Ans.
Services -
also referred to as invisibles - have been defined differently by different
persons. The majority view, however, is that services are activities which are
essentially invisible, intangible and perishable in nature. Furthermore, as the
services are not inventoriable, their production and consumption take place
simultaneously. From the point of view of national income accounting, services
are defined as activities not included in the primary and secondary sectors,
and as such comprise of the activities like transport, travel, communication,
trade, finance, construction, public utilities, public administration as well
as professional, community, social and personal services.
Concept of trade in services or invisible trade is not as straight
forward as the concept of trade in goods. While the goods can be supplied or
transported abroad, services by nature need to be delivered on the spot, and in
most cases require a close proximity between the service provider and
consumers. Movement of labour and capital (usually in the form of foreign
direct investment), therefore, becomes the major mode of supply of services in
the international context. Whether movement of capital and labour and such
factor incomes are part of trade in services or not have for a long time
remained a controversial issue. While the most developed countries have been of
the view that capital movement is a legitimate mode of trade in services,
developing countries in general have objected to this contention, and have
instead demanded inclusion of movement of labour as an alternative mode of
trade in service.
With the evolution of GATS in December 1993, the controversy has
largely been set aside. According to the GATS provisions, trade in services now
means supply of services through any one of the following four modes :
(i) Cross-border movement: This includes supply of services from
the territory of one country into the territory of any other country (e.g.,
services that can be transmitted through telecommunications or services
embodied In a consultant report or a software I v , on a diskette). These are
also referred to as 'separated services'.
(ii) Movement of consumers : This entails supply of services in
the territory of one country (that is country of service supplier) to the
service consumer of any other country (e.g., tourism).
(iii) Commercial presence
abroad: This means supply of services by a service supplier of one country
through commercial presence in the territory of any other country (e.g.,
banking).
(iv) Presence of natural persons abroad: This implies supply of
services by a service provider of one country through the presence of natural
persons of the country in the territory of any other country (e.g., a doctor
goes abroad to provide medical services).
Trade in services thus encompasses now not only cross-border
transactions in separated services and transportation, but also activities that
require temporary physical movement of producer (e.g., an engineer working as a
consultant in a foreign country for a limited period of time) or the consumer
(as in the case of tourism across national borders).
Balance of payments statistics provided by the IMF constitute the
basic source of information regarding trade in services. For balance of
payments purposes, a cross-border transaction is defined as an exchange between
residents and non-residents, either firms or persons. Until now, IMF did not
have any explicit definition of what constituted trade in services. Rather the
current account was divided between merchandise and non-merchandise items - the
latter being often referred to as invisibles. The problem with the balance, of
payments approach is that it includes items such as other official goods,
services and income (consisting of diplomatic expenditure and certain other
adjustment transactions) and non-remittances components of private transfers
also. These are strictly speaking not trade items and as such do not constitute
trade in services. If these items are excluded, we find that two terms 'trade
in services' and 'invisible trade', become synonyms and can be used
interchangeably.
GATT (and now WTO) publications also contain statistical
information on services trade. These publications, however, use the term
'commercial services' as comprising of shipment, other transportation, travel
and other private goods; services and income such as subscriptions to
periodicals; income from non-financial assets (i.e., royalties and license
fees) and labour compensation. A comparison of the items used in GATT/WTO
documents with those reported in the current account in the balance of payments
statistics reveal that GATT/WTO's definition is narrower in coverage in as much
as it excludes the items 'investment income' and 'other official goods,
services and income' which form part of the non-merchandise trade in balance of
payments account.
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