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Sophisticated economies rely on services


The composition of Australian trade in services

Australia's five largest services exports in 2016 were:

Pie chart: Technical and other business services: $4.1 billion; Business travel services: $4.2 billion; Professional services: $4.8 billion; Education-related travel services: $22 billion; Personal travel excl. education services: $17.4 billion. Source: ABS.

International research confirms that, as countries have become richer, their services sectors have become a more prominent part of their economies. In Australia services is a key component of the economy, representing about 75 per cent of Australia's gross domestic product and employing four out of five Australians.

A service is a type of economic activity that is more often than not intangible and cannot be stored or transported. Services can be difficult to identify as they can sometimes be closely associated with a physical good. For example, wheat harvesting would be a service and the wheat would be the good. Or a tax agent compiling a tax return would be considered a service. Or a consultant writing a report.

Services are essential to growing, mining, or making things. Businesses need energy, a water supply, and their produce transported to market. Few can survive without modern communications, a bank account, or insurance. Most businesses will consult a lawyer and an accountant when making a contract or obtaining capital.

Australia is a world-class provider of services including professional, education, tourism, financial, telecommunications, energy and mining-related services, environmental services, health and aged care and financial technology (or FinTech). Because of our strengths in these areas, and the potential globally, these are Australia's priority sectors for improving market access in global services trade reform efforts.

Services play an increasingly important role in our international trade, with volumes of services exports growing by an average of 5.3 per cent over the last five years. In 2016, trade in services accounted for 21.8 per cent of Australia's overall trade in goods and services. The value of Australia's services exports are much greater once we take into account the role of intermediate services inputs known as 'embodied services', which form part of the value of Australian goods exports because they are used in the production of those products prior to export. Using that earlier example, this would involve the wheat harvesting services that go into the value of the wheat we export. The OECD estimates services contribute a much more significant 40 per cent of our value-added export earnings.

In addition, around two-thirds of Australian services provided to the world are delivered by Australian foreign affiliates abroad, not via direct export. This activity is not included in ABS trade in services statistics, however, it does contribute to Australia's national income.

Why is it important to open services markets internationally?

Services play a major role in all modern economies. Indeed, it would be difficult for any economic activity to take place without services such as telecommunications, banking and freight logistics.

As such, an efficient services sector is critical to broader economic growth and job creation.

Encouraging greater international trade in services through open markets and non-discriminatory treatment boosts competition and productivity, lowers prices across the economy and leads to higher employment levels, higher incomes and higher standards of living.

Further statistical information on Australia's trade in services will be available in the forthcoming DFAT publication 'Trade in Services Australia 2016'.

Last Updated: 7 August 2017
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