Today’s basic trade info - the basics on trade in services. You have heard “The Single Market is failing on services”, “we are a services economy and need to foster free trade in services” and such things before. Interested in why liberalising services is so difficult? Thread
The UK is a service economy. The CIA World Factbook (it’s a thing, google it!) states that 80.4% of UK GDP is services, compared to 19% industry and 0.6 agriculture.
That’s not unusual for developed economies: The US is 80.2% services, 18.9 ind., 0.9 agriculture. And even economies famous for industry (Germany) or agriculture (France) follow that pattern.
Germany: 69.3% serv., 30.1% ind., 0.6% agri; France: 77.2% serv., 20% ind., 2.8% agri; Australia: 70.3% serv., 26.1% ind., 3.6% agri; China 52.2% serv., 39.5% ind., 8.3% agri
So developed countries are service economies. How come trade discussions are so focused on goods, then? In fact, goods trade had a global treaty on it since 1947, services only since the WTO was set up in 1994.
The first thing to bear in mind to understand the difference is: consider how goods / services are trade. Goods are tangible items crossing a border. Checks, tariffs, quotas. That is the historical origin of how to regulate (freer) trade. And services?
Services are intangible. Yes, services themselves can cross the border (think of me giving legal advice via e-mail), but that’s just one of the ways in which services are trade and by far not all services CAN be traded that way (ever tried to repair a plane on the phone?)
The WTO conviently distinguishes 4 “modes” of trading services. The service itself crossing the border is mode 1.
Mode 2 sees the consumer of services travel to another country. So a French customer coming to London to e.g. get a haircut. Mode 3 is the establishment of a commercial presence abroad (e.g. setting up a branch office), mode 4 is where the service provider travels.
Some say there’s a mode 5, where services and goods become connected, but we can proceed along the 4 modes to make the points you need to know.
The first point is: what do you think are now the BARRIERS to services trade? Tariffs, quotas? Not really. Barriers to services trade are regulation. And this brings up some difficult issues.
You might remember for two services modes someone has to travel - the consumer or the service supplier. Do we let those people in? THAT is one of the most relevant barriers for those two modes of services trade. Free trade in those modes means free movement. Ouch.
But it’s not just immigration laws that create barriers to services trade. Should doctors have studied medicines? Yes. In any country? Should doctors be able to speak English?Should lawyers be trained in the law of a jurisdiction?What documents do you need to open a bank account?
If you say a medical doctor needs to speak the language of the country where she practices, you’ve just largely closed the Chinese market to UK doctors. And the German, French, Italian, etc. one. An enormously effective trade barrier.
Abolishing “all barriers to services trade” is an empty formula unless you really want a neurosurgeon to act as your lawyer and your lawyer to operate on your brain (as a lawyer I would recommend against it)
This shows why “freer trade in services” is so difficult to establish: it is about which of these regulations are vital, which of the traditions are.
In Germany, for many crafts you needed training, paperwork etc. Necessary? Certainly leads to higher quality. Worth the cost?
It is also time to get rid of the notion that common law countries some how are free trade countries in services and civil law countries are not. I am an attorney in the state of New York. But not admitted to practice in California. That is one country - and no Single Market.
When we speak “free trade in services” we have to make difficult decisions on what is essential.If medical education in the UK takes X years, are we ready to admit doctors who had X-1 years of training in their country?Are we ready to allow lawyers from Spain to provide services?
The EU has forced through freer (not free) trade in services within the EU by harmonizing some stuff (see some financial services) and forcing member states to accept what other countries do in other regards (some of that exists in legal services). And by free movement.
It is far, far, far from “perfect”. But then - what do we even want? Will we admit what others consider OK and let in service providers and customers without limits? What limits are OK? What do we accept? There’s no objective perfection. There’s trade-offs. And they are hard.
