can affect the emergence of GVCs is that the agreement applies only to EU–U.S. data transfers and so it is not useful for companies that want to transfer data globally—that is, to establish a globally accessible database or a global human resources information system. In sum, the SHF is an example of remarkably effective, yet imperfect, dynamic regulatory cooperation.

# **Conclusions**

This paper has illustrated the role of services in GVCs, drawing on selected evidence. For many purposes, services can be treated analogously to goods in both the measurement and the analysis of GVCs. And that is what existing trade-in-value-added databases and the literature that relies on them have tended to do. Even though the share of services in trade in value added varies across countries and industries, it is generally high (and rising) and considerably larger than the share of services in gross trade. While directly exported value added has increased in recent years, close to two-thirds of the growth of services value added in exports is due to an increase in services embodied in exports of other sectors—particularly foreign services, revealing the growing importance of GVCs.

The reasons for these developments are variants of the older arguments for why the share of services in GDP tends to grow: the splintering or outsourcing of services activities from manufacturing firms; the growing importance in a GVC world of connecting services like telecommunications and transport; the growing services component in sophisticated manufacturing goods, such as software in cars; and the increase in the prices of services tasks relative to manufacturing tasks because manufacturing tasks are easier to offshore to lower cost locations. However, there is little empirical evidence for these arguments, and understanding the reason for these developments should be an area for future research.

For services GVCs, there are good reasons to look beyond the traditional arm’s-length cross-border trade data, which ignore the large share of international transactions in services that take place through commercial presence for FDI. Some initiatives to remedy the commercial presence gap are being taken by the U.S. Bureau of Economic Analysis and the OECD.

Some evidence shows that the emergence of GVCs through FDI in services can affect downstream sectors. Improved access to finance, communications, transport, and other services, either through general reform or reform of FDI, enhances manufacturing firms’ productivity and other aspects of the performance of downstream firms. The development of domestic services sectors and access to foreign services can also shift the pattern of comparative advantage. Preliminary evidence suggests that trade-in-value-added data could help in understanding dynamic structural change and deindustrialization—areas that merit more analysis.

Some have called for developing a notion of GVCs that goes beyond arm’s-length market-based transactions to functions within the firm. It may be feasible to distinguish between tasks that would have been services if they had taken place at arm’s length (such as book-keeping) and other tasks that are intrinsically agricultural or manufacturing in nature (such as wood processing). But such distinctions slide on a slippery slope: ultimately, almost any task can potentially be conceived of as an arm’s length service. A horticultural laborer can be hired as a worker in a horticultural firm, or the laborer’s “fruit-picking” services can be purchased from an individual or a firm. This kind of deconstruction of a firm into its constituent tasks could reduce each firm to a bundle of services regardless of what it ultimately produces.

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