Definition
Trade in services is the exchange between countries of things you cannot hold in your hands: intangible services and knowledge such as transport, tourism, finance, legal and management consulting, telecommunications, and intellectual property. Unlike trade in goods, which passes through customs on ships and planes, services cross borders through data sent over networks or through the movement of professionals.
Even Invisible Things Cross Borders
When we think of trade, we usually picture physical goods first: foreign cars, crude oil, or fruit crossing the sea on giant container ships. But a foreign tourist who visits Korea, stays in a hotel, and tastes food at a traditional market is also doing trade. So is a Korean student who pays online course fees to a foreign university. Instead of objects you can touch, expertise, time, and convenience were exchanged across a border.
In today's world of the internet and smart devices, countless service imports and exports happen without our even noticing. Paying a monthly subscription to an overseas video streaming service, or buying foreign design software and downloading it to your computer, both count as service imports.
So trade in services crosses borders freely, without passing through huge ports or tangled customs checkpoints. Riding invisible fiber-optic cables and networks, software and entertainment content from the other side of the planet travel back and forth in real time, creating economic value.
Four Ways Services Cross Borders
The World Trade Organization (WTO) has organized the ways invisible services cross borders into four routes. The first is when the provider and the consumer each stay in their own country and exchange the service only over a network (cross-border supply). Getting an overseas financial analysis report by email, or using a cloud program remotely, are typical examples.
The second is when the consumer travels to another country by plane to use the service (consumption abroad). Backpacking abroad, language study programs, and visiting a famous museum all fall here. The third is when a company sets up a branch or a local company overseas to supply the service there (commercial presence). A domestic bank opening a branch abroad to sell financial products to local customers is one case.
The fourth and last is when a skilled architect or computer programmer travels abroad in person to share expertise (movement of natural persons). So the physical channel a service travels through completely changes the nature of the trade and how it is managed.
A Little More Precisely: Why Does Trade in Services Shape a National Economy?
Factory-made goods are relatively easy to count at a port's customs and to tax with tariffs. Intangible services, on the other hand, move without passing through customs, so traditional tariffs have a hard time controlling them. Instead, governments tend to use non-tariff measures such as professional license rules, limits on foreign ownership, and business permits to put up invisible institutional barriers.
Trade in services is a very important indicator of the quality of a country's economic growth. In manufacturing, Korea earns huge surpluses by exporting smartphones and cars, but it often runs a deficit in its services balance because of overseas travel spending and royalty payments for intellectual property.
As an economy becomes more advanced, how many knowledge-intensive, high-value services it exports, such as finance, information technology (IT), design, and cultural content, rather than simple assembly or manufacturing, shapes the country's long-term competitiveness.
Common misconceptions
Trade only means buying and selling physical goods shipped by boat or plane.
Trading intangible knowledge and services is also trade. Examples include foreign tourists using domestic hotels and restaurants, or sending money to pay for studying at a foreign university.
Where you meet it
A foreign tourist staying at a hotel in Seoul and spending travel money is a Korean service export.
A domestic company using the cloud infrastructure of a foreign IT company and paying for it is a service import.
In one sentence
It is the exchange of intangible value, such as skills, knowledge, and experience, across borders instead of physical goods.