International Trade in Services.pdf - DSpace at Khazar University

298 International Trade in Services
Box 9.2: The Four Modes of Supply of Engineering Services
The General Agreement on Trade in Services of the World Trade Organization defines
four modes of supply in the trade in services. The modes of supply are identified to
help trade negotiators determine trade commitments in trade agreements. Essentially,
the modes are a construct for trade negotiations and seek to reflect how businesses
operate. Most firms use a combination of some or all the modes of supply to conduct
business. The modes focus on the location of the service provider and the location of
the service consumer. They are defined in the general agreement as follows:
• Mode 1, crossborder supply: Nonresident service suppliers deliver services crossborder
into a client’s territory. For example, a Brazilian engineer sends sketches to a client in
República Bolivariana de Venezuela. Mode 1 trade may be inhibited, for instance, by
restrictions on Internet use and weak telecommunications infrastructure.
• Mode 2, consumption abroad: Residents in country A purchase services inside the
territory of country B. For example, a U.S. oil company established in Nigeria buys
services from a local engineering firm. Mode 2 trade may be inhibited, for
instance, by excessively restrictive capital controls.
• Mode 3, commercial presence: Foreign suppliers of services establish, operate, or
expand their commercial presence in a client’s territory, such as a branch, agency,
or wholly owned subsidiary. For example, a Tunisian engineering firm opens an
office in Dakar to serve the Senegalese market. Mode 3 trade may be inhibited,
for instance, by arduous qualification requirements and licensing procedures and
by equity limitations.
• Mode 4, the temporary movement of natural persons: This involves the entry and
temporary stay in a client’s territory of foreign individuals to supply a service. For
example, an Indian engineer supervises a construction project in Bangladesh.
Mode 4 trade may be inhibited, for instance, by excessively restrictive visa fees or
unpredictable and time-consuming work permit procedures.
Analysts and policy makers can use the modes of supply to identify constraints to
growth in the engineering service trade. This understanding can then inform policy
decisions to expand the trade in engineering services.
related technical services to public and private sector firms operating in the information
technology, energy, life sciences, and advanced technology sectors around
the world. Argentine (Techint), Brazilian (Andrade Gutierrez, Camargo Corrêa,
Odebrecht, and Queiroz Galvão), and Mexican (ICA group) engineering and construction
firms have also diversified into other industries and become large conglomerates
(ECLAC 2007). The list of integrated service providers could be made
long, and policy makers should therefore assess potential reforms in light of the
commercial structure of the marketplace.
Growing international demand for engineering services in developed and
developing countries creates employment opportunities for qualified professionals.
However, engineering firms in a multitude of countries and sectors are
experiencing shortages in skilled engineering professionals. For example, labor
scarcity in the engineering and construction sectors has resulted in delays and