Trade in Services in Kosovo – Brief 

  1. Overview

Kosovo’s economy is predominantly a “services economy”. The services sector has emerged as the largest segment of the economy and its driving force, contributing a growing share of domestic valued added, employment and trade. Services activities accounted in 2017 for 71.9 per cent of GDP at basic prices, and generated 81.2 per cent of total formal employment in the country. More importantly, services activities constitute the backbone of the Kosovo’s private sector. Services activities comprise 86 per cent of total firms registered in the country, and provide for 82.6 per cent of total private sector employment. Services activities generate 87.3 per cent of total firm’s turnover in the economy, and represent 88.8 per cent of total expenditures. (Source: Kosovo Statistic Agency)

  1. Classification

The service sector is composed of a wide variety of market and nonmarket activities, ranging from transport and retailing, to hotels, restaurants, financial activities, business and personal services, education, health and public administration1

Based on WTO/GATS agreement Services sectoral classification list given below:

Business services and professional services

  • Accountancy services; Advertising services; Architectural and engineering services; Computer and related services and Legal services

Communication services

  • Audiovisual services; Postal and courier, express mail services and Telecommunications

Construction and related services

Distribution services

Education services

Energy services

Environmental services

Financial services

Health and social services

Tourism services

Transport services

  • Air transport services; Land transport services; Maritime transport services and Services auxiliary to all modes of transport
  1. Description of the classification

The reporting on the sectors is given on several different levels. Each sector is disaggregated to its components.

Financial, telecommunications, energy distribution, and transport and related logistic services constitute the underlying basic networks of the economy allowing for the functioning of the overall economic system. These services bond the economy, and being intermediate inputs into production in all sectors, their availability, price and quality determine to a large extent the systemic competitiveness of an economy.

Education and health services are fundamental for the development and reproduction of human capital, which is widely acknowledged to yield significant economic and social returns. Professional services, and the so called producer services, are responsible for the generation, dissemination and application of “knowledge” increasingly constituting, in the context of the emerging knowledge economy, a crucial interface between knowledge generation and productive and other social endeavors.

Professional services enhance the performance of other firms through research and development and organizational improvement, with technology becoming the basis of increased productivity and competitiveness. Accounting and legal services constitute critical components of the overall required infrastructure of a market economy. Beyond the multi-purpose information that accounting services provide, they are the foundation of the countries fiscal systems and play a key role in corporate governance. Legal services, on their part, provide for the adequate implementation of laws and regulations, the protection of rights and fulfilment of contractual obligations, and facilitate conflict resolution allowing for the adequate functioning of the markets.

Services such as the cultural industries and a number of social, communal and governmental services are fundamental in developing what has been defined in economic literature as “social capital”, contributing to the internal social and cultural cohesion of society which guarantees economic growth or overall human well-being. Furthermore, other services, such as entertainment services, restaurants and hotels and personal services, while generating important employment, significantly contribute to improving the overall quality of life in society.

Services increasingly contribute to the integration of national economies into the international trading system.

Transport – Covers international revenues (receipts) and expenses (payments) associated with moving people and goods from one location to another, and includes related supporting and auxiliary services and postal and courier services. Postal and courier services cover the pick-up, transport and delivery of letters, newspapers, periodicals, brochures, other printed matter, parcels, and packages, including post office courier and mailbox rental services.

Travel – In the case of travel, the consumer moves to another territory to consume the goods and services that he or she acquires.

Other business services – Includes a wide variety of tradable services. It consists of financial services, communication and information services; research and development services, professional and management consulting services, and technical, trade-related, and other business services. Research and development services include services associated with basic and applied research and experimental development of new products and processes. Professional and management consulting services include legal services, accounting, management consulting, managerial services, public relations services, advertising, and market research.

Government goods and services; goods and services acquired from the host economy by diplomats, consular staff, and military personnel located abroad and their dependents; and services supplied by and to governments that are not included in other services categories.

  1. Modes of Supply

According to the WTO GATS General Agreement on Trade in Services, four modes of supply are mentioned.

Mode 1: Cross-border supply: is defined to cover services flows from the territory of one Member into the territory of another Member (e.g. banking or architectural services transmitted via telecommunications or mail);

Mode 2: Consumption abroad: refers to situations where a service consumer (e.g. tourist or patient) moves into another Member’s territory to obtain a service;

Mode 3: Commercial presence: implies that a service supplier of one Member establishes a territorial presence, including through ownership or lease of premises, in another Member’s territory to provide a service (e.g. domestic subsidiaries of foreign insurance companies or hotel chains); and

Mode 4: Presence of natural persons: consists of persons of one Member entering the territory of another Member to supply a service (e.g. accountants, doctors or teachers). The Annex on Movement of Natural Persons specifies, however, that Members remain free to operate measures regarding citizenship, residence or access to the employment market on a permanent basis.

 

  1. Trade Agreements

Stabilization Association Agreement – Regarding the identification of priorities for the implementation of the SAA after its entry into force, the transposition of the Services Directive 123/2006 in the Law on Services has already been completed, followed by the monitoring of implementation for progressive liberalization based on the list of products carried out in SAA and Bilateral Service Agreements with EU countries. The Ministry of Trade and Industry, Trade Department (MTI) has drafted the Law on Services, which transposes the EU Directive no. 2006/123 / EC on Services in the Internal Market. Additionally, Law on Services No. 05 / L-130 has been approved by the Assembly of Kosovo and entered into force in April 2017. This Law introduced additional obligations for the harmonization of all legal and sub-legal acts of the domestic legislation with this Law – and this process has already been completed. All local legislation regulating the area of services has been reviewed and 54 laws and bylaws have been identified that are incompatible with the Services Directive and must be supplemented or amended. Complementation the amendment of these laws and bylaws will be done based on the Action Plan that is approved by Government on 06th of July 2018.

Lastly, complementary to the processes mentioned above, two administrative instructions have been drafted. Based on the Law on Services 05 / L-130. Two administrative instructions were drafted (a) Administrative Instruction on the Manner of Functioning of Point of Single Contact also (b) Administrative Instruction on Notification Procedure and the Compliance Assessment of Draft Normative Acts with the Law on Services. These two administrative instructions were approved by the Government and signed by the Prime Minister on 23 March 2018.

Central European Free Trade Agreement (CEFTA) – Negotiations on Trade in Services were held in nine rounds within 18 months of October 2014 – December 2016. As a result of these negotiations, the Additional Protocol 6 (AP6) was drafted, the purpose of this protocol is to facilitate Trade in Services and Recognition of Professional Qualifications between CEFTA countries. Additional Protocol 6 is expected to be adopted during 2019.