,
8 tweets,
2 min read
Read on Twitter
1. Yesterday's post on Brexit and services trade gained some interest - that's very gratifying. Here is the link the report for DfE NI, in case you missed it: bit.ly/2C4dTau. I'd like to look at some basic concepts in services to help everyone understand it a bit better.
2. Services trade is governed by the General Agreement on Trade in Services (GATS), part of the WTO. People only really started thinking about it in the 1980s, and the agreement was signed at the end of the Uruguay Round of negotiations in 1995.
3. The GATS recognizes four ways (modes) of trading services. Mode 1: A London-based lawyer supplies services over email to her client in Paris. Mode 2: The Paris-based client comes to London to receive legal advice.
4. Mode 3: A UK law firm establishes an office in Paris, and sells legal services to French clients. Mode 4: The London-based lawyer travels to Paris to provide legal services to her client there. Although we've been thinking about these modes since the 1980s, data are scarce.
5. The first data source is the balance of payments. It records a lot of Mode 1, and part of Modes 2 and 4. In 2016, the UK exported GBP348 billion through the balance of payments (World Bank).
6. But the UK also records data on sales by subsidiaries established abroad Mode 3: GBP296 billion in 2016 (Eurostat). Add those together and we get GBP644 billion of services exports, which is 34% relative to GDP. In other words, a lot of UK jobs are based on services exports.
7. Bottom line: when we consider all modes of supply, services are a lot more tradable than most people think. Remember it's not just haircuts and dry cleaning. It's also finance, insurance, transport, professional services, management consulting, IT,...
8. Check out the report to see how market access conditions change under different exit scenarios. We don't model the impact on trade flows or GDP, but others can do that using our data. The idea is just to put this information into the public domain.
