Guide to Trade in Services

What is the services sector?

Services can be defined as a transaction for the performance of certain tasks. Services range from opening a bank account, to a haircut, to the distribution of goods –not to the making of the good itself-, and to a live show of your favorite performers.

It may be useful to begin by asking: how are services different from goods? Services are often seen as intangible, invisible and perishable, requiring simultaneous production and consumption. Goods, in contrast, are tangible, visible, and storable—and hence do not require direct interaction between producers and consumers. However, there are exceptions to each of these characteristics of services. For example, a software program on a diskette or an architect’s design on paper are both tangible and storable, many artistic performances are visible, and automated cash-dispensing machines make face-to- face contact between producers and consumers unnecessary.

The most broadly used classifications of services list the following categories:

Business services
Communication services
Construction services
Distribution services
Educational services
Environmental services
Financial services

Health-related and social services
Tourism and travel-related services
Recreational, cultural, and sporting services
Transport services
Other services not elsewhere included

The full lists or all services can be found here and, more complete and explained, here. (The services categories used in this portal are simplified version of those two, internationally recognized, classifications.)

What is trade in services?

In international trade environments, it is usually recognized that there four ways on buying and selling services internationally –called “modes of services supply”.

1. Cross border trade: services supplied from the territory of one country into the territory of another

In cross-border trade, both the service supplier and the consumer stay in their respective countries, and only the service crosses the borders.
This occurs when the services can be delivered through paper on electronic means (for example, professional advice) or the service is connected to a good that itself can move across borders (all transport services, but also the repair of goods that can be moved internationally)
For example, an IT expert from Cambodia designs and hosts a website for a client in Singapore

2. Consumption abroad: services supplied in the territory of one country to the consumers of another.

In consumption abroad it’s the consumer who moves to acquire services in the country of the services suppliers.
Tourism is the typical case, but health and education services are increasingly being traded through this mode of supply.
For example, an English tourist travels to Cambodia to visit Angkor Wat

3. Commercial presence: (foreign direct investment): services supplied through any type of business or professional establishment of one country in the territory of another.

The services supplier (juridical person) establishes a subsidiary, a branch or representative office in the country of the consumers.
Since services typical require the physical proximity between the supplier and consumer, commercial presence has traditionally been the most important means of services supply.
For example, a foreign bank establishes a local office in Phnom Penh

4. Presence of natural persons: services supplied by nationals of one country in the territory of another.

The services supplier (individual) moves towards the consumer to supply the service.
This mode includes both independent service suppliers and employees of the services supplier of another country.
For example, an engineer from Australia temporarily visits Cambodia to provide professional advice to client.
Services serve as inputs to other economic activities as well as a potential source of trade diversification. The cost and quality of services inputs is a major determinant of how much countries can benefit from globalization. The services sector feeds into exports of other goods, such as textiles. Additionally, the unbundling of production creates new commercial services, leading to trade diversification.

Why is trade in services it important for Cambodia?

Cambodia’s impressive economic growth owes much of its driving force to the boom in services trade. Services exports from Cambodia grew more than 25 percent for most of the past decade (Figure 1.1), mainly due to rapid growth in the tourism sector.

Figure 1.1: Exports of services from Cambodia have soared since 1998, outpacing the region as a whole	Figure 1.2 Trade in services represents a much higher share of GDP in Cambodia than in the region as a whole

Source: World Bank 2012a

Trade in services represents a much higher share of GDP in Cambodia than in the region as a whole (Figure 1.2). Foreign direct investment—particularly in tourism, construction, infrastructure, agro processing, and telecommunications—also supported the expansion of services trade, not only by attracting foreign capital and expanding employment into Cambodia, but also by improving domestic technology and enhancing domestic skills.

What role does Cambodia have in trade in services?

Although other activities have grown fast, services trade in the country is dominated by tourism. However, Cambodia is quickly becoming a sophisticated economy that can move beyond the pillars of textiles and tourism exports by diversifying into the export of modern services. Some emerging export oriented services sectors in Cambodia are animation and IT-enabled services such as data entry, network maintenance, and app developing. These modern services exhibit strengths such as low labor costs and an open regulatory environment. However, challenges are also present such as limited connectivity, discriminatory practices, and regulatory instability. Modern services exports to other East Asian countries, including IT-related services, are likely to play a more important role in Cambodia as a source of employment, revenue, and investment.

Sources of additional information

Foreign Investment

The Council for the Development of Cambodia (CDC) and the Cambodian Investment Board are in charge of investment promotion and facilitation. The CDC is the foreign investment approval body. As a one-stop shop for facilitating direct investment, it administers all strategic and regulatory aspects of qualified investment projects.

http://www.cambodiainvestment.gov.kh/

Business Visitors

Cambodia allows business visitors to enter and stay for up to 90 day; people seeking to set up a commercial establishment for an unlimited period of time; and intra-corporate transferees for a maximum of five years.

Intra-Corporate Transferees: managers, executives, and specialists of a foreign company seeking to work in an overseas branch of their office. They must have worked for the company for a minimum of a year

Managers and executives: persons who primarily direct the management of the commercial presence in Vietnam and receive only general supervision or direction from the board of directors or stockholders
Specialists: persons working for a foreign organization who possess knowledge at an advanced level of expertise and knowledge of the organizations’ services, research equipment, techniques or management or have five years of professional experience in the position they will occupy in Vietnam. Members of licensed professions are included in this category. Assessment of this knowledge will be based on knowledge specific to the commercial presence as well as the person’s level of skills or qualification regarding a type of work or trade that requires specific technical knowledge

https://www.evisa.gov.kh/

Services Trade Performance

The World Bank conducted a study of how Cambodia is performing on international trade and investment in services, and what are the main challenges that it faces. The study can be found here http://documents.worldbank.org/curated/en/806791468015647474/Cambodia-services-trade-performance-and-regulatory-framework-assessment

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