U.S. Foreign Trade in Services:
Trends and U.S. Policy Challenges
William H. Cooper
Specialist in International Trade and Finance
Rebecca M. Nelson
Specialist in International Trade and Finance
May 15, 2014
Congressional Research Service
7-5700
www.crs.gov
R43291

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U.S. Foreign Trade in Services: Trends and U.S. Policy Challenges

Summary
The term “services” refers to an expanding range of economic activities, such as construction,
retail and wholesale sales, e-commerce, financial services, professional services (such as
accounting and legal services), transportation, tourism, and telecommunications. They have
become an important priority in U.S. foreign trade flows and trade policy and of global trade in
general, although their intangibility, the requirement for direct buyer-provider contact, and other
characteristics have limited the types and volume of services that can be traded. Congress is
expected to consider in the future U.S. trade agreements currently under negotiation that include
services as significant components.
Services constitute an important component of U.S. trade flows. The United States is the largest
exporter of services (14% of the global total in 2011) and the largest importer (10% of the global
total in 2011). In 2012, services accounted for 29% of total U.S. exports and 7% of total imports.
Rapid advances in information technology and the related growth of global value or supply chains
have reduced barriers to trade in services, making an expanding range of services tradable across
national borders.
A number of economists have argued that foreign government barriers prevent U.S. trade in
services from expanding to their potential. The United States has negotiated trade agreements to
lower these barriers. It has been a leading force in doing so under the General Agreement on
Trade in Services (GATS) in the World Trade Organization (WTO) and in free trade agreements,
all of which contain significant provisions on market access and rules for liberalizing trade in
services. The United States is in the midst of negotiating with 11 other countries the Trans-Pacific
Partnership (TPP) agreement and is also one of 23 countries negotiating a possible plurilateral
Trade in Services Agreement (TISA). Services trade is also an important component of the
recently launched negotiations on the Transatlantic Trade and Investment Partnership (TTIP)
agreement between the United States and the European Union (EU), two of the world’s largest
providers of and traders in services.
The outlook for these trade negotiations remains uncertain. In each case, the participants have
difficult issues to overcome. Perhaps one of the most difficult issues is whether regional and
plurilateral agreements will support or undermine the pursuit of a more extensive, multilateral
agreement in the GATS. A related issue is whether participants in the regional and plurilateral
agreements can/should encourage recalcitrant countries, such as the emerging economies—Brazil,
China, and India—to join.
Congress and U.S. trade negotiators face other issues, including how to balance the need for
effective regulations with the objective of opening markets for trade in services; ensuring
adequate and accurate data to measure trade in services to better inform trade policy; and
determining whether renewed trade promotion authority is needed to credibly negotiate trade
agreements on services.

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U.S. Foreign Trade in Services: Trends and U.S. Policy Challenges

Contents
Introduction ...................................................................................................................................... 1
U.S. Foreign Trade in Services ........................................................................................................ 2
Modes of Delivery ..................................................................................................................... 2
Overall Trends ........................................................................................................................... 2
Geographical Distribution ......................................................................................................... 4
Trade by Services Type.............................................................................................................. 6
The United States and World Trade in Services ........................................................................ 7
Barriers to Trade in Services ..................................................................................................... 8
The Economic Effects of Barriers to Services Trade ............................................................... 10
Establishing Rules on Services Trade ............................................................................................ 11
The WTO and GATS ............................................................................................................... 12
The GATS .......................................................................................................................... 12
Services and the Doha Development Agenda (DDA) ....................................................... 14
Services in U.S. FTAs .............................................................................................................. 15
Negative List ..................................................................................................................... 16
Rules of Origin .................................................................................................................. 16
Multiple Chapters on Services .......................................................................................... 16
Regulatory Transparency ................................................................................................... 17
A Recent Case Study: The U.S.-South Korea FTA (KORUS FTA) .................................. 17
The Proposed Trade in Services Agreement (TISA) ......................................................... 18
TPP and TTIP .................................................................................................................... 22
Outlook .......................................................................................................................................... 23

Figures
Figure 1. U.S. Exports of Private Services by Area, 2012 ............................................................... 5
Figure 2. U.S. Imports of Private Services by Area, 2012 ............................................................... 6
Figure 3. Tariff Equivalents of Services Barriers........................................................................... 11

Tables
Table 1. U.S. Cross-Border Trade in Goods and Services, 1986-2013 ............................................ 3
Table 2. Services Supplied to Foreign and U.S. Markets through Cross-Border Trade and
Affiliates, 2009-2011 .................................................................................................................... 4
Table 3. U.S. Cross-Border Trade in Services by Type, 2013 ......................................................... 7
Table 4. Top Ten Country Exporters and Importers of Services in 2012 ......................................... 8
Table 5. Top Ten Exporters and Importers of Services in 2012 ....................................................... 8

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U.S. Foreign Trade in Services: Trends and U.S. Policy Challenges

Contacts
Author Contact Information........................................................................................................... 24

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U.S. Foreign Trade in Services: Trends and U.S. Policy Challenges

Introduction
The term “services” refers to an expanding range of economic activities, such as construction,
retail and wholesale sales, e-commerce, financial services, professional services (such as
accounting and legal services), transportation, tourism, and telecommunications. Services account
for most U.S. economic activity—70% of U.S. gross domestic product (GDP) and 80% of U.S.
civilian employment. Services are an important element across the U.S. economy, at the national,
state, and local levels. They not only function as end-user products but also act as the “lifeblood”
of the rest of the economy with transportation services ensuring that goods reach customers and
financial services providing credits for the manufacture of goods.
Services have become an important component in U.S. foreign trade and, therefore, an
increasingly important priority of U.S trade policy and of global trade in general. The
intangibility of services and other characteristics have limited the types and volume of services
that could be traded across national borders. However, rapid advances in information technology
and the related growth of global value and supply chains are making an expanding range of
services tradable across national borders.
A number of economists have argued that foreign government barriers prevent U.S. trade in
services from expanding to their potential.1 The United States has engaged in trade negotiations
on multilateral, plurilateral and bilateral agreements to lower these barriers. These current trade
negotiations are occurring within the context of the ongoing policy debate on the value and
appropriateness of trade liberalization.
Congress has a significant role to play in negotiating and implementing trade liberalizing
agreements, including those on services. In fulfilling its responsibilities for oversight of U.S.
trade policymaking and implementation, Congress monitors trade negotiations and the
implementation of trade agreements. Members, through consultations with the Administration and
the renewal of trade promotion authority (TPA), establish negotiating priorities for trade
agreements. More directly, Congress must pass any agreements requiring changes to U.S. law
before the agreements can enter into force in the United States.
This report provides background information and analysis on U.S. foreign trade in services. The
focus of the report is an analysis of the policy challenges that the United States confronts,
especially the challenge of negotiating a set of international disciplines on trade in services and
dealing with the complexity of measuring trade in services. The report also focuses on emerging
issues and current negotiations, especially those pertaining to the Trade in Services Agreement
(TISA), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment
Partnership (TTIP) agreement.

1 See for example, J. Bradford Jensen, Global Trade in Services: Fear, Facts, and Offshoring, Peterson Institute for
International Economics, August 2011, p. 7.
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U.S. Foreign Trade in Services: Trends and U.S. Policy Challenges

U.S. Foreign Trade in Services
Modes of Delivery
Because of the basic characteristics of services (especially compared to goods),including, their
intangibility, and their ability to be conveyed via various formats, such as electronically and direct
provider-to-consumer contact, the World Trade Organization(WTO) has adopted a system of
classifying four modes of delivery for services. These four modes have been used to classify data
to measure trade in services and to classify government measures that affect trade in services in
international agreements. (See the text box below.)
Four Modes of Services Delivery
International agreements on trade in services, including the General Agreement on Trade in Services (GATS), which
is administered by the WTO, identify four modes of supply of services:
Mode 1—Cross-border supply: The service is supplied from one country to another. The supplier and consumer
remain in their respective countries, while the service crosses the border. Example: A U.S. architectural firm is hired
by a client in Mexico to design a building. The U.S. firm does the design in its home country and sends the blueprints
to its client in Mexico.
Mode 2—Consumption abroad: The consumer physical y travels to another country to obtain the service. Example: A
Mexican client travels to the United States to attend training on architecture and stays in a U.S. hotel.
Mode 3—Commercial presence: The supply of a service by a firm in one country via its branch, agency, or whol y-
owned subsidiary located in another country. Example: A U.S construction firm establishes a subsidiary in Mexico to
sell services to local clients.
Mode 4—Temporary presence of natural persons: individual suppliers travel temporarily to another country to supply
services. Example: a U.S. computer programmer travels to Mexico to provide training to an employee.
Identifying the various modes of delivery of services is important for measuring the volume of services trade. Each
mode requires a different method of measurement, and the data derived from these measurements are not likely to
be compatible across the four modes, that is, one cannot combine the data on services traded via Mode 1 with data
derived from services traded via Mode 3 in order to obtain a total. Identifying the modes is also important for policy
purposes because issues raised by trade in Mode1can be different from issues raised by trade in another mode. For
example, the trade barriers faced by providers in Mode1 are not necessarily the same as those faced by providers in
Mode 4. Therefore, knowing the different modes helps to frame policy issues and solutions.
Source: The description and examples of modes of delivery are based on, and adapted from, the description
contained in Organization of Economic Cooperation and Development (OECD), GATS: The Case for Open
Services Markets, Paris, 2002. p. 60.
Overall Trends
U.S. foreign trade in services plays an important role in overall U.S. foreign trade. “Services”
encompass a range of economic activities including passenger fares and other travel and
transportation services; royalties and licensing fees for the use of intellectual property rights;
express delivery; e-commerce; education services; banking, insurance, and other financial
services; accounting, construction, architectural and engineering, legal services, and other
professional services.
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Measurements of trade in services are captured in two types of data: cross-border trade, which
includes services sold via Modes 1, 2, and 4, described above.2 The second set of data measures
services sold by an affiliate of a company from one country in the territory and to a consumer of
another country (Mode 3).3
Regarding cross-border trade, in 2013, services accounted for 30.0% of total U.S. exports (of
goods and services) and 16.5% of total U.S. imports (of goods and services). Table 1 shows that
the United States has continually realized surpluses in services trade, which have partially offset
large trade deficits in goods trade in the U.S. current account.4
Table 1. U.S. Cross-Border Trade in Goods and Services, 1986-2013
(Billions of Dollars)
Exports
Imports
Balances
Year
Goods Services Goods Services Goods Services
1986 223.3
85.4 368.4 80.1 -145.1
5.3
1991 416.9 163.0 491.0 118.5 -74.1 44.5
1996 612.1 237.7 803.3 150.8 -191.2 86.9
1997 679.7 258.8 876.4 166.9 -196.7 91.9
1998 670.2 263.7 917.2 181.0 -247.0 82.7
1999 684.6 272.8 1030.0 189.2 -345.4 83.6
2000 772.2 293.5 1,224.4 217.0 -452.2 76.5
2007
1,148.5 497.2
1,967.9 378.1 -819.4 119.1
2008
1,037.5 535.2
2,137.6 403.4
-1,100.1 131.8
2009
1,069.7 509.2
1,575.5 382.6 -505.8 126.6
2010
1,288.9 553.6
1,934.0 403.2 -645.1 150.4
2011
1,497.4 606.0
2,235.8 427.4 -738.4 178.6
2012

1,561.2 649.3
2,302.7 442.5 -741.5 206.8
2013(p)
1589.7 681.7
2,293.6 452.7 -703.9 229.0
Source: U.S. Department of Commerce. Bureau of Economic Analysis.
Note: p=preliminary.
Many services require direct contact between supplier and consumer and, therefore, service
providers often need to establish a presence in the country of the consumer through foreign direct
investment. For example, providers of legal, accounting, and construction services usually prefer

2 For example, the purchases by a foreign visitor of a hotel and of other services in the United States are counted as
U.S. exports and such purchases by a U.S. visitor to a foreign country are counted as U.S. imports from that country.
3 Affiliates are enterprises that are directly or indirectly owned or controlled by an entity in another country to the
extent of 10 percent or more ownership of the voting stock for an incorporated business, or an equivalent interest for an
unincorporated business.
4 The current account includes trade in goods and services as well as income earned on foreign investments and
unilateral transfers.
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a direct presence because they need access to expert knowledge of the laws and regulations of the
country in which they are doing business and they require proximity to clients.
In 2011 (the latest year for which published data are available), U.S. firms sold $1,287.0 billion in
services to foreigners through their majority-owned foreign affiliates. In 2011, foreign firms sold
$754.0 billion in services to U.S. residents through their majority-owned foreign affiliates located
in the United States.5 The data for cross-border trade and for sales by majority-owned affiliates
are not directly compatible. Nevertheless, the data presented in Table 2 indicate that in terms of
magnitude, most sales of services occur through the commercial presence of companies in foreign
markets.
Table 2. Services Supplied to Foreign and U.S. Markets through Cross-Border Trade
and Affiliates, 2009-2011

To Foreign Markets
To the U.S. Market
Cross-Border
Through U.S.
Through Foreign

Trade
Affiliates
Cross-Border Trade
Affiliates
2009 492.1 1,071.6
347.7
669.3
2010 537.7 1,130.5
368.0
696.0
2011 606.0 1,287.0
427.4
754.0
Source: Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, October 2013, p. 62.

Conventional trade data do not capture the portion of the total value of exports and imports of
manufactured goods and agricultural products attributed to services. For example, data measure
exports and imports of goods based on the value of the final product. Included in that
measurement, but not disaggregated, is the value of such services as research and development,
design, transportation costs, finance, among others, that are imbedded in the final product.
However, the Organization of Economic Cooperation and Development (OECD) and the WTO
have undertaken a project to measure trade flows based on value-added rather than final cost.
They have estimated that in 2009, close to 50% of the value of U.S. exports of manufactured
goods was attributable to services inputs.6 This finding suggests a larger role for services in
foreign trade than is reflected in conventional trade data.
Geographical Distribution
The United States conducts trade in services (both via cross border trade and foreign direct
investment) with many different regions of the world. (See Figures 1 and 2.) Much of the U.S.
cross-border trade in services in 2012 occurred with EU-member countries. In 2012, 32% of U.S.
exports of services went to the 28 member-countries of the EU, while 35% of U.S. imports of
services came from those countries.7 Japan accounted for 8% of U.S. services exports and 7% of
U.S. services imports, while other Asian and Pacific countries accounted for 12% and 10% of

5 Survey of Current Business, October 2013, p. 64.
6 OECD, Interconnected Economies: Benefitting from Global Value Chains, Paris, p. 58.
7 As of July 30, 2013, the EU consists of 28 countries with the addition of Croatia.
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U.S. Foreign Trade in Services: Trends and U.S. Policy Challenges

U.S. exports and imports of services, respectively, in 2012. Canada accounted for 10% and 7% of
U.S. services exports and imports, respectively, in 2012. Of note is India’s emergence as an
important source of services. In 2001, India accounted for 1% of total U.S. imports of services,
and in 2012, it accounted for 5% of total U.S. services imports.8
Figure 1. U.S. Exports of Private Services by Area, 2012
(Cross-border Trade in Percentages of Total)

Source: CRS based on data from the Department of Commerce, Bureau of Economic Analysis.

8 Survey of Current Business, October 2012, pp. 36-37.
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Figure 2. U.S. Imports of Private Services by Area, 2012
(Cross-border Trade in Percentages of Total)

Source: CRS based on data from the Department of Commerce, Bureau of Economic Analysis.
The EU’s dominance in U.S. services trade is even more apparent when taking into account
services that are provided through multinational corporations (MNCs). In 2011 (latest data
available), 43.1% of services supplied by U.S. MNCs were to foreign persons located in EU-
member countries, 25.4% to foreign persons located in Asian countries, and 9.8% to foreign
persons located in Canada. In 2011, 54.4% of sales of services by U.S. affiliates of foreign-owned
MNCs to U.S. persons were by MNCs based in EU-member countries, 20.4% by MNCs based in
Asia, and 9.9% by MNCs based in Canada.9
Trade by Services Type
In 2013, business and professional services (accounting, computer services, accounting and legal
services, among others) accounted for 23.8% of U.S. exports and 28.0% of U.S. imports of
services, and insurance and other financial services accounted for 14.6% of U.S. services exports
and for 16.0% of U.S. imports of services. Travel and related services have also played a
significant role in U.S. cross-border services trade, accounting for 21.2% and 20.2% of U.S.
services exports and imports, respectively, in 2013. Passenger fares accounted for another 6.2%
and 8.7% and other transportation services accounted for an additional 6.9% and 13.7% of U.S.
services exports and imports. (See Table 3.)

9 Survey of Current Business, October 2013, p. 62.
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Table 3. U.S. Cross-Border Trade in Services by Type, 2013
(Percentages of Total)

U.S. Exports
U.S. Imports
Travel 21.2%
20.2%
Passenger Fares
6.2%
8.7%
Other Transportation
6.9%
13.7%
Royalties & Fees
19.6%
9.7%
Education 4.0%
1.5%
Insurance & Other Financial
14.6%
16.0%
Telecommunications 2.1% 1.8%
Business & Professional
23.8%
28.0%
Other 1.6%
0.4%
Source: CRS based on data from the Department of Commerce, Bureau of Economic Analysis.
Sales of services by MNCs include a broader range of industries. In 2011 (latest data available),
25.8% of sales in terms of value of services to foreign persons by U.S.-owned MNCs were
accounted for by wholesale and retail trade services. Another 19.6% were accounted for by
financial services, while 14.1% were attributable to sales of professional services, including
computer systems and design, architectural, engineering, and related services, and other
professional services. Another 21.7% of these sales were accounted for in an “other industries”
category that includes mining, utilities, and transportation services.10 Similarly, in 2011, 22.5% of
sales of services to U.S. persons by U.S. affiliates of foreign MNCs were accounted for by
wholesale and retail trade, with another 20.9% accounted for by financial services providers and
23.5% by providers from “other industries.”11
The United States and World Trade in Services
The United States is a major power in world trade in services. According to the WTO, if the EU
countries are treated separately, the United States was the largest single-country exporter (14.1%)
and importer (9.9%) of global commercial services in 2012. (See

10 Ibid., p. 34.
11 Ibid., p. 66.
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Table 4.) The United States was the second largest exporter (18.3%) and second largest importer
(12.7%) in 2012, if the EU is treated as a single entity and intra-EU trade in services is excluded.
(See Table 5.)12

12 World Trade Organization, World Trade Report 2012, Geneva, pp. 32-33.
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Table 4. Top Ten Country Exporters and Importers of Services in 2012
(EU Members treated separately)
Share of World Exports
Share of World Imports of
Country
of Services
Country
Services
United States
14.1%
United States
9.9%
United Kingdom
6.4%
Germany
6.9%
Germany 5.9%
China
6.8%
France 4.8%
United
Kingdom
4.3%
China 4.4%
Japan 4.2%
India 3.4%
France 4.2%
Japan 3.2%
India 3.0%
Spain 3.2%
Singapore
2.8%
Singapore 3.1%
Netherlands
2.8%
Netherlands 2.9%
Ireland
2.8%
Source: World Trade Organization, World Trade Report 2012, Geneva, p. 36.
Note: These data do not cumulate data for EU-27 countries.
Table 5. Top Ten Exporters and Importers of Services in 2012
(EU-27 treated as a single entity)
Share of World Exports
Share of World Imports of
Country
of Services
Country
Services
EU27 24.6%
EU27 20.0%
United States
18.3%
United States
12.7%
China 5.7%
China 8.8%
India 4.4%
Japan 5.4%
Japan 4.2%
India 3.9%
Singapore 4.0%
Singapore 3.7%
Hong Kong
3.8%
Canada
3.3%
South Korea
3.3%
South Korea
3.3%
Switzerland 2.6%
Russia
3.2%
Canada 2.6%
Brazil 2.4%
Source: World Trade Organization, World Trade Report 2012, Geneva, p. 37.
Note: These data exclude intra-EU trade.
Barriers to Trade in Services
Because of the fundamental differences between goods and services, the impediments that service
providers face are often different from those faced by goods suppliers. Many impediments in
goods trade—tariffs and quotas, for example—are at the border.
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Restrictions on services trade occur largely within the borders of the importing country. Some of
these restrictions are in the form of government regulations. The right of governments to regulate
some service industries is widely recognized as prudent and necessary to protect consumers from
harmful or unqualified providers. For example, doctors and other medical personnel must be
licensed by government-appointed boards; lawyers, financial services providers, and many other
professional service providers must be also certified in some manner. In addition, governments
apply prudential capital requirements on banks to ensure their solvency. The question in foreign
trade is whether these regulations are applied in a discriminatory and unnecessarily trade
restrictive manner to foreign services providers. Because services transactions more often require
direct contact between consumer and provider than is the case with goods trade, many of the
“trade barriers” that foreign companies face pertain to the establishment of a commercial
presence in the consumers’ country in the form of direct investment (Mode 3) or to the temporary
movement of providers and consumers across borders (Modes 2 and 4).
The GATS under the WTO identifies specific “market access” restrictions as proscribed under its
provisions. These include limits on: the number of foreign service suppliers; the total value of
service transactions or assets; the number of transactions or value of output; the type of legal
entity or joint venture through which services may be supplied; and the share of foreign capital or
total value of foreign direct investment.
In many cases the impediments are government regulations or rules that are ostensibly legitimate
but may intentionally or unintentionally discriminate against foreign providers and impede trade.
Examples of such barriers include
• restrictions on international payments, including repatriation of profits,
mandatory currency conversions, and restrictions on current account transactions;
• restrictions on the movement of personnel, including visa and work permit
restrictions;
• requirements that foreign professionals pass certification exams or obtain extra
training that is not required for local nationals;
• mandatory hiring of local labor;
• restrictions on information transfer imposed to protect data and maintain
privacy—“data localization;”
• “buy national” requirements in government procurement;
• lack of national treatment in taxation policy or protection from double taxation;
• government-owned monopoly service providers and requirements that foreign
service providers use a monopoly’s network access or communications
connection providers;
• government subsidization of domestic service suppliers;
• discriminatory licensing and certification of foreign professional services
providers; and
• limitations on foreign direct investment, such as:
• equity ceilings;
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• restrictions on the form of investment, that is, a branch, subsidiary, joint
venture, etc.; and
• requirements that the chief executive officer or other high-level company
officials be local nationals or that a certain proportion of a company’s
directors be local nationals.13
The Economic Effects of Barriers to Services Trade
Measuring the effects of trade barriers in general, and barriers to trade in services, in particular, is
challenging. This challenge occurs because the most significant barriers to trade in services are
nontariff measures that are not readily quantifiable. Economists have constructed methods to at
least estimate the effects, which can help to inform trade policy.
Economists at the Peterson Institute for International Economics (PIIE) recently published the
results of one such method in several related studies. They first determined that U.S. trade in
“business services”—a broad category that includes such activities as information; finance and
insurance; real estate; professional, scientific, and technical services; and management services—
is lower than one might expect given U.S. comparative advantage in those services. To come to
this conclusion, the PIIE economists first determined that many business services are tradable,
that is, capable of being sold from one region to another because many of them are “traded”
between regions within the United States. They then compared the trade profiles of
manufacturing firms and those of service firms and concluded that while about 27% of U.S.
manufacturing firms export, only 5% of U.S. firms providing business services engage in
exporting, even though the United States has a comparative advantage in business services. The
PIIE study concludes that foreign government trade barriers are a major factor in the relatively
low participation of U.S. service providers in trade. It also calculated the export/total sales ratios
of manufacturing firms compared to business services firms, with the former being 0.20 and the
latter 0.04. The study argues that if the ratio of business services could be raised to 0.1 or half of
the manufacturers’ ratio, it would increase total U.S. goods and services exports by 15%.14
Presumably, U.S. imports of services would also increase.
Most economists would argue that by reducing barriers to trade in services, economies can more
efficiently allocate resources, increasing general economic welfare. Opponents of liberalization in
trade in services argue, however, that the United States would be forced to relinquish some
regulatory control that could affect the viability of service sectors.

13 OECD, Working Party of the Trade Committee Assessing Barriers to Trade in Services—Revised Consolidated List
of Cross-Sectoral Barrier, Paris, February 28, 2001.
14 Gary Hufbauer, J. Bradford Jensen, and Sherry Stephenson, Framework for the International Services Agreement,
Peterson Institute for International Economics, Policy Brief, Number PB12-10, April 2012, p. 19.
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Figure 3. Tariff Equivalents of Services Barriers
(Average Ad Valorem Equivalents)

Source: Hufbauer, Schott, and Wong in J. Bradforn Jensen,Global Trade in Service: Fears, Facts, and
Offshoring,Peterson Institute for International Economics, August 2011, p. 152.
A number of economists have developed methods to quantify the impact of barriers on services
trade. Figure 3 shows the results of one method by PIIE economists. The graph measures barriers
to services as average tariff equivalents for each of 21 countries representing a range of levels of
development. The graph shows that Norway and Switzerland, with 0% and 3% rates, respectively,
and United States and the EU each with 6% rates, are among the least restrictive and the most
open markets in terms of trade in services. Japan and South Korea, which are also developed
economies, are more restrictive with 17% and 25% rates ad valorem equivalent rates,
respectively. Other less developed economies are even more restrictive.
Establishing Rules on Services Trade
The United States has been working with trading partners to develop and implement rules on
several fronts in order to reduce barriers and facilitate trade in services without infringing on the
sovereign rights of governments to regulate services for prudential and sound regulatory reasons.
The broadest and most challenging in terms of the number of countries involved are the
multilateral rules contained in the GATS that entered into force in 1995 and is administered by the
159-member World Trade Organization (WTO). The United States has also sought to go beyond
the GATS (WTO-plus) under more comprehensive rules in the free trade agreements (FTAs) it
has in force and in ongoing negotiations on the TISA, the TPP, and the TTIP with the EU. The
U.S. overall objective in each of these fora has been to establish a more open, rules-based trade
regime that is flexible enough to increase the flow of services and to take into account the
expansion of types of services, but clear enough to not impede the ability of governments to
regulate the sectors.
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The WTO and GATS
The seeds for multilateral negotiations in services trade were planted more than a quarter century
ago. In the Trade Act of 1974, Congress instructed the Administration to push for an agreement
on trade in services under the General Agreement on Tariffs and Trade (GATT) during the Tokyo
Round negotiations. While the Tokyo Round concluded in 1979 without a services agreement, the
industrialized countries, led by the United States, continued to press for its inclusion in later
negotiations. Developing countries, whose service sectors are less advanced than those of the
industrialized countries, were reluctant to have services included. Eventually services were
included as part of the Uruguay Round negotiations launched in 1986.15 At the end of the round,
countries agreed to a new set of rules for services, the GATS, and a new multilateral body, the
WTO, to administer the GATS, the GATT, and the other agreements reached.
The GATS
The GATS provides the first and only multilateral framework of principles and rules for
government policies and regulations affecting trade in services among the 159 WTO countries
representing many levels of economic development. In so doing, it provides the foundation or
floor on which rules in other agreements on services are based. As with the rest of the WTO, the
GATS has remained a work in progress. The agreement is divided into six parts.16
Part I (Article I) defines the scope of the GATS. It provides that the GATS applies—
• to all services, except those supplied in the routine exercise of government
authority;
• to all government barriers to trade in services at all levels of government—
national, regional, and local; and
• to all four modes of delivery of services.
Part II (Articles II-XV) presents the “principles and obligations,” some of which mirror those
contained in the GATT for trade in goods, while others are specific to services. They include
• unconditional most-favored-nation (MFN), non-discriminatory treatment –
services imported from one member country cannot be treated any less favorably
than the services imported from another member country;17
• transparency—governments must publish rules and regulations;
• reasonable, impartial and objective administration of government rules and
regulations that apply to covered services;

15 Geza Feketekuty, International Trade in Services: An Overview and Blueprint for Negotiations, American Enterprise
Institute,. Ballinger Publishers. 1988. p. 194.
16 This description of the GATS is based on WTO Secretariat—Trade in Services Division. An Introduction to the
GATS, October 1999, available at http://www.wto.org. Not all services issues were resolved when the Uruguay Round
was completed in 1993.
17 The GATS differs from the GATT in that it has allowed members to take temporary exemptions to MFN treatment.
The exemptions are listed in a special annex to the GATS. The GATS allows only these one-time exemptions. The
GATS (as is the case of the GATT) also allows MFN exemptions in the cases of regional agreements.
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• monopoly suppliers must act consistently with obligations under the GATS in
covered services;
• a member incurring balance of payments difficulties may temporarily restrict
trade in services covered by the agreement; and
• a member may circumvent GATS obligations for national security purposes.
Part III (Articles XVI-XVIII) of the GATS establishes market access and national treatment
obligations for members. The GATS—
• binds each member to its commitments once it has made them, that is, a member
country may not impose less favorable treatment than what it has committed to;
• prohibits member-country governments from placing limits on suppliers of
services from other member countries regarding: the number of foreign service
suppliers; the total value of service transactions or assets; the number of
transactions or value of output; the type of legal entity or joint venture through
which services may be supplied; and the share of foreign capital or total value of
foreign direct investment;
• requires that member governments accord service suppliers from other member
countries national treatment, that is, a foreign service or service provider may not
be treated any less favorably than a domestic provider of the service; and
• allows members to negotiate further reductions in barriers to trade in services.
Importantly, unlike MFN treatment and the other principles listed in Part II, which apply to all
service providers more or less unconditionally, the obligations under Part III are restricted. They
apply only to those services and modes of delivery listed in each member’s schedule of
commitments. Thus, unless a member country has specifically committed to open its market to
service suppliers in a particular service that is provided via one or more of the four modes of
delivery, the national treatment and market access obligations do not apply. This is often referred
to as the positive list approach to trade commitments. Each member country’s schedule of
commitments is contained in an annex to the GATS.18 The schedules of market access
commitments are, in essence, the core of the GATS.
Parts IV-VI (Articles XIX-XXIX) are technical elements of the agreement. Among other things,
they require that, no later than 2000, the GATS members start new negotiations (which they did)
to expand coverage of the agreement and that conflicts between members involving
implementation of the GATS are to be handled in the WTO’s dispute settlement mechanism. The
GATS also includes eight annexes, including one on MFN exemptions. Another annex provides a
“prudential carve out,” that is, a recognition that governments take “prudent” actions to protect
investors or otherwise maintain the integrity of the national financial system. These prudent
actions are allowed, even if they conflict with obligations under the GATS.
Not all of the issues in services were resolved when the Uruguay Round negotiations ended in
1994. Fifty-six WTO members, mostly developed economies, negotiated and concluded an
agreement in 1997 in which they made commitments on financial services. The schedules of

18 See out-of-print CRS Report 95-1051, Services Trade and the Uruguay Round, by Arlene Wilson, p. 17 (available
from author).
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commitments largely reflected national regimes already in place.19 Furthermore, 69 WTO
members negotiated and concluded an agreement in 1997 on telecommunications services. That
agreement laid out principles on competition safeguards, interconnection policies, regulatory
transparency and the independence of regulatory agencies. Both agreements were added to the
GATS as protocols.20
Services and the Doha Development Agenda (DDA)
Article XIX of the GATS required WTO members to begin a new set of negotiations on services
in 2000 as part of the so-called WTO “built-in agenda” to complete what was unfinished during
the Uruguay Round and to expand the coverage of the GATS. However, because no agreement
was reached, the services negotiations were folded—along with agriculture and non-agriculture
negotiations—into the agenda of the Doha Development Agenda (DDA) round that was launched
in December 2001. By most accounts, the DDA negotiations, which are officially in their 12th
year, are at a standstill at best. At the December 2005 biennial WTO Ministerial meeting in Hong
Kong, WTO members expressed widespread disappointment with the offers that member-
countries had made in the services negotiation, because they failed to reflect even current levels
of market openness.
WTO leaders and member countries have attempted to re-start momentum in the DDA process in
general and in the services negotiations in particular. Initially, the service negotiations were
conducted in a country-by-country, “request-offer” format, where members would first indicate
what they wanted from the negotiations and then follow-up with concessions on openness they
were willing to offer. At the Hong Kong ministerial, the members agreed to shift tactics and try a
“plurilateral” offer process whereby like-minded members would group in clusters to develop
offers in more than 20 specific sectors. While some offers emerged, the services negotiations,
along with the other elements of the DDA round, have largely been considered of limited success
at best and have been relatively inactive since 2011.
U.S. priorities in the services negotiations included the following areas:
• removing unnecessary restrictions on foreign providers establishing a
commercial presence;
• improving the quality of commitments from what was established originally in
the GATS;
• regulatory transparency so that foreign services providers are better informed
about host country regulations that may affect them; and
• expanding market access in financial services, telecommunication services,
express delivery, energy services, environmental services, distribution services,
education and training services, professional services, computer and related
services, and audiovisual and advertising services.

19 Marchetti, Juan A., Financial Services Liberalization in the WTO and PTAs, in Juan A. Marchetti, Juan A. and
Martin Roy, (eds), Opening Markets for Trade in Services: Countries and Sectors in Bilateral WTO Negotiations,
World Trade Organization, Cambridge University, 2008, p. 323.
20 Tuthill, L. Lee and Laura B. Sherman, Telecommunications: an Trade Agreements Keep Up with Technology?, in
Marchetti, Juan A. and martin Roy, (eds), Opening Markets for Trade in Services: Countries and Sectors in Bilateral
WTO Negotiations, World Trade Organization, Cambridge University, 2008
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Several possible reasons can be cited for the lack of progress. One is the division between
developed countries that have advanced services sectors employing highly-skilled labor and
developing countries with less-developed service industries. The former group, including the
United States and the EU, seeks market opportunities for its services providers and has been more
willing to open its markets to competition. The latter group, which includes China, India, and
Malaysia, has been more protective of its domestic services providers.21
The lack of progress in the agriculture and non-agriculture market access (NAMA) negotiations
in the DDA has also affected the services negotiations. Some developing countries asserted that
they would not improve their offers until the United States and the EU commit to reduce their
agriculture subsidies. In addition, the “single undertaking” principle, under which the members
conducted the DDA round, meant success in one area of the negotiations required success in all
areas.
Another reason for the lack of progress could be the complexity of the agenda of the services
negotiations and the number of players involved. The term “services” includes a broad range of
economic activities many with few characteristics in common except that they are not goods. The
trade barriers that exporters face differ across service sectors making the formulation of trade
rules a significant challenge. For example, licensing regulations are especially important to
professional service providers, such as lawyers and medical professionals, while data transfer
regulations are important to financial services providers. Furthermore, services negotiations
include many participants. In addition to trade ministers, they include representatives of finance
ministries and regulatory agencies many of whom do not consider trade liberalization a primary
part of their mission. In addition, negotiators have found it difficult to formulate mechanisms that
distinguish between government regulations that are purely protectionist and those that have
legitimate purposes.22
Frustration with the DDA negotiations has likely contributed to the proliferation of bilateral and
regional trade agreements that include provisions on services and services-related activities (for
example, foreign direct investment) and for alternative frameworks.
Services in U.S. FTAs
The United States has made services a priority in each of the 15 FTAs it has negotiated that cover
trade with 20 countries (including the U.S.-Canada FTA which was overtaken by the entry into
force of the North American Free Trade Agreement (NAFTA) on January 1, 1994). While the
specific treatment of services differs among the FTAs because of the status of U.S. trade relations
with the partner(s) involved, the FTAs share some characteristics that define a framework of U.S.
policy priorities. Some of the major characteristics are examined below. Some of these aspects
reaffirm adherence to principles embedded in the GATS, while other go beyond the GATS.

21 J.Bradford Jensen, Global Trade in Services: Fear, Facts, and Offshoring, Peterson Institute for International
Economics, August 2011, pp. 150-151.
22 Bernard Hoekman, and Aaditya Mattoo, Regulatory Cooperation and the General Agreement on Trade in Services,
Cordell Hull Institute, Trade Policy Roundtable, October 1, 2007, p. 9.
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Negative List
Each of the U.S. FTAs uses a negative list in determining market access and national treatment
coverage and commitments from each partner. Therefore, the FTA provisions for market access
and national treatment apply to all categories and subcategories of services in all modes of
delivery unless a party to the agreement has listed a service or mode of delivery as an exception.
The negative list also implies that a newly-created or domestically-provided service is
automatically covered under the FTA unless it is specifically listed as an exception in an annex to
the agreement. The negative list approach is widely considered to be more comprehensive and
flexible than the positive list which is used in the GATS and which some other countries use in
their bilateral and regional FTAs.
Rules of Origin
Under FTAs in which the United States is a party, any service provider is eligible irrespective of
ownership nationality as long as that provider is an enterprise organized under the laws of either
the United States or the other party(ies) or is a branch conducting business in the territory of a
party. Such criteria potentially expand the benefits of the FTA to service providers from other
countries that are not direct parties to the FTA. For example, a U.S. subsidiary of a Canadian-
owned insurance company would be covered by the U.S.-South Korea FTA. The FTAs do allow
one party to deny benefits to a provider located in the territory of another party, if that provider is
owned or controlled by a person from a non-party country and does not conduct substantial
business in the territory of the other party, or if the party denying the benefits does not otherwise
conduct normal economic relations with the non-party country.23
Multiple Chapters on Services
In many of the U.S. FTAs, trade in services spans several chapters indicating their prominence in
U.S. trade policy and the specificity of U.S. policy negotiating objectives. Each of the FTAs has a
specific chapter on cross-border trade in services—trade by all modes except commercial
presence (Mode 3). This chapter requires the United States and the FTA partner(s) to accord non-
discriminatory treatment—both MFN treatment and national treatment—to services originating in
each other’s territory. The agreement prohibits the FTA partner-governments from imposing
restrictions on: the number of service providers; the total value of service transactions that can be
provided; the total number of service operations or the total quantity of services output; or the
total number of natural persons that can be employed in a services operation. In addition, the
governments cannot require a service provider from the other FTA-partner to have a presence in
its territory in order to provide services. The FTA partners may exclude categories or subcategory
of services from the agreement, which they designate in annexes.

23 These rules of origin are discussed in the context of the U.S.-Australian FTA in United States International Trade
Commission, U.S.-Australia Free Trade Agreement: Potential Economywide and Selected Sectoral Effects,
Investigation No. TA-2104-11, May 2004, p. 87, and in Centre for International Economics (Australia), Economic
Analysis of the AUSFTA: Impact of the Bilateral Trade Agreement with the United States, April 2004, p. 16. Under the
U.S.-Australian FTA, for example, a relevant provision is contained in Chapter 10 which applies to cross-border
services. An enterprise of a Party is defined as “an enterprise organized or constituted under the laws of a Party; and a
branch located in the territory of a Party and carrying out business activities there ... ” (Article 10.14(2)). The
exceptions are contained in Article 10.11 (Denial of Benefits). Similar provisions are contained in other U.S. FTAs.
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Each U.S. FTA also contains a chapter on foreign direct investment, including service providers
that have a commercial presence (Mode 3) in the territory of a FTA partner and a chapter on
intellectual property rights (IPR), which is also relevant to services trade.24 In addition, many of
the U.S. FTAs contain separate provisions or chapters on specific service categories which have
been priority areas in U.S. trade policy. They include the following:
• Financial Services: The FTAs define financial services to “include all insurance
and insurance-related services, and all banking and other financial services, as
well as services incidental or auxiliary to a service of a financial nature.” Among
other things, the financial services chapter allows governments to apply
restrictions for prudential reasons and allows financial service providers from an
FTA partner to sell a new financial service without additional legislative
authority, if local service providers are allowed to provide the same service.
• Telecommunication Services: The United States and trading partners agree that
enterprises from each other’s territory are to have nondiscriminatory access to
public telecommunications services. For example, both countries will ensure that
domestic suppliers of telecommunications services who dominate the market do
not engage in anticompetitive practices. They also ensure that public
telecommunications suppliers provide enterprises based in the territory of the
FTA-partner with interconnection, number portability, dialing parity, and access
to underwater cable systems.
• e-commerce: The FTAs include provisions to ensure that electronically supplied
services are treated no less favorably than services supplied by other modes of
delivery and that customs duties are not to be applied to digital products whether
they are conveyed electronically or via a tangible medium such as a disk.
Regulatory Transparency
Many of the U.S. FTAs require the FTA partners to practice transparency when implementing and
developing domestic regulations that affect services. In particular, the FTAs require the partner
countries to provide notice of impending investigations that might affect service providers from
the other partner(s). The FTAs go beyond the transparency provisions in the GATS by providing
mechanisms for interested parties to comment on proposed regulations and appeal adverse
decisions.
A Recent Case Study: The U.S.-South Korea FTA (KORUS FTA)
On March 15, 2012, the U.S.-South Korean FTA (KORUS FTA) entered into force. It was one of
the three most recent FTAs—along with Colombia and Panama—that Congress approved in
October 2011. Industry representatives have referred to the services-related provisions of the
agreement as “the gold standard” for the treatment of services, particularly financial services, in
FTAs. Examining some of its provisions may provide an indication of trends for U.S. objectives
in trade in services in future agreements.

24 Services are also indirectly covered in U.S. bilateral investment treaties (BITs). For more information on BITS, see
CRS Report R43052, U.S. International Investment Agreements: Issues for Congress, by Shayerah Ilias Akhtar and
Martin A. Weiss
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For example, for the first time in any trade agreement, the KORUS FTA contains in the financial
services annex a specific reference to data transfer, enabling U.S. companies to freely transfer
customer data into and out of a partner country. The provision is to be fully implemented within
two years after entry into force (2014).25 Data transfer has become a significant U.S. objective in
current trade agreement negotiations as globalization has fragmented business operations across
borders, and multinational firms want to be able to maintain central locations for data storage and
avoid having to locate servers in multiple locations. In doing so, the multinational companies
confront some governments’ privacy concerns and localization requirements. Data transfer is an
issue in the TPP negotiations and will likely be an issue in the negotiations on the TTIP and the
TISA (discussed below).
The role of state-owned enterprises (SOEs) in services trade is another U.S. trade policy issue
addressed in the KORUS FTA making it a possible model for other U.S. FTAs.26 U.S. insurance
companies have been concerned that the state-owned Korea Post and the cooperative insurance
providers—the National Agricultural Cooperative Federation and the National Federation of
Fisheries Cooperative—are not regulated by the Korean Financial Supervisory Commission or by
the Financial Supervisory Service, while both private sector foreign and domestic providers are so
regulated. Under the KORUS FTA, South Korea agreed that those entities will be subject to an
independent state regulator as opposed to being self-regulated. In addition, Korea Post will not be
allowed to offer new insurance products.
The United States sought greater reciprocity and market openness in the treatment of professional
services and thereby gain increased access to the South Korean market for U.S. providers. The
United States and South Korea agreed to form a professional services working group to develop
methods to recognize mutual standards and criteria for the licensing of professional service
providers. Under the KORUS FTA, South Korea has allowed U.S. law firms and U.S. licensed
attorneys to provide advisory services on U.S. and international law since the KORUS FTA
entered into force. South Korea will also permit U.S. legal representative offices to establish
cooperative operations with a South Korean firm to handle matters pertaining to domestic and
foreign legal matters, and, no later than five years after the agreement’s entry into force, will
allow U.S. law firms to form joint ventures with South Korean firms. However, South Korea will
still reserve the right to restrict the activities of foreign lawyers.
In telecommunications services, South Korea will reduce government restrictions on foreign
ownership of South Korean telecommunications companies. Two years after the KORUS FTA has
entered into force (2014), U.S. companies will be able to own up to 100% of voting shares in
domestic South Korean telecommunications companies, and those companies will be able to own
up to 100% of a facilities-based licensee. These provisions do not apply to KT Corporation or to
SK Telecom Co. for which a 49% foreign ownership limit remains in place.
The Proposed Trade in Services Agreement (TISA)
Largely because of the lack of progress in the DDA round of negotiations in the WTO, a group of
23 WTO members—the “Really Good Friends of Services” (RGFS)—have been engaging in

25 Office of the United States Trade Representative, Report of the Industry Trade Advisory Committee on Services and
Finance Industries (ITAC 10), April 2007.
26 State-owned enterprises (SOEs) are businesses that are directly or indirectly controlled by the government. U.S.
SOEs include the U.S. postal system.
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discussions on a possible sector-specific, plurilateral agreement to liberalize trade in services
among them.27 The group accounted for around 70% of world trade in services in 2012.28 The
United States and Australia have been at the forefront of the effort, with other WTO members,
including some developing countries, becoming increasingly active as the discussions progress.
While not directly linked currently to the WTO, TISA participants are taking as their guide the
“Elements of Political Guidance” issued at the end of the 8th WTO ministerial in December 2011.
It stipulated that members could pursue negotiations outside of the single undertaking in order to
accomplish the objectives of the DDA.29
For proponents of services trade liberalization, the plurilateral approach offers some advantages:
• progress in the services negotiations would no longer be tied to progress in other
negotiations as has been in the case under the “single-undertaking” rule in the
DDA;
• the RGFS members include those countries that account for a major share of
global services trade;
• since negotiations are confined to countries willing to negotiate, prospects for a
successful conclusion may be enhanced;
• the coverage of the agreement can be expanded as countries accede to its
provisions; and
• the RGFS are likely to be more willing to commit to reducing barriers to trade
and services beyond the limited commitments under the GATS and the offers
made during the DDA round.
However, the approach may have some drawbacks:
• the RGFS members do not as a group currently include some of the economically
significant emerging economies, such as Brazil, India, and China, which present
the largest potential market opportunities for services but also impose significant
impediments to trade and investment in services;
• breaking from the single-undertaking framework could undermine the
opportunity for concessions in other areas, including agriculture and
manufactured goods, that result from the “give-and-take” of negotiations; and
• a plurilateral services pact might diminish the credibility of the multilateral trade
negotiation framework at a time its credibility has already been weakened by the
setback, if not demise, of the DDA.

27 Contrary to the WTO MFN principle, a plurilateral agreement applies only to those countries that have signed it. The
WTO has allowed such exceptions to MFN, such as the WTO Government Procurement Agreement. The RGFS
members are: Australia; Canada; Chile; Taiwan (Chinese Taipei); Colombia; Costa Rica; EU; Hong Kong; Iceland;
Israel; Japan; Korea; Liechtenstein; Mexico; New Zealand; Norway; Pakistan; Panama; Paraguay; Peru; Switzerland;
the United States; and Turkey.
28 Swiss National Center for Competence in Research: A Plurilateral Agenda for Services?: Assessing the Case for a
Trade in Services Agreement, Working Paper No. 2013/29, May 2013, p. 10.
29 European Parliament, Directorate-General for External Policies, Policy Department, The Plurilateral Agreement on
Services: at the Starting Gate.
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Informal discussions began in early 2012 and continued throughout the year. These discussions
were designed to develop a basic framework and principles under which the negotiations would
be conducted. On January 15, 2013, then-United States Trade Representative (USTR) Ron Kirk
notified congressional leaders that the United States would formally engage in negotiations with
the other RGFS members to reach an agreement trade in services, now dubbed the Trade in
Services Agreement (TISA). In so doing, the Obama Administration adhered to the notification
requirements under trade promotion authority (TPA), even though the latest authority expired on
June 30, 2007.30 The TPA required that the President notify Congress of his intention to enter into
negotiations 90 calendar-days prior to doing so. (For the TISA this was April 15, 2013.)
The RGFS group has agreed to a framework of five basic objectives on which the negotiations are
to be conducted.31 The agreement should:
(1) be compatible with the GATS, that would attract broad participation and that could be
brought within the WTO framework in the future;
(2) be comprehensive in scope, with no exclusions of any sector or mode of supply;
(3) include commitments that correspond as closely as possible to applied practices and
provide opportunities for improved market access;
(4) include new and enhanced disciplines to be developed on the basis of proposals brought
forward by participants during the negotiations; and
(5) be open to new participants who share the objectives of the RGFS but also should take
into account the development objectives of least developed countries (LDCs).
Among other issues that the RGFS countries addressed was whether to schedule trade
liberalization commitments according to a negative list or positive list. Because of disagreements
within the group, its members decided to use a “hybrid” approach—national treatment obligations
would be negotiated under a negative list and market access obligations would be negotiated
under a positive list.32
Another issue was the application of the TISA commitments to non-participants. The RGFS
agreed to conduct the negotiations on a non-MFN basis, that is, the benefits of the commitments
made by the participants in the TISA would apply to only those countries that have signed on to
the agreement thereby avoiding “free-riders.” This exception to the general WTO MFN principle
is consistent with Article V of the GATS which allows WTO members to form preferential
agreements to liberalize trade in services as long as the agreement has substantial service sectoral
coverage and provides for the absence or elimination of substantially all discrimination.
On January 24, 2013, the USTR issued a Federal Register notice inviting stakeholder to submit
comments on a potential TISA and provide testimony for a hearing on March 12, 2013. While

30 TPA is authority that Congress grants the President to negotiate reciprocal trade agreements to liberalize trade for
which the implementing legislation would receive expedited legislative consideration (no amendments, timely
committee consideration, mandatory floor consideration, and time-limited debate).
31 International Trade Daily, February 19, 2013.
32 World Trade Online, January 17, 2013.
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directed at consideration of the TISA, the submissions can also be considered the views of their
authors on services trade agreements in general.
Many members of the U.S. business community, especially service providers and related
industries, strongly support the formation of a TISA. This group views a TISA as an opportunity
to strengthen multi-party rules on trade in services beyond what are contained in the GATS—
which are largely considered to be pretty weak.
In their comments, TISA advocates stated their overall goals:33
• strive for a comprehensive agreement that covers all services sectors and all
modes of delivery;
• ensure uninhibited cross-border data flows and eschew data storage localization
requirements;
• use the negative list approach to commitments and strive for flexibility to allow
for coverage of new technologies as they emerge;
• ensure market access for “suites” of clusters of services that tend to operate in
tandem in an increasingly digitally-based market place, for example—financial,
retail, communications, transportation and computer-related services;
• provide for accession of new participants;
• eliminate equity ceilings on foreign investment in service providers;
• prohibit performance requirements, such as local sourcing and local content
requirements;
• ensure that state-owned enterprises (SOEs) and state-supported enterprises
(SSEs), such as national postal companies, that provide commercial services, are
not accorded preferential treatment over domestic and foreign privately-owned
and operated service providers in terms of regulations, subsidies, other means;
• limit prudential carve-outs to those that are necessary to maintain the integrity of
the financial sector and avoid their use as disguised protectionism;
• allow service providers to choose the legal form (subsidiary, branch, etc.) for
doing business;
• provide for transparency in development and implementation of regulations;
• avoid standards that unnecessarily distort trade; and
• establish a dispute settlement mechanism.
Some opponents of trade in services liberalization, such as labor unions and some civil society
groups, argue that, rather than employing TISA as a means to expand on the GATS, it should be
used to reverse what they consider to be infringements of GATS provisions on the authority of

33 These examples were largely taken from submissions by the National Foreign Trade Council, Inc., February 26,
2013, and the Coalition of Services Industries. For the complete set of submissions, see http://www.regulations.gov/
#!docketBrowser;rpp=25;po=0;dct=PS;D=USTR-2013-0001.
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national, state, and local governments to regulate services. Therefore, they argue that a proposed
TISA should:34
• use the positive list approach to scheduling commitments to ensure that sensitive
services, such as those traditionally provided by government-supported entities
(water and energy) are not subject to foreign competition;
• include a comprehensive “carve-out” for publically-provided services;
• exclude an “investor-state” dispute settlement mechanism that would undermine
the ability of states to impose and maintain regulations on services;
• include a stronger prudential measures exception to ensure that governments can
preserve the integrity of domestic financial systems; and
• exclude Mode4 measures which should remain under federal statutes pertaining
to immigration policies.
During a July 2013 House Ways and Means Committee hearing on U.S. trade policy, USTR
Ambassador Michael Froman stated that the United States would seek to conclude a “high
standard services agreement” that would allow already competitive U.S. service suppliers to
compete “on a more level playing field.”
The TISA participants completed the sixth round of negotiations (April 28-May 2, 2014) in
Geneva. By the end of the sixth round, all of the participants, except Paraguay and Pakistan, had
submitted their initial market access offers. These offers apparently had spanned the gambit of
types of services and issues. The participants reportedly will begin the process of indicating what
each participant expects the others to offer during the next round of negotiations which is
expected to begin in late June.35
Another issue that has emerged concerns China’s expressed interest in joining the TISA. While
the issue is still pending, it has generated differences among the participants. Reportedly, the
United States has expressed concerns about China’s readiness to undertake the commitments that
TISA would require, while the European Union has argued for China’s participation.36
TPP and TTIP
The TISA is arguably a significant focal point of trade policy on services for the United States
and other major trade powers. If successful, it could form the basis of multilateral rules on trade
in services for the 21st century. However, the United States is engaged in two other sets of
negotiations—the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment
Partnership (TTIP)—in which trade in services is playing an important role and where U.S.
objectives could overlap into U.S. objectives in the TISA.
The TPP partners—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand,
Peru, Singapore, the United States, and Vietnam—envision the TPP to be a comprehensive, high-
standard agreement. The agreement is to include not only standard provisions to reduce or

34 These points were taken largely from submissions by Public Citizens, Inc. and the AFL-CIO.
35 International Trade Daily, May 7, 2014.
36 Ibid.
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eliminate barriers to trade in investment but also provisions to address cross-cutting issues that
are coming to define the 21st Century trade agenda—regulatory coherence, supply chains, digital
trade, state-owned enterprises, and the role of small- and medium-sized enterprises.37
Because the negotiations are ongoing and classified, draft texts of agreement are unavailable
publicly. However, the negotiating partners announced a framework for the agreement at the
sidelines of the Asia-Pacific Economic Cooperation (APEC) Ministerial in Honolulu, Hawaii,
November 8-13, 2011. The proposed structure of the TPP regarding services reflects the template
the United States has used in is previous FTAs: separate sections on cross-border services,
financial services, telecommunications trade and foreign investment. The TPP would also use the
full negative list approach for both market access and national treatment. Eight of the 12 TPP
partners—Australia, Canada, Chile, Japan, Mexico, New Zealand, Peru, and the United States—
are also negotiating the TISA.
Given the importance of services in U.S. and EU negotiations, as noted in the earlier discussion
of U.S. foreign trade flows in services, the TTIP will likely include provisions to address barriers
in bilateral trade in services. Some of the issues that have been present in U.S.-EU economic
relations for some time and that would likely be part of the TTIP negotiations include; cross-
border data flows; data privacy; and the coordination of financial regulations.38 The United States
is currently opposed to discussing financial regulation. The TTIP negotiations are in their early
stages and are still evolving.39
Outlook
To date, the record on liberalization of trade in services through reciprocal trade agreements is
mixed. The 159 members of the WTO negotiated and have maintained a basic set of multilateral
rules in the form of the GATS. However, the GATS is largely viewed as limited in scope and in
need of expansion, if it is to be an effective instrument of trade liberalization. The efforts of the
WTO members to expand on these rules have floundered with little prospect of success at least in
the foreseeable future.
The United States and other countries have pursued other avenues to reduce barriers to trade in
services either as alternatives to the GATS or as catalysts to encourage progress in the GATS
negotiations. The United States has made services an important component of the FTAs it has
negotiated over the past two decades. While these agreements have gone beyond the GATS in
terms of coverage, they apply to a limited number of countries accounting for small shares of
U.S. trade in services. As a possible remedy, the United States is pursuing the proposed
plurilateral TISA which includes the 28-member EU and Japan—two of the most important U.S.
trade partners—and 20 other participating countries. Services will likely be important issue in the
TPP and TTIP negotiations as well.

37 For more information on the TPP, see CRS Report R42694, The Trans-Pacific Partnership (TPP) Negotiations and
Issues for Congress, coordinated by Ian F. Fergusson.
38 For more information on the TTIP negotiations, see CRS Report R43158, Proposed Transatlantic Trade and
Investment Partnership (TTIP): In Brief, by Shayerah Ilias Akhtar and Vivian C. Jones.
39 For more information on TTIP, see CRS Report R43158, Proposed Transatlantic Trade and Investment Partnership
(TTIP): In Brief, by Shayerah Ilias Akhtar and Vivian C. Jones.
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U.S. Foreign Trade in Services: Trends and U.S. Policy Challenges

The outlook for these negotiations remains uncertain. In each case, the participants have difficult
issues to overcome. Perhaps one of the most difficult issues is whether the pursuit of regional and
plurilateral agreements will support or undermine the pursuit of more extensive multilateral rules
in the GATS. A related issue is whether participants in regional and plurilateral agreements
can/should encourage other countries, such as the emerging economies—Brazil, China, and
India—to join. (China has expressed interest in joining.)
Other potential policy issues for Congress and negotiators to address include the following:
• How should policymakers balance the responsibility of sovereign governments to
regulate services to ensure the safety and privacy of their citizens against the
objective of expanding markets in order to increase economic efficiency?
• Available data measure only a portion of foreign trade in services. To the degree
that data help to determine policies, should Congress consider requiring the
executive branch to collect more complete data where possible?
• Advancements in information technology expand the number and types of
services that can be traded help to create new types of services. Is it possible to
develop a trade arrangement that is clear enough to be effective and flexible
enough to take into account rapid changes in the services sector?
• The United States has negotiated a number of FTAs with substantial services
components. Can/should these FTAs be a template for U.S. positions in the TISA
and other future agreements on services?
• What role might renewed trade promotion authority, including the establishment
of trade negotiating objectives, play in the pursuit of U.S. interests in trade in
services?
FTAs to which the United States is not a member, including a number in Asia, have emerged or
are being negotiated. What affect might they have on U.S. trade and trade policy regarding
services?



Author Contact Information

William H. Cooper
Rebecca M. Nelson
Specialist in International Trade and Finance
Specialist in International Trade and Finance
wcooper@crs.loc.gov, 7-7749
rnelson@crs.loc.gov, 7-6819


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