The country's trade in services, though lags far behind merchandise trade, is growing gradually. The Service sector accounts for 50 per cent of the country's Gross Domestic Product (GDP), but its contribution to overall international trade is a measly 5.0 per cent only. There is, however, no direct correlation between the structure of economy and trade patterns of a country. Moreover, trade in services requires more skill and innovation compared to trade in goods. Currently, as per the estimation of the International Monetary Fund (IMF), trade in services is about a quarter of total global trade, and digital technology will push it further within a short period of time.
Annual trade in services in Bangladesh stood at $13.64 billion in the past fiscal year (FY18), recording 29 per cent growth over $10.52 billion in FY17. The big jump in service trade was mainly due to sharp rise in import of services, recorded as debit or payment in the balance of payments (BoP) table. As a result, gap in service trade increased to $4.58 billion in the past fiscal year (see: Table).
A NOTE ON SERVICE TRADE: It needs to be noted that '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.' Services are intangible in nature and these are basically actions some persons do for some others. Like goods, which are tangible things and satisfy people's wants, services also satisfy wants of people.
According to the Organisation for Economic Co-operation and Development (OECD), trade in services generally 'include transport (both freight and passengers), travel, communications services (postal, telephone, internet, satellite, etc.), construction services, insurance and financial services, computer and information services, royalties and licence fees, other business services (operational leasing, technical and professional services, etc.), cultural and recreational services, and government services not included in the list above.' Though trade in services drives the exchange of ideas, know-how and technology, it is often 'restricted by barriers such as domestic regulations'.
It is difficult and tricky to trace and keep record of trade in services due to its complex nature. The General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO) defines trade in services as four different modes of supply. These are cross-border trade (e.g. medical advice through email from one country to another country), consumption abroad (e.g. tourism), commercial presence (e.g. international hotel chain) and presence of natural persons (e.g. Bangladeshi workers abroad).
Again, services can be divided into two segments: non-factor and factor services. Non-factor services generally refer to all invisible receipts or payments not attributable to any of the conventional 'factors of production', like labour (remittances from overseas migrants) and capital (income from investments, interest payments, dividend repatriation). So, non-factor services include foreign exchange receipts and payments on account of tourism, shipping, and freight and other transport services. Factor services include services of labour and capital which mean, income from foreign direct investment, interest, dividends, and property and labour income (remittance).
The United Nations Conference on Trade and Development (UNCTAD) has pointed out that 'measuring the extent of trade in services is often difficult and hence official trade figures may underestimate its true share in world trade.' Limited capacity of national statistics agencies coupled with dispersed sources of data make things difficult. While for the data of first three modes, countries use BoP, for the fourth mode it looks for remittance data which is also presented in BoP but not under the services and income account. Again, for the third mode, some countries also use Foreign Affiliates Trade Statistics (FATS).
BANGLADESH CONTEXT: In Bangladesh, FATS is largely absent and trade in service is measured on the basis of BoP statistics which generally captures 'trade in commercial services' and mostly covers modes one and two, mode four, partially but does not cover mode three. Again, data on foreign direct investment (FDI) also indicates the cross-border delivery of services through commercial presence of foreign affiliates in a country. That's why, detailed FDI data is essential to get a true picture of service trade.
The data deficiency on trade in services is reflected in two sets of statistics prepared by Bangladesh Bank. According to FY18 BoP, import payments of services stood at $9.11 billion. But adjusted data on service export put it at $6.08 billion. Thus there is a gap of $3.0 billion which is not negligible - and is misleading. There is, however, little gap in two sets of data on export of services. BoP put it $4.53 billion in FY18 while the figure stood at $4.26 billion in the adjusted statistics.
So, Bangladesh needs to improve data on trade in services. In this regard, adequate coordination between the national statistical agency and the central bank is a must.
Besides inadequate data on trade in services, the current trend of the service trade in Bangladesh requires policy attention. The Seventh Five-Year Plan (7FYP) underscored the importance of trade in services and argued that a part of the export diversification strategy needs to focus on services exports and not just exports of goods. The planning document says: "The potential for Bangladesh to penetrate the services exports market is large. With its huge and young labour force Bangladesh can be an important player in the global services exports beyond the guest worker initiative. The potential for exports is particularly good in IT, education and tourism. This will require a special mind-set for policy makers to think global rather than inward."(p-237)
LIMITATIONS: But the potential for export of educational services and tourism is limited. Due to inadequate infrastructure and facility, arrival of tourists in the country is still small. In 2018, around 0.6 million foreign nationals arrived in the country for various purposes including employment, consultancy, tourism and study. But number of 'tourists only' is estimated at 30,000, according to Bangladesh Tourism Board. It means total foreign exchange earnings from tourism is also small. Bangladesh Bank statistics showed that the country' foreign exchange income from travel account stood at $350 million in FY18 while spending on the same account was $708 million. This indicates that more people are travelling abroad for tourism, education and medical purposes. The country's tourism statistics is, however, still scattered and to some extent unreliable.
Educational services are broadly attributable to the overseas students of Bangladesh. Nevertheless, students from Nepal and a few African countries are showing increasing interest mostly in the private universities and medical colleges. But a large number of students are going abroad every year which shows that there is a big import of educational services. Payments for educational related services stood at around $175 million in the past fiscal year.
IT-related service export is growing gradually. Receipts from the export of telecommunications, computer and information services stood at $538 million in FY18 against import of $74 million. Bangladesh has already proved its capacity in IT services and software exporting. A good number of foreign IT professionals are working in the country which reflects domestic inadequacy in this regard.
WTO WAIVER: Being a Least Developed Country (LDC), Bangladesh is looking for the wavier in service trade under the umbrella of the WTO. It was in 2011 that the 'services waiver' or decision on preferential treatment to services and services suppliers of LDCs was agreed by the members of the organisation. It asked the WTO members to grant preferential treatment to LDC services or service suppliers. Bali ministerial conference in 2013 outlined measures to operationalise the decision. In 2014, LDC members jointly submitted the 'LDC collective request', identifying the sectors and modes of supply of particular interest to them. In 2015, the Nairobi Package extended the waiver period up to 2030. Nevertheless, the response from developed and developing countries is still poor in this regard. So far, the WTO has received notifications from 24 members, including the EU, expressing their intent to provide preferential treatment to LDCs on trade in services. But no LDC has been able to tap any preferential treatment. There is a lack of meaningful preferences and also inadequate capacity of the LDCs to tap the benefit.
Tapping the benefit and negotiating for flexible preferential treatment in service trade with the developed as well as developing countries require well planned strategy where Bangladesh as well as other LDCs lag behind. The latest Export Policy (2018-2021) of the country has identified 17 services with special priority to four services (information technology, tourism, engineering and architecture services) as potentially exportable. But the guideline for boosting exports is not clear. Moreover, the policy of service export needs to be matched with the policy of service import. Bangladesh is yet to formulate service import policy. Without a comprehensive and well-planned policy on trade in services, the country may suffer in the long run.
