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Wednesday, November 13, 2013

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

William H. Cooper
Specialist in International Trade and Finance

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.

Date of Report: October 24, 2013
Number of Pages: 28
Order Number: R43291
Price: $29.95

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