6:55 AM Jul 15, 1994

SERVICES DATA PROBLEMS STILL UNRESOLVED

Geneva 15 July (Chakravarthi Raghavan) -- Nearly a decade after the services trade issue came on the international agenda, and with a new round of negotiations for trade liberalisation in services due to begin in five year's time, basic data relating to services trade and even methodologies for collection and collation, are still unsettled.

An UNCTAD secretariat note for next week's meeting of its Standing Committee on Developing Services Sectors has outlined the ground covered so far, and the vast area still to be addressed.

The only currently available data for services, at a very high level of aggregation, is that based on the IMF's Balance of Payments accounts -- where some commercial services transactions are recorded under transportation, travel, other private services and income.

On this basis, the GATT secretariat has estimated the total world exports of 'commercial services' in 1991 to be $890 billion. There is however is a consensus that this is a severe understatement of the real value of world trade in services.

Some outside analysts estimate that if a proper statistical data were established and drawn up, in accord with the GATS definition, the United States, Europe and Japan would be found to have much larger surpluses on this account, and the developing countries much greater deficits, thus militating against their making further concessions.

When the services negotiations were launched, as part of the Uruguay Round multilateral trade negotiations, both developed and developing country negotiators came up against the lack of proper data on the basis of which each of them could make an assessment of their situations in particular sectors and sub-sectors and the benefits and losses that they would incur in offering concessions.

For neo-liberal economic ideologues in the Fund/Bank/GATT institutions, lack of statistical data does not really matter. In their view, free markets are efficient, market imperfections cannot be resolved by government interventions but only by deregulation and the static optimisation of efficient resource allocation through the market would overtime maximise growth and thus welfare. Hence unilateral liberalisation improves efficiency, and multilateral negotiations are useful for 'binding' unilateral actions and thus send proper signals and provide certainty to foreign investors!

But trade negotiators within the GATT multilateral system, and the majors more so, don't practise this -- even when they talk about 'free trade'. The entire system is based on bilateral and reciprocal exchange of concessions that are multilateralised and is presented in each country in terms of gains and losses.

While this GATT approach for weighing gains and losses has been relatively easy, in terms of accepted models, to translate tariff cuts in goods with likely increased trade volumes and earnings, this has not been possible for services trade.

When the services negotiators met at an early stage with the statisticians from the UN system, as well as with OECD, EC etc on the data collection problems and processes, the statisticians threw back at them the need to have a clearer view of 'trade in services' to enable both agreement on criteria for data collection within national accounting systems and their report and collation internationally.

In concluding the GATS, and agreeing on the initial level of commitments, the negotiators envisaged successive rounds of negotiations for further liberalisation and set the next round to begin no later than five years of WTO's entry into force.

For each round, the WTO's Council for Trade in Services is to set negotiating guidelines and procedures. And to do this, the Council is obliged "to carry out an assessment of trade in services in overall terms and on a sectoral basis", both with reference to the objectives of GATS and to providing for increased participation of developing countries in the world trade in services.

The UNCTAD secretariat note brings out that while the problem of definition of trade in services has been resolved, and there is a clear and more precise formulation involving four modes of delivery, the problems of data, both of collection and methodology as well as some concepts remain to be addressed.

While there are some groups working on it, including the socalled Voorburg group established in 1987, and named after the place in Netherlands where it first met, it is a small group and there is need for full transparency and measures to enable developing country participation.

UNCTAD studies, some as early as 1987, brought out the inadequacies of the services trade data -- both under- and over-estimation of some flows, poor disaggregation and inconsistencies with national accounts statistics, lack of an internationally agreed classification similar to that now in goods, impossibility of identifying trade partners (an essential ingredient for exchange of concessions) as well as modes of delivery involved.

There is need, UNCTAD says, for more information on relative importance of countries in world transactions in services, as well as the relative importance -- by country and the world a whole -- of specific services.

More information is also needed on trade flows by origin and destination, and detailed, disaggregated data are required for monitoring as well as identifying principal supplying and consuming countries. These details are needed even more in construction and engineering design, professional and business services, media services, labour services, air transport, banking, insurance, tourism and telecommunications.

No data is also available for those not members of the IMF. Under-reporting or no reporting is common for all transactions that don't utilize financial intermediaries or don't report to the Central Banks -- as may the case for electronically transmitted services, particularly those involving principals and branches and subsidiaries of a parent company or professional services of natural persons.

Many transactions are also reported on a net (export minus import) basis and not on credit and debit basis.

Reporting countries don't always identify true value of service exports -- as is the case in shipping services where there are global discrepancies between exports and imports.

There are also differences in accounting practices as a result of which in some countries they are covered as 'trade in services' while in others as merchandise trade.

There are even methodological questions such as about computer software. There are suggestions that mass produced computer software (since they are embedded in discs and sold) should be classified as goods, and custom software as services. But some custom software too may be embedded in discs and 'sold' to customers abroad or transferred electronically.

Many countries treat processing and repairs as manufacturing, while some treat it as services.

On the on-going involving the UN Statistical Office, Voorburg group with participation of experts from OECD, GATT, IMF and UNCTAD, the report notes that these are largely oriented towards economic conditions in developed market economy countries. However, increasing attention is being paid to developing countries and economies in transition.

The IMF and the OECD among others have also initiated a program to reconcile global imbalance in BOP data -- which in theory ought to be zero at world level, but shows a deficit, and largely attributed to the under-reporting of services transactions.

A decision is imminent to draft a preliminary version of a manual for statistics on international trade in services.

But the GATS definition of 'trade in services' goes far beyond the IMF notion of cross-border transactions between residents and non-residents. The GATS definition, with four modes of supply envisaged, now includes transactions involving foreign suppliers (natural or juridical persons) present in a particular market and nationals of that market.

The GATS approach of four modes is intended to correspond to the categories of regulatory measures commonly affecting trade in services.

The scope of each mode would determine the type of statistics needed to maximise the utility of GATS. The entry into force of GATS would itself require new approaches in compilation of internationally comparable data.

Corresponding to the types of regulatory measures affecting international transactions in services, data would need to be collected for each of the 'modes of delivery' on the basis of the origin of the service or service supplier or consumer as well as the degree (equity participation) and type (subsidiary, branch, representative office) or territorial presence of service suppliers at the moment of the transaction.

The scope of each mode would determine the type of data needed to assist developing countries in the assessment of their potential for participation in international trade in services, thus strengthening their capacity for negotiating mutually convenient commitments in services, UNCTAD adds.

Improved statistics on services trade, taking into account the various 'modes of delivery', could also provide policy-makers with more effective tools to assess at general and specific sectoral level the impact of policies on the contribution of services to the external balance of the economy, to identify market opportunities and to formulate strategies to increase output and exports of services.

There also still conceptual reservations on the meaning of 'trade in services' within the gamut of economic transactions.

This relates in particular to the impact of globalization and nature of trade through establishment, in which economic transactions are viewed from the perspective of ownership and control -- transactions between nationals, entities or persons, from different countries -- rather than the traditional approach based on the country of residency of the trading partner.

This would need also addressing some incongruities. For e.g. income from sales of services of affiliates abroad would be considered as 'trade', while that from manufacturing investment would be viewed as 'factor' income.