Overview of Global Trends in Services Economy and Indonesia’s Negotiations on Trade in Services: Opportunities and Challenges Jakarta, 22 November 2016 Prepared by Herliza Aman, Director, Directorate of Trade in Services Negotiations DIRECTORATE GENERAL OF INTERNATIONAL TRADE NEGOTIATION MINISTRY OF TRADE
Outlines I. Importance of trade in services in economic development for Indonesia II. Role of global value chains and trade in services in Indonesia III. Indonesia’s negotiations on trade in services and commitments made so far IV. Current status and key issues of Indonesia’s services negotiations: the way forward V. Indonesia’s participation in trade in services negotiations: opportunities and challenges 2
The Importance of trade in services in economic development for Indonesia Section I 3
The Importance of the Services Sectors • An upward trend in the growth of services contribution to GDP (2000: 44.4%; 2005: 48%; 2010: 52.9%; 2013: 55.1%; and 2014: 51%). The Driving Force • The growth in services sector: 5.43% - 12.44%, is higher than the of Growth agricultural and manufacturing sectors: 1.16% - 4.71. (Bank Indonesia, 2014) The Growth of • In the third quarter of 2015, services exports amounted to 5,763 Services Sector million USD, had an increase of 5.6%, compared to the previous year. (Bank Indonesia, 2015) Income • An upward trend in employment in the service sector. In 2007 there were 45.4 million (45.4%) workers who were employed in the Job Creation service sector in 2013 there were 56.4 million (50.9% of labour force). (National Labour Force Survey, 2013) • Services are the intermediate inputs (agriculture: 5,4%; Economy Efficiency manufacture: 11.9%; & service itself: 20.9%) & Productivity • Services have Backward linkage (BL) and Forward linkage (FL) > 1 (1.1 to 2.46). (AIPEG, 2015) 4
Services Sector Development for Economic Transformation The The Increase of Export of expenditure Non-Oil Services side of GDP Exports SERVICES ECONOMIC GROWTH The Production Increasing the Side of GDP Value Added 5
SERVICES SECTORS IN THE MID-TERM NATIONAL DEVELOPMENT PLAN (2015-2019): DEVELOPMENT STRATEGY IN SUPPORTING FOREIGN TRADE POLICY Utilizing the services commitments in international trade agreements Participation in Increasing the quality services global value of human resources chain in order to related to services enhance the sectors, as value add competitiveness of of services exports services sectors The increasing quantity and Enhancing Increasing the quality quality of priority services sectors: coordination among 1. Services as an export booster: of trade in services respective Ministries Transportation services, tourism statistics to provide an services and construction services in developing and accurate data and 2. Services as a facilitator of trade implementing services information and economic productivity: sectors roadmap logistic services, distribution services and financial services 6
Exports & Imports of Indonesia ’s Services (Cross-border Trade) Top 3 exports of services : 1. Travel services : accommodation, food and beverages, entertainment, domestic transportation in countries visited 2. Other business services : Merchandise trade and other trade related services, operational leasing and Miscellaneous business, professional and technical services 3. Freight transportation services : carriage or transportation of goods and related to export and import of goods Top 3 imports of services : 1. Freight transportation 2. Other business services 3. Tourism and travel related services 7 Source: Bank Indonesia
Role of global value chains and trade in services in Indonesia Section II 8
The Role of GVC and TIS • Global Value Chains (GVCs) are a strong driver of growth and productivity and support job creation. • The expansion of global value chains (GVCs) has become an important aspect of the current stage of economic globalization, driven by new technological opportunities and the old benefits of economic specialization. • The whole process of producing goods, from raw materials to finished products, is increasingly carried out wherever the necessary skills and materials are available at competitive cost and quality. • Similarly, trade in services is essential for the efficient functioning of GVCs, not only because services link activities across countries but also because they help companies to increase the value of their products. • Services, and particularly GVC-enabling services such as business, transport and logistics, legal and communications services, are the links that forge global value chains. • The role of services as input into manufacturing production, is substantial with services value added accounting for almost a third of manufacturing exports in developed countries and 26% in developing economies. • GVCs can play an important role in the structural transformation of developing economies, but the capacity of such countries to benefit from GVCs should not be taken for granted. • Open trade and investment policies, as well as regulatory simplicity and efficiency, are vitally important to allow services to be the enablers of global value chains 9
SERVICES IN GLOBAL VALUE CHAIN Every manufacturing product from pre, in process, and post can involve 12 services sectors: - Business - Communications - Construction and related engineering - Distribution - Educational - Environmental - Financial - Health-related and social - Tourism and travel-related - Recreational, cultural and sporting activities - Transport - Other services not included elsewhere Source: Business Week Online. May 16, 2005 10
Nomenclature of services Source: APEC PSU Study: Services, Manufacturing and Productivity, 2015 11
SERVICES AS INPUTS TO NATIONAL PRIORITY SECTORS Services are needed for goods to be high value and competitive Priority Sectors Goods Direct and Indirect Other Input Input Services Inputs Cost Angkutan laut* ) 47,68% 23,31% 29,01% Automotive 48 % 12.5 % 41 % Electronic 52.47 % 19.03 % 28.5 % Textile 44.39 % 16.31 % 39.3 % Chemicals 59.44 % 11.46 % 29.1 % Food Processing 53.15 % 15.35 % 31.5 % Bamboo, wood, and 39.34 % 18.46 % 42.2 % rattan Rubber and plastic 58.48 % 14.12 % 27.4 % Source: Based on Table 2. Total Transaction based on producer prices (BPS 2009) 12 * ) Based on Table 2. Total Transaction based on producer prices (BPS 2005)
Example: Services Inputs in the Automotive Sector 46.5 % of GOODS 5.2 % Wholesale and retail 1.3 % Financial services Total 12.5 % Top 5 of Services Direct 1.17 % Real Estate and Business Services Services suppliers 0.1 % Road Transportation Non-Goods and Services Components : 41 % 0.047% Water Transportation • Import Intermediate Input • Wages and Salaries • Business Surplus • Depreciation • Indirect Tax Indirect • Subsidies 1.5 % Indirect services in services automotive sector 13 Source: Based on Table 2. Total Transaction based on producer prices (BPS 2009)
How does Indonesia’s Use of Services Compare with Global Practices Indonesia’s shares of services for automotive sector is only 12.5 % Share of services in the automotive sector in the global industry is 3 times higher than that in Indonesia 14
Indonesia’s negotiations on trade in services and commitments made so far Section III 15
TIS Negotiations in Multilateral Forum (WTO) What are regulated in GATS: • General Obligations and Disciplines: MFN, Transparency, Domestic Regulation, subsidy, etc; Regulated in GATS • Specific Commitments; (General Agreement • Progressive Liberalization; on Trade in Services). • Institutional Provisions; Legally Binding • Final Provisions; and Ratified by • Annexes: Exemption on Article II (MFN), MNP, Air transport services, UU No. 7 / 1994. Financial Services, Telecommunication Services 16
ROADMAP of ASEAN SERVICES INTEGRATION AFAS 1 AFAS 2 AFAS 4 AFAS 5 AFAS 3 (1997) (1998) (2004) (2006) (2001) AFAS 09 AFAS 8 AFAS 7 AFAS 6 AFAS 10 (2017) (2013) (2010) (2009) (2007) Commitments have been negotiated gradually in the form of packets (Protocol to Implement AFAS) up to the year of 2017 (1st Packet – 10th Packet). ASEAN Integration Schedule on the Services Sector: • 2010 : 4 Priority Sectors (air transport, e-ASEAN, healthcare & tourism): Mode 3, Foreign Equity Participation (FEP) 70%, and 80 sub-sectors commited • 2013 : Logistic Sectors (warehousing, packaging, freight services); Mode 3, FEP 70%, 104 sub-sectors commited • 2015-2017 : All Sectors: Mode 3: FEP 70%, dan 1 National Treatment , None for Mode 1 & 2, 128 sub-sectors • Discussed under the Coordinating Committee on Services (CCS) 17
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