A global upgrade for trade in services
Published 27 April 2017
Increasingly, the services sector shapes the way global commerce takes place. The trading system needs to give the rules around trade in services an upgrade to match this reality.
Services generate 70 percent of global economic output
Discussions on trade have focused recently on ensuring access to foreign markets for the physical products we make. But in addition to promoting trade in manufactured products, it is important to break down barriers to trade in services products, which play a critical role in facilitating the commercial transactions that in turn fuel growth of the global economy.
Manufacturing and agriculture producers run their businesses on services
Services are products that individuals and businesses buy, and can be easily traded across borders. Services drive efficiencies in the manufacturing and agriculture sectors. They form the foundation for the modern financial system and the growing digital economy. Perhaps surprisingly, the manufacturing sector creates more data than any other single sector of an economy, data that in turn stimulates new and important ways to improve productivity, conserve resources, and address global challenges from reducing traffic to saving energy. Forming the critical infrastructure of the global economy, service providers now generate 70 percent of global GDP and 60 percent of global employment.
WTO members built the foundation of trade rules for services
In 1995, WTO members established the first set of multilateral rules to facilitate trade in services through an agreement called the General Agreement on Trade in Services (GATS). The GATS defined what exactly constituted tradable services, etched out clear obligations based on core principles such as non-discrimination, guaranteed market access, promoted transparency, and made the rules enforceable. The GATS created new market opportunities for U.S. services companies, many of which are small and medium-sized enterprises (SMEs) that are now better positioned to compete in foreign markets.
At some point, growing opportunities around the world for services will require additional work in the WTO. An important group of countries has taken the initiative to negotiate a new Trade in Services Agreement (TiSA) outside the WTO to set newer and higher standards with rules covering digital trade. Given that the services sector increasingly shapes the global economy, the WTO as the keeper of global trade rules will need to upgrade GATS to match this reality.
Growth in services begets more growth
The United States is among the many developed countries that have already transitioned toward a services-based economy. E-commerce has been a boon to connecting small and medium-sized business to global customers, and fuels worldwide sales for multinational corporations. It’s an opportunity that’s growing with some 5 billion people and over 20 billion devices coming online in the next decade. This dynamic democratizes the chances for people in developing countries to participate in those economic opportunities. Services trade is linked with higher wages and poverty reduction, driving economy-wide growth, which means that trade in services can be leveraged as a key tool for development.
What’s next for global rules on services trade?
GATS is a strong foundation, but the agreement is twenty years old and services businesses are evolving fast. This is particularly true as e-commerce grows worldwide and as the digital economy makes it possible to access customers all over the world for even for the smallest of enterprises. As more people gain connectivity, the opportunities grow exponentially.
Evolving and expanding trade rules in ways that promote this growth and stimulate more trade in services requires an all-of-the-above approach, from pioneering new rules in bilateral and regional trade agreements to adopting a forward-looking approach in the WTO. In particular, countries must focus efforts on fostering digital trade and e-commerce, which promote inclusive growth and encourage the formation and participation of small and medium-sized businesses in global supply chains and overseas markets.
Re-energize inclusive growth by growing the services sector
Myriad proposals have been introduced in the WTO on critical and emerging aspects of services trade. Governments recognize the need promote services trade, and particularly digital trade, as a key driver of economic growth for countries at all levels of development.
The WTO has partnered with the United Nations Conference on Trade and Development (UNCTAD) to showcase how services trade supports inclusive growth, including through UNCTAD’s annual e-commerce week. Their work can serve as a catalyst for advancing discussions on updated and expanded rules to facilitate global services and digital trade.
Services industries are among the most dynamic sectors in the modern global economy. Services trade is a primary driver of economic growth and increased wages. Rules around services trade encourage reforms that foster development. Increasingly, the services sector shapes the way global commerce takes place. The trading system needs to give the rules around trade in services an upgrade to match this reality.