Export of services

The weight of services in the world’s GDP was 55% in the seventies and already 65% in 2017 according to the World Bank’s data.¹⁶ Around 20% of world trade are services and this share has hardly increased since the eighties (compared to trade of goods and services, which increased equally intensively). As gross trade data show, the ”trade collapse” in 2009 affected the trade of services too, but to a smaller extent than the trade of goods. Services are basically necessary for production, intangible and indivisible; therefore, their demand is more stable and less shock-sensitive than that of the goods. Financing need of services is smaller and the risk of late payment is also lower, because in general we pay for them at once (Ariu 2014). Value-added trade data, however, show a similar backdrop in service trade to that in goods’ trade (Nagengast–Stehrer 2016).

Tradability of services has increased in the past decade considerably because of digitalisation, internet, and liberalisation (Kordalska–Olczyk 2016). However, services are still much less

16 http://wdi.worldbank.org/table/4.2

tradable than goods. According to the General Agreement on Trade in Services (GATS) service trade has four modes. The first (1) is cross-border services (via internet, phone, nobody crosses physically the border). About 30% of service trade is realised this way. The second (2) is consumption abroad (consumer travels to the country where the service is effectuated, like tourism). The share of this is around 10% in service trade according to WTO. The third mode (3) is trade presence (via foreign affiliate), that is the most relevant, around 55% of service trade. The fourth (4) is the presence of natural persons (service provider travels to the consumer’s country, like business counselling). This makes up around 5% in all service trade (WTO 2015). The GATS four modes of services supply described above do not account for the fact that a substantial and increasing share of services is being embodied in products and traded around the globe. Cernat - Kutlina-Dimitrova (2014) take this share in the EU for 34% of manufacturing and primary sectors exports. Thus, there is also a mode 5, which means services exported as part of goods. Typical mode 5 services include design, engineering and software that are incorporated and traded as part of manufactured products. For the majority of WTO members, the significance of mode 5 services is ranging from 27.5% to 41% (Antimiani- Cernat 2017). Mode 5 services do not include services that can be sold separately and are not part of the production process (like distribution services, after-sales, maintenance). Regarding mode 5, value-added trade databases like TiVa give the share of domestic service input incorporated in domestic value added of manufacturing and primary sector exports¹⁷. Data of value added trade show that the share of services here is 40-50 percent (Stehrer et al. 2016), much higher than in the normal gross trade (around 20%). However, the value added trade data do not contain in-house services either... Studies concluded that imported services increase manufacturing export and productivity (mainly in technology-intensive branches), while domestic services do not (Stehrer et al. 2015). A probable explanation is that via foreign trade companies can buy the best price/value business services.

In the recent years, composition of service trade changed: the share of travel and transport has decreased and the share of business services has increased. Other business services have 20-25% in the Visegrád service export, but hardly 10 percent in Lithuanian service export. Travel services have an outstanding role in the Iberian service export and transport is highly important in Latvia and Lithuania. Rodríguez et al (2018) shows that the share of intermediate commercial service exports has increased impressively in the case of Estonia, followed by Latvia and

17It should be mentioned that there are difficulties in measuring service-trade. Most of the databases (IMF, OECD, UN) gives information on the first and second mode, the very significant mode 3 trade can be grossly estimated based on the Foreign Affiliates Statistics (FATS, for firms with more than 50% foreign ownership). FATS, however, do not include foreign trade data (turnover, value added, research, production data yes). When foreign-owned firms export, there is an overlap between cross-border trade (mode 1, 2 and 4) and mode 3. On the one hand, the sales of foreign-owned firms are mode 3 trade in services in the host economy, on the other hand, the exports of affiliates are cross-border trade in services (mode 1, 2 or 4) between the host economy and third countries. This overlap between cross-border trade and mode 3 trade in the services also has implications on measurement: it is likely that some double counting is involved: the same transaction, i.e. the services exports of foreign affiliates will be recorded both as mode 3 and cross-border trade but from the point of view of different reporters and partners (Andrenelli et al. 2018).

Lithuania. In contrast to the Euro area, the Baltic States are not specialized in trade in intermediate services, but exports are mainly related to transport and wholesale trade. This is partly due to the advantageous geographical location of the region and the existence of a well-developed transportation infrastructure. Overall, the authors find the share of wholesale trade intermediate services was substantially higher in Latvia and Lithuania compared to Estonia. In contrast, a comparatively low share of intermediate financial services exports in the Baltic States and intermediate business services in Latvia and Lithuania, was found.

Table 7. Distribution of service trade in EU and extra-EU relations, 2016, %

INTRA-EU EXTRA-EU

EU28 55.6 44.4

LATVIA 61.4 38.6

L^ITHUANIA 63.1 36.9

S^PAIN 63.0 37.0

PORTUGAL 71.6 28.4

C^ZECH R^EPUBLIC 67.1 32.9

E^STONIA 69.3 30.7

HUNGARY 71.5 29.5

POLAND 69.6 30.4

S^LOVAKIA 80.6 19.4

Source: Eurostat (online data code: bop_its6_tot)

Table 7 displays that the service trade of the Baltic, Iberian and Visegrád countries takes place much more in intra-EU direction than the EU average. The service trade of Slovakia is in the highest part (80%) directed towards the EU.

According to the data of UNCTAD (based on Balance of Payments) Spain is among the main service-trader EU members, its service export is above 2% in the world’s total service export (see Table 8). However, during the pre-crisis period (2005-2009) this share was above 3%, so Spain has lost some of its positions. The Visegrád countries maintained their share during the years 2000 except for Poland that even increased its weight after 2015 to above 1%. Regarding the Baltic countries, it is Lithuania that could increase the world share of its service export considerably by 2017.

Manufacturing industry depends more and more on services (as inputs or after-sales services), this is called ”servicification of manufacturing”. This was analysed by several studies in the past decade (Pilat–Wölfl 2005, Nordås–Kim 2013, Lodefalk 2015, Lanz–Maurer 2015). Services are parts of business contacts. According to Miroudot–Cadestin (2017) the servicification means three trends: 1.the increase in the use of services inputs leading to a higher share of value-added originating in services industries; 2. the shift towards services activities within manufacturing firms with less resources devoted to core manufacturing and assembly and more to support service functions (R&D, design, distribution, logistics, marketing, sales, after-sale services, IT, back-office and management). Maintaining or outsourcing services depend on

costs and strategies (PricewaterhouseCoopers 2012). 3. the convergence between goods and services, sold bundled together by manufacturing firms that are increasingly selling services to add more value (maintenance, installation, etc). Customers often would not buy goods without these services (National Board of Trade 2014).

able 8. Composition of service export according to categories, 2017, %

C^ZECH R^EPUBLIC

(0.49) H^UNGARY (0.49) S^LOVAKIA (0.18) P^OLAND (1.10)

G^OODS-RELATED SERVICES 10.71 9.51 4.81 10.38

TRANSPORT 22.88 25.23 27.90 26.84

T^RAVEL 26.11 23.74 29.95 21.57

O^THER S^ERVICES. 40.30 41,52 37.35 41.21

TELECOMMUNICATIONS, COMPUTER, AND INFORMATION SERVICES

14.31 8.24 12.19 10.81

OTHER BUSINESS SERVICES 19.43 20.36 20.14 22.36

E^STONIA (0.13)

L^ATVIA

(0.10) L^ITHUANIA (0.18)

G^OODS-RELATED SERVICES 5.93 1.04 6.60

TRANSPORT 29.54 42.08 58.34

T^RAVEL 23.74 16.02 13.69

O^THER S^ERVICES. 40.29 40.85 21.37

TELECOMMUNICATIONS, COMPUTER, AND INFORMATION SERVICES

10.76 12.73 5.83

OTHER BUSINESS SERVICES 19.01 13.25 9.15

SPAIN

(2.60)

PORTUGAL

(0.64)

G^OODS-RELATED SERVICES 3,24 3.27

T^RANSPORT 12,77 21,07

T^RAVEL 49.09 50.27

O^THER S^ERVICES. 34.89 25.38

TELECOMMUNICATIONS, ^COMPUTER, AND INFORMATION SERVICES

9.08 4.76

OTHER BUSINESS SERVICES 17.54 14.76

Note: Below the country names in parenthesis the percentage share of the given country’s service export in the world service export.

Source: UNCTAD Service Trade Statistics

Export of goods and services often takes place in one transaction, one contract, therefore it is very difficult to separate them statistically. Miroudot–Cadestin (2017) using the ORBIS company database for the year 2013 gave the share of firms involved only in manufacturing activities, only in service activities or in both. Sales in ”both” categories was extremely high for Hungary, the Czech Republic and Slovakia (around 46 -60%)¹⁸ while in Poland, the Baltic and Iberian states it was 20-30%.