First, the notion of _global_ value chains involving services needs to encompass a broader range of transactions. GVCs need to encompass not only transactions crossing borders, but also transactions within countries between national and foreign entities. While there is good reason to take a similar broad view of GVCs involving only goods, the case is overwhelming for services because focusing only on cross-border trade would ignore the large share of international transactions in services that takes place through: consumers traveling to other countries (consumption abroad, or mode 2 in World Trade Organization [WTO] parlance); commercial presence (through foreign investment, or mode 3 in the WTO); and the presence of natural persons (temporary immigrants, or mode 4 in the WTO).<sup>4</sup> Even though our ability to measure the role in GVCs of international services transactions through commercial presence is limited, ways have been found to estimate their economic impact.<sup>5</sup> Second, the argument that services can have a substantial economic impact because they are vital inputs into producing downstream goods and services may not seem a sufficient reason for separate consideration. After all, goods such as computers are also vital inputs. But two features of services seem to merit special focus. One is that the very existence of GVCs is due to improvements in services like transport, communication, and computing (or information and communication technology [ICT] services) that have made it possible to fragment and coordinate production globally. Another is the growing evidence that when GVCs include finance, communications, transport, and professional and other business services in favorable price-quality bundles and diverse varieties, firms perform better. These services enable firms to invest in new business opportunities and better production technology, to exploit economies of scale by concentrating production in fewer locations, to efficiently manage inventories, and to make coordinated decisions with their suppliers and customers. The result can be increased total factor productivity and shifts in the pattern of comparative advantage.

Third, services also differ at least qualitatively from goods in the nature of the policies that both inhibit or encourage the emergence of services-related GVCs. Border measures like tariffs are much less relevant for services trade than for goods trade, and behind-the-border regulatory measures are much more relevant. Some examples: Cross-border trade in international transport services is impeded by the exclusion of third-country providers and by quantitative restrictions in bilateral agreements. Trade through commercial presence in banking and communication services must confront restrictions on foreign ownership and regulatory requirements that can be discretionary and discriminatory. The presence of foreign professionals is prevented by restrictive visa and work permit rules as well as by a refusal to recognize their qualifications and licenses. And trade in all data-intensive services is threatened by diverging national privacy laws.<sup>6</sup>

> 4 For example, mode 3 exports represented on average 67 percent of total US exports of services between 2009 and 2014 according to data from the Bureau of Economic Analysis (BEA).

> 5 Mode 2 trade is captured in the balance of payments (BOP) statistics category “travel” but with limited disaggregation into sectors. Sales of services by foreign natural persons too are largely covered in BOP statistics but are not identified separately from cross-border trade. Data on mode 3 trade in services are not part of BOP statistics but are collected separately by some countries, such as the United States and the European Union. Efforts to improve the measurement of mode 3 trade are discussed later in the paper.

> 6 Restrictive policies of this sort are inherently difficult to identify and measure. Two initiatives provide evidence on these restrictions: one in the OECD and another in a collaborative project between the World Bank and the WTO. Some evidence regarding these measures is presented later in the paper.

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