Statistics Explained

Services trade statistics by modes of supply

Data extracted in November 2021

Planned article update: 23 February 2023

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Highlights


In 2018, 59 % of the EU services exports to non-member countries were supplied via commercial presence in the territory of the non-member countries.
EU exports of services to non-member countries, 2018


This article presents estimations of the international supply of services (ISS) broken down by modes of supply (MOS) for the EU and the EU Member States, for reference year 2018. The estimates are based on experts’ opinions and the Eurostat-WTO model. The results discussed in this article are not yet official statistics and should be considered as being experimental in nature.

Statistics on international supply of services by modes of supply aim to answer the question of 'how' services are exchanged across countries and 'where' services are supplied to foreign customers. Detailed information on international supply of services statistics by services category, mode of supply and partner country help policymakers carry out the ongoing and future trade negotiating agenda with facts and strong, evidence-based arguments. Statistics by MoS show how and where services are supplied internationally and they allow for the impact of services trade agreements to be monitored.

Although statistics on services by modes of supply are important for different user groups (policy-makers, trade negotiators, researchers, etc.), there is a scarcity of relevant data, which makes it difficult to properly assess the international supply of services. To produce better-quality and more comparable data, Eurostat continues its works in cooperation with countries and international organisations on further developing and better aligning the Eurostat-WTO model to accord with empirical evidence. The current model and applied methodology are described in detail in the section ‘Applied methodology’.


Full article

Trade in services by modes of supply

The General Agreement on Trade in Services (GATS), the first multilateral agreement to cover trade in services, defines trade in services as the supply of a service through any of four modes of supply, outlined in the bullet points below.

  • Mode 1 - cross-border supply: from the territory of one country into the territory of another country;
  • Mode 2 - consumption abroad: in the territory of one country to the service consumer of another country;
  • Mode 3 - commercial presence: by a service supplier of one country, through a commercial presence in the territory of another country. The FATS framework is designed to provide information on the activities of enterprises located in foreign markets;
  • Mode 4 - presence of natural persons: by a service supplier of one country, through the presence of natural persons of that country in the territory of any other country.

For example, legal services may be supplied to the client (customer) by four separate modes:

  • legal advice is provided to the client abroad through electronic channels (mode 1)
  • the client from abroad comes to the lawyer’s office (mode 2)
  • the lawyer establishes an affiliate abroad to provide legal services (mode 3)
  • the lawyer goes abroad to provide the legal service to the client (mode 4).

In practice, services can be produced, distributed, marketed, sold and internationally delivered through a combination of modes. For example, computer services can be delivered either by electronic means (mode 1) and/or by natural persons travelling abroad to provide those services (mode 4). For computer services, we have used proportionality assumptions to allocate the services flows. For example, we assumed that 75% of computer services were traded by mode 1 and 25% by mode 4. See the section ‘Applied methodology’ for more details. In further MoS research, general proportional assumptions could be replaced by actual shares resulting from surveys of individual countries.

Information on the international supply of services is provided by two different statistical frameworks.

  1. International trade in services (ITSS) statistics, sourcing from the Balance of payments (BOP) framework. The BOP records transactions between residents and non-residents based on the centre of economic interest (residence) of an institutional unit. As such, it covers principally GATS modes 1, 2 and 4, via international trade in services statistics (ITSS).
  2. Foreign affiliates statistics (FATS) cover a number of indicators on the activity of controlled foreign affiliates, and thus provide information on the supply of services through GATS mode 3. The exports are estimated using OFATS data, while for the imports are used IFATS.

Services and goods exports competitiveness

EU trade competitiveness can be described by comparing the ratio of net trade (exports minus imports) to total trade (exports plus imports). Table 1 presents these results both for goods and services. The EU’s trade competitiveness ratio for total supply of services (taking into account all four modes of supply) was 4.0%, while for goods it was 6.2%.

In 2018 the EU balance (exports minus imports) of international supply of services (taking into account all four modes of supply) amounted to a surplus of €185 billion. The 'ITSS balance' had a surplus of €153 billion, while the goods balance showed higher values and amounted to a surplus of €247 billion (Table 1).

Table 1: EU trade balance with non-member countries, supply of services compared to goods, 2018

Looking at the balances by modes of supply for 2018, the largest surplus was recorded for mode 3 (€130 billion), with a proportion to total trade [(exports - imports)/(exports + imports)] of 4.7% (Table 2). For mode 1, a trade surplus of €4 billion was registered, with a proportion to total trade of 0.3%. Mode 2 registered a trade surplus of €25 billion, with a proportion to total trade of 7.0%, at the same time mode 4 with a trade surplus of €26 billion, had the highest proportion to total trade - 14.8%. The results also showed that modes 1, 2 and 4 taken together generate a surplus of €55 billion while mode 3 alone has a surplus of €130 billion (Table 2).

Table 2: EU services trade with non-member countries broken down by mode of supply, 2018



EU exports and imports of services in 2018 broken down by modes of supply

Figure 1 presents the EUs' services exports to countries outside the EU (partner non-EU countries), broken down by the four modes of supply in 2018. When comparing the EU’s total exports of services (all four modes) with the exports performed through modes 1, 2 and 4 (computed from the ITSS), the amount increases from €990 billion (sum of modes 1, 2 and 4) to €2 429 billion (also including mode 3, exports via foreign affiliates). In other words, 59% (or €1 439 billion) of the EU’s exports of services are supplied via mode 3.

Figure 1:EU exports of services to non-member countries, 2018


Figure 2 presents EU imports from countries outside the EU, broken down by the four modes of supply. When including the ‘imports’ through foreign affiliates (mode 3), the imported services from countries outside the EU increase from about €935 billion (sum of modes 1, 2 and 4) to €2 244 billion respectively. Hence, mode 3 comprised 58% of the imported supply of services to the EU.

Figure 2: EU imports of services from non-member countries, 2018


Mode 1 plays an important role in the supply of services due to the increasing role and development of new technologies. Figure 3 shows the exports of the EU supply of services channeled through mode 1 broken down by type of service. The largest contributors are: ‘other business services’ accounting for 28%, ‘transport services’ accounting for 21%, ‘telecommunication, computer and information services’ accounting for 17%, 'intellectual property' accounting for 12% and ‘financial services’ accounting for 11%.

Figure 3: EU exports of services channeled by mode 1 (cross-border supply) to non-member countries, 2018

As already mentioned, trade in services should not be considered only in terms of cross-border trade; affiliates established abroad should also be taken into consideration. The following types of services make the largest contributions for services supplied through mode 3 (commercial presence): 'distribution services' account for 24%, ‘other business services’ (including R&D, accounting, legal and engineering services) account for 20% , 'transport services' for 16%, while ‘telecommunication, computer and information services’ account for 14% and ‘financial services’ account for 8% (Figure 4).

Figure 4: EU exports of services channeled by mode 3 (commercial presence) to non-member countries, 2018


Figure 5 presents the EU exports of the supply of services broken down by mode and type of service. This shows that ‘other business services’ (including R&D, accounting, and legal services) have the top ranking, with nearly €533 billion exported to countries outside the EU. They are followed by ‘transport services’ (€408 billion) and ‘distribution services’ (almost €404 billion). By contrast, export volumes of ‘manufacturing services’ and ‘maintenance and repair services’ are marginal.

Figure 5: EU exports of services to non-member countries, by mode of supply and service item, 2018

For services imports (Figure 6), ‘other business services’ again took the highest ranking, with €617 billion in annual import volumes. They were followed by ‘distribution services’ (€434 billion) and ‘telecommunication, computer and information services’ (€362 billion).

Figure 6: EU imports of services from non-member countries, by mode of supply and service item, billion €, 2018

For the share of each mode per type of service, there is a lot of variation across service types depending on the specificities of the service (Figures 7 and 8). In exports, mode 3 dominated for ‘travel services’ (accounting for 88% of this sector), ‘distribution services’ (86%), ‘personal, cultural, and recreational services’ and 'construction' (81%). This may be due to the need to establish a commercial presence by creating an affiliate to facilitate supply of these specific services. Mode 1 is the dominant mode for ‘intellectual property services’, accounting for 93% of exports in this item. Mode 2 is dominant for 'insurance and pension services' and 'manufacturing services' (100%), while mode 4 accounts for 13% in the 'travel services'.

Figure 7: EU exports of services to non-member countries by service item, share of modes of supply, 2018


Figure 8: EU imports of services from non-member countries by service item, share of modes of supply, 2018

In imports (Figure 8), mode 3 is the dominant mode for ‘construction services’ (accounting for 84% of this sector), ‘telecommunication, computer and information services’ (81%), ‘personal, cultural, and recreational services’ (77%) and ‘distribution services’ (75%). Again, mode 1 is the dominant mode for ‘intellectual property services’, accounting for 91% of imports in this item.

EU Member States exports and imports of services by modes of supply in 2018

The share of services exported through mode 3 is more significant for Germany, France and Sweden; services imported through mode 3 are more significant for Czechia, Bulgaria and Romania.

For each Member State, exports and imports of services by the four modes were calculated using a modelling approach that combines actual exports with statistics from foreign affiliates. Where values were missing, estimates were used instead. Calculations were made both for the trade partner 'rest of the world' (world excluding the reporting country) and the non-member countries. An estimate of the ‘distribution services’ was included in mode 1. The detailed description of the methodology and sources is presented in the corresponding sections below.

There is considerable variation across Member States in terms of total exports and imports of services by modes of supply. This is mainly due to the differences in traded services across the countries, which is also related to their innovative technologies and expertise in trading in services globally.

For exports to the rest of the world (Figure 9), mode 1 accounts for a considerable share in Luxembourg (88%) and Malta (71%). These results may indicate that those countries are more involved in the innovative technologies used to supply services through electronic channels. One of the contributors for having predominant mode 1 in Luxembourg are the 'financial services' contributing for 2/3 of the total services export in 2018.

Mode 2 is more significant in Croatia (57%), Bulgaria (36%) and Greece (35%). These countries have a predominant tourism sector and tourists visiting these countries increase the relative significance of mode 2 exports.

Mode 3 was predominant among some of the larger EU Member States, accounting for 70% of exports for Germany, 69% for France, 67% for Sweden and 61% for the Netherlands. The results indicate that these countries are more active in capital movement, establishing affiliates abroad to provide the services through mode 3.

Mode 4 usually has the smallest proportion in comparison to the other modes in percentage terms. It is somewhat more significant in Malta (where it accounts for 14% of exports), and in Ireland, Romania and Poland (where it accounts for 10% of exports for each country).

Figure 9: Share of modes in services exports to the rest of the world, by country, 2018 - See Country codes

For imports from the rest of the world (Figure 10), mode 1 is dominant in Malta (where it accounts for 53% of imports), Ireland and Cyprus (44% of imports) and Luxembourg (41% of imports).

Mode 2 is significant in Greece (where it accounts for 29% of imports), Denmark (17% of imports) and Cyprus (14% of imports).

Mode 3 accounted for 76% of imports in Czechia, 74% in Bulgaria, 73% in Romania and 71% of imports in Slovakia and Poland. These countries are attractive destinations for the establishment of foreign affiliates.

Mode 4 imports are somewhat more significant in Malta (where mode 4 accounts for 7% of imports), while for all other countries it accounts for 6% or less of their imports.

Figure 10: Share of modes in services imports from the rest of the world, by country, 2018

As regards Member States' exports to non-member countries (Figure 11) in 2018 mode 1 was more prominent in Luxembourg (93% of exports) and Malta (73%).

Mode 2 was more significant for Croatia (43% of exports), Lithuania (38% of exports) and Bulgaria (36%).

For exports to non-member countries mode 3 was more significant for Hungary (77%) and similarly to the exports to the rest of the world for Germany (73% of exports), France (70%), Spain and Sweden (each 67%).

The exports for Mode 4 is somewhat more significant for Romania and Malta (13% each), followed by Poland and Estonia (10% each).

Figure 11: Share of modes in services exports to non-member countries, by country, 2018

As regards imports from non-member countries (Figure 12), in 2018 mode 1 was more prominent for Malta (54% of imports), the Netherlands (43% of imports) and Cyprus (42% of import).

Mode 2 was more significant for Greece (42% of imports) and Denmark (20%), while all other countries had less than 14% of their imports from non-member countries channeled via mode 2.

Mode 3 imports were more prominent in Czechia (78%), Hungary (77%), Slovakia and Romania (76% each).

Mode 4 is again somewhat more significant for Denmark, accounting for 7% and Belgium, Malta and the Netherlands for each 5% of the imports respectively.

Figure 12: Share of modes in services imports to non-member countries, by country, 2018


Future perspectives

Eurostat continues work on further refining the model and the proposed allocation shares. The methodological areas that need further work include issues such as better estimation of the domestic part of the FATS output (including a better estimation of the services supplied by enterprises in predominantly goods-oriented activities), resolving the double-counting problems between ITSS and FATS data, how to obtain data-driven allocation shares for the model, and improved methods to estimate the goods values present in some EBOPS items.

Context

The WTO General Agreement on Trade in Services (GATS), in force since 1995, was the first trade agreement to cover services on a multilateral basis. In the GATS, the supply of services is defined based on the location of the supplier and consumer at the time when the transaction takes place. The GATS defines trade in services as ‘the supply of a service through four modes of supply’. Services broken down by the mode of supply give an indication of where and in which ways the services are supplied to foreign customers. For example, legal services may be supplied to the customer through email (cross-border supply or ‘mode 1’) or by the customer travelling to the lawyer's country (consumption abroad or ‘mode 2’). However, these services may also be provided to the customer by the lawyer, in person, travelling to the customer's country of residence (presence of natural persons or ‘mode 4’) or by an established affiliate of the lawyer in the customer's country of residence (commercial presence or ‘mode 3’). This extended dimension of international trade in services, also referred to as international supply of services, matters greatly from a trade policy perspective, as market access conditions vary among the four ways of supplying services internationally. Since GATS, most other regional (bilateral or plurilateral) trade agreements follow similar principles in setting out their commitments according to the four modes of supply. Consequently, trade policy makers need statistics to support them in negotiating commitments in their services markets and to monitor the results of their negotiations. These negotiations can take place at global, plurilateral or bilateral level, for individual service sectors and according to how the respective services are supplied internationally, i.e. by mode of supply. For monitoring how these commitments are implemented, politicians, governments and analysts require statistics to assess whether such commitments create trade or divert trade. Statistics on services supplied through all four modes are also used for economic analysis and economic policy, as they provide a more complete picture of how businesses supply and purchase services internationally, by combining services traded across the border (by a non-resident to a resident) with services supplied via foreign affiliates. A sounder understanding of the trade-investment nexus in the services sector would allow for a more accurate assessment of the role of services in the productive structure of an economy and their contribution to its economic and social development, as well as its position in regional and global supply chains.

Current information on international trade in services is structured around the dimensions of ‘who’ is trading (with whom), ‘what’ is being traded (the type of service), and ‘how much’ in terms of monetary value. The Manual on Statistics of International Trade in Services 2010, together with the corresponding Compiler’s Guide, provide extensive guidance on how to collect, compile and disseminate trade in services statistics following internationally agreed standards. The information needs described in MSITS 2010 were, in fact, driven by the structure of GATS. Detailed information on international supply of services statistics by services category, mode of supply (MoS) and partner country help policymakers carry out the ongoing and future trade negotiating agenda with facts and strong, evidence-based arguments. Statistics by MoS show how and where services are supplied internationally and they allow for the impact of services trade agreements to be monitored.

Figure 13: A synthetic view of modes of supply


Applied methodology

The Eurostat-WTO model is an operational version of the MSITS 2010 simplified approach; it can be used to produce first estimates on the international supply of services based on existing statistics. The consolidated Eurostat-WTO model stems from the efforts of the two organisations, in cooperation with several countries. It builds upon and combines the experience acquired through two complementary exercises:

  • The Eurostat simplified approach was developed by Eurostat in cooperation with WTO and several countries. It builds upon the MSITS 2010. Eurostat has also developed a mapping table to allocate FATS turnover (mode 3) by NACE to EBOPS items.
  • The WTO Trade in Services by Mode of Supply (TiSMoS) project is an experimental dataset produced by the WTO and funded by the European Commission’s Directorate-General for Trade. TiSMoS covers 200 individual economies for the period 2005-2017. The European Union aggregate is available from 2010 to 2017. The information is broken down by service sector and refers to the economies’ trade with the rest of the world.

The starting point for this approach is the MSITS 2010 guidelines. The model uses data from ITSS (based on the EBOPS services classification) and FATS (based on the activities of the affiliates, reported according to the NACE classification). The estimations are complemented with other data sources (such as tourism statistics, trade by enterprise characteristics (TEC), services trade by enterprise characteristics (STEC) and structural business statistics (SBS)). The model allocates each EBOPS item in one or more modes. As a first step, several adjustments are needed for certain items: (e.g. travel and construction items are adjusted by removing the value of goods, and distribution services traded through mode 1 are estimated from goods). Each EBOPS item is then assigned to one or more modes based on the MSITS 2010 suggestions and an expert assessment of how specific service items are most likely to be supplied to consumers. These assumptions were based on: (i) evidence and data from some EU countries; and (ii) expert opinion. The distributions provided are used for both trade flows and for all years. Generally (and in the absence of other evidence), the recommendation is to use the same allocation for all partner countries (a different allocation is suggested only for intra-EU construction trade).

Table 3 presents the allocation shares suggested by the Eurostat-WTO model that were used to produce the estimation of this article. For the purposes of this article the goods value present in the travel item was estimated at 25% of the total travel item; therefore only 75% of the travel exports/imports entered the calculations. The full Eurostat-WTO model (including allocation shares for several subitems) is included in the source data file for tables and graphs.

Table 3: Modes of supply default allocation (Eurostat-WTO model)

For the estimation of mode 3, FATS economic variables should be adjusted to cover only output sold locally. For the purposes of this artcile, since the partner area used is 'rest of the world' or 'non-EU countries', we did not adjust the FATS data.

Table 4 presents the mapping table used to allocate NACE sections and divisions to EBOPS items. The complete methodology is presented in the Eurostat modes of supply compilers guide.


Table 4: EBOPS 2010 - NACE Rev.2 correspondence


Source data for tables and graphs

Download Excel file Microsoft Excel 2010 Logo.png - 2018 data




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