Abstract
This contribution is motivated by two observations that do not seem to have been seen in conjunction up to now. On the one hand, when the “French exception” was inserted in the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO), this was motivated by the fear that imports especially of cultural services would undermine a country’s identity. On the other hand, while services presently account for up to 70% of the GDP of major industrial countries, their imports of services lag far behind with less than 20% of total imports. This raises the question of whether the desire to maintain a country’s identity might exert a limiting influence on the trade in services. The analysis combines Lancaster’s new theory of demand with (relative rather than absolute) identity maintenance (RIM) to derive a set of acceptable outcomes of service production in characteristics space. For trade in services to occur, the sets of trading countries need to overlap, resulting in three testable predictions: 1) The more stringent the countries’ RIM, the smaller the volume of services trade between them; 2) In the presence of RIM, the volume of trade in services increases with the similarity of the countries’ preference structures; and 3) in the presence of RIM, the volume of trade in services is the lower, the greater the difference in countries’ incomes. While current evidence supports these predictions, it needs to be completed when more data on bilateral trade flows in services become available.
Highlights
On the one hand, when the “French exception” was inserted in the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO), this was motivated by the fear that imports especially of cultural services would undermine a country’s identity
While services account for 77% of GDP in the United States (65.5% in the European Union, as of 2019), they amount to only 19% of U.S imports (14.6% of EU imports, respectively), indicating that trade in services has been developing but slowly compared to their domestic component
The starting point of this paper is a puzzle: Why is it that services make up more than 60% of the GDP of industrial countries while they account for less than 20% of their imports? The “French exception” from the General Agreement on Trade in Services (GATS) provides a first clue: The French government was concerned about a loss of cultural identity due to imports of entertainment services mainly from the United States
Summary
The French exception had an effect: Only around 50% of admissions in France are for American film imports, compared to 60% to 90% in other European film markets (GreenAsh, 2017), period of observation not indicated] This is not to deny the importance of barriers to trade in services, notably a host of regulations (see Benz et al, 2020) for a recent listing and evidence that they are related to the volume of trade]. These regulations may at least to some degree reflect citizens’ desire to maintain a country’s identity.
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