Feb 25, 2015 - 9:00am

The Open Door of Trade: Agreements and Services


Senior Vice President for International Policy

Sixth in an occasional series

Previously: Trade Agreements and American Agriculture

What are the benefits of America’s free trade agreement (FTAs)? With debate over the renewal of Trade Promotion Authority (TPA) now underway in Washington, the Chamber is publishing this series of blog posts examining the benefits of the trade agreements that TPA makes possible. Here is the full report on the benefits of America’s free trade agreements.

America’s FTAs have brought significant benefits to U.S. services industries, which generate about 80% of U.S. economic output and 80% of U.S. private sector employment. The United States is by far the world’s largest exporter of services, which surpassed $682 billion in 2013. It is home to large numbers of successful services firms in such sectors as audiovisual, banking, energy services, express delivery, information technology, insurance and telecommunications.

Contrary to popular misconception, many jobs in services pay well. For instance, approximately 18 million Americans are employed in business services such as software, architectural services, engineering and project management services, and insurance — all of which generate billions of dollars in exports. According to Brad Jensen of the Peterson Institute for International Economics, wages in these sectors are 20% higher on average than those in manufacturing, which employs only two-thirds as many American workers.

In this context, America’s FTAs have provided significant gains for U.S. service providers. These agreements have expanded access to foreign markets for cross-border sales of services and barred discrimination against service providers on the basis of their nationality. They also have opened up services sectors that had previously been closed to foreign investment and ushered in greater transparency in the regulations that set the rules of the road for services markets.

Consider these highlights from the U.S. Department of Commerce’s Bureau of Economic Analysis:

  • Under NAFTA, U.S. services exports to Canada and Mexico have tripled, rising from $27 billion in 1993 to $93 billion in 2013. Services imports from Canada and Mexico have grown from $17 billion to $48 billion.
     
  • Under the U.S.-Singapore FTA, U.S. services exports to Singapore have grown by 93%, increasing from $5.9 billion in 2003 to $11.4 billion in 2013. Services imports from Singapore have grown from $2.1 billion to $5.6 billion.
     
  • Under the U.S.Chile FTA, U.S. services exports to Chile have grown by 250%, increasing from $1 billion in 2003 to $3.6 billion in 2013. Services imports from Chile have grown from $622 million to $1.2 billion.
     
  • Under the U.S.Australia FTA, U.S. services exports to Australia have grown by 176%, increasing from $6.9 billion in 2004 to $19 billion in 2013. Services imports from Australia have grown from $3.9 billion to $6.9 billion.

While these benefits are impressive, one reason U.S. services industries are not enjoying even greater success in global markets is that foreign regulatory barriers have multiplied in unforeseen ways over recent years. New challenges are particularly prevalent in the digital economy — including barriers to cross-border data flows and “forced localization” measures — and in barriers that make global value chains less efficient. To tackle these emerging trade barriers, new FTAs must include strong and evolving rules to guarantee meaningful market access for services providers.

The principal rationale for FTAs is to unleash new flows of mutually beneficial trade between Americans and the citizens of these 20 countries — and do so in a way that is fundamentally fair. With regard to America’s services industries, and in other ways, these FTAs have been a big success.

Next time: Trade Agreements and Small Business

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.