through physical movement of consumers to the location of service providers (for example, tourism), or via temporary entry of service providers into the territory of a consumer (for example, consulting). In a statistical sense all the above transactions comprise trade and are registered as such in the balance of payments. They all involve exchanges between the resident of one country and that of another.

Sampson and Snape (1985) develop a typology of trade in services that was largely incorporated in the design of the GATS. The first of these modes, what has come to be called mode 1 in GATS-speak or _cross-border supply_ , applies when service suppliers resident in one country provide services in another country without either supplier or buyer/consumer moving to the physical location of the other. Mode 2, _consumption abroad_ , refers to a consumer resident in one country moving to the location of the supplier(s) to consume a service. Mode 3, _commercial presence_ , refers to legal persons (firms) moving to the location of consumers to sell services locally through the establishment of a foreign affiliate or branch.<sup>7</sup> The fourth mode of supply, mode 4 or _movement of natural persons_ , refers to a process through which individuals (temporarily) move to the country of the consumer to provide the service.

Many of the early theoretical contributions on services trade distinguished between factor and non-factor services. This suggested that there was nothing special about services insofar as trade in non-factor services can be regarded as being embodied in goods — and thus covered by GATT — while factor services (natural and legal persons) are not. The implication was that negotiating attention should center on FDI and the (temporary) movement of service suppliers – that is, international factor movement.<sup>8</sup> Over time, however, it became increasingly apparent that the disembodied cross-border trade in services that was the focus of Bhagwati’s (1984) analysis was not a theoretical curiosity but was rapidly growing as technological advances permitted services to be digitized and transported internationally through satellite and telecom networks.

Global cross-border trade in services stood at $2.4 trillion in 2005, of which some $1.3 trillion was in the non-travel (tourism) and non-transport categories.<sup>9</sup> Excluding intra-EU crossborder trade, the total is some $1.9 trillion. As total trade in merchandise was some $10 trillion in 2005, cross-border trade in services reported in balance-of-payments statistics is about 20 percent of world trade. Despite the often expressed view that services trade has been expanding rapidly, including as a result of services outsourcing, the 20% share of services receipts in total

> 7 As of the early 1990s, some 50 percent of the global stock of FDI already involved services activities (Sauvant and Zimny, 1987; Hoekman, 1990).

> 8 Grubel (1987) was a prominent proponent of the argument that all trade was embodied in goods or in factors (people, FDI). Implicitly if not explicitly empirical studies of the factor content of a nation’s trade are premised on this view.

> 9 See http://www.wto.org/english/news_e/pres06_e/pr437_e.htm.

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