Services Negotiations in the WTO: An Overview of the U.S. Offer

Services Negotiations in the WTO: An Overview of the U.S. Offer

Order Code RS21492
Updated September 2, 2003
CRS Report for Congress
Received through the CRS Web
Services Negotiations in the WTO:
An Overview of the U.S. Offer
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
On March 31, 2003, the Bush Administration unveiled a plan to liberalize global
trade in services as part of its commitment to meet the World Trade Organization’s
(WTO) deadline for submitting negotiating proposals for trade in services. Some 14
other countries and the European Union have also submitted their services offers; a
number of other countries are also expected to submit offers. The U.S. proposal
expands somewhat beyond its original offer, submitted July 1, 2002, and it attempts to
bind federal and state market openings that have been made unilaterally since the
General Agreement on Trade in Services (GATS) was signed in 1995. The U.S. offer
does not provide for negotiations on a number of sensitive issues: government
monopolies that provide public services; state and federal regulatory interests; U.S.
citizen and minority-specified programs; specified interest of U.S. educational
institutions; and the privatization or deregulation of water distribution. The August 24,
2003 draft Cancun Ministerial text prepared by General Council Chairman Carlos Perez
del Castillo urges members to intensify their efforts to develop a proposal, but services
negotiations are tied to progress in the divisive agricultural negotiations, which have
made little progress to date. This report will be updated as warranted by events.
Background
Services issues are an important part of the World Trade Organization’s already-
established work program. Services negotiations are mandated by the General Agreement
on Trade in Services (GATS), which required that further negotiations on services begin
in 2000. According to Article XIX of the GATS, the negotiations must aim at reducing
or eliminating the adverse effects on services trade of restrictive measures initiated for the
purpose of providing effective market access. This objective was reaffirmed in the Doha
Ministerial Declaration1, which supports continuing negotiations aimed at further
liberalizing trade in services. The Doha Declaration folded services into a broader
1 Ministerial Declaration. World Trade Organization, November, 2001. A copy can be found at:
[http://www-chil.wto-ministerial.org/english/thewto_e/minist_e/min01_e/mindecl_e.pdf]
Congressional Research Service ˜ The Library of Congress

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agenda, including such other topics as agriculture and industrial tariffs, and any final
agreement is likely to be comprehensive.
Under the current round of negotiations, participants are expected to abide by a
number of deadlines. Most of the participants met the deadline of March 31, 2002 for
submitting an initial list of liberalization policies that specified those areas in which they
hope to pursue greater liberalization. With the initial list of offerings as a starting point,
the hard work of negotiating actual commitments is set to begin. During this stage of the
discussions, the participants reserve the right to withdraw, modify, or reduce their offers
depending on how much other participants are willing to open their markets. These
discussions are slated to conclude January 1, 2005. Limited success in the thorny
agriculture negotiations, however, is spurring some negotiators to question the prospects
of reaching an agreement by this deadline. U.S. negotiators have voiced their continued
support for the agricultural talks and argue that they remain committed to meeting the
January 1, 2005 deadline. At the same time, they argue that the limited success
experienced so far in agriculture negotiations should not impede progress in the area of
services trade and in other areas where negotiations are progressing.2
Service industries account for 81 percent of U.S. employment3 and 67 percent of
U.S. gross domestic product (GDP).4 U.S. exports of commercial services (i.e., excluding
military and government) were $266 billion in 2001, doubling from the $137 billion
recorded in 1990.5 Cross-border trade in services accounts for more than 25 percent of
world trade, or about $1.4 trillion annually. Major markets for U.S. services include the
European Union ($99 billion in private sector 2001 exports), Japan ($31 billion), and
Canada ($24 billion). At $14 billion, Mexico is presently the largest emerging market for
exports of U.S. services.
Most observers agree that liberalizing trade in services could provide large economic
benefits for the United States, due to the large role it plays in the U.S. economy. One
estimate indicates that a hefty reduction of 33% in the barriers restricting trade in services
would provide economic benefits to the United States of $134 billion,6 the largest share
of any potential economic gains in the Doha round. The negotiations are just at the initial
stages, however, and it is unclear at this point how expansive the negotiations will be and
how extensive the benefits will be for the participants. One hurdle that complicates the
2 U.S. Trade Representative Robert B. Zoellick Unveiling of U.S. Services Proposal to the WTO,
March 31, 2003. See:[ http://www.ustr.gov/releases/2003/03/2003-03-31-transcript-services.pdf]
3 According to the Bureau of Labor Statistics, of the 129 million people in the U.S. labor force
in February 2003, 105 million are in the service producing industries. See:
[http://www.bls.gov/ces/]
4 McCahill, Robert J., and Brian C. Moyer, Gross Domestic Product by Industry for 1999-2001.
Survey of Current Business, November 2002, p. 32.
5 Borga, Maria, and Michael Mann, U.S. International Services: Cross-Border Trade in 2001 and
Sales Through Affiliates in 2000. Survey of Current Business, October 2002, p. 84-86.
6 Brown, Drusilla K, and Alan V. Deardorff, and Robert M. Stern, Multilateral, Regional, and
Bilateral Trade-Policy Options for the United States and Japan. RSIE Discussion Paper No.
490, December 16, 2002.

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process of estimating the benefits of the negotiations is in identifying barriers to trade in
services and then assigning monetary values to those barriers.
The General Agreement on Trade in Services
The General Agreement on Trade in Services, or GATS,7 was created as part of the
Uruguay Round of trade negotiations and entered into effect in January 1995. The
Agreement consists of 29 articles, eight annexes, eight Ministerial decisions, and an
Understanding. Article XIX is considered by many to be one of the most important
because it commits the WTO members to “successive rounds of negotiations with a view
to achieving a progressively higher level of liberalization.” Such a commitment was felt
necessary because the Agreement does not rely on a set of rules similar to those applied
for goods, but relies instead on a list of specific commitments supplied by each member
country and details what that country is willing to undertake.
Under the GATS, member countries agreed to abide by a set of general obligations,
which were applied directly and automatically to all members and services sectors, and
a number of specific commitments concerning market access and national treatment in
certain designated sectors. The scope of these sectoral commitments is laid down in
individual country schedules and, therefore, varies widely between members. Under the
Agreement, the general obligations are comprised of two specific issues: most favored
nation treatment, and transparency, or openness regarding laws and regulations. Specific
commitments relate to market access, national treatment, and the movement of natural
persons. Other annexes concern four areas in which the Members agreed to continue
negotiations: air transport, financial services, telecommunications, and maritime transport
services. The Agreement also distinguishes between four different modes of delivery of
services: 1) cross-border trade in services, which represents the most common type of
services trade; 2) consumption abroad, primarily activities associated with tourism; 3)
commercial presence in which a firm from one country establishes a presence in another
country in order to provide a service; and (4) the presence of natural persons, such as
medical doctors, accountants, or teachers from one country entering another country in
order to supply a service.
In principle, the Agreement applies to all services with two exceptions: services
supplied to governments, and air traffic rights and services. The Agreement also provides
that in certain circumstances, member countries can introduce or maintain domestic
measures that are contrary to their obligations under the Agreement. These circumstances
include measures that a nation determines are necessary to: protect public morals or
maintain public order; protect human, animal, or plant life or health; or secure compliance
with laws or regulations that are not consistent with the Agreement, such as laws to
prevent deceptive or fraudulent practices. Exemptions are also allowed in the area of
financial services that allow member countries to take measures to protect investors,
depositors, policy holders, or to ensure the integrity and stability of the financial system.
Finally, member countries are allowed to temporarily restrict trade on a non-
discriminatory basis in the event of a serious balance of payments problem.
7 [http://www.wto.org/english/tratop_e/serv_e/gatsintr_e.htm]

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The U.S. Position8
The United States has a clear economic advantage in a large number of services
areas. U.S. services exports for travel and such transportation services as freight and port
services are among the chief export services, but are closely followed by U.S. exports of
education and financial services. U.S. firms also provide a broad array of business
services, including computer and data processing, data base and information services,
legal services, and management services. The U.S. offer, which includes concessions as
well as requests for market openings, is presented in two parts: binding openings that have
been achieved at both the federal and state level; and offerings for liberalization in 15
services sectors. In various services areas, such as insurance and legal services, states
have regulations and supervisory associations that set the standards for licensure and
regulate their members. With the approval of the state involved, the U.S. offer
incorporates changes made in these regulations and by these associations since the 1995
GATS Agreement as a formal part of its overall offer, thereby binding these changes into
the overall U.S. proposal for liberalization. U.S. negotiators believe this offer will be
attractive to the other participants, because it would subject these provisions to WTO
dispute settlement procedures. The U.S. offer also includes 15 areas for further
liberalization:
Accounting services. This proposal is designed to make it easier for accountants
and accounting firms to serve clients in other countries by addressing citizenship and
prior residency requirements for licensing, and would strengthen the Accountancy
Disciplines, adopted by the WTO in 1998.
Advertising and related services. This proposal is intended to provide for full
market access and national treatment of advertising services, while allowing national
governments the ability to set and maintain standards to protect consumers. These
negotiations are especially important given the changes the Internet and the advent
of global advertising have created.
Audiovisual and related services. The United States seeks: 1) a review of the
activities that constitute the audiovisual sector (theatrical motion pictures, television,
home video entertainment, transmission services, and recorded music) to develop a
clear, accurate, and comprehensive understanding of how the sector is classified; 2)
negotiated commitments for the sector that are clear, dependable, and predictable
trade rules; and 3) to develop a set of rules, similar to those in other aspects of the
WTO, for the use of carefully circumscribed subsidies for specifically defined
purposes.
Distribution services. This proposal addresses barriers faced by wholesalers,
retailers, and other distribution companies in operating supply chains internationally
(e.g., restrictions on real estate purchases, store location, etc.). The proposal seeks
to apply GATS disciplines by promoting transparency and fairness of administration
and to promote national treatment.
8 The U.S. submission can be found at: [http://www.ustr.gov/sectors/services/docsvcs.shtml]

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Education and training services. This proposal addresses barriers to market access
and national treatment for suppliers of education and training services of higher
education, adult education, training, and testing. The proposal seeks to remove
obstacles to the transmission of educational training and testing services across
national borders through electronic or physical means, or to the establishment and
operation of facilities to provide services to students.
Energy services. Liberalization of energy services and nondiscriminatory access to
foreign energy services providers are priority issues for U.S. negotiators. These
services include exploration, development, extraction, production, generation,
transportation, transmission, distribution, marketing, consumption, management, and
efficiency of energy, energy products, and fuels.
Environmental services. This proposal aims to reduce barriers to the provision of
environmental services as a means of preventing, reducing, or correcting
environmental degradation. This proposal seeks to improve market access and
national treatment in the areas of environmental services currently recognized by the
WTO (sewage services, refuse disposal services, sanitation services, and other such
services) and to broaden the coverage of the disciplines to include areas of
commercial presence and the movement of personnel.
Express delivery services. This proposal addresses barriers faced by express
delivery companies in providing integrated services and seeks the adoption of a
separate classification for express delivery services and requests countries to
undertake commitments on market access and national treatment. Express delivery
services is a relatively new sector and consists of time-sensitive services, which
utilize advanced technologies for communication, and are integrated or controlled
from end-to-end.
Financial services. This proposal would establish benchmarks for further financial
services liberalization to include commitments constituting fundamental
liberalization, and commitments on transparency and other principles for regulation
in the areas of insurance, banking, securities, asset management, pension funds,
financial information, financial advisory, and other financial services. Priority areas
include removing: restrictions on the types of allowable commercial presence and
the ability to provide services across borders; quantitative limitations on the number
of suppliers; and removing discrimination between domestic and foreign suppliers
regarding application of laws, regulations, and practices.
Legal services. This proposal is intended to have Members examine liberalization
opportunities with regard to market access and such national treatment barriers as
commercial presence, citizenship and residency requirements for licensing, scope of
practice, and association of foreign-qualified lawyers with local lawyers and
association of foreign-partner law firms with local law firms.
Movement of natural persons. This proposal would address the regulatory hurdles
corporations face in moving personnel to foreign locations on a temporary basis. It
would not apply to permanent entry or stay of individuals as service suppliers. In
particular, the U.S. proposal seeks to improve access to information, including laws
and regulations, that govern entry, stay, and work authorization of natural persons,

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and procedural transparency that could include timely responses as well as an
explanation of actions taken and opportunities to comment on new or amended
regulation by government entities to applications for temporary entry and stay.
Small and medium-sized services enterprises. The U.S. proposal seeks to remove
the following barriers: 1) transparency in domestic regulation; 2) requirements that
firms maintain a local or commercial presence, which hinders smaller firms that used
advanced technologies to provide services over the Internet; 3) requirements on the
movement of natural persons; 4) “unnecessary” government regulation of electronic
commerce that hampers the electronic delivery of services; and 5) commitments in
related services.
Telecommunications, value-added network, and complementary services. The
goals for this proposal are to: ensure market access and national treatment for
providers of both network infrastructure and key service sectors; remove barriers to
investment and competition; promote competition in basic telecommunications; and
avoid unnecessary restrictions on services offered by competitive suppliers.
Tourism services. This proposal seeks to have all members undertake additional
commitments relating to travelers and international conferences to promote
expansion of international tourism. The proposal lists practices that frustrate growth
in this sector, such as limits on foreign investment or ownership, taxes, regulations
governing requirements with local suppliers, the entry and exit of personnel and
event organizers, and discrimination against foreign partners, and franchises.
Transparency in domestic regulation. The proposal seeks to allow all market
participants equal access to information on regulation, procedures, and other
measures that affect their ability to compete effectively. To improve transparency,
the U.S. proposal encourages: 1) prior notification and comment periods on
government regulations; 2) a simple and clear application process that applies
equally to domestic and foreign applicants; and 3) procedural review and remedies
in the event of a dispute.
Other Positions
The U.S. offer is well beyond those offered by other participants and has generally
been well received. In addition to the 15 proposals offered by the United States, other
members have offered proposals in such services areas as: advertising, architectural
services, business services, computer, construction and engineering services, logistics,
postal and courier, professional, sporting, and transport services. Canada, for instance,
offered improved market access in financial services, business services, communications,
and transport services. Japan offered improved commitments in the movement of natural
persons, business services, and tourism. Australia offered improved access in computer
and related services, legal services, and financial services. New Zealand also offered
significant market opening offers in services. Although developing countries might
obtain benefits from liberalized trade in services, it is unclear at this stage of the
negotiations which areas they will support for liberalization.