Service Sector

Expansion

Two specific developments are responsible for the expanding global trade in services: (1) signing of the General Agreement on Trades in Services (GATS), and (2) the communication revolution. The GATS agreement is part of the World Trade Organization (WTO) treaty that came into effect in 1995 at the conclusion of the Uruguay Round. In effect, the GATS extends to the service sector—which was hitherto considered a domestic sector—the same logic of liberalization that had been in effect with respect to goods trade under the General Agreement on Tariffs and Trade (GATT).

The WTO under the GATS defines four modes of delivery of services: (1) cross-border supply, in which a service flow takes place from one member-state to another member-state via telecommunications or postal services; (2) consumption abroad, in which people move to consume services abroad, for example, tourism; (3) commercial presence abroad, in which a firm or company establishes a presence abroad to supply services, for example, retail chains such as Walmart; and (4) natural person abroad, in which a person travels from one country to another to provide services in person, such as is the case of consultants or teachers. There has been a rise in all four modes of delivery in the world since the 1970s.

The communication revolution has played a fundamental role in the rise of global services. Data processing work has been done across nation-state boundaries beginning in the 1970s, but both the initial data sources and the final product of analysis had to be transported physically on airplanes until the rise of satellite systems for transferring data. Yet, satellite communication was expensive and dependent on the availability of satellites. This resulted in the nascent rise of data processing in the Caribbean directed at the U.S. market. However, the real quantitative rise in delivery of global services had to wait for the rise of fiber optics communication.

Much more efficient in its ability to deliver larger quantity of data than the older mechanisms involving copper wires, fiber optics connections began when AT&T laid the first transatlantic cable (TAT-8) between New York and London in 1988. This connection carried 10 times the data that the previous copper wire connection carried between these two cities. In the 1990s, more fiber optic cables were connected, girding the world into one global fiber optic network. During the late 1990s, tremendous capacity was built during the dot-com bubble by Global Crossing, a company that was forced to declare bankruptcy in 2002 when the bubble burst. As part of the expanding fiber optic network, India was connected to Europe and Asia via the Fiber-Optic Link Around the Globe (FLAG) in 1996. As part [Page 1516]of larger transformations of globalization, companies that were previously looking for cheaper domestic labor costs were able to access cheaper labor pools in the developing world that were hitherto to not connected to global production.

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