OTGC Services Trade

Services trade in the global economy

Services are a major part of the global economy, generating more than two-thirds of global gross domestic product (GDP), attracting over three-quarters of foreign direct investment in advanced economies, employing the most workers, and creating most new jobs globally. Services have always been traded. International transportation is as old as trade itself, and financial and insurance services followed shortly after.

Over time, advances in communication technology has brought new services into the global economy. Some examples include legal, engineering, and other professional services, computer services and telecommunications, just to name a few. The World Trade Organization’s General Agreement on Trade in Services (GATS) brings the certainty of a global rules-based system to the services markets. It defines services as a transaction between a resident and a non-resident. Depending on the territorial presence of the supplier and the consumer at the time of the transaction, the agreement categorizes services trade by the way in which they are delivered, known as “modes of supply”.

There is not one service industry, but many services with different business models, competition challenges and regulatory frameworks. To maximise the benefits that technology has brought, targeted policy reform needs to identify the main bottlenecks and benchmark to best practice regulation.

What can policymakers do to support open and well-regulated services markets?

Open and well-regulated services markets ensure access to information, skills, technology, funding and markets in a modern, increasingly digital economy. Intermediate services reduce costs, improve quality, and match suppliers and customers around the world. Moving up the value chain, therefore, depends on a local business services sector open to ideas, skills and investment from cutting edge firms wherever they may be found.

The main findings from our analytical work on trade and services suggest that policymakers consider adopting whole-of-government strategies to capitalise on the demonstrated potential of co-ordinated services trade policy and regulatory reforms to help make globalisation work for all.