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.
Modern manufacturing is a heavy user of services inputs, and its competitiveness relies on access to state-of-the-art suppliers at the best price. The OECD Trade in Value Added (TiVA) database shows that services represent more than 50% of the value added in gross exports, and over 30% of the value added in exports of manufacturing goods – services are deeply imbedded in manufactured goods being traded all over the world today.
Measuring services trade barriers with the OECD Services Trade Restrictiveness Index
Obstacles to global services trade, however, remain pervasive as national trade and regulatory policies in individual services sectors are often made with limited regard for economy-wide impacts.
Launched in 2014, the OECD Services Trade Restrictiveness Index (STRI) is a unique, evidence-based tool that provides information on regulations affecting trade in services in 22 sectors across all OECD member countries and Brazil, the People’s Republic of China, Costa Rica, India, Indonesia, Lithuania, the Russian Federation, and South Africa. These countries and sectors represent over 80% of global trade in services.
The STRI toolkit can support policymakers to scope out reform options, benchmark them relative to global best practice, and assess their likely effects; for trade negotiators to clarify restrictions that most impede trade, and for businesses to shed light on the requirements that traders must comply with when entering foreign markets.
The OECD STRI project includes:
- An easily accessible STRI database of laws and regulations in force, which is updated, verified and peer-reviewed by regulators and trade officials on an annual basis.
- Composite STRI indices for each country and sector in the STRI that quantify restrictions on foreign entry and the movement of people, barriers to competition, regulatory transparency and other discriminatory measures that impact the ease of doing business (see country and sector notes below).
- Indices of regulatory heterogeneity that measures regulatory differences by country pair, sector and year.
- Empirical analysis assessing the impact of services trade policies on economic performance and trade costs.
- A suite of interactive web tools that can be used to compare regulatory regimes across countries and to simulate the impact of policy reforms.
- Mobile app policy simulator, available on the Apple App Store and Google Play.
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, and are highlighted in our policy brief and our new book on Services Trade Policies and the Global Economy.