International Transactions with Services

5th Course – 1st part:a. Measurement;b. Evolution.

Measuring ITS

Current accountCapital

&financial accountGoods

ServicesIncomeCurrent transfers

11 componentsTransportationTravelCommunicationsetc.

BOP FATS

Measuring ITS - BOP

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

Commercial services:

1. Transportation

2. Travel

3. -10. Other commercial services

11. Government services (not in GATS)

Measuring ITS - BOP

• 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 covered

However, some BOP indicators helpful:

• Foreign Direct Investment

• Compensation of employees• Workers’ remittances• Migrant transfers

Mode 3

Mode 4

Measuring ITS - FATS

• Focus on services measuring Mode 3 (commercial presence),• Help understand the phenomenon of globalization.

• A range of indicators on the activity of foreign affiliates•Turnover•Employment•Value-added

• Inward and outward FATS• With a particular focus on services

Guidelines for measuring the activity of foreign affiliates

• What are FATS statistics useful for?

• What do FATS statistics measure?

Mode 3 - FDI

FATS

FDI: the direct investor makes an international investment to obtain a lasting interest (existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence of the investor on the management of the enterprise) in an enterprise abroad

Owns >10% shares, voting power or the equivalentDirect investment

enterprise

• Associate• Subsidiary• Branch

between 10 and 50%

more than 50%

wholly or jointly unincorporated enterprise

individualsenterprisesassociated groups of individuals/enterprisesgovernments...

Country A Country B

Directinvestor

Mode 4

Purpose of stay

Fulfilling a service contract, whether as a service supplier (self-employed) or as an employee

Duration of stay

Temporary: Measures regarding citizenship, migration, residence and permanent employment are not covered

Mode 4 comprises services delivered in the framework of:service contracts with foreign service suppliers (the individuals themselves or their employer)

employment contracts

for independent service suppliers it is difficult to establish borderline between service and employment contract

Measuring ITSModes of Supply and Statistical Domains

Mode of Supply Relevant Statistical Domains Mode 1: Cross border supply

BOP: commercial service (excluding travel and construction services)

Mode 2: Consumption abroad

BOP: Travel

Mode 3: Commercial presence

FATS statistics BOP: FDI data, construction services

Mode 4:Presence of natural persons

Insufficiently covered BOP: commercial service (excluding travel) BOP Statistics: Compensation of employees and workers' remittances

Source: Karsenty, G. (2002), Trends in Services Trade under GATS recent developments, Symposium on Assessment of Trade in Services, OMC

890 1000

430 500820

2000

30 50

2170

3550

0

500

1000

1500

2000

2500

3000

3500

4000

Cross-bordertrade

Consumptionabroad

Commercialpresence

Presence ofnaturalpersons

Total

19972001

Trade in services by modes of supply

Sursa: Karsenty, G. (2002), Trends in Services Trade under GATS recent developments, Symposium on Assessment of Trade in Services, OMC

Trade in services by modes of supply

Mode of supply % in overall transactions

Cross-border transfer 35%

Consumption abroad 10-15%

Commercial presence 50%

Temporary presence 1-2%

ITS EvolutionWorld merchandise exports stagnated in value terms in 2012, while exports of commercial services increased by 2 %

Internationalization of services

5th Course – 2nd part

PREREQUISITES: enhanced degree of tradability of services:

“services revolution” – growing expansion of information-intensive services;technological innovation - improved the capacity of services to be embodied in goods traded internationally;electronic networks expansion – increasing internationalization of services.

PREREQUISITES: barriers to trade and FDI in services:

Uruguay Round – lower barriers to international transactions with services;globalization process – increasing opportunities for marketing services internationally relatively slow rhythm of the internationalization process, despite the improved commercial capabilities.

Approaches to internationalizing services:

1. Internationalization of services;

2. Internationalization strategies for service companies.

Internationalization of services:

1) international trade (export);M1, M2, M4

2) some degree of commercial presence (indirect and direct entry).

M3

Typology of international services trade:

P and C do not move for the supply of the service – long distance supply;What facilitates the identification of the activity that crosses the border is not the person, nor the activity itself for which he/she is traveling, but the support (R = C + transportation mean);C moves to the country p for the supply of services by P;P moves towards C to render the service, in country c;

Typology of commercial presence for services transactions:

Degree ofproperty and

control

Degree ofinvolvement inlocal production

Low degree of property and control over the “commercial presence” entity

High degree of property and control over the “commercial presence” entity

Small part of the service produced locally

(d) (b)

Majority of the service produced locally

(c) (a)

General entry modes for services firms:

client-following mode;

market-seeking mode;

electronic marketing mode

Strategies for internationalizing services firms:

Export strategies:direct export systems export

Entry strategies:direct entryindirect entry

Electronic strategieselectronic marketing