - covers the movement of natural persons to provide their services broad. According to these definitions of international provision of services free movement of persons, capital and data is required.

4. Services are the fastest growing part of international trade
Due to their intangible nature, trade in services is subject to more constraints than trade in goods

5. The Services sector generates 90% of new jobs in the EU15
Agriculture
Industry
Services
The Services sector generates 90% of new jobs in the EU15 

6. World Economy: Percentage of GDP by Sector, 2006

7. * : Includes significant re-exports or imports for re-export.
« The voice of the European Service Industries for International Trade Negotiations in Services» *
Source: WTO International Trade Statistics – 2008
* : Includes significant re-exports or imports for re-export.

8. Trends in World Trade in Services

9. International Trade in Services
28.9%
42.2%

10. Rank Country Trade Volume Exports Imports Balance 1 USA 266 852
EU-27 International Trade in Services with non-EU Countries 2007, EUR bn
Rank
Country
Trade Volume
Exports
Imports
Balance 1
USA
11 417 2
Switzerland
61 503
43 987
17 516 3
Japan
33 183
19 378
13 805
5 573 6
China
31 535
17 766
13 769
3 996 4
Russia
31 268
19 238
12 030
7 208 5
Norway
30 920
19 008
11 912
7 096 7
Canada
21 343
11 695
9 648
2 047 8
Singapore
18 530
11 397
7 133
4 264 9
Turkey
18 517
6 617
11 900
-5 282 10
Australia
17 031
10 747
6 284
4 463

11. EU-27 International Trade in Services with non-EU Countries in 2006 (EUR bn)
Rank
Country
Trade Volume
Exports
Imports
Balance 11
Hong Kong
13.584
6.896
6.688
0.207 12
India
12.526
6.978
5.548
1.430 13
Korea
10.367
6.339
4.028
2.341 14
Brazil
9.777
5.162
4.615
0.548 15
South Africa
9.662
5.305
4.357
0.948 16
Egypt
7.320
2.294
5.026
-2.732 17
Croatia
7.045
2.283
4.762
-2.478 18
Mexico
6.778
4.091
2.687
1.403 19
Thailand
6.517
1.999
4.518
-2.519 20
Israel
5.501
33.112
2.389
0.723 21
Morocco
5.172
1.672
3.500
-1.828 22
Taiwan
5.116
3.066
2.050
1.016 23
Argentina
4.049
2.395
1.654
0.741 24
Malaysia
3.888
2.078
1.810
0.268 25
New Zealand
3.138
1.809
1.329
0.480 26
Indonesia
2,483
1.412
1.071
0.341

12. Trends of the EU International Trade in Services

13. EU International trade in Services (Trends in volume – Bio €)

14. Trade between Member States exceeds Extra-EU trade
€ 679.6bn
€ 498.5bn
Source: Eurostat TOTAL EXPORT (intra + extra: Bio €)

15. What ITS does not include?
« The voice of the European Service Industries for the GATS negotiations »
What ITS does not include?
The activities of the foreign affiliates within the country in which they are established are not taken into consideration (= part of local GDP), nor the self financed investments through benefits (reinvested earnings/income) (also local).
The flow of capital involved in mode 3 operations, i.e. the financing of the establishment of a new commercial presence in a foreign country; This is included in the Foreign Direct Investment (FDI) accounts, not in the balance of payment, hence not considered as services exports.
More than 65% of global FDI flows are invested in services sectors (see hereafter).

16. FDI stocks in a country at the end of the year
What does FDI include?
FDI Capital Flows
FDI income
FDI stocks in a country at the end of the year

17. Services contribute to the largest share of FDI (1)
444,1 Bn € were invested in Services sectors by the EU in 4 years
(63,6 % of total 697,5 Bn €) (extra EU)

18. Services contribute to the largest share of FDI (2)

19. 86% of the investment coming to the EU are done in the Services sectors;