CHAPTER 2
for 40 percent of total services exports by Southern Europe and almost one-third of total exports in travel by the European Union. For the EU10 members and candidate countries, the two also stand out as the leading services export sectors. Financial and other business services are now becoming the drivers of EU service exports. Financial services cover financial intermediation and auxiliary services, except those of insurance enterprises and pension schemes. Other business services consist of professional and management consulting services; research and development services; and technical, trade-related, and other business services (UN 2011). These services were traditionally not tradable, partly due to the “proximity burden” and partly due to heavy regulations. The rapid advance of information and computer technology over the past decades has spurred trade in these sectors by reducing the “proximity burden.” Regulatory simplification and harmonization with international standards have also helped.
Services are becoming more tradable— especially modern services Services exports by Europe and developing countries almost tripled between 1997 and 2007. Services exports have changed qualitatively. They have increasingly become a final export that is directly consumed. Because many services can now be stored and traded digitally, they are not subject to many of the traditional trade barriers (such as transport costs, border delays, physical inspections, and so on) that physical exports have to overcome. Services not only have become more tradable, but they can also be increasingly unbundled: a single service activity in the global supply chain can now be fragmented and done separately at different geographic locations. The new member states have been especially successful in growing services exports since the mid-2000s—not quite star performers like India or China, but high performers compared with the rest of the world (figure 2.12, left panel). Figure 2.12 (right panel) graphs the tradability of services between 1986 and 2008. In Europe, there are three developments of note. First, the share of service value added that is traded rose from 10 to 15 percent. Second, the share of services traded in the new member states has increased erratically, but now is almost double its share at the beginning of the transition. Third, the EU candidate countries have seen a drop in the share of services traded since the late 1990s, likely due to rapid expansion of domestic services such as construction, transport, travel, retail trade, and government services, rather than a drop in services exports. What is also clear from international comparisons is that aside from India, trade is a bigger part of the services economy in Europe than in any other part of the world. The increased tradability is mainly due to new technologies that have changed the nature of many services from “traditional” to “modern.” Traditional services require face-to-face contact, while modern services can be delivered over longer distances. Modern services, such as banking and financial services, telecom support, and technical support, are now more “impersonal” and tradable across borders. But technological progress has also helped such
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