Production and international trade

Production and international trade

Production and international trade

The last half century has seen an increase in the trade in part

and components, and the related international fragmentation of

production helps explain why trade is growing faster than GDP.

Actual physical production cannot be done without the logistics,

accountancy, banking, personnel management and all the other

services needed to support it. But that doesn’t mean that all of

these elements have to take place in the same location, and many

services tasks are now done elsewhere. Tasks where the higher

wages in the home country are not justified by higher productivity

are the first to go abroad. Call centres are one example. This has

prompted some economists to talk of a new era of trade, driven by

cheaper, more efficient communications and lower trading costs.

By their very nature, some services cannot be done abroad. Others

can. But they can all be “traded”. The WTO’s General Agreement on

Trade in Services (GATS) describes four different ways (“modes”)

of doing this. The first mode covers those situations where the

service provider and client may be in different countries. In the

second mode, the client goes abroad. A third mode involves

a company opening a business abroad to provide services. The

fourth mode concerns individuals who travel to another country to

carry out a task, but not to immigrate. Trade in services is covered

by the GATS, which is defined in more detail in the chapter on the

WTO and trade rounds. So-called “South-South” trade in services

is dealt with in the chapter on trade and development.