Structure of presentation. Everybody is in Services - The impact of Servicification on Trade and Trade Policy. 08-Nov-2012

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1 Everybody is in Services - The impact of Servicification on Trade and Trade Policy Karin Eckerdal Director, Department for WTO Affairs Presentation at the OECD Global Forum on Trade, 8 November 2012 Report written by Emilie Anér and Magnus Rentzhog Download at Structure of presentation The concept of servicification Trade and servicification Trade policy implications from servicification 1

2 Key figures of servicification in manufacturing firms Costs for services as inputs OECD countries: 13-30% in Sweden: 25 % (2005) 2000 (Nordås 2008) (12% in 1975) Bengal garment industry: 20% (Azad 1999) Employees in service-related occupations Sweden: 46 % (2006) EU-12 countries: 40 % in 2002 (Pilat and Wölfl 2005) Services sales in total turnover Sweden: 26 % (2006) Various MNCs: 25-50% of total revenue (Deloitte 2006) Servicification and global value chains 1. GVCs increase the demand for coordination services (one reason for) higher cost shares for services in manufacturing firms that use GVCs 2. Services tasks are often the links in GVCs that create most value (one reason for) higher share of services sales in total turnover in manufacturing firms that integrate forwards and backwards in GVCs 2

3 Motives for servicification in firms Use of services (input) Offered services (output) Servicification as a response/effect Logistics and transport as a result of fragmented production (global value chains) Ex. Volvo AB imports parts from all over the world Recycling services as a result of regulatory demands Ex. Sandvik Tooling offers recycling services as a result of regulatory demands Servicification as a strategy IT and management services in order to increase efficiency Ex. Albin Components uses services to implement lean production, just-in-time delivery and total quality management Repairs, upgrades and surveillance services to prolong the relationship with the customer Atlas Copco leases instead of sells many products, also offers upgrades and diagnostic services Trade and servicification Servicification can promote companies trade in; Goods use of services, especially business services, strengthens goods exports e.g. by reducing transaction costs or improving productivity Services Swedish manufacturing sector represent 1/3 of all services exports Different impact depending on sector and type of service input No studies of aggregate effect on trade patterns Disguised in trade statistics? 3

4 Trade statistics and servicification some delimitations Service exports can be invisible since many services are sold in a package with a good thereby regarded as a good in trade statistics Redistribution between modes; investment replaces cross-border trade FATS cannot fully capture activities of servicified firms firm defined by main activity Service import dependence in the Swedish motor vehicle industry Input-output tables for Sweden in

5 Trade policy implications Shift towards a Goods AND services mindset for: Formulation of trade policy Trade liberalisation Trade negotiations Formulation of trade policy Policy formulation needs to treat goods and services together, and not separately. Trade policy strategies should aim at removing obstacles for both goods and services. Manufacturing companies are key stakeholders in services negotiations both as users and producers. Need to be consulted on the formulation of services trade policy. More focus on business functions. Trade and services should not be measured against each other in negotiations. Informed decisions in terms of trade offs in negotiations defensive positions on certain goods or services sectors could have greater consequences than expected. 5

6 Trade liberalisation of services - As for GVCs - servicification strengthens the case for unilateral, comprehensive liberalisation of services. - Case studies indicate that liberalisation across the board is needed, both regarding sectors and modes. Modes of supply often complementary trade in one mode stimulates trade in others. - However start with barriers to investment and temporary movement of personnel (modes 3 and 4) consistently highlighted as the most important and problematic. Liberalisation of goods and information Goods barriers also obstruct trade for servicified companies: Traditional barriers e.g. tariffs and product standards remain important Higher service content can result in a different tariff classification (resulting in higher tariffs) e.g. how to define goods where a service component is a key feature? Need to address new barriers to help servicified companies trade Prohibitions of transfer of information and data across borders can hinder e.g. trade in products with software components 6

7 New ways of negotiating? Horizontal benchmarks for dealing with barriers to investment and temporary movement of personnel Clustering goods and services Clustering services Take care of the orphans of negotiations: Maintenance and repair Services incidental to manufacturing R&D Technical testing and analysis services Rental and leasing services To conclude The Reality: Everybody is in services The Rationale: Stronger interaction between goods and services improves productivity and can therefore help create growth and jobs The Policy: Goods AND services Up-coming work The National Board of Trade will look at pure services GVCs: Fall 2012: a teardown analysis of a computer game value chain Spring 2013: (possible) teardown analysis of banking services and in the ICT-sector 7