Question 1

What are the four modes of trade in services?

Accepted Answer

The four modes of trade in services are defined by the General Agreement on Trade in Services (GATS) at the World Trade Organization (WTO). These modes represent the different ways in which services can be supplied internationally from one country to another. They are as follows:

1. **Cross-border supply (Mode 1)**: This mode refers to the provision of a service from the territory of one member into the territory of any other member. Essentially, the service crosses the border, but neither the consumer nor the provider needs to physically move. An example of this would be an architectural firm based in one country providing designs to a client in another country via email or an online platform.

2. **Consumption abroad (Mode 2)**: In this mode, the consumer moves into another member's territory to consume a service. This is common in sectors like tourism, medical treatment, or education, where individuals travel to another country to receive the service, such as a tourist visiting a resort, a patient going to a foreign hospital, or a student attending a university overseas.

3. **Commercial presence (Mode 3)**: This mode involves a service supplier of one member establishing a territorial presence, including through ownership or lease of premises, in another member's territory to provide a service. This can include foreign direct investment where a company sets up a subsidiary, branch, or representative office in another country to offer its services, such as a bank or insurance company opening branches abroad.

4. **Presence of natural persons (Mode 4)**: This mode covers individuals traveling from their own country to supply services in another country. This includes the movement of professionals such as consultants, engineers, or doctors who travel to provide services in a client's country under a contract or as part of a temporary transfer within a company.

Understanding these modes is crucial for negotiating international trade agreements and for businesses looking to expand their services into global markets. Each mode has its own set of regulatory challenges and market access considerations that service providers must navigate.

Question 2

What role do services play along the global value chain?

Accepted Answer

Services play a crucial role along the global value chain (GVC), which refers to the full range of activities that firms and workers perform to bring a product from its conception to its end use and beyond. These activities can be divided into core (primary) and support (secondary) services, both of which are essential for the efficient functioning of GVCs. Here are some of the key roles that services play:

1. **Research and Development (R&D):** Services in R&D are vital for innovation and the development of new products and processes. They contribute to the early stages of the value chain by providing the knowledge and technical expertise necessary for product design and development.

2. **Design and Engineering:** These services transform initial concepts into detailed plans and prototypes. They are integral to creating products that meet market demands and regulatory standards.

3. **Logistics and Transportation:** Efficient logistics and transportation services ensure that raw materials and components reach production sites, and finished goods are delivered to markets. They are critical for the timely and cost-effective movement of goods across borders.

4. **Information and Communication Technology (ICT):** ICT services underpin the coordination and management of GVCs by facilitating communication, data exchange, and the integration of operations across different locations.

5. **Financial Services:** Access to finance is necessary for investment in production and for managing the risks associated with trade. Financial services, including banking, insurance, and investment, provide the capital and risk mitigation that firms need to participate in GVCs.

6. **Marketing and Sales:** These services help in identifying consumer needs, promoting products, and establishing distribution channels. They are essential for the successful commercialization of products and for reaching end-users.

7. **Legal and Regulatory Compliance:** Services related to legal advice, intellectual property rights, and compliance with international standards ensure that firms operate within the legal frameworks of different countries and maintain the integrity of their brands and products.

8. **After-Sales Services:** Maintenance, repair, and customer service are important for sustaining product performance and customer satisfaction. They can also lead to repeat sales and brand loyalty.

9. **Education and Training:** Providing the workforce with the necessary skills and knowledge is essential for maintaining the competitiveness of firms within GVCs. Education and training services contribute to workforce development and productivity.

10. **Business Process Outsourcing (BPO):** Many firms outsource non-core activities such as human resources, accounting, and customer support to specialized service providers. This allows them to focus on their core competencies and reduce costs.

11. **Environmental and Sustainability Services:** As global attention to sustainability grows, services that help firms reduce their environmental footprint and comply with sustainability standards are becoming increasingly important.

In summary, services are integral to the functioning and optimization of global value chains. They provide the expertise, support, and infrastructure that enable firms to specialize, innovate, and compete in the global marketplace. The growth of service-oriented economies and the digitalization of services have further amplified the importance of services in GVCs.

Question 3

How to trade policies regarding services differ from those regarding trade in goods?

Accepted Answer

Trade policies regarding services often differ from those regarding trade in goods due to the inherent differences between the two types of trade. Here are some of the key distinctions:

1. Intangibility and Non-storability:
   Services are intangible and cannot be stored or transported in the same way as goods. This means that trade in services often requires the movement of people (service providers or consumers) or the transmission of information (e.g., via the internet). As a result, trade policies for services may focus more on issues like visa regulations, mutual recognition of professional qualifications, and cross-border data flows.

2. Modes of Supply:
   The General Agreement on Trade in Services (GATS) defines four modes of service delivery: cross-border supply, consumption abroad, commercial presence, and presence of natural persons. Trade policies for services must address each of these modes, which is not the case for goods. For example, a policy might need to consider how foreign service providers can establish a local presence or how domestic regulations affect foreign service providers operating within the country.

3. Regulatory Environment:
   Services are often more heavily regulated than goods due to their nature and the need to protect consumers or maintain certain standards. Trade in services policies may therefore involve negotiating regulatory barriers, such as licensing requirements, standards, and other domestic regulations that could affect the ability of foreign service providers to operate in a market.

4. Intellectual Property Rights:
   Services, particularly those that are information-based, are closely tied to intellectual property rights (IPR). Trade policies for services may need to address the protection and enforcement of IPR to ensure that service providers can benefit from their innovations and creative output.

5. Measurement and Quantification:
   Measuring trade in services is more complex than measuring trade in goods. Services trade data can be harder to capture because services can be delivered digitally or through the temporary movement of people. Consequently, trade policies for services may need to consider how to accurately assess and monitor service trade flows.

6. Domestic Policy Sensitivities:
   Trade in services can have significant implications for domestic policy areas such as healthcare, education, and public utilities. These sectors are often sensitive due to their social importance, and trade policies may need to balance liberalization with the protection of public interests.

7. Market Access and National Treatment:
   While these principles also apply to goods, in the context of services, they can be more complex to implement. Market access for services may involve commitments to allow foreign service providers to enter the market, while national treatment means treating foreign service providers no less favorably than domestic ones. These commitments can be more nuanced for services due to the regulatory environment.

In summary, trade policies for services must address the unique characteristics of service delivery, including intangibility, regulatory issues, and modes of supply. They often involve negotiations on a broader range of issues than trade in goods, including labor mobility, digital trade, and regulatory cooperation. As the global economy becomes increasingly service-oriented, the distinction between policies for trade in services and goods is likely to become even more pronounced.

Question 4

How do digital markets differ from normal markets for goods?

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Question 5

How does the internationalisation of Tech MNEs differ from that of other MNEs?

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Question 6

How does knowledge spread?

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Question 7

What are the five modes of trade on intellectual property?

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Question 8

What are the pros and cons of global Intellectual Property Rights (IPR) protection? List and evaluate the arguments.

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Question 9

Identify the 4 correct statements 
1. A commercial presence abroad can be considered as "trade in services" although it is not covered in the standard service trade statistics, e.g., in the balance of payments.
2. The term "servicification" signifies a trend to offer manufacturing as a service.
3. For trade in services, the GATS agreement requires general "national treatment", i.e., non-discrimination of foreign suppliers.
4. Digital markets are often characterised by network externalities.
5. Tech MNE often require more capital to go abroad than other MNEs that internationalise more "asset-light".
6. Tacit knowledge is more difficult to be transmitted across borders than codified knowledge.
7. FDI is an important channel for transferring intellectual property, yet it can also be used to protect core knowledge.
8. The so-called "patent puzzle" is related to an empirical finding that the stronger patents are protected in a country, the higher is the rate of the country's technological progress.

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1. A...

Quiz 5: Global Intangibles