International Trade and Finance: A North American Perspective

By Khosrow Fatemi | Go to book overview

2
INTERNATIONAL TRADE IN SERVICES: FOUR DISTINGUISHING FEATURES

H. PETER GRAY


INTRODUCTION

Great interest in international trade in services has been evinced since the Reagan administration forced the issue of greater freedom of international trade in services onto the agenda for the 1982 "GATT Ministerial." Foremost among the concerns of analytic economists has been the question of substantive differences between trade in services and trade in tangible goods. This chapter addresses four aspects of international trade in services that are likely to be significantly more important for analyses of international trade in services than in goods. If the theory of comparative costs holds, and countries supply goods and services that they can produce with lower opportunity costs, there is no reason to suppose that international trade in services will be any less beneficial to the participants on average than trade in tangible goods.

This chapter considers only nonfactor services. These are services produced by inputs potentially available to the exporting economy, which have positive opportunity costs. In contrast, factor service flows derive from the use by foreigners of home-country factors of production located abroad on a long-term basis, so that they are not available to the exporting economy in the short run. Such payments include, among others, profits repatriated by multinational corporations and payments to family by newly arrived immigrants and guest workers. There are obvious "grey areas." Payments for the use of technology will be difficult to allocate even though the inclusion of such payments in factor services is preferable. In practice, all assertions about international trade in services must be qualified explicitly by reference to the broad heterogeneity of services which precludes any theoretical statement from general applicability--there is always an exception to test the rule.

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