The growth of services as an economic activity is not an entirely new phenomenon. Even as early as 1900 the United States and the United Kingdom had more jobs in the services sector than in industry. But its expansion over the past quarter century has been most spectacular, marking a profound structural change in the global economy. Although the change has been particularly discernible in industrial countries, it would be wrong to assume that its significance is confined to them alone. The increasing ascendancy of services in the economy affects all countries, irrespective of the stage of development; and from all indications it will increasingly do so in the years to come.
The services sector is heterogeneous and its configuration extremely complex. Hair dressing, hotel accommodation and public services to innovation, commercial licensing and intermediation of goods, services and information can all be lumped together in the services sector. The panoply of divergent definitions currently used to delineate the services sector brings out both its complexity and the inadequacies of the prevalent methods of conceptualizing service activities. The conceptual lacuna probably accounts for the use of such cryptic, and not-so-scientific definitions as: ‘A service is something you can buy or sell but cannot drop on your foot’. Not surprisingly, the conceptual and definitional ambiguity gives rise to problems of measurement and comparability, reflecting differences in national practices and the contexts in which the term ‘services’ is used, whether the transactions are within or across countries.
The special characteristics of services influence their mode of delivery and the manner in which they are measured and identified in international trade. The discussion in Chapter 1 has revealed that the provision of most services demands close proximity, in terms of both time and space, between the provider and the consumer. The need for such direct interaction between production and consumption implies that in most circumstances the delivery of services across countries cannot be completed without the movement of persons. In such cases the service provider, or the consumer, ‘carries the border with him or her’.
There is a general feeling among the policy-makers in many developing countries, as was revealed, for example, during the earlier stages of the Uruguay Round negotiation, that these countries have little comparative advantage in the world market for service industries.1 Although that feeling is probably less strong to-day, it seems to persist, none the less. And this may well be a reason (aside from those already mentioned in Chapter 1) why promotion of services exports is still not receiving as much attention in the developing countries as a group as it should.
A major achievement of the Uruguay Round of trade negotiation is the establishment for the first time of a rules-based multilateral system for international trade in services and the initiation of a continuing process of its liberalization in the same way as the GATT has done since 1947 for trade in goods. The agreement, known as the General Agreement on Trade in Services (GATS), forms part of the Final Act of the Uruguay Round, and covers trade in all service sectors. The basic aims are the expansion of trade in services of all participating nations and the enhancement of its contribution to the world economy.
International co-operation, including external technical assistance, could be valuable in addressing many of the constraints that most developing countries currently face in strengthening the services sector of their economy and increasing their participation in trade in services.
Discussion in the previous chapters has shown that as developing countries fully exploit their potential comparative advantage in specific services and increase their participation in trade in service, the global economy gains from a more efficient use of the available resources, and all trading partners, including the industrial countries, can benefit. Beyond the initial efficiency gains, industrial countries should benefit from increased investment — as a result of higher returns to investment and, possibly, from innovation and higher productivity growth.
