Measuring Bilateral Trade In Services: A note on the data collected and estimated for the Services Trade Restrictivenes

1. Measuring Bilateral Trade In Services: A note on the data collected and estimated for the Services Trade Restrictiveness Index Trade and Agriculture Directorate WPTGS / Paris / 24.09.2008

2. Services Trade Restrictiveness Index project • Aims at quantifying barriers to trade in services • One index capturing all trade-restrictive measures • Developed by sector and according to the four GATS modes of supply • Three pilot sectors: telecommunications, construction, business services • Research identifying trade barriers and market entry costs requires bilateral data disaggregated by sector

3. STRI methodology • Bottom-up approach • Observation of explicit policies that restrict trade in services • Qualitative information (regulations) to which scores and weights are assigned • Weighting methodology: • Expert judgement • Statistical analysis • Econometric methods • Top-down approach • An indirect measure inferring the existence of trade barriers from discrepancies between observed trade performance and what would be expected in a free trade regime. • Differences between domestic and world market prices • Discrepancies between observed trade flows and expected free-trade flows … that’s where we need accurate bilateral trade data!

4. Three derived datasets (bilateral by sector) • BOP data • OECD TiSP database and UN service trade statistics (for accession countries and enhanced engagement countries) • FDI stocks • Estimates based on OECD FDI data • FATS statistics (sales) • Based on OECD data (Globalisation Indicators)

5. BOP services trade – conceptual issues • Balance of payments data and GATS modes of supply • Product Classification (EBOPS) in BOP data vs. Industrial Classification (ISIC) in FATS and FDI data

6. BOP Data used in the STRI Project • Primary datasource: • OECD International Trade in Services by Partner Country Database (TiSP) • Data obtained following the request made within the Trade Committee • Complementary data from UN Service Trade Statistics Database • Extension for OECD accession and enhanced engagement countries • Adding partner countries for Members not included in OECD TiSP database (?) • No use of mirror data or estimates

7. BOP services trade - coverage issues • Limited coverage of bilateral data in terms of sectors and years. Countries with no bilateral data on • Telecommunications imports (11): Australia, Canada, Germany, Iceland, Japan, Korea, Mexico, New Zealand, Switzerland, Turkey, United Kingdom • Construction imports (9): Canada, Germany, Iceland, Korea, Mexico, New Zealand, Switzerland, Turkey, United States • Other Business Services imports (7): Canada, Germany, Iceland, Mexico, Switzerland, Turkey, United States • When bilateral data are available: • the number of allocated partner countries is rather small (23) • reported partner flows do not add up to the sector total

8. Imports allocated to partners as a share of total

9. FDI stocks and FATS sales: measuring mode 3 • FATS sales as preferred measure, however available for less countries than FDI stocks • Industry classification for FDI/FATS vs. product classification for BOP services trade • Limited availability of bilateral by sector data for both FDI stocks and FATS sales

10. Bilateral FDI stocks/FATS sales by sector • Using hard data whenever available • Estimation of bilateral FDI stocks (or FATS sales) by sector using three 2-dimensional matrices: • Bilateral stocks between countries • Inward and outward stocks by industry and country • Fill in gaps in 2-dimensional matrices • Constraint required for optimisation: total stocks (or sales) have to be equal in the bilateral, inward and outward matrices

11. Firm-level data: how can they help? • Several issues in using firm-level data to fill in gaps in macro data: • Coverage: datasets available to OECD contain only a sample of companies • Definition of variables (e.g. “value added”) • Identification of sectors and activities of firms • Identification of the ultimate owner • Micro data can be useful to do some analysis at the firm level.

12. Data on the Mode 4 (presence of natural persons ) • EBOPS components in BOP statistics are not broken down by mode of supply • Compensation of employees and workers’ remittances are inadequate proxies • Migration and visa statistics indicating the number of people moving under mode 4 • Data collection for mode 4 should focus on the value of service sold by contractual service suppliers

13. Discussion • Short-term • Can existing coverage of BOP data be improved by countries? Can some of the gaps be filled in bilateral data by service sector for past years? • Long-term • To what extent will countries be able to better distinguish between modes of supply in BOP data? For example, according to the simplified allocation recommended in the revised MSITS Chapter 5. • How could BOP and FATS data be made more comparable or compatible? Could BOP data be broken down according to the ISIC classification? • What are the prospects for improving data on mode 4? How should the value of services sold by a contractual service supplier be measured? Is the proper identification of mode 4 in BOP statistics possible and hence an option?