WTO calls for services trade growth and cooperation on standards

Editor's note: Johanna Hill is the Deputy Director-General of the World Trade Organization (WTO). This article is her speech given at the 2024 China International Fair for Trade in Services (CIFTIS) on Saturday, edited for brevity and clarity.

The 2024 China International Fair for Trade in Services (CIFTIS) is a testimony to the importance of services trade globally. Importance not only for economic growth, but also for sustainable and equitable development, especially as we celebrate 30 years of the General Agreement on Trade (GAT) in Services.

Main benefits of services trade

First, services mean growth. Since the establishment of the WTO nearly 30 years ago, services have been the most dynamic component of world trade. Growth in commercial services trade outpaced that of goods, even if both have grown strongly. Since 1995, commercial services trade recorded an average annual growth of 6.8 percent, compared to 5.5 percent for goods.

And this dynamism is not slowing down. Only last year, the value of commercial services exports grew by 9 percent, while the value of merchandise exports decreased by 5 percent.

These figures highlight the potential that services trade holds for economic growth and development. China has been among the economies that have known how to harness this potential. Today, China is among the top five services exporters in the world.

And behind these numbers, there are real-life opportunities. Which brings me to my second point: services mean jobs.

Today, the services sector generates around half of employment worldwide. It is also the source of the new jobs that are being created, especially for women and young workers.

As manufacturing increasingly becomes more automated and advanced, it requires more capital and a smaller but more skilled labour force. Also, as manufacturing becomes more advanced, it increasingly relies more on services.

Technical testing, industrial design and operational and supply chain management are just a few examples.

These services - not only – add value to products, but they also create high-value jobs.

China is a prime example. Its transition to smart manufacturing was accompanied by a fast growth of information technology services.

Third, services mean better opportunities for those that are not yet benefiting from trade.

Services trade not only helps countries diversify their export baskets and integrate into value chains. Services policies are also key to attracting foreign investment. This helps boost employment and improve living standards.

Services is also the sector that employs most women and youth, and concentrates the greatest number of micro, small and medium enterprises. Expanding trade in services therefore translates into more opportunities for those groups.

In 2021, 59 percent of employed women globally worked in the services sector. Women-led firms have more success in the services sector, especially for services delivered digitally.

Youth, which will be the bedrock of our future economy, is increasingly active in the services sector. In 2021, 45 percent of the young population were employed in services across a range of developing economies.

Services trade thus can be a powerful tool of socioeconomic inclusion. Moreover, it can help developing countries make the transition into the digital and green economy.

Main trends in services trade

Over the past 30 years, GATS rules have helped drive growth in services trade, bringing a lot of benefits. But the services sector is changing rapidly, and even bigger shifts are coming. So, let me walk you through the key trends in services trade that we're seeing at the WTO.

Trade in digitally delivered services

First, the growth in services trade has been propelled by the digital revolution. Between 2005 and 2023, exports of digitally delivered services quadrupled in value terms. This remarkable growth reflects significant commercial opportunities and employment prospects in the sector.

Asian economies have been particularly successful in harnessing these opportunities. In Asia, the value of digitally delivered services exports between 2015 and 2023 grew not only faster than in the rest of the world, but also than in any other region. In China, this increase was almost three-fold.

But the share of some regions in global digital services trade remains low. In Africa, for example, the value of exports in digitally delivered services accounts for only 0.86 percent of global exports.

The WTO supports developing countries in building their capacity to seize the potential benefits of digital trade. For example, the WTO Secretariat and the World Bank are currently working together on a pilot project that would assist African countries in addressing digital trade challenges in soft and hard infrastructure.

We expect the significant growth of trade in digital services to continue as more people get connected to global markets and technology further advances.

Artificial intelligence

One such advancement has recently captured the world's attention. It is also the second trend that I would like to mention: the rise of artificial intelligence. It is present in trade more generally, but specifically related to digitally delivered services that I just mentioned.

Two months into its launch, ChatGPT is said to have had an estimated 100 million active users: And ChatGPT is only one of many available large-language models, which is only one of a number of possible AI applications in services.

AI has the potential to significantly impact services trade, building on the initial boost from the digital revolution. By bolstering productivity and increasing demand, AI can fuel services trade in the coming years.

But it can also reshape the global economic landscape, recast the comparative advantage, and disrupt existing trade flows.

Regulation and standardization of trade in services incorporating or embodying AI can foster further developments of this technology. It can also help harness the related opportunities for economies at all levels of development. And the WTO can play an important role in supporting this process in various ways: GATS disciplines and commitments can facilitate trade and investment in the core services that enable artificial intelligence. Computer and telecommunication services are the obvious examples.

They can also facilitate the cross-border supply of services enabled by AI. Think health, translation or financial services. The WTO can also support the development of AI by facilitating cross-border flows of data. 

In November, the WTO will be hosting an event dedicated to AI and trade, where we will have the opportunity to discuss these questions in more detail.

Supporting green transition

Third, services trade can play an important role in supporting the transition to a low-carbon economy.

A shift to renewable energy will require support of a wide range of services. From consulting through construction and installation of facilities, to energy generation and distribution. Especially, amidst accelerating efforts to decarbonize industries such as construction or transport.

Moreover, services frequently support the production and use of environmental goods.

Services trade liberalization will enhance access to environmental goods, technologies, and know-how. This, in turn, can improve the odds of addressing climate change.

Investment

Fourth, government policies on services trade and foreign direct investment (FDI) are closely linked and mutually reinforcing.

The GATS covers trade in services supplied through commercial presence, which is also the key element of FDI. Efforts to reduce barriers and facilitate trade in services therefore translate into facilitation of FDI.

Here, I would like to highlight the support by over three-fourths of the WTO Membership for the Investment Facilitation for Development Agreement. Members currently discuss the request for a formal incorporation of the Agreement into the WTO rulebook.

Cooperation at the WTO

Harnessing opportunities and avoiding pitfalls created by recent trends in services trade calls for enhanced international cooperation. This cooperation can take different shapes and forms: from more transparency, through market openings to standardization and the development of new rules.

The WTO is at the heart of this process. Its members have recently made some progress, despite the absence of broader negotiations.

During the 13th Ministerial Conference, we celebrated entry into force of new disciplines on services domestic regulation for 49 WTO economies. I am very glad to see China among them. These new rules promote good regulatory practices and, if fully implemented, are estimated to result in global savings of 127 billion U.S. dollars. We expect nine more members to join this group in the near future, when they complete their domestic procedures.

Also in Abu Dhabi, members committed to re-invigorate work on services. In the Council for Trade in Services, members have discussed priority work areas for the coming months. Delegations have suggested a range of topics for discussion, including issues relating to development, digitalisation, and the green transition.

In recent years, digital trade has become the focus of WTO Members' attention. Currently, its various facets are discussed within the Work Program on E-Commerce. In addition, a subset of members, including China, has been negotiating modern rules on e-commerce as part of the Joint Statement Initiative. Last month, 82 of the Members participating in these negotiations reached a milestone and stabilized the text of a possible future agreement.

The WTO Secretariat supports members' efforts to the best of its ability and within the given mandate: For example, recognizing the importance members attach to digital trade, especially in services, the Director General has announced creation of a Digital Trade and Frontier Technologies Unit. We hope that it will provide members with even better level of expertise and support in an area that will undoubtedly shape the future of international trade.

Last year, the WTO Secretariat and the World Bank published a report showcasing the potential benefits and challenges of services trade for developing countries. Encouraged by positive feedback, the two organizations will move forward on a joint work programme to assist developing countries in engaging on services trade. 

The WTO Secretariat and the World Bank are also working on a practical toolkit to assist developing countries with the implementation of the good regulatory practices enshrined in the Services Domestic Regulation Disciplines.

Conclusion

30 years of the GATS' existence is a long period of time. During that time, countries liberalized services trade mainly outside the WTO. As a result, the guarantees for market access are limited and so is certainty and predictability for businesses.

Against this backdrop, China's further opening of services markets in recent years, especially in banking, security, telecom, education and transport, is commendable. So is China's participation in numerous initiatives aimed at fostering services trade, such as the joint statement initiatives on Services Domestic Regulation and E-commerce.

For China, like for all other WTO Members, more economic development will require more liberalization in services trade.

To tackle the challenges of the future, from digital trade to climate-related services – we need more commitments. And we need commitments that clearly and unambiguously cover areas where future trade cooperation is needed. They will help build a more uniform approach to services trade and thus realize the promise of shared prosperity.