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Trade in Services Agreement
Monday, September 12, 2016 - 10:45am
While it hasn’t made national headlines, the United States has joined with more than 50 other countries to launch negotiations for a high-standard trade agreement in services dubbed the Trade in Services Agreement (TiSA). This exciting new accord has the potential to ignite economic growth and job creation in the United States and abroad.
Services employ more than 80% of America’s private sector workers, or 98 million of 121 million Americans working in the private sector. The United States is home to thousands of highly competitive services companies in such sectors as audiovisual; finance; insurance; energy services; transportation, logistics, and express delivery services; information technology services; and telecommunications.
Contrary to popular misconception, many jobs in services pay well. 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. Wages in these sectors are 20% higher on average than those in manufacturing, which employs about 12 million Americans.
Services are a clear strength for the United States, which is by far the world’s largest exporter of services. U.S. services exports reached $716 billion in 2015, and the United States has a trade surplus in services of $227 billion. In addition, services sales by foreign affiliates of U.S. multinational corporations top $1.4 trillion. Combined, total sales of U.S. services abroad reached approximately $2.1 trillion last year.
Even so, the potential for service industries to engage in international trade is almost untapped. One in four U.S. factories exports, but just one in every 20 providers of business services does so. Just 3% of U.S. services output is exported, according to the Peterson Institute for International Economics.
Exports of services can take different paths. To illustrate, a U.S.-based software company can export its products via the Internet (“cross-border trade,” known as mode 1), provide training to its staff based in Spanish-speaking countries in Panama (“consumption abroad,” mode 2), sell service contracts through a Japanese affiliate (“commercial presence,” mode 3), and employ a Dutch national with an H-1B visa at its headquarters (“movement of natural persons,” mode 4).
Companies rely on all four modes of delivery because they are not perfect substitutes for one another. To achieve its full potential, the TiSA must provide liberalization across all four modes of delivery for services.
As its chief goals, the TISA should expand access to foreign markets for U.S. service industries and ensure they receive national and most-favored nation treatment. It should also lift foreign governments’ sectoral limits on investment in services.
In addition, the TISA should seek to eliminate regulatory inconsistencies that at times loom as trade barriers. It should encourage U.S. trading partners to follow the principles that underlie U.S. administrative law, including increased transparency and public participation, clear central coordination, evidence-based regulation, accountability under the law, and impartiality.
The TiSA should safeguard cross-border data flows. In today’s global economy, companies often move data across borders to create new products, enhance productivity, deter fraud, protect consumers, and grow their business. Recent studies estimate that within ten years products and services reliant on cross-border data flows will add over $1 trillion annually to the global economy, with the United States at the fore.
To seize these benefits, the TiSA should prohibit restrictions on legitimate cross‐border information flows and bar local infrastructure mandates relating to data storage. It should also promote international standards, transparency and predictability; ensure that cloud computing services are freely available, regardless of facility or end-user location; and recognize that governments may take different approaches to reach equivalent outcomes as they work to assure privacy.
Finally, the TiSA should include rules to ensure that private companies are not put at a disadvantage when they compete with state-owned enterprises (SOEs) and other national champions. It should guard against anti-competitive behavior by SOEs and ensure a level playing field.
The payoff from the TiSA could be huge. Eliminating barriers to trade in services could boost U.S. services exports by as much as $860 billion—up from 2013’s record $682 billion—to as much as $1.4 trillion, according to the Peterson Institute. Such a dramatic increase could create as many as three million American jobs.
While the Geneva-based TiSA negotiations are being led by ambassadors to the WTO, the TiSA is not a WTO agreement whose benefits will be shared with all of the 159 other WTO Members. In fact, its benefits will be extended only to those countries that pledge to open their own markets, thus avoiding the “free rider” problem that at times undermines negotiations at the WTO.
However, there is precedent for such “plurilateral” agreements among a set of path-breaking countries to expand over time to cover all or a vast majority of world trade in the sectors addressed. The hope is that the TiSA will ultimately strengthen the WTO and the global rules-based trading system.
The TiSA may not be making headlines anytime soon, but its potential to drive economic growth and job creation in the United States and beyond is significant. The Chamber is committed to working closely with U.S. negotiators, foreign governments, and the Congress to press for a strong agreement that translates this potential to reality.