What do services rules really cover?
UNCTAD has just released a Special Issue of its Investment Trends Monitor, a research note on Investment and Trade in Services.
Trade in Services and foreign direct investment (FDI) in the services sector are frequently mentioned in the same breath because of the inclusion in the General Agreement on Trade in Services (GATS) of "mode 3" – the cross-border delivery of services through a commercial presence (foreign affiliate).
The importance of the services trade-investment nexus is often stated in terms of the high share of services in FDI ("two-thirds of investment is in services") and the high share of mode 3 in services trade ("more than half of services trade is through a commercial presence").
However, a detailed look at the data on both counts reveals that financial holding companies, head office activities and other non-commercial intra-firm services account for a very significant share of services FDI and trade in services. For example, more than half of all foreign affiliates of primary sector and manufacturing multinationals (MNEs) are labelled as services.
Intra-firm services – not supplied on a commercial basis to third parties in host countries – are not specifically addressed in GATS (and other services instruments that build on GATS supply-modes to define their scope). A closer look at what is inside services FDI, and by extension mode 3 services trade, is crucial for an informed debate about what is really covered by services rules.
The findings of this Special Issue of the Trends Monitor show how statistics for mode 3 services trade and services FDI that are commonly used in policy discussions tend to provide an inflated impression of the real importance of the tertiary sector in cross-border trade and investment.
Download the Investment Trends Monitor here: