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The importance of embodied services in trade Tom Westcott, ITS Global

The importance of embodied services in trade Tom Westcott, ITS Global. Partners in Growth: Services Trade with Southeast Asia Wellington, 3 June 2011. They are intermediate services inputs embodied in the final output of a business, contributing part of its value

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The importance of embodied services in trade Tom Westcott, ITS Global

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  1. The importance of embodied services in tradeTom Westcott, ITS Global Partners in Growth: Services Trade with Southeast Asia Wellington, 3 June 2011

  2. They are intermediate services inputs embodied in the final output of a business, contributing part of its value • Businesses use internal resources (land, labour and capital) to manufacture, mine or grow and do this using additional external services • E.g. Manufacturing steel requires services such as electricity, a water supply, transport to market and typically business services such as accountants • Machinery exports include engineering servicesembodied in the machinery • (To be distinguished from ‘embedded’ services, which are services linked and related to the sale of merchandise or to the sale of another services. Eg. After-sale support.) What are ‘embodied’ services?

  3. Cross-border export data does not fully convey the contribution of services. • Embodied services make a significant economic contribution to exports that is not counted by usual export data • about A$35 billion in 2008-09 in Australia are ‘carried’ by merchandise exports • in addition to A$52 billion in cross-border services exports • Sales of services overseas by foreign affiliates of Australian companies also provide a major contribution not reflected in services exports • estimated at around A$108 billion in 2009-10. Key messages

  4. 2. Embodied services are critical to manufacturing and global supply chains. • As businesses continue to outsource and adopt ‘lean production’ techniques, embodied services exports will continue to grow • with technology advances (esp. telecoms) services can increasingly be disembodied or splintered • outsourcing means services are increasingly embodied in manufactures • this contributes to manufacturing efficiency and export growth • There is a convergence in production systems in manufacturing and services • manufactures use more services • services delivery uses manufactured capital goods. Key messages

  5. Efficient services regulation matters in Southeast Asian manufacturing countries • Understanding size and distribution of embodied services becomes a policy tool • Policy makers can prioritise reforming regulation of services most used in manufacturing • Can identify key ‘carrier’ exports and services inputs they use • Can identify services industries most commonly embodied in exports • In general, regulating access to network services is a priority (e.g. transport, electricity, gas, water, postal and telecoms). Key messages

  6. For Australia: • manufacturing accounted for 26% of all services exported in embodied form • mining: 31% • agriculture: 4% • Services: 38% • Notable manufacturing carrier export categories for Australia were • basic non-ferrous metal &products (3.6%); and • motor vehicles & parts (2.9%) Which exports use most embodied services?

  7. Major sources of embodied services in cross-border exports: • Property & business services (26% of all embodied services exp.) • Transport & storage (15.6%) • Wholesale trade (12.3%) • Services to mining (11.9%) • Construction (6.9%) • Finance & insurance (6.3%) • Electricity, gas & water supply (5.5%) • 16 ANZSIC services industry groups used in analysis Industries whose services are embodied in exports

  8. ITS Global’s report for the Australian government is available at: http://www.dfat.gov.au/publications/trade/Services-International-Linkages.html For further information, please contact: ITS Global 1/34 Queen St Melbourne, Australia Tom Westcott: t.westcott@itsglobal.net Jeffrey Rae: j.rae@itsglobal.net

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