International Trade in Services

Effective Practice and Policy

Sarita D. Jackson

• Publisher: Productivity Press
• Year: 2021
• ISBN:
  9781000369717
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios internacionales

"In 2012, U.S. and European firms accounted for the highest share of revenue generated by the top international architecture and engineering firms in Africa, at 27 and 31 percent, respectively, " according to a U.S. International Trade Commission trade brief. These findings show that the growth of company revenues in an overseas market does not just have to depend on the sale of manufactured products or agricultural commodities. Opportunities also exist for service providers.

International Trade in Services: Effective Practice and Policy addresses a reality that receives minimal attention in the current debate about international trade—how the export and import of services drive a significant portion of international trade. The United States has a US$269 billion surplus in trade in services with the world. On other hand, U.S. trade in goods with the world continues to experience a wide trade deficit of US$946 billion. Nevertheless, U.S. policy response focuses mainly on the manufacturing and agricultural sectors. In addition, as an international trade educator in business schools at different universities, many of the textbooks emphasize the various aspects of importing and exporting goods. Workshops aimed to educate and inform the business community also focus on the trade in goods. Consequently, business students and practitioners miss another important component of international trade that presents opportunities—trade in services.

The book provides a simple, yet thorough, introduction on how to export a service to an overseas market. The book will guide its audience with a step-by-step process on exporting a service from research to strategy to implementation. Furthermore, the book will highlight the opportunities presented by the international-level General Agreement on Trade in Services (GATS) and bilateral and regional-level reciprocal trade agreements. Service providers will be able to use the book as a guide to start the export process successfully with the first step.

Essentially, the book will provide results in the following areas:

• Time saving—The step-by-step process, which highlights various programs, and the list of key resources will save future exporters of a service the time that they would spend trying to just understand another market.

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• Frustration reduction—The book's outline of the formal mechanisms available to service exporters will save them from the frustration that may arise from encountering trade practices, some of which can also be very costly, in different markets that make it difficult to compete against local service providers.

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• Money saving—Having substantive knowledge of formal mechanisms and key resources that help to reduce the risks associated with exporting to another market, such as not receiving payment, will help the services-based exporter to use its financial resources more efficiently while reducing its risk of nonpayment.

Chapter 1

Bringing Services Trade to the Discussion

Ten students, many of whom run small businesses in the manufacturing and agricultural sectors, sat in the first session of an 11-week course on international trade being taught online. The online version was a change from the normal experience of anywhere from between 15 and 40 students from all around the world sitting in one classroom at a university in the city of Los Angeles. Although the clock on the computer read 6:30 p.m. Pacific Time, the international trade course was being taught to students sitting in their homes in different time zones and regions, which included Asia and the Middle East. The shift from classroom to virtual instruction resulted from the physical distancing measures put in place in response to the 2020 global health pandemic. In this case, an educational service transcended physical borders and reached individuals abroad through the use of digital technology and a small camera.

The unexpected shifts in daily routine, behavior, interests, etc., caused by a global health pandemic demonstrated the significant role that the services sector plays in the global economy. Furthermore, the increased dependence on specific types of services has exacerbated the need for two things: 1) an in-depth and practical discussion on the global market opportunities for service suppliers and 2) a guide on how to leverage the different opportunities that exist.

Oftentimes service was left out of the discussions on international trade because of the fact that it is an intangible commodity. For example, economists ignored trade in services because they did not think that services were tradable, as World Bank economists Bernard Hoekman and Carlos A. Primo Braga discuss in their 1997 paper “Protection and Trade in Services.” As this book shows, that has not been the case, even in an historical context.

Practical policy discussions about the impact of international trade on domestic firms, workers, and consumers, at least in the United States, have tended to focus mostly on the manufacturing sector. In 2016, the U.S. trade deficit was the focus of the U.S. presidential campaign. The trade deficit reached a little over US$500 billion, per statistics collected from the International Trade Centre. What did not dominate the airwaves and social media was that the trade deficit was the result of greater imports of goods than exports. In goods alone, the 2016 trade deficit figure was much higher at almost US$800 billion. At the same time, the United States had a trade surplus just under US$300 billion in service, which contributed to a lower overall trade deficit.

The minimal focus on services trade and its contribution to overall trade balance spills over into the practices designed to help businesses to compete globally. International trade educational efforts organized by state and local government agencies for the business community for example, predominantly emphasize trade in goods. As a result, discussions about opportunities, policies, and resources are tailored to an audience of manufacturers and agricultural producers. Unfortunately, the audience members who are in the services sector receive minimal, if any, information on selling a service to consumers in a foreign market.

This book speaks to that audience. Furthermore, the book is designed to serve as a single, comprehensive guide for service suppliers trying to navigate the international trade arena. To add value to the information provided, interviews were conducted with several small business owners and a representative of a global market research firm. These interviews focused on the opportunities and challenges that the interviewees and/or their clients have faced when providing a service overseas. Finally, the interviews are used as case studies to highlight key lessons for services exporters that align with the appropriate chapter.

Each chapter offers a simple and thorough discussion about international trade in services. The first section of the book looks at the history of trade in services, the trends in international trade in services, and the patterns of foreign direct investment in the services sector. The following section takes the reader on a step-by-step journey of identifying market opportunities, selecting the right market for a service, providing a service through funded-projects, and leveraging digital technology to reach overseas consumers. The third section places its attention on the global trade policies that may help or hinder a firm’s ability to compete in its home market and/or in the international market. Finally, the concluding chapter summarizes much of the main takeaways from each section. The conclusion goes further to highlight areas for future trade practices and policies as they pertain to the ever-growing and evolving international trade in services.

Bibliography

1. International Trade Centre. n.d. Trade Map. Accessed September 30, 2020. https://www.trademap.org/.
2. Hoekman, Bernard, and Carlos A. Primo Braga. 1997. Protection and Trade in Services. Washington, DC: The World Bank.

I

Trends in International Trade and Foreign Direct Investment in Services

Chapter 2

Cross-border Trade in Services Is Not New!

“Do you know what blockchain technology is?” This is the question that was posed by the organizer of a small, private meeting composed of business and legal consultants in Downtown Los Angeles in 2017. For some sitting at the table, blockchain technology was a new concept. Blockchain technology is a digital ledger that allows for information sharing among authorized parties and eliminates a third-party or middleman who controls how information is distributed. Each person has access to the exact same information, which is impossible to copy or alter using this technology. The meeting organizer explained how blockchain technology had been introduced to the agricultural sector to enhance the tracking system applied to the whole supply chain from the farm to the table to ensure product safety. The technology also presented an opportunity for service providers in this meeting to collaborate and offer several services to farmers, especially in the Sub-Saharan African region, on developing their competitiveness in the U.S. market through the use of blockchain technology.

Blockchain technology is an important 21st-century innovation that is revolutionizing the way in which not only commodities, but services are offered both domestically and internationally. For example, the banking industry continues exploring ways in which the technology could improve efficiency and security in financial transactions in the global economy. In 2018, analysts predicted that companies, mainly in the area of financial services, would spend up to US$2.1 billion on blockchain technology, twice as much compared to the previous year (Mearian 2018). A year later, more company executives expressed that blockchain technology was among its top five priorities. However, only 23% of company executives actually began incorporating blockchain technology, down from 34% the year prior (Budman et al. 2019, 4).

Blockchain technology continues to have a tremendous impact on numerous global services-based industries. At the same time, it is important to understand that this technology is merely a part of a long line of innovative solutions for cross-border trade in services that go as far back as ancient history. In other words, although new technologies continue to appear that further facilitate the cross-border trade in services, the import and export of services have a long historical and sustainable track record, as in the areas of transportation, logistics, finance, and insurance.

Transportation and Logistics

Transportation services refer to companies that facilitate the movement of goods. Different modes of transport services include maritime shipping, trucking, freight rail, and air delivery. The movement of goods by sea accounts for 80–90% of the volume of international trade, according to the United Nations Conference on Trade and Development (UNCTAD) (United Nations 2018, 4). Generally speaking, shipping by ocean may be less expensive than by air and allows for the movement of a much larger volume of goods. Transport by sea has evolved since Ancient Egyptian civilization.

Around 3,000 bc, the shipping industry allowed for the movement of goods from one region to another throughout Africa, the Middle East, and Asia. The shipping industry was dominated by the ancient Egyptians because of their strong naval force. Egyptian ships evolved into larger, sturdier cargo ships made from wood, predominantly from imported cedar. As a result, the Egyptians could move a higher volume and heavier amount of cargo throughout North East Africa, the Mediterranean, and South Asia.

Eventually, the shipping industry became dominated by the Greeks, especially as pottery and gold were traded between mainland Greece and the Greek islands. The Greeks built ships to move goods throughout the Persian Empire.

Rome became a key player in maritime transport by the 8th century bc, during which it connected the West with southern India and other parts of Asia. The Roman civilization relied heavily on the import and export of goods. Key exports included cereals, wine, and olive oil. Imports consisted of precious metals, marble, and spices. Many goods in the Roman market, especially luxury silk goods, came from China (Galli 2017, 6–7). Commodities moved by land through the Silk Road or by water across the Indian Ocean. However, transport by land was often difficult due to the weak innovative land transport methods (Cartwright 2018). As a result, maritime transport operated much more quickly and cheaply. Ships often carried between 75 and 300 tons of goods (Cartwright 2018). Nevertheless, transport by ocean had its own set of risks such as dangerous weather conditions and piracy.

From the 15th to the 17th century, Spain, Portugal, the Netherlands, and Britain continued relying on both land and water transport to reach the Asian region, set up trading companies, and importing spices, silks, and cottons.

China controlled the trade routes throughout Southeast Asia going as far back as the 13th century, during which Marco Polo visited and documented China’s strength in international commerce. Moving goods between China and the West required the use of shipping services. China often sent large ships carrying up to 120 tons of cargo across the Indian Ocean to engage in commerce with other parts of Asia, the Middle East, and East Africa. Many of these ships included sails made of bamboo to allow for durability and better steering (Griswold 2002). China sent 317 ships with 28,000 Chinese on a trade mission in 1405 (Griswold 2002). Developing its fleet of ships gave China the leverage to participate in international commerce, as well as promote political diplomacy and cultural exchanges. The Chinese economy grew as a result of these commercial, political, and cultural connections.

Britain has also historically relied heavily on maritime trade to build its economy. By the 17th century, Britain began bringing different commodities and resources from the Western Hemisphere, where it eventually began establishing colonies in what has been labeled North America, starting with Virginia, and throughout the part of the Caribbean region referred to as the West Indies. By 1686, over £1 million of goods, which included sugar, tobacco, and tropical foods, were shipped to London (Morgan 2011). B...