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A new indicator in foreign trade in services – mode of supply of service

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Posted on 13. January 2021 13:05, Leading Analyst Allan Aron

Foreign trade statistics cover exports and imports of goods and services between Estonia and partner countries. While international trade in goods is based on their physical movement across borders, trade in services focuses on transactions between residents and non-residents, regardless of their location.

Why is the mode of supply of service important?

A resident can provide a service to a non-resident both in Estonia and in a partner country. The mode of supply, i.e. the method of delivery, helps to determine the location of the transaction partner and how the provider supplies the service to the consumer.

Foreign trade statistics on the modes of supply of services are important in the development of trade policy and preparation of trade agreements both in Estonia and in the entire European Union.

What modes of supply of services are used?

The mode of supply is determined by the location of the service provider and the consumer at the time of the transaction. There are four modes of supply:

1 - Cross-border trade. The service provider and the consumer are located in their territory at the time of the transaction. The service is provided via the internet, telephone, post, etc.

2 - Consumption abroad. The consumer of the service consumes the service abroad and not in the country of residence (for example, tourists who consume travel services abroad).

3 - Commercial presence. A company provides a service in another country through its subsidiary, branch or official representative.

4 - Presence of natural persons. The service is provided through natural persons who travel to another country to provide the service. The service providers can be both employees of the enterprise or self-employed persons.

Data providers must indicate the mode of supply

In 2021, Statistics Estonia will start collecting data on foreign trade in services with the questionnaire “Foreign trade in services”, which must be submitted on a quarterly basis. Data providers must indicate in the questionnaire the main mode of supply in which the service is provided. Filling in this data field is mandatory. The questionnaire collects data on modes 1, 2 and 4 (data on mode 3 are obtained from other statistical surveys).

In addition, it is possible to choose the share of the main mode of supply of service in the questionnaire. Often a service is supplied in a combined way or the same service has different modes of supply. Here, the respondent should determine the percentage of the pre-selected main mode of supply. This data field is optional. More information on how to report modes of supply of services is available in the Manual for Foreign Trade in Services.

Statistics Estonia does not plan to ask respondents for modes of supply of services each year. Based on the data collected in 2021, coefficients are calculated that can be used in the following years as well. In the future, this will reduce the administrative burden of data providers related to completing the questionnaire.

The publication of the article was funded by the European Union.

 

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