Do you sometimes wonder about the world trade statistics, published by the WTO? Behind the headline numbers, there is a lot to explore …
Until 1995, when the GATS was added to the corpus of trade rules, there was no official recognition of services trade. There was of course awareness among those who handled balance of payments data – and at the IMF in particular – that cross border financial flows took place; but these covered a wider area than just trade. In London the trade component was called “Trade in Invisibles”.
Now, in 2014, it is well established that a country’s overall trade performance is the result of both goods and services trade. However, “not many people know” what the connections are between the two flows, and how the data is compiled, and the size of the two respective flows. Increasingly the statistical experts argue that trade in services is ‘embedded’ in the data for trade in goods because the transaction value includes a service component (design, transport or marketing costs). So, the services data is systemically understated.
Goods data are put together from the customs returns: what we used to call, rather quaintly, customs collections. They represent primarily the value of imports and exports, duty paid, and sometimes there is additional data on weight. But even in the 1960s we referred to data as FOB (free on board) – meaning as delivered to the ship – or CIF (carriage, insurance, freight) which recognised that service elements such as transport and insurance had already entered into the value of the transaction.
Services data on the other hand are collected from the financial flows through the banking system, and that includes government business (foreign aid, capital flows) as well as commercial flows.
In advanced economies goods trade tends to be around 4-5 times larger than services trade (the UK is the exception at 2.5:1), while countries with less developed service economies such as China are around 8:1 and more. Here the exception is India whose services figures are one third of the goods figures.
This table gives many other indications of strengths and weaknesses:
- The top four countries in goods – US, China, Germany and Japan, in that order – are also the top four overall; but they are in a different order in services trade (Japan lower).
- The next three countries are in shifting positions: NL is fifth in goods, UK is seventh, but overall it is reversed – UK # 5 and NL # 7, largely due to the UK performance in services.
- As you go down, there are non-G 7 countries appearing: Korea, Hong Kong, Belgium and Russia among others. India is # 15 in goods and # 13 overall – good services performance.
- The top 15 countries in services are the same as the top 15 in goods, with one exception: Russia falls out, and is replaced by Spain.
- Mexico is well placed for trade in goods, but so weak in services that it is outside the combined table of top 20.
- Just below the top 20 group is a mixed group of advanced economies (Australia, Taiwan, Switzerland, Poland and Sweden) and emerging countries (Brazil, Thailand, Malaysia and Indonesia).
Another feature of these tables is that they indicate trade deficits. These are most commonly quoted in the media as trade deficits in goods: countries such as US, Japan, France, UK and Canada have deficits in goods, while China, Germany and Korea lead those with a trade surplus. On the other hand China and Germany have a deficit in services, while US, France and UK have a surplus. Strange world…