cost component categories identified by a novel methodology recently developed by the WTO Secretariat to measure trade costs for services delivered via Modes 1, 2, and 4, while identifying the most important cost components affecting Mode 3 trade.

The investment facilitation agenda currently pursued at the WTO relates chiefly to two overriding objectives: (i) promoting greater regulatory transparency and the predictability of investment regimes and (ii) streamlining administrative procedures linked to investment entry and operations. The paper contends that such an approach needs to be complemented by efforts to address three of the most important factors increasing the cost of services traded under Mode 3. These are: (i) the economic costs deriving from erratic host state conduct; (ii) discriminatory barriers affecting the establishment of a commercial presence by foreign service providers; and (iii) costs deriving from cross-country regulatory heterogeneity.

The paper is structured as follows. Section 2 documents the significant weight that services play in global FDI flows and vice versa, that is, the significant predominance of commercial presence within services trade as a whole and the conceptual implications deriving from such a predominance. Section 3 situates the parallel evolution in time of the concepts of trade facilitation in services and investment facilitation. Section 4 focuses on the measurement of trade costs in services. Reviewing the recent specialized literature, the section examines available evidence on each trade cost component. Section 5 concludes the analysis and singles out the key policy implications deriving therefrom. In so doing, it sketches a preliminary framework linking trade costs with the different potential components of a comprehensive investment facilitation agenda, including potential diagnostic and impact indicators with which to operationalize it.

# **2. The importance of services trade through a commercial presence: Key trends and aggregates**

The policy research community has long known that the contribution of services to world commerce has been underestimated. Trade in services is not only growing faster than trade in goods, but also creating value far beyond what national accounts measure, more so than trade in goods (McKinsey, 2019). The sheer importance of commercial presence - Mode 3 - as a means of delivering services to markets implies that the notion of investment facilitation, as currently discussed in rule-making circles, relates predominantly to steps taken to facilitate foreign investment in services. In the same vein, discussions of trade facilitation in services chiefly (if not exclusively) relate to commercial presence.<sup>5</sup> Statistics measuring the value of cross-border exchanges of services (as defined under trade agreements) could long only be found in countries’ balance of payments (BoP) data, even though these only capture a limited share of world services trade. Indeed, the principal means of supplying services internationally, which is through a commercial presence abroad, is not captured in BoP statistics.<sup>6</sup> 5 While Mode 3 is central to any coherent discussion of trade facilitation in services, the Government of India has to date chosen not to take part in the Joint Statement Initiative on investment facilitation that pursues a number of aims closely aligned to those proposed by the Indian proposal on TFiS.

6 BoP statistics focus on transactions between residents and non-residents, and do not capture services that are supplied within the country through business establishments owned or controlled by foreigners.

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