Overview Paper

The New Services Era – Is GATS up to the Task?

November 2014
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Demand for services go hand in hand with rising incomes as the productive fabric of countries moves away from industrialisation to services. In addition, ongoing digitalisation has changed consumer behavior. This leads to changes in where and what consumers buy and to increased demand for digitalised services and content. At the same time, shifts in producer behavior have led to servicification, a process whereby non-services sectors (both agricultural and non-agricultural) in the economy buy and produce more services than before, and also sell and export more services. The importance of services is in how they are internationalising supply chains and making overall production much more efficient. For global value chains to function and be economically viable, firms must have access to quality services at the right time and at a competitive cost.

Services are not just important in goods-centered chains; they can be broken down into tasks and sourced on a wide geographical basis, thus constituting value chains in their own right. From a developing angle, a central aspect is how companies and countries can plug into these value chains and upgrade within them. This includes developing services supply capabilities at the level of firms (to perform certain tasks) and a generally efficient services infrastructure and framework within the country (for example, effective telecommunications and transport systems).

The drivers of these changes include digitalisation, whereby information is being transformed into digital form and that the use of information and communication technology is increasing. Digitalisation is also a tremendous tool for efficiency. Companies depend on data transfers either as part of their business offers or as part of processes within them. Digital solutions are used to produce, sell, and deliver products. Growth of services is often enabled and accompanied by growing investment in intangible assets that are generally associated with the creation of knowledge-based assets/capital. Three broad categories can be identified—computerised information, innovative property, and economic competencies.

Liberalisation and better regulatory practices are important factors behind the increase in effectiveness of services markets and services trade. The paper points out, as many economists believe, that even though value-added statistics are useful, trade statistics still misrepresent actual services trade. There are a huge number of services transactions made feasible with the help of the Internet and ICT, but no available estimations on their value. Is the General Agreement on Trade in Services—the only binding multilateral instrument on services—up to the task or should it be updated? It is difficult to know how outdated the GATS is because it has not been fully utilised. The question is whether the GATS needs to expand its coverage to stay relevant. Beyond what the GATS covers, actual negotiating processes may need to be rethought. In sum, the paper underlines the need some major changes and rethinking to move forward with revitalising the WTO in the area of services.

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