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September 14, 2010 / Lukasz Cerazy

Services Can Lift Economic Growth.

Economies can look to trade in services for increasing much needed economic growth and create more jobs. There is much literature on the topic of trade and multinationals, however, the vast majority of it deals with goods and manufacturing-subsidiaries. The General Agreement on Trade in Services was only established in 1995 as a treaty of the World Trade Organisation, whereas the modern liberalisation and standardisation of trade in goods has been underway since the Second World War. This also has to be seen in the light of the service revolution that took place in the 1960s, which resulted in services contributing more to global gross domestic product than goods. It is therefore puzzling that we do not know more on this topic, however, articles are slowly appearing and some of the most recent ones show an unfulfilled potential for trade in services.

This potential has alerted governments to its possibilities of revenue. There is also the benefit of balancing out a negative trade in goods with a positive trade in services. Increasing exports is considered as a way to stimulate regional or national activity leading to more employment and higher output. This would go some way in filling out the employment gap left behind by more mechanised production and the outsourcing of manufacturing. It is also important to note that this development is not solely a phenomenon of the developed world, so its relevance and significance applies globally.

Services are, however, inherently different from manufactured goods, because they exhibit characteristics of intangibility, invisibility and embeddings into goods and often require simultaneous production and consumption. These factors make trade in certain services impossible; however, more are now tradable than ever before including more basic services such as transportation, education and insurance. Evidence on the supply side shows high levels of tradability in certain service sectors nationally, however, internationally these levels are much lower, which means that there must be external barriers to the tradable services when they have to cross borders. Most barriers to trade are associated with their mode of entry – in fact, the majority of barriers to trade are of the non-tariff kind and are often a result of local market regulations that do not target trade, making the issue even more complex to solve.

There is still much work to be done internationally and more attention should be paid to the GATS, before the degree of trade in services can reach higher levels. The focus should lie with bringing down any protectionist barriers to trade in services and bringing about standardisation by developing common norms. The WTO is therefore an ideal forum where this can be achieved. The common misperception is that cultural and language obstacles are the biggest non-tariff barriers to this form of trade, but research has revealed that only about a fifth of businesses in the EU perceive these types of barriers to be the main ones. There is therefore great scope for expanding trade in services and bringing about economic growth and more job opportunities internationally.


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