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What is meant by Trade in Services? Enumerate difficulties encountered in defining Trade in Services.

What is meant by Trade in Services? Enumerate difficulties encountered in defining Trade in Services.

Course: M.Com

1 Answer

Trade in Services: The term “services” refers to the intangible and invisible goods that have the utility to satisfy the needs and requirements of the people. According to Payne, “A service is an activity which has some element of intangibility associated with it which involves some interaction with customers or with property in their possession, and does not result in transfer of ownership. According to Article 2 of GATS (General Agreement on Trade Services), trade in service is defined as the supply of a service:

  • From the territory of one party into the tributary of any other party.
  • In the tributary of one party to the service consumer of any other party.
  • Through the presence of service providing entities of one party in the tributary of any other party.
  • By natural persons of one party in the territory of any other party.

The GATS has covered a wide range of economic activities in the category of trad-able services. The WTO secretariat has divided these divergent activities into the following 12 sectors which have been further sub-divided into 155 sub-sectors. The 12 service sectors are as follows:

  • Business including professional and computer) services.
  • Communication services.
  • Construction and engineering services.
  • Distribution services.
  • Educational services.
  • Environmental services.
  • Financial (insurance and banking) services.
  • Health services.
  • Tourism and travel services.
  • Recreational, cultural and sporting services.
  • Transport services.
  • Other services not included elsewhere.

The increasing interest lathe service sector has been accomplished by considerable disagreement and debate as to what constitutes a service. Services have a number of unique element or characteristics which are follows:

  • Intangibility: Services are to a large extent abstract and intangible. For example, teaching, entertainment.
  • Inseparability: In most of the cases a service cannot be separated from the person or firm providing it.
  • Heterogeneity: Services are non-standard and highly variable depending upon who is providing the service.
  • Perish-ability: Services cannot be stored and stacked like industrial products.
  • Ownership: In case of a service, one pays for its use, but one never becomes the owner of it.

As a result of above characteristics services are distinct from products which are visible. Hence, it becomes difficult to define the services. Bateson J. has described the following difficulties encountered in defining trade in services:

  • A service is essentially invisible and intangible. A service cannot be touched, tasted or felt without paying for it.
  • Precise standardization of services is often not possible.
  • Production and consumption are often inseparable.
  • There is no ownership transfer.
  • A service cannot be patented. However trade marks are possible now-a-days.
  • There are no inventories of the service.
  • Middlemen roles are different.
  • Consumer is the part of the production process so the delivery system must go to the market or the customer must come to the delivery system.

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November 14, 2019