but also report some estimates with the most comprehensive WTO list, as an estimate of what might be at stake, should countries agree on an all-encompassing list of EGs.

# **2.2 Classifying environmental services**<sup>**7**</sup>

The difficulties facing the TiSA negotiations are an order of magnitude greater than those facing negotiations on EGs. It is therefore likely that any negotiations will take place around the WTO Services Sectoral Classification (W/120) list, though the inadequacies of that list will present a major hurdle in reaching agreement, even for OECD countries.

Production is increasingly taking the form of trade in tasks (i.e. services) as opposed to trade in products. Services play an input function through space (transport, telecommunications) and time (financial services) as well as direct inputs into economic activity as they generate knowledge and human capital. Recent developments in the study of global value chains show that services may account for more than 50% of exports when measured in value added (OECD, 2014). The linkage between intermediate services, regulation, and policies is still largely unexplored, if only because of the lack of data both on services and regulations (services do not meet customs for registration, and regulations are, at best, imperfectly captured). Unlike goods trade flows for which data exist because they are taxed, services-except for labor and FDI flows-- are not directly observed crossing borders. Furthermore, since disembodied trade is becoming more important as the burden of proximity has loosened, the tracking of flows is poor and, at best, spotty. These characteristics make it difficult to draw an informative list of ESs.

Negotiators would like to have indicators of trade restrictiveness measures for services. Building indicators implies taking into account two characteristics of services: (i) the proximity burden and, (ii) the “margin sector”. A proximity burden is imposed on certain forms of services because, unlike goods, they cannot be stored. Even though technological change has led to the geographical splintering of the production chain for both tangible inputs and for services, trade in services may require a heavier dose of local presence of suppliers in the mix of cross-border and locally-produced services than in the case of goods. In addition, services provision will often have “jointness in production” as complementary inputs—including other services—are needed to allow effective exchange (trade) to occur. The proximity burden is handled in the GATS four-way classification of services:

- Mode 1: No movement of either supplier or buyer (direct cross-border trade);

- Mode 2: Customer moves to the country of the provider (tourism);

- Mode 3: Commercial presence through sales of an affiliate (multinational enterprise/legal person);

- Mode 4: Temporary movement of natural persons to provide services.

For modes 2 and 4, indicators of reducing restrictions on the movement of natural persons and providing market access on non-discriminatory terms (and guarantees for repatriation of

> 7  This discussion draws on Geloso Grosso (2005), Kirkpatrick (2006) and Francois and Hoekman (2010).

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