Basic Categories of International Trade in Services

1. Basic Categories of International Trade in Services Chapter Two

2. Basic Categories of International Trade in Services

3. Learning Objective • Grasp the definition and characteristics of international trade in services; • Understand the classifications and features of international trade in services; • Familiarize with the statistical methods of international trade in services.

4. 1. Concept & Characteristics

5. 1.1 Concept ▲Traditional definition: When a labor in one country supplies service to the service demander (natural person, legal person and other organization) of another country to obtain foreign currency income following a compensated and voluntary principle, which constitutes the service export.

6. Labor Service demander Trade in export service supply gain forex income one country another country buy pay fees Trade in import service • Labor Service demander

7. On the contrary, the demanders of one country become the consumers of the services, supplied by the service producers of another country, thus service import has been formed.

8. The definition involves service suppliers (labors), nationality, national border, residents and non-residents. So, three fields should be clarified:

9. Connotation and extension of “Labor”: all the service suppliers, including individual suppliers and group suppliers. individual supplier group suppliers

10. (2) Different nationalities of “labors” and “services demanders”: direct investment and local employees one country Ps: Local labors: service suppliers, e.g. foreign investors who represent the foreign affiliation to supply services. Direct local Investment labors Local suppliers & local demanders

11. (3) Whether service crosses border and whether “national person” moves: service needs to be crossed Telecom: national person does not need to be moved national person needs to be moved Tourism & medical care service does not need to be crossed

12. ▲ Definition in US-Canada Free Trade Agreement: Service is defined here as an “appointed service”, provided by a person representing other contracting parties in its own territory or into territory of another contracting party.

13. Appointed services: ⑴ purchase activities: production, distribution, sales, etc. ⑵ restrictions of contracted countries: market permission & distribution systems ⑶ comprehensive process of forming commercial (business) presence, including distribution, sales transferring, etc. ⑷ investment or related activities: managing, organizing, maintaining or transferring, loaning, etc.

14. ▲ Definition in BOP BOP :Balance of Payment (国际收支平衡表) Service in regular items in BOP refers to the trade in services between residents and non-residents.

15. BOP: currency balance of income and expense of one economic unity (one country or one region) to another economic unity within one year. ＊regular item: non-invested item ＊capital item: capital flow item ＊reserve assets: national reserves ＊errors and omissions: charge standard, currency translation, exchange rate

16. ▲ Definition in GATS GATT 《关税与贸易总协定》 & GATS 《服务业贸易总协定》 (1) GATT : 《General Agreement on Tariff and Trade 》 ※ Definition: one multilateral international agreement on the relative regulations on tariff and trade among different governments. ※ Time: Signed on 30th Oct,1947 in Geneva (日内瓦), put in trial effect from 1st Jan,1948 ※. Goal: to eliminate the different treatment in the trade, promote the trade liberalization by reducing the trade tariff and barriers so that the world can make the best of recourses to enlarge the production and circulation of products.

17. Uruguay Round Talk ＊Time: be hold in Sept.1986 by ministries of GATT; be the largest negotiation so far on trade, lasting for 7 years and half, with the end in April, 1994 in Morocco（摩洛哥）. ＊Goal : be a new negotiation to reform the multilateral trade system; ＊Content: involve almost all the trade in the world, from toothbrush to yacht, from bank to telecom, from wild rice gene(野生水稻基因) to AIDS treatment ＊The number of participants were from 103 to 125.

18. (2) GATS: 《General agreement on trade in services》 ﹟ Definition: the business activities of cross-border service trade, ﹟ a kind of transaction action by which service suppliers from one country offer the service to consumers in another country and gain the foreign currency income in the form of business or in the way of commercial presence of natural persons. ﹟ This definition has been accepted popularly by all the countries, which contains four ways of trade in services:

19. ⑴ Cross-border supply（跨境交付）: Suppliers in member country A supply service from the territory of its own to customers in the territory of member country B. supply service telecom internet computer member country A member country B Eg: audio, broadcasting, stock (share) finance, tele-message Service suppliers A Service demanders B by

20. ⑵ Consumption abroad（境外消费）: Suppliers in member country A supply service inside its own country border to the coming consumers of member country B. member country A member country B Eg: ① tour reception (supply tour service to foreign tourists) ② patient reception (supply medical service & facility to foreign patients ) ③ foreign students reception (supple educational service) Service suppliers (reception) A Service demanders B go to buy service

21. ⑶ Business presence（商业存在）: Suppliers in member country B move to set up constitutions in member country A to supply service with gaining in country A. member country A member country B Eg: joint venture investment: cooperation: sole proprietorship: Service suppliers ★ Service demanders ★ A B Move to set up

22. ★Service suppliers ( labors): • From homeland • from host country ★Service demanders (buyers): • From host country • from other countries

23. ⑷ Movement of personnel（自然人流动）: Individuals in member country A move to member country B to supply service inside B country to the consumers, both of Country B and coming from member country C. member country C member country B member county A Movement Out into Service consumers C Individual service suppliers B A A A Move to Individual service suppliers A

24. 1.2 Similar concept of international trade in services ★International trade in services ★ International trade in services & & International trade in goods Service industry ★ International trade in services ★ International trade in services && International trade International service interflow in invisible services

25. ★ International trade in services & that in goods Trade ★Productive elements: Visible products ★Productive elements: Personnel capital Technology Knowledge Additional service accompany

26. ★ Trade in services & that in invisible services Direct investment(3/5) Trade in services Overseas indemnity Remittance (赔款) (侨汇) donation • Invisible trade from the view of statistics

27. ★ Trade in services & service industryservice industry trade in services

28. Government interflow Job abroad Consumption abroad Cross boarder service Income & expense Cross broader flow ★ International trade in service & international service interflow Service interflow Service trade

29. 1.3 characteristics of international trade in services • ◆ intangibility(无形性): • Target species of service trade is intangible. • ◆ synchronism & internationalism (同步性和国际性): • Productions and consumptions simultaneously happen

30. ◆ flexibility& elusiveness (隐蔽性): ※ The approach of non-tariff barriers is the way to protect service trade, which can make different regulations for different products, such as technical standard, accreditation (资格认证) ※ The restriction to service trade means market permission and domestic legislation, which can not be negotiated among different countries. ◆ complexity: ※ wide range of trade ※ management of nature person movement ※ administrative regulation applying to trade development

31. 2. Classifications of international trade in services

32. 2.1 statistic classification ▲use: an operatively applicative classification ▲ aim: record and measure the scale and structure of the trade from one country to other countries, in a certain period of time. ▲ approach: by the form of regulation and balance of payment account unified by IMF (International Monetary Fund国际货币基金组织 ) ▲ types: trade in factor services trade in non-factor services

33. (1) Trade in factor services: ※ related capital items in the balance of international payment account: a trade flow in services related to international flow of capital or financial assets. ※ an internationaltransfer in the flow of capital earnings ※ approach:A. international investment B. international credit

34. A. International investment ★ Direct investment: ＊international investment to obtain the control power in the direct management of capitals ＊twoearningflows: --- flow of capital elements i.e. interests and dividends(利息和股息) --- flow of administrative elements i.e. profit (利润)

35. ★ Indirect investment (international portfolio investment国际证券投资): ＊international securities investment(国际证券投资) to gain the interests or dividend yield (股息收益) of financial capitals ＊in international stock market: buy stocks or bonds launched by foreign enterprises buy government bonds (政府债券) launched by foreign government

36. B. International credit Three types of credit: ＊folk credit:commercial credit & bank credit ＊international financial institution credit:global & regional international financial institution credit, e.g. World Bank, IMF, Asia Development Bank, Latin-American Development Bank, etc. ＊inter-government credit:credit to foreign government with preferential interest rate

37. (2) Trade in non-factor services: ● all the trade in services except the one in factor services ● Formula: Flow of non-factor service trade ﹦flow of international trade in service － flow of trade in factor service ﹦(flow of regular item － flow of trade in goods － unilateral transfer payment) － flow of trade in factor service Illustration and tables are coming:

38. Balance of payment account (IMF format)

39. illustration International trade in services International trade in services international trade in non-factor services International trade in factor services: International direct investment & indirect investment

40. Statistic classification

41. Demerits: ★ The definition of “factor” is in narrow sense. It only refers to capital factor. The labor factor and land factor are not included. ★ Obscure the demarcation line(分界线) between the im-export of service products & transnational investment ( flow) of productive elements in service industry. It is hard to tell the difference between trade and investment. Merits: ★ Make the contents of service trade comprehensive; The will-be item will be classified either into factor or non-factor statistics. ★ Simplify the statistics of capital flow items (in the international balance of payment account ); ★ Make statistics of investment earnings relatively independent (without the interference of international flow of investment and credit ). (3) Features of statistic classification

42. Debate on two (for uttermost economic benefit ) : • Essence of “factor”: investment service or labor service ※ Developed countries: all the fields around international investment should be classified into international trade in services. ※ Developing countries: The flow of cross-border labors is the basic factor. This should be the core of trade in services.

43. (2) Contents of negotiation: cross-border trade in services or investment trade in services ※ Developed countries: international trade in services should include not only cross-border service trade but also investment which can promote the trade between countries. ※ Developing countries: The above idea shows the developed countries want to get the national treatment so that they can permeate into developing countries. The negotiation should be only limited into cross-border trade.

44. Statistic classification: ▲ practical classification ▲ more experienced ▲ in lack of theory Logistic classification: ▲ theoretical classification ▲ more rigorous(严密的) and reasonable ▲ easy to make the research

45. 2.2 logistic classification (1) By the standard whether trade in services is accompanied by trade in tangible goods （以是否伴随有形货物贸易为标准） (2) By the standard of service industry （以服务业为标准） (3) By the standard of factor intensity（以要素密集度为标准） (4) By the standard of production process（以生产过程为标准） (5) By the standard of goods（以货物为标准）

46. (1) By the standard whether trade in services is accompanied by trade in tangible goods （以是否伴随有形货物贸易为标准） ★international trade in additional services refers to international trade in productive services put into basic chain of productive management in the enterprises. E.g.: ① in upstream: feasibility study, risky capital formation, market research, product conception and design (产品构思与设计) ② in midstream: quality control and inspection, equipment leasing and supplying, equipment maintaining and repairing employee engaging and training, software collection, law, real estate managing, insurance, security, logistics services ③ in downstream: advertisement, transportation, direction for use, after-sale services including compensation

47. ★International trade in core services refers to service trade irrelative directly to international trade in goods and investment. In the trade market, such trade itself is the core demands and supplies. ① long-distant services e.g.: international communication, internet, telegram, fax, audio-service, ②face-to-face services e.g.: international medical services, international tour services, third- country trade

48. (2) By the standard of service industry （以服务业为标准） ＊bank and financial services ＊insurance services ＊tour services ＊air parcel and port traffic services ＊architecture and engineering services ＊professional services ＊information, computer and telecom services

49. (3) By the standard of factor intensity （以要素密集度为标准） ＊capital intensive services e.g.: air parcel, telecom, architecture and engineering services ＊technical and knowledge intensive service e.g.: bank, finance, law, accountant, audit(审计),information services ＊labor intensive service e.g.: tour, construction, repairing, consumption services

50. (4) By the standard of production process（以生产过程为标准） ＊service before the production process E.g.: feasibility study, risky capital formation, market research, product conception and design (产品构思与设计) ＊service in the production process E.g.: quality control and inspection, equipment leasing and supplying, equipment maintaining and repairing employee engaging and training, software collection, law, real estate managing, insurance, security, logistics services ＊service after the production process E.g.: advertisement, transportation, direction for use, after-sale services including compensation