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Though trade in goods is predominant globally, trade in services has emerged as a critical portion of the world trade in recent decades. So, it is not possible to get a correct picture of the international trade without adding up trade in services. Again, unlike trade in goods, it is not easy to trace the actual flow of trade in services due to its intangibility.
According to the Organisation for Economic Co-operation and Development (OECD), trade in services records the value of services exchanged between residents and non-residents of an economy, including services provided through foreign affiliates established abroad. Thus trade in services 'drives the exchange of ideas, know-how and technology, although it is often restricted by barriers such as domestic regulations.'
The value of trade in commercial services, as measured by the average of exports and imports, increased 15 per cent last year to US$ 6.8 trillion, according to the World Trade Organisation (WTO). At the same time, the value of trade in goods, as measured by the average of the dollar value of exports and imports, rose 12 per cent to US$ 25.26 trillion. Thus, one-fifth of global trade is services in nature.
The General Agreement on Trade in Services or GATS is the World Trade Organisation's multilateral agreement for all services-related international trade. A total of 12 sectors of services are negotiated under GATS. These are: business; communications; construction and engineering; distribution; education; environment; financial; health; tourism and travel; recreation, cultural, and sporting; transport and others. The agreement also covers four modes of supply for the delivery of services in global trade. These are (i) cross-border supply (ii) consumption abroad (iii) commercial presence and (iv) presence of a natural person.
Though the trade in services is increasing in Bangladesh, its significance has yet to be fully understood in this era of interconnected global society. The country's services trade recorded a robust 31-percent growth in the fiscal year 2018-19 (FY19) when trade in goods posted a modest growth of 5.20 per cent. Due to the Covid-19 pandemic, services trade declined by around 8.50 per cent in FY20 while goods trade plunged by 12 per cent. In the following year, trade rebounded modestly, as reflected in growth rates. Trade in services bounced back by around 12 per cent in FY21 while trade in goods jumped by 18 per cent. The growth got boosted further in FY22 when trade in services and goods jumped by 33 per cent and 35.40 per cent respectively, as reopening from corona-induced restrictions continued.
Moreover, in the last fiscal year, for the first time total trade in services crossed $20-billion mark to stand at $23.80 billion. The ratio of services trade to Gross Domestic Product (GDP) stood at 19.50 per cent in the last fiscal year when the ratio of the merchandise trade to GDP stood at around 30 per cent. Like trade in goods, there is a growing deficit in services trade, too, as import surpasses export. In the last fiscal year, services- trade gap stood at $3.95 billion, according to the balance-of-payments (BoP) statistics compiled by Bangladesh Bank.
The statistics do not tell everything, however, as all aspects of services trade are not captured there. Instead, one needs to look deeper in this connection. The imbalance in services trade has several implications. First, it reflects the country's lack of skills and knowledge to diversify the economy. Second, it shows the outflow of brains and resources to access costly and quality education and health abroad. Third, it indicates that without tapping in the potential global market in services, Bangladesh will be lagging behind in its development journey.
"Impact Assessment and Coping up Strategies of Graduation from LDC Status for Bangladesh" prepared by the General Economics Division of the Ministry of Planning rightly pointed out that 'Bangladesh must also focus on export of services, an area which has not got much attention.'
Published three years ago (March 2020), the comprehensive document mentioned that the impact of the country's LDC graduation on GATS agreement and trade in services is going to be negligible as the non-factor services export from Bangladesh remains around 10 per cent of the country's total export. Nevertheless, as observed in the planning commission's document, recent developments regarding global services export indicate that Bangladesh is 'probably going to miss out a window of opportunity in post-graduation era.'
The document shows that Bangladesh has a large and growing external services account deficit on account of transports (shipping and airlines), medical services, and education. Outflow of remittances due to technical and management supports provided by foreigners to Bangladeshi enterprises is unofficially estimated to be $4-5 billion. Billions of dollars are also spent unofficially on account of healthcare received abroad by Bangladeshi residents in the form of medical tourism to India, Thailand, Malaysia and Singapore. The paper also observes that the amount of savings through services accounts can be more than $10 billion if the government can develop high-quality service- providing institutions at home.
As digitisation has made trade in services easier, Bangladesh has already demonstrated its capacity. The country has registered a big increase in terms of the volume of trade in Digitally-Deliverable Services (DDS). While the trade volume was only US$599 million in 2005, it increased nearly eightfold to US$4,005 million ($ 4.0 billion), according to the United Nations Conference on Trade and Development (UNCTAD). Thus, DDS is around one-fourth of the country's total trade in services.
Currently, services sector contributes around 50 per cent to the GDP in Bangladesh. The presence of a large informal sector is also dominated by services. In the coming days, new areas will be opened for jobs, and services will continue to expand. Any bilateral free trade agreement (BFTA), as well as regional FTA, has to include trade in services now besides trade in goods. So, a well-designed services trade policy is deemed urgent.