Trade in Services in the European Union

Abstract

Services dominate in the creation of value added in national economies, especially in developed countries, and they have a growing trend in developing (emerging) economies. Their calculation is complex because they cover four modes of trade (according to GATS), and also because a part of the service value is hidden in the value of production/trade of manufactured goods. Their importance in foreign trade, despite the increasing trend, is still three times smaller than the value of trade in goods, and they are thus under-valued. This paper explains specific characteristics of foreign trade in services, provides analysis of the structure of service trade and highlights the limitation of wider trade expansion (i.e. liberalization of trade). The analysis employs statistical tools and secondary data and covers the EU member states. The EU is a very important player in the global arena and it is a net exporter of services, where richer member states are oriented to other business sectors, while the Central, East and South members are focused on travel. The EU members mainly trade between themselves. Service trade is faced with tougher restrictions in cross-border trade. The OECD measures these restrictions by the Services Trade Restrictiveness Index. The EU common market provides better conditions for the intra-EEA trade in services even though the protection differs among countries and it is more liberal for computer and telecom sectors while in accounting services and legal services the protection is high due to national legislations.