Services trade statistics by modes of supply
Data extracted in March 2020
Planned article update: 17 December 2021
This article describes the simplified Eurostat model used to derive data on international services statistics by modes of supply (MoS). The results in this article were derived by applying the simplified Eurostat model and are not yet official statistics. This methodology has been applied to international trade in services (ITSS) data from the EU-27 and the EU Member States, for the reference year 2017.
Services data broken down by MoS include both international trade in services (ITSS) statistics and foreign affiliates statistics (FATS). Data users greatly appreciate the statistics on the international supply of services by mode, as it makes it possible to analyse the service supplier’s territorial presence at the moment of a transaction.
Statistics on total trade in services by modes of supply aim to answer the question of how and where services are supplied to foreign customers. These statistics can help better understand the drivers and consequences of international trade in services. 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. Eurostat has been working with Member States since 2014 on a model to estimate MoS. In this article, updated results from this work are presented using estimates and experts’ opinions. The data presented in the article are not yet official statistics and should be considered as being experimental in nature. To produce better-quality and more comparable data, Eurostat continues to work in cooperation with the countries and international organisations on further developing and better aligning the model to accord with empirical evidence. The current model and applied methodology are described in detail in the section ‘simplified Eurostat model’.
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.
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 for goods and services. The EU’s trade competitiveness ratio for total services (taking into account all four modes of supply) was 5.4 %, while for goods it was 9.2 %.
The balance of trade in total services (taking into account all four modes) produced by the EU-27 amounted to a surplus of EUR 242 billion. The 'ITSS balance' (total exports minus imports from ITSS data) had a surplus of EUR 104 billion, and the Services without mode 3 (ITSS data excluding goods and including distribution services) had a surplus of EUR 8 billion (Table 1).
By modes, the largest surplus was recorded for mode 3 (EUR 233 billion), with a proportion to total trade (exports - imports/exports + imports) of 8.8 % (Table 2). For mode 1, a trade deficit of EUR 14 billion was registered, with a proportion to total trade of 1.1 %. The results also show that mode 3 accounts for more than 90 % of the total surplus; modes 1, 2 and 4 taken together generate a surplus of EUR 8 billion while mode 3 alone has a surplus of EUR 233 billion.
For mode 2, a small surplus of EUR 5 billion was registered (Table 2). A relatively significant trade surplus was recorded for mode 4 (18 EUR billion) with a ratio to total trade of 9.4 %.
EU-27 exports and imports of services in 2017 broken down by modes of supply
Figure 1 presents the services exports from the EU to countries outside the EU broken down by four modes of supply. Mode 3 exports data come from outward FATS statistics (OFATS). In this work, mode 3 exports were estimated using OFATS data from the economic activities of NACE divisions and sections C33, D to N, and P to S. The partner was all countries outside the EU (extra-EU). Additionally, an estimate for ‘distribution services’ was included in mode 1. For a detailed description of methodology and sources, please see section 'Applied methodology'.
When comparing the EU’s total exports of services (all four modes) with the exports performed through three modes (modes 1, 2 and 4 from ITSS), the amount increases from EUR 921 billion (sum of modes 1, 2 and 4) to EUR 2 367 billion (also including exports via foreign affiliates). In other words, about 60 % of the EU-27’s total services are supplied via mode 3 (mode 3 exports of the EU to non-member countries reach EUR 1 446 billion EUR).
Figure 2 presents EU imports from countries outside the EU, broken down by the four modes of supply. The mode 3 imports were estimated using inward FATS data, from the economic activities of NACE divisions and sections C33, D to N, and S95.
When including the ‘imports’ through foreign affiliates (mode 3), the imported services from countries outside the EU increase from about EUR 912 billion (sum of modes 1, 2 and 4) to EUR 2 125 billion respectively. Hence, mode 3 comprised 57 % of total services imports to the EU-27 (Figure 2).
Mode 1 plays an important role in the supply of services due to the development of new technologies. In Figure 3, the exports of EU-27 services channelled through mode 1 are broken down by service item. The largest contributors are: ‘other business services’ accounting for 27 %, ‘transport services’ accounting for 20 %, ‘telecommunication, computer and information services’ accounting for 17 % and ‘financial services’ accounting for 11 %.
As already mentioned above, trade in services should not be considered only in terms of cross-border trade; affiliates established abroad should also be taken into consideration. For services supplied through mode 3 (commercial presence), the following service items make the largest contributions: 'distribution services' account for 23 %, ‘other business services’ (including R&D, accounting, legal and engineering services) account for 18 % , 'transport services' for 15 %, while ‘telecommunication, computer and information services’ and ‘financial services’ each account for 14 % (Figure 4).
Figure 5 presents data on the volume of exports of services by mode and service item. This shows that ‘other business services’ (including R&D, accounting, and legal services) have the top ranking, with nearly EUR 493 billion exported to countries outside the EU. They are followed by ‘distribution services’ (almost EUR 400 billion) and ‘transport services’ (EUR 377 billion). By contrast, export volumes of ‘manufacturing services’ and ‘maintenance and repair services’ are marginal. Please note that any services that have been supplied by manufacturers (NACE divisions 10 to 32) through their commercial presence (mode 3) have been excluded from the current study.
For services imports (Figure 6), ‘other business services’ again took the highest ranking, with EUR 616 billion in annual import volumes. They were followed by ‘distribution services’ (EUR 434 billion) and ‘telecommunication, computer and information services’ (EUR 316 billion).
For the share of each mode per service item, 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 ‘construction services’ (accounting for 88 % of this sector), ‘distribution services’ (84 %), ‘personal, cultural, and recreational services’ (80 %), ‘insurance and pension services’ (78 %), and ‘financial services’ (73 %). This is due to the essential need to establish a commercial presence by creating an affiliate in those specific service sectors. For example, an insurance enterprise must also be able to examine the broken car before considering the claims relating to it, so the presence of the insurance company in the host country in the form of an affiliate is essential. Mode 1 is the dominant mode for ‘intellectual property services’, accounting for 93 % of exports in this item.
In imports (Figure 8), mode 3 is the dominant mode for ‘construction services’ (accounting for 82 % of this sector), ‘telecommunication, computer and information services’ (80 %), ‘distribution services’ (74 %) and ‘personal, cultural, and recreational services’ (70 %). Again, mode 1 is the dominant mode for ‘intellectual property services’, accounting for 92 % of imports in this item.
EU Member States exports and imports of services by modes of supply in 2017
Share of services exported through mode 3 is more significant for France, Italy, Germany and Sweden; services imported through mode 3 are more significant for Czechia, Romania, Slovakia and Bulgaria.
For each Member State, exports and imports of services by the four modes were calculated using a modelling approach that combined actual exports with statistics from foreign affiliates. Where values were missing, estimates were used instead. Mode 3 was estimated using economic activities of NACE division C33 and sections D to S excluding O for exports (outward FATS), while sections D to N (excluding O) and divisions C33 and S95 were used for imports (inward FATS). The trade partner was the 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. For a detailed description of the methodology and sources, please see 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 (89 %), Malta (72 %), Cyprus (66 %), Romania (63 %), Slovakia (63 %), Belgium (61 %), Latvia (61 %), Hungary (57 %), Greece (55 %) Czechia (52 %), and Poland (51 %). These results may indicate that those countries are more involved in the innovative technologies used to supply services through electronic channels.
Mode 2 is more significant in Croatia (57 %), Bulgaria (32 %), Greece (30 %), Portugal, Poland, Lithuania, Czechia, Hungary and Romania (ranging between 27 % and 25 % in each). Some of these countries have a significant tourism sector; tourists visiting these countries increase the relative significance of mode 2 exports.
Mode 3 was significant among some of the larger EU Member States, accounting for 72 % of exports for Germany, 70 % for France, 66 % for Italy, 64 % for Sweden, 62 % for the Netherlands and 61 % for Spain. Most of these countries have either large populations or large land areas. The results indicate that these countries are more active in capital movement, establishing affiliates abroad to provide the services through mode 3.
Mode 4 is usually the smallest of the four modes in percentage terms. It is somewhat more significant in Malta (where it accounts for 13 % of exports), and in Poland and Romania (where it accounts for 10 % of exports of each country).
For imports from the rest of the world (Figure 10), mode 1 is dominant in Ireland (where it accounts for 49 % of imports), Malta(48 % of imports) and Luxembourg (47 % 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, 73 % in Romania, 72 % in Slovakia and 71 % of imports in Bulgaria.
Mode 4 imports are somewhat more significant in Malta (where mode 4 accounts for 8 % of imports), while for all other countries it accounts for 6% or less of the imports.
As regards Member States' exports to non-member countries (Figure 11) in 2017 mode 1 was more prominent in Luxembourg (91 % of exports), Malta (75 %), Greece (67 %), Slovakia and Cyprus (66 % for each).
Mode 2 was more significant for Croatia (44 % of exports), Lithuania (39 %) and Bulgaria and Poland (33 % of exports for each).
Similarly to the exports to the rest of the world, for exports to non-member countries mode 3 was more significant for Germany (74 % of exports), Spain (72 %), France (70 %), Sweden (64 %), Italy and the Netherlands (59 % for each).
Mode 4 is somewhat more significant for Romania (12 % of exports), Malta, Poland (11 % for each), Estonia and Slovakia (10 % for each).
As regards imports from non-member countries (Figure 12), in 2017 mode 1 was more prominent for Malta (51 % of imports), and Belgium and Ireland (46 % of the imports for each of them).
Mode 2 was more significant for Greece (49 % of imports) and Demark (21 %), while all other countries had less than 15 % of their imports from non-member countries channelled via mode 2.
Mode 3 imports were more prominent in Czechia (77 %), Romania (75 %), Slovakia (75 %), Hungary (74 %), Latvia (71 %) and Poland (70 %).
Mode 4 is again somewhat more significant for Malta and Ireland, accounting for 9 % and 7 % of the imports respectively.
Services are traded under the General Agreement on Trade in Services (GATS). Services ‘crossing the border’ are supplied without paying any customs duties ‘at the border’. However, the four modes of services supply of the GATS do not account for the fact that a substantial and increasing proportion of services is embedded in a wide range of manufactured products traded around the globe. What would the value of a smartphone be without its software applications (Cernat, L.)? Services supplied through this 5th mode are often technology intensive, such as innovation, design, engineering and product development, and essential for internationally competitive marketing. Hence, services supplied through that mode, embedded in manufactured products in merchandise exports, pay duties, whereas the same services supplied through mode 1 do not. The proportion of these services is substantial and increasing accounting for 34 % of EU manufacturing exports (Cernat, Kutlina-Dimitrova). For example, recent advances in 3D printing, not yet ripe for large-scale deployment for mass production across all industry sectors, may lead to a shift from trade in finished goods to trade in ‘additive ingredients’ and various manufacturing services. Services already play an important role in the manufacturing industries, helping to move the value chain upwards towards business operations with the highest value added. This concept of services trade may be called mode of supply 5, and is not covered in this article. Provided that the necessary data on the services embedded in manufactured products become available, mode 5 (value added concept) in services trade would be an interesting path for future work.
In estimating services trade flows by mode of supply, the ‘simplified approach’ methodology from the Manual of Statistics of International Trade in Services (MSITS 2010) was applied to the publicly available services data (see more details in ‘Data coverage’). In this article, the ‘simplified Eurostat model’ has been used, which is based on the simplified approach.
Simplified Eurostat model
The simplified Eurostat model is based on the MSITS approach, but the following improvements have been made. The services, classified by Extended Balance of Payments Services Classification (EBOPS), were assigned to either one mode or to several modes, based on an expert assessment of how specific service items are most likely to be supplied to consumers (Table 3). For example, for ‘computer services’, it was assumed that 75 % are supplied through mode 1 and 25 % through mode 4. These assumptions were based on (i) evidence and data from some EU countries, and (ii) expert opinion. For integrating the statistics on foreign affiliates as mode 3, Eurostat has used a conversion table applying equal proportionality assumptions. Therefore, the results of the modelling and estimates can only be considered as an approximation of how services are supplied, and comparisons based on the current estimates should be viewed with some caution.
The existing guidance (MSITS 2010) acknowledges that available data sources have their limitations, and that — in addition to actual data — compilation should include the use of modelling and estimates. One limitation of this modelling approach is that various combined sources could overlap. For example, the turnover of affiliates abroad also includes exports back to the home country or other countries, which is covered by the flows already included in international trade-in-services statistics.
For services channelled through mode 2 (estimates based mainly on travel services), the value of goods purchased by travellers is estimated at about 41 % in imports and 25 % in exports, and has been excluded from the travel item. The calculation was based on the average of four EU Member States where a travel breakdown by goods and services was available. That average ratio was also applied to the EU-27 aggregate.
Source data for tables and graphs
This study uses publicly available data from the ITSS domain (based on the EBOPS products classification) and FATS (based on the activities of enterprise affiliates OFATS and IFATS). It also uses international trade in goods statistics. For wholesalers and retailers,trade by enterprise characteristics (TEC) and structural business statistics (SBS) datasets is used (see 'Distribution services in Mode 1 and Mode 3' below).
For the mode 3 calculations, data with partner all countries outside the EU (extra-EU) and rest of the world (world excluding the reporting country) is used. Mode 3 was estimated using OFATS and IFATS data, as the sum of turnover (or production value) of the following NACE sections and divisions:
- OFATS: C33, D, E, F, G, H, I, J, K, L, M, N, P, Q, R, S.
- IFATS: C33, D, E, F, G, H, I, J, K, L, M, N, S95.
The production value is used for section G and the turnover value is used for all other cases (see details for section K in the section below).
FATS as mode 3
Mode 3 is becoming more significant because ‘services suppliers may choose to set up affiliates as a means of selling their services in foreign markets as an alternative or complement to exporting through other modes’ (MSITS paragraph 5.64). The foreign affiliates’ statistics (mode 3) were mapped to EBOPS main categories by using the developed correspondence table from NACE to EBOPS.
For the Member States results, when the source data were missing in the Eurostat public database due to confidentiality or a lack of availability, simple imputations were made (e.g. proportional allocation).
In particular for OFATS, the partner ‘world excluding the reporting country’ is voluntary. Therefore mode 3 exports was estimated for Bulgaria, Estonia, Italy and the Netherlands due to full or partial non-availability of OFATS data.
The mode 3 calculation for the EU-27 was based on EU-27 aggregate data whose availability is almost complete (the main exception was the inward FATS data for NACE section K, for which values for several countries and the EU aggregate had to be estimated).
While production value (or output value by MSITS) is generally considered a superior measure of the service supply (see MSITS 2010, para. 5.65), in most service sectors ‘turnover’ (or ‘sales’ by MSITS) is equivalent to output and, importantly, more easily available. In this article, for most economic activities the ‘turnover’ value was used for estimating services. The exception is ‘distribution services’, corresponding to wholesale and retail sales activities (NACE section G), for which the production value was used. For inward FATS, the production value was used for ‘distribution services’, as it is already available and considered a more accurate measure of services activity for most purposes (MSITS 2010, paragraph 5.65). However, for outward FATS, the production value data are not collected; only turnover data are available. Therefore, the production value for OFATS has been estimated using the inward FATS ratio of production value to turnover. The weighted average ratio was calculated as 25 %, which means that the production value comprises a quarter of the turnover value of the distribution services. This average ratio was also applied to the EU-27 aggregate to calculate the distribution services in mode 3.
FATS manufacturing (C10-32) activities were excluded from mode 3; the assumption is that these mainly concern manufacturing (of goods), which does not fall within the scope of the GATS. Only ‘maintenance and repair services’ (NACE C33) was taken into account. Moreover, to avoid over-estimation of mode 3, the trade of accommodation and food activities (NACE I) was estimated at 50 %, as part of that trade may already be covered by the ITSS travel data.
Financial and insurance activities in mode 3
According to the recommendations of the MSITS 2010, measured output (production) will be identical to sales (turnover) for most service activities, except for three activities: wholesale and retail distribution, financial intermediaries, and insurance. Output is generally considered a superior measure of the service supply (see MSITS 2010, para. 5.65). However, as regards financial and insurance activities in FATS (NACE Section K), there are several practical limitations as described below.
In outward FATS (mode 3 exports), for section K ‘financial and insurance activities’ only the turnover value is available. For insurance services (K65), this means generally ‘premiums paid to be insured’; the ‘production value’ (the ‘margins’) would be a better estimate for services supply, however, it is not available. Therefore, this has been corrected by taking into account the implied ratio K65 production value over turnover, as calculated by the available IFATS and SBS data (see also below). This resulted in 70 % of the section K turnover value being taken into account for mode 3 exports.
In inward FATS (imports), the following variables were used for activities in section K:
- for K64, the production value is available and was used,
- for K65, turnover is available in IFATS; as turnover of insurance activities can significantly differ from the production value, a production value for K65 was estimated using the implied ratio (production value over turnover) from SBS (the ratio was calculated as 35% using available data for production value and turnover for division K65),
- for K66 the turnover value is available and was used, as there are no available data for K66 in SBS.
Furthermore, the availability of data for section K in inward FATS is generally limited. Therefore, for several countries, section K inward FATS values were estimated using proportional assumptions.
As the exports and imports have been calculated in different ways and several estimates used, comparisons between exports and imports should be viewed with caution. Furthermore, because the insurance and financial services for modes 1, 2 and 4 have been estimated using a production value measure, any comparison between these modes and mode 3 should also be viewed with caution.
Distribution services in mode 1 and mode 3
Distribution services are defined as the distributive services provided by wholesale and retail trade industries. In the 2008 SNA, wholesalers and retailers are defined as entities that purchase and resell goods with no, or only minimal, processing (for example, cleaning and packaging). Although most distribution services of wholesalers and retailers are excluded from EBOPS, they are included in W/120, which is used in GATS negotiations (MSITS para 3.53).
Distribution services are an important element of the international supply of services both in mode 3 (FATS statistics) and mode 1 (ITSS statistics). In mode 3, distribution services have been estimated by the production value of section G, wholesale and retail trade (please see the section ‘FATS as mode 3’ for details).
However, the part of distribution services that should be allocated to mode 1 is not captured by the ITSS data. Instead, the distribution service value is captured in ITGS, as this value is included in the total value of traded goods crossing the border. Hence, the margins of wholesalers and retailers are generally included indistinguishably in the value of the goods sold.
For the results in this article, distribution services were estimated using merchandise statistics from NACE Section G. The TEC dataset in Eurostat’s reference database was analysed. The trade margins were estimated by using the SBS datasets, while calculating the proportion of the value ‘Gross margin on goods for resale’ in the total turnover value. The trade margin was applied separately for each country: for the EU-27 the weighted average was used, which was calculated as 20 %. Due to limited data availability, the same trade margin percentage was used for both imports and exports.
Eurostat continues to work with the Member States to improve the model. There are several areas where further improvement is needed. The most important ones are presented.
Double counting between FATS and ITSS
Double counting may occur in the total trade values. For example, if a foreign affiliate exports to a third country (or to the country of residence of the parent company), the service will be included in the turnover of the affiliate (mode 3) and may also be captured by the ITSS data as exported services (see also MSITS 2010, para. 5.8). Hence, if the turnover of the affiliates’ statistics also includes exports, this will result in double counting, as this value is already captured by the ITSS. In particular, any exports to the affiliate back to the country of origin are not exports.
Value of goods
The value of goods is also included under some service items — e.g. travel, construction, and maintenance and repair items. However, for some of these items, it was not feasible to identify the goods and services separately. In this work, the goods component was excluded only from the travel item, based on information from several EU Member States, which provided breakdown data to Eurostat.
Use of empirical data
For better-quality results, more empirical data will be needed. The long-term goal is to gradually improve the hypothetical distributions based on ‘real’ data. More refined allocation from NACE to EBOPS should also be developed in the future. Furthermore, for mode 3, the services part of the manufacturing activities should also be included in the modes of supply model.
Eurostat in cooperation with Member States continues working towards these goals.
Statistics on the international supply of services by mode of supply are being developed primarily to meet the needs of the General Agreement on Trade in Services (GATS) trade negotiators and analysts. Statistics are required to support negotiations and to monitor the impact of services trade agreements.
Statistics on the international trade in services offer a good picture of trade flows between countries, based on the services classification. International trade in services covers services transactions between residents and non-residents. The international trade in services statistics are first collected, and then, after adjustments, used for balance-of-payments purposes. The service transactions are mostly compiled according to the residency of the seller and the purchaser, without any distinction as to how the service is actually supplied. While the services classification offers valuable information on the types of services traded, it is also important to identify where and how the services are supplied by considering the location of the supplier and customer (Table 4). This is an extended dimension of international trade in services, also referred to as international supply of services.
Services differ from goods in respect of the immediacy of the relationship between supplier and consumer. Many services are non-transportable, i.e. they often require the physical proximity of supplier and customer (e.g. accommodation services).