New Data links Outward Investment in Services to Australia’s Services Export Performance

Jane Drake-Brockman is Industry Professor with the Institute for International Trade and Founder of the Australian Services Roundtable, which in 2020 celebrates its 20th anniversary

Measurement of trade in services is notoriously difficult. The official statistics on imports and exports contained in the Balance of Payments (BOP) are well known, for example, as measuring poorly at best only three of the four modes of international supply of services.

As defined in the WTO, the four modes of trading services are through cross-border supply such as on-line through the internet, consumption abroad such as tourism, commercial presence of an enterprise such as establishing an affiliate in a foreign country to serve the local market, and individuals such as consultants travelling temporarily to a foreign country to provide services.

There has been no official global source of information breaking down services exports into various modes of supply until the World Trade Organisation (WTO) released an experimental dataset in 2019 known as TISMOS (Trade in Services data by Mode of Supply), providing estimates for the period 2005-2017.

The aggregate results for TISMOS confirm WTO estimates of a decade earlier that commercial presence (i.e. establishing an affiliate to serve a foreign market), accounts for almost 60% of the global supply of services. This is now shown to be the dominant mode for all services except transport, education and tourism. It is therefore important for all countries to have good measures of commercial presence.

Only the United States (US) has produced consistent series of ‘Inwards and Outwards Foreign Affiliates Trade in Services (FATS). For countries like Australia without such statistical collections, inward and outward FDI flows into the services sector have offered useful guidance, but could hardly be considered adequate proxies for services exports.

The Australian Context

Services business advocacy was largely responsible for initiation by the Australian Bureau of Statistics (ABS) in the early 200Os of a first experimental Australian survey of outward foreign affiliates’ trade.

The results showed that in 2002-03, there were 4,000 Australian-controlled affiliates abroad, generating 300,000 jobs and AUD142 billion in sales, of which AUD65 billion (46%) were in services. At the time, those findings on sales of services (a good proxy for services exports via commercial presence) suggested that the official BOP data was measuring less than one third of Australia’s actual exports of services.

Two decades later, as a result of funding provided in the context of Senator Birmingham’s new ‘Services Export Action Plan’, the ABS released a new collection on Australian Outward FATS on 10 September 2020. This data provides a detailed snapshot picture for 2018-19 but no trend analysis.

I offer some insights into the results, and attempt to read the underlying trends in trade, based on two decades of working closely with the Australian Services Roundtable, the peak industry body in Australia representing the services sector.

What the Statistics Tell Us

From an export perspective, the most important result is that local sales of services by Australian foreign affiliates (a proxy measure for Australian exports via commercial presence) can now be seen to sit above AUD92 billion. Insurance and pension services account for 25%; financial services another 23%, other business services 20% and construction 12%.

For 2018-19, the BOP puts Australian exports of services at AUD97 billion. But taking over AUD92 billion of sales of services by foreign affiliates into account, the BOP now appears to be measuring roughly half of Australia’s actual services exports, as shown in Figure 1 (own calculations; rounding up based on WTO TISMOS dataset).

These sales of services account for 42% of foreign affiliates total sales of goods and services (down from 46% in 2002-3) but more than 50% of the sales of goods and services in the largest markets, the United Kingdom (UK) and New Zealand (NZ). The latter stands out in particular as a very much larger market for foreign affiliate sales of services rather than goods.

The new ABS data for 2018 confirms a continued dramatic underestimate of services exports in the BOP. But the underestimate is less than the underestimate by two-thirds in 2002-2003. It is too early to tell, but I hazard a guess that we may be seeing in these results the first measured evidence for Australia of the shift from all other modes of supply including commercial presence, to on-line supply of digitally delivered services; a trend set to accelerate post-COVID 19.

Australian Foreign Affiliates Growth and SMEs

There are now more than 5,000 majority Australian-owned affiliates established in foreign markets, 90% of them SMEs and with 275 Australian parent enterprises.

Their total assets amount to AUD2 trillion, of which financial and insurance services providers alone hold over AUD1.5 trillion or 78%. Mining accounts for 10%. Eighteen percent of the foreign affiliates are located in the US; the next largest destinations are the UK and NZ. But 36% of the total assets are held in NZ, 17% in the US and 15% in the UK.

As shown in Figure 2, services industries account for just over half of the total Australian equity in these affiliates. Financial and insurance services alone account for 32%, mining 26% and manufacturing 23%. Measured in terms of the location of Australian equity, the UK is the top destination, followed by the US and NZ.

In terms of industry value added, services account for more than 70%, with financial and insurance services alone accounting for 50%, by themselves more than double the contribution of mining and seven times more than manufacturing. The contribution to industry value added was highest in NZ, nearly double the figure for the US and nearly three times larger than for the UK.

Similarly, services account for two thirds of the 412,000 jobs created by Australian affiliates in destination markets. By themselves, financial and insurance services generate roughly as many jobs abroad as manufacturing. Professional, scientific and technical services by themselves generate nearly as many as mining.

Total operating profits before tax of all Australian-owned foreign affiliates was AUD42 billion, of which financial and insurance services generated the most.

Clearly commercial presence remains of fundamental importance to international business for Australian financial, insurance and pension services providers. This justifies continued trade negotiating efforts to reduce barriers to commercial presence, such as foreign equity caps and restrictions on the composition and residency of senior boards of management.

Australia needs a sustained services trade statistics collection effort

Undoubtedly the business community, academic researchers and trade negotiators do not want to wait another two decades for the next set of statistics.

Under strong industry pressure at the time, the ABS undertook work in 2011 specifically on outward foreign affiliates trade in financial services. But the time has come for the Australian government to prioritise funding of a consistent collection of Foreign Affiliates Trade in Services (FATS).

Jane Drake-Brockman is Industry Professor with the Institute for International Trade and Founder of the Australian Services Roundtable, which in 2020 celebrates its 20th anniversary.

The views expressed here are the authors, and may not necessarily represent the views of the Institute for International Trade.

THINK20 Policy Brief: Impact Of Digital Technologies And The Fourth Industrial Revolution On Trade In Services

THINK20 Policy Brief: Impact Of Digital Technologies And The Fourth Industrial Revolution On Trade In Services

18 September 2020 marked the beginning of the T20 Summit Season, celebrated the work of T20 Task Force 1: Trade, Investment and Growth.
Jane Drake-Brockman Institute for International Trade, The University of Adelaide coordinated and presented TIISA Policy Brief 4: Impact of Digital Technologies and The Fourth Industrial Revolution on Trade in Services

We all know we are in the early stages of a major technological transformation. We call it the 4th Industrial Revolution.
It is driven by digital technologies: 3D printing, artificial intelligence, cloud computing, 5G, and the Internet-of-Things.

These technologies are dramatically cutting trade costs for digital delivery – and putting trade in services on a stronger growth path than trade in goods. Throughout economic history, such periods of deep technological change, and resulting structural shifts, have ultimately delivered the biggest most prolonged global growth stories. With the right policy choices, designed to connect our digital economies and enable businesses to inter-operate, this new wave of deep innovation is offering us all our single best shared and immediate chance for productivity gain, economic growth and rising living standards.

*Jane Drake-Brockmans presentation begins from 1:54:26

**Presentation is 7 mins in duration

WATCH PRESENTION

Geneva Trade Week: Join the Discussion on Digital Trade

Institute for International Trade (IIT) and Trade and Investment in Services Associates (TIISA) are pleased to be supporting Geneva Trade Week (25 September – 2 October 2020), being held by the Geneva Trade Platform.

The Geneva Trade Week will host more than 50 sessions, organised by more than 70 organisations across five themes:

  • Rethinking Trade
  • Rebooting the World Trade Organisation (WTO)
  • Sustainability
  • Digital Trade
  • Trade and …

Topic
Digital Trade: Competition and Innovation in the Digital Age: Pro Innovation Domestic and International Governance for Digitally-enabled Services

When
29 September 2020

Time
9.00am – 10.30am (CEST) Geneva Time
4.30pm – 6.00pm (ACST) Adelaide Time

Moderator
Jane Drake-Brockman: Institute for International Trade, Industry Professor

READ MORE

Speakers
Hildegunn Nordas: NUPI and Orebro University, Research Professor
Pascal Kerneis: European Services Forum, Managing Director
Bryan Mercurio: Chinese University of Hong Kong, Simon FS Li Professor of Law
Neha Mishra: Centre for International Law, National University of Singapore Postdoctoral Fellow

REGISTER HERE

 

THINK20 Policy Brief: IMPACT OF DIGITAL TECHNOLOGIES AND THE FOURTH INDUSTRIAL REVOLUTION ON TRADE IN SERVICES

T20 Taskforce 1: Trade, Investment and Growth. T20 Secretariat, Riyadh, Saudi Arabia.
Drake-Brockman, J. (lead author) et al.(2020).

 

 

 

 

 

This Policy Brief is available on the T20 website READ FULL POLICY BRIEF

The full set of Policy Briefs for all T20 Taskforces can be accessed here

Acknowledgement and Disclaimer

In T20 Policy Brief 4: Impact of Digital Technologies and the Fourth Industrial Revolution on Trade in Services, the eight co-authors from the TIISA Network, including the coordinator, formally acknowledged support from the EU Jean Monnet Network. The acknowledgment appears on page 18 of the Policy Brief.

All policy briefs were developed and written by the authors and have undergone a peer review process. The views and opinions expressed are those of the authors and do not necessarily reflect the official policy or position of the authors’ organisations or the T20 Secretariat.

T20 Policy Brief 4: Impact of Digital Technologies and the Fourth Industrial Revolution on Trade in Services

During 2020, the TIISA Network proposed a Policy Brief on Trade in Services to the THINK 20 Secretariat under Saudi Arabia as the G20 host for 2020.

The proposal was accepted and Jane Drake-Brockman was nominated as Coordinating author.

The coverage of the proposal was broadened on request to include Digital Technologies and the 4th Industrial Revolution and an additional seven authors from other institutions.

The outcome is T20 Policy Brief 4: Impact of Digital Technologies and the Fourth Industrial Revolution on Trade in Services: for T20 Taskforce 1: Trade, Investment and Growth,

This policy brief was developed and written by the authors and has undergone a peer review process. The views and opinions expressed are those of the authors and do not necessarily reflect the official policy or position of the authors’ organisations or the T20 Secretariat. The Eight co-authors from the TIISA Network, including the coordinator, formally acknowledged support from the EU Jean Monnet Network.

The acknowledgment appears on page 18 of the Policy Brief

Read the full set of Policy Briefs for all T20 Taskforces

 

TIISA Annual Conference : Servicification – Call for Papers

The Jean Monnet TIISA NETWORK invites submissions for the 2020 Conference.

Theme: Servicification
In line with the Network’s interdisciplinary character, this includes papers in the fields of law, political science, business & economics.

Conference co-hosted by:
China Institute for WTO Studies, University of International Business and Economics, Beijing (UIBE)
The Institute for International Trade (IIT) The University of Adelaide

Dates
CONFERENCE: November 9,10,12,13
Phd WORKSHOP: November 4 & 6

Times
5.30pm – 7.00pm (ACTD) Adelaide Time
3.00pm – 5.30pm (CST) Beijing Time

4 Conference sessions are proposed:

  1. Servicification: Global, Regional and Economy‐Specific Drivers and Trends
  2. Servicification: Modern Manufacturing and Services: Industry Case Studies
  3. Servicification: The 4th Industrial Revolution and the Digitalisation of the Economy
  4. Servicification: Implications for International Trade Governance

Submission Deadlines:
30 September 2020 – Conference
25 October 2020 – PhD Workshop

Submissions emailed to:
jane.drake-brockman@adelaide.edu.au

Conference Organisers:
Professor TU Xinquan – China Institute for WTO Studies, University of International Business and Economic in Beijing, China

Professor Jane Drake-Brockman – Institute for International Trade, The University of Adelaide

Working together, IIT and UIBE aim to provide a safe and accessible way for the Jean Monnet Network on Trade & Investment in Services to come together as a Research Network in Annual Conference format during 2020. The intention is to provide small place-based Conference venues at both IIT, Adelaide and UIBE, Beijing for those able to come together face-to-face.
This will enable some socially distanced local audience interaction and provide place-based audiences with group access to larger communal screens for online presentations. All presenters will have a choice in the manner of presentation: place-based, online or
pre-recorded video.

           

 

 

 

 

 

 

 

OPINION PIECE – Australia-Singapore Digital Trade Agreement: Setting new benchmarks in Trade Governance

By Jane Drake-Brockman, Industry Professor, Institute for International Trade, The University of Adelaide.

Australia has achieved its most comprehensive deal on digital trade. The government has put down clear markers for other bilateral and regional trade negotiations, including with the EU; and taken a global leadership role, along with Singapore, in signalling vital directions for the WTO negotiations on Electronic Commerce (e-commerce).

What is the Digital Economy Agreement?

The Australia-Singapore Digital Economy Agreement (DEA) is a key new pillar of the bilateral Comprehensive Security Partnership signed in 2016. It also updates and replaces the e-commerce chapter in the Singapore/Australia Free Trade Agreement (SAFTA) originally signed in 2003. Two decades later, how much further have the two parties managed to go in extending the digital trade architecture?

This agreement is not about market access, and for example leaves untouched the SAFTA text and schedules of commitments on cross-border trade in services. Rather, the DEA’s goal is to go further in digital trade rule-making than the original SAFTA.

The text moves away from the increasingly antiquated, unhelpfully narrow notion of “e-commerce” in international trade negotiation. The coverage is more comprehensive on issues related to data flows, and in facilitating wide-spread bilateral technological and regulatory cooperation for the digital age. Importantly, this helps shift the focus of international rule-making to the issues in greatest need of updating.

In this article, I go straight to the objectives which tend to be highest priority for regional business yet also the most fraught in the global inter-governmental struggle to reduce regulatory heterogeneity and build interoperability in digital trade.

Allowing Commercial Traffic in Data

One key objective is to achieve interoperability with respect to regulations protecting personal data privacy. The DEA’s Article 17 encourages development of mechanisms to promote compatibility between the parties’ regimes including via international frameworks. While not new, the innovation lies in provision of more details on the principles to which such regimes should abide. It also specifically supports the APEC Cross-Border Privacy Rules as a valid mechanism to facilitate cross-border data flows.

Article 23.2 affirms the freedom of commercial cross-border data flows, including of personal information. Exceptions apply for legitimate public policy objectives (LPPOs) as long as there is no unjustifiable discrimination or disguised restriction on trade nor restrictions greater than required to achieve the objective.

This language goes beyond the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) for example, because it is inclusive of financial services. What is important here is the continued alignment of the DEA with the US/Mexico/Canada Agreement (USMCA). Australia and Singapore, as chair and co-convenor respectively of the WTO negotiations on E-Commerce, thereby reaffirm their positions that this model of trade governance is best practice.

The same is not quite true of Article 24. Like the USMCA, it bans data localisation requirements as a condition for conducting business in the parties’ territory. Unlike the USMCA, but like the original SAFTA chapter, it continues to allow exceptions for LPPOs. Possibly Australia and Singapore have retained this flexibility in order to offer the text as a potential means of solving problems in the WTO.

The DEA also introduces a separate provision disciplining data localisation requirements for financial services. There is no broad exception for LPPOs, but specific prudential exceptions do apply.

No Customs Duties on E-Transactions

Another objective is how to make the WTO Moratorium on Customs Duties on E-Transactions permanently binding. This soft law device, currently extended only until the next WTO Ministerial Meeting, faces opposition from members with protectionist digital industrial policies. Tariffs are a protectionist instrument used till now only for trade in goods. The notion that they might ever be imposed on e-services brings great anxiety to Australian and Singaporean services industries. The original SAFTA and the new DEA, like CPTPP and USMCA, ban customs duties on e-transactions – but do not preclude internal taxes. The application of trade-related disciplines to digital services taxation looms as the next contentious multilateral agenda item.

No Discrimination against Digital Products

The DEA bans less favourable treatment for digital products except broadcasting (digital products are defined as computer programmes, text, video, image or sound recordings that are digitally encoded and transmitted electronically). It permits subsidies and government grants. This is not new, either. But such text continues to cross a red line for the EU: with whom Australia has always otherwise been aligned in the WTO on retaining freedom for domestic support of creative and cultural services content. It’s time now to move trade policy mindsets from the analogue to the digital age. So watch this space in the Australia-EU FTA negotiations.

Protect Intellectual Property (IP)

The DEA bans any requirement for access to software source code as a precondition for market access. This goes well beyond the original SAFTA chapter which only applied to mass market software. Furthermore, by including bespoke software the new discipline will have special benefits to SME exporters. The DEA also contains an innovative MFN-forward commitment: if either party enters a similar agreement with a third party, the DEA provision automatically applies to the software source code algorithms of the third party.

This includes evolving algorithms so this provision meets industry requests in effectively granting IP for artificial intelligence (AI). The EU, which appears to remain hesitant on AI, especially in financial services, will no doubt take note.

Facilitate Trade by Building Digital Trust

This is the nuts and bolts part of the Agreement. Mutual recognition of digital identities, e-authentication and e-signatures, e-invoicing, paperless trading, express shipments, online facilitation of e-payments, consumer protection, spam, open government data, submarine telecommunications connection, cybersecurity: the DEA inches forward incrementally on multiple fronts of regulatory cooperation. The Agreement shows how Australia and Singapore (both in leadership roles in the WTO negotiations on E-Commerce) are jointly shaping the enabling environment for global digital trade.

This includes international digital standards development and compliance as the fundamental enabling bedrock for digital market access. The two parties have agreed to work more intensively in international fora and to identify priorities for further bilateral and regional work. This is high priority for regional business and the DEA at last gives the matter full attention.

Intensify Regulatory Cooperation

Regulatory cooperation is critical to building mutual confidence in regulatory regimes across jurisdictions. It is essential to paving the way for mutual recognition of equivalence and greater harmonisation across borders. The DEA makes big strides forward on the regulatory cooperation front. It contains new provisions on cooperation on competition policy and on efforts to counter terrorism financing and money laundering. It is accompanied by seven agency-level MoUs, setting out a detailed bilateral agenda for sharing information and developing regulatory best practices on a broad scale, including experimenting in regulatory sandboxes for joint data innovation, and developing ethical frameworks for AI.

Where to next?

Australia is negotiating separate bilateral trade agreements with the EU27 and with the UK. Based on experience negotiating e-services issues with the EU28 for the plurilateral Trade in Services Agreement (in deep freeze under the current US Administration), Australian stakeholders know the EU red lines and anticipate that digital trade, together with geographic indicators, will be the key deal breakers in bilateral negotiations with the EU, but probably not with the UK.

The DEA strongly reasserts long-standing Australian and Singaporean positions on cross-border data flows and data localisation, with full support from both business communities. This bolsters both governments’ positions in the WTO negotiations on E-Commerce. Australia, as chair of those negotiations, can take the high ground on commercial cross-border flows of personal data and wait till the US Administration is ready to hammer it out with the EU.

By Jane Drake-Brockman, Industry Professor, Institute for International Trade, The University of Adelaide.

The views expressed here are the author’s, and may not represent the views of the Institute for International Trade.

Research Grants Round 2

JEAN MONNET NETWORK: TRADE AND INVESTMENT IN SERVICES ASSOCIATES (TIISA) RESEARCH GRANTS – ROUND 2

Round 2: Deadline for applications is Monday 14 September 2020 (5pm CEST)

The Jean Monnet NetworkTrade & Investment in Services Associates (TIISA) brings together leading academics across Europe, Asia and Australia and key institutions  – Sussex University, University of Adelaide, Örebro University, National Tsing Hua University, Utrecht University, University of International Business and Economics, Chinese University of Hong Kong, World Trade Institute in research on domestic regulation and global governance of services trade and investment flows.

The TIISA Network is currently offering research grants of between €500 – €5000 to support research in the field of trade and investment in services and which improves knowledge of or contributes to the process of European economic integration in services.

All research outputs must be delivered no later than 30 November 2021 and preferably sooner. Research outcomes are expected to be published in edited volumes and in peer-reviewed journals and disseminated to the broader public through the Jean Monnet TIISA Network Working Paper series located on tiisa.org .

Eligible candidates

  • TIISA Associates and their extended network (must be sponsored by a TIISA participant)
  • Post Doc and Early Career Researchers from TIISA participant institutions
  • PhD Students or Potential PhD Qualifying Students (must be sponsored by a TIISA participant)

Eligible expenses

Travel* (economy flights only), accommodation, conference fees, research materials including stationary, databases and software,  telecommunications, publication expenses, research assistance and editing.

Applications may be received from TIISA Associates seeking research assistance.

Applications may also be received by individuals proposing to provide the research assistance under the supervision of a TIISA Associate.

Selection criteria

  • Relevance of Research Topic to TIISA Network goals
  • Strength of research ability / supervision
  • Likelihood of completion within the TIISA project timeline
  • Likelihood of publication outcome/ presentation at TIISA Annual conference/PhD Workshop
  • Likelihood of impact by improving knowledge of trade and investment in services/ EU approach to regional economic integration in services /developing links between TIISA partners and extended networks

Targeted research themes include:

  • Services trade and investment policy-making and implementation
  • Digital aspects of the EU Services Directive and single market and the implications for harmonisation of domestic regulation across the EU Member States
  • Best practice in managing global and regional mobility of services providers
  • EU approach to Investor/State Dispute Settlement
  • Impact of Covid-19 Pandemic on global and EU trade in services
  • Digital trade and e-commerce

Information for applicants

  • Round 2 Application closing date 5pm Brussels time, Monday 14 September 2020
  • TIISA Project Deadline for final paper submission 30 November 2021
  • Email your application form to sarah.warner@adelaide.edu.au.

Download the application form

Round 1 Awarded Research Grants

The TIISA Network is pleased to announce that a total of 20,000 euros of research grant funds have been awarded to the first round of successful applicants, listed below.

Professor Jane Drake-Brockman Institute for International Trade, The University of Adelaide
Professor Hein Roelfsema Utrecht University
Radka Sabolova – PhD Student Orebro University
Aili Tang – Researcher Orebro University
Harry Wardana – PhD Student Institute for International Trade, The University of Adelaide
Yi Zhang – Associate Professor Xian Jioatong University