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APPENDIX:
THE HISTORY OF A CAMPAIGN:
HOW SERVICES BECAME A TRADE ISSUE

How do you sell a new concept such as trade negotiations on services to the world community? This hook has documented all the reasons it makes sense to negotiate multilateral trade agreements in services. However compelling the arguments for trade negotiations on services, the international consensus to include trade in services in the Uruguay Round of multilateral trade negotiations did not emerge spontaneously and was forged only with considerable difficulty. Undoubtedly the time was ripe for a new approach to services, and if the growing role of trade in services in the world economy were not so apparent all around us, no amount of planning and cajoling would have persuaded ministers from around the world to embark on global negotiations on an entirely new issue. At the same time if it had not been for the foresight and determined leadership of a small group of individuals, it would not have happened in 1986 and it might not have emerged in a trade framework.

This appendix traces the history of the events that led from an idea in the early 1970s to a decision in 1986 by ministers from around the world to launch multilateral trade negotiations on services as part of the Uruguay round of multilateral trade negotiations.1 This is a remarkably short time if one considers that before 1973 there had been no public discussion of trade in services, no one had thought about the issue in a systematic manner, most people thought that services were not tradeable, and it would have been difficult to find a trade official who thought that services had anything to do with trade policy.

THE BIRTH OF A CONCEPT

One of the first people to recognize the new importance of trade in services in a rapidly integrating world economy was Hugh Corbet, an Australian who had written on international economic issues for the Times in the mid-1960s. As a writer on international economic issues, Corbet had become increasingly aware that the "informed" public understood very little about trade policy. Moreover, neither the academic community nor government policymakers seemed equipped or inclined to fill this gap in public knowledge, which in practice meant a lack of public support for "good" trade policy. Corbet therefore decided in 1968 to establish the Trade Policy Research Center in London, which commissions articles and books on trade policy geared to the intelligent layman and sponsors conferences and seminars on trade policy.

As Corbet thought about the trade policy issues the center should address, it occurred to him that services were playing an increasingly important role in the world economy. Indeed, it would have been difficult for an economic observer in London during the 1960s not to be aware of the rapid growth of international services. During these years, London was one of the principal centers in the world for international services such as insurance, banking, publishing, theater, and shipping. What is more, an earlier study of nontariff barriers to trade in goods and how they might be tackled in GATT negotiations gave Corbet the idea that a similar study of barriers to trade in services might provide the basis for similar negotiations in services (Corbet, 1977). He therefore commissioned Brian Griffiths, an economist at the London School of Economics, to undertake a study of international flows of services and restrictions on transactions in the services sector. The resulting book, Invisible Barriers to Invisible Trade, was published by the Trade Policy Research Center in 1975. It became the starting point for much of the subsequent work in the field, and the Trade Policy Research Center has played a key role in the development of international thinking on trade and investment in services since that time.

First Official Recognition of Trade in Services

In the meantime, in September 1972, a group of eminent individuals from key industrial countries, under the chairman ship of lean Rey, the former president of the Commission of the European Community, issued a report on the long-term trade issues facing the world economy. The Report by the High Level Group on Trade and Related Problems provided the intellectual underpinnings for the Tokyo Round of multilateral trade negotiations. It contained a short chapter on trade in services and was the first published document of any kind to discuss trade in services as "trade in services."

The Rey group was the brainchild of Emile van Lennep, the secretary general of the Organization of Economic Cooperation of Development, an intergovernmental organization that seeks to improve economic cooperation among industrial countries through the analysis of common policy challenges. By learning from each other, policymakers from different countries are able to develop a better understanding of economic problems and, where appropriate, to establish a coordinated approach to required solutions. Every year, the ministers from the member countries meet in May to review economic trends and to evaluate the major challenges facing the world economy.

In 1971 many trade policy officials in the key industrial countries had come to the conclusion that a new effort was needed to liberalize trade. Van Lennep therefore convened a group of eminent individuals to analyze trade and related problems in a longer term perspective, i.e.., to define the problems and assess their relative urgency, consider how they might be dealt with, and set out options for their solution.

The decision to include a chapter on trade in services was largely due to several individuals associated with the preparation of the report. One was Bill Eberle, a prominent American businessman; another was Bertil Ohlin, a well-known Swedish economist. A third was Sir Richard Powell, who had been extensively briefed by a study group put together by the Trade Policy Research Center. Drawing on their own experiences and those of their associates, they shared the view that services were of growing importance to world trade and that barriers to services would need to be addressed more systematically by governments. Another person who played a key role in adding services to the report of the Rey group was Harald Malmgren, a brilliant American trade policy thinker and friend of Hugh Corbet who had been hired by Van Lennep to draft the papers used by the high level group in its work.

The report issued by the high level group noted that while a large number of activities in the services sector do not give rise to international transactions .. there are important - areas in which international exchanges have risen steeply, in fact in the same proportion as trade in goods or to an even greater extent.... The services sector, like the industrial sector, is experiencing a measure of internationalization and interpenetration. For some countries trade in services is at least as important as, and in some cases more important than, merchandise trade (OECD, 1973: p. 63).

The report also noted that the Group has not made a detailed examination of questions concerning international trade in services. It considers however that, from the point of view of international economic relations, this sector poses problems similar in nature to those met with in merchandise trade. Given that services are a sector that seems likely to expand rapidly in countries' economies, the main need is to avoid any tendencies to protectionism and to aim at achieving a more thorough liberalization (OECD, 1973).

The report concluded, "The Group considers that action should be taken by the developed countries to ensure liberalization and non-discrimination in the services sector."

Even though the report succinctly established the rationale for launching negotiations aimed at the liberalization of trade in services, the Rey group stopped short of recommending that the GATT address trade in services. Instead, the group recommended that the OECD work out further steps to be taken in areas such as tourism and transport. Curiously, the last sentence on services was addressed to the treatment of developing countries: "As in the case of goods, consideration might be given to allowing developing countries a limited time to adapt themselves before undertaking the full commitments" (OECD, 1973). This sentence seems to point to future negotiations on trade in services outside the OECD framework, without saying so explicitly.


The U.S. Congress Mandates Negotiations on Trade in Services


The next major step toward the incorporation of services in trade policy took place in the U.S. Congress. Without an explicit delegation of authority by the Congress, a U.S. president can do very little in the trade policy area. Before it could therefore participate in the new Tokyo Round of multilateral trade negotiations, the administration needed to obtain legislation authorizing U.S. participation. It is always ironic that the United States, which usually takes the lead in developing an international consensus on the launching of multilateral trade negotiations, usually finds itself without the necessary authority to participate in such negotiations at the time they are launched.

Congressional consideration of legislation to authorize U.S. participation in multilateral trade negotiations inevitably becomes a broader debate over the conduct of U.S. trade policy. Every economic interest group is given the opportunity to make its case for special consideration not only in the coming multilateral trade negotiations but also in the conduct of day-to-day trade policy. One of the new issues to emerge from congressional consideration of the Trade Act of 1974 was trade in services. It is not entirely clear which company first came up with the idea of using the trade bill to advance the international commercial interests of the services industries, though the recollections seem to point to Pan American Airways.

Pan American had run into some difficulties in persuading a number of countries that it was as qualified to carry the international mail as the national airline, and it seemed to Pan American that national regulations preventing them from carrying the mail were no different from barriers to trade in goods. Pan American had also run into restrictive regulations on aircraft repairs, which it believed could be dealt with in the context of trade negotiations.

It was an executive at another company, however, who saw the full potential of expanding the definition of international trade to cover international trade in services. Ron Shelp had only recently been appointed vice president in charge of international relations at the American International Group (AIG), the American insurance company with the largest international business. Shelp had previously been with the International Department of the U.S. Chamber of Commerce, where he worked on international trade issues. He was therefore familiar with international trade concepts, and with the assistance provided by the U.S. government to merchandise exporters in the form of export promotion activities and negotiations aimed at the reduction of foreign trade barriers. Shelp reasoned that if services could be included under the definition of trade, the government would give U.S. exporters of services the same kind of assistance.

With the full support of the president and CEO of his company, Hank Greenberg, Shelp organized a full-fledged campaign to extend many of the provisions of the trade act to services. Representatives from a number of service industries joined the campaign and offered public testimony in hearings organized by the Senate Finance Committee. Persuasive testimony was offered by representatives of the Air Transport Association, the American Institute of Marine Underwriters, the American Institute of Merchant Shipping, and the National Constructors Association. It is an ironic twist of history that all of these organizations, with the exception of the insurance industry, are now either opposed to or at best reluctant supporters of multi lateral trade negotiations in services.

The Trade Act of 1974 included a number of key provisions on trade in services. The most important of these provisions is probably found in Section 102, which gave the president authority to negotiate on nontariff barriers to trade. Paragraph g(3) of Section 102 says simply that "the term 'international trade' includes trade in both goods and services." By simply expanding the definition of international trade, the Congress thus directed the president to concern himself not only with barriers to trade in goods, but also with barriers to trade in services.

Section 121, which dealt with the reform of the GATT, directed the president to seek "the extension of GATT articles to conditions of trade not presently covered in order to move toward more fair trade practices." While services were not explicitly mentioned, the language of the text, read in conjunction with the other provisions, clearly implied such coverage.

Section 135 of the bill directed the president to establish an Advisory Committee for Trade Negotiations to provide overall policy advice for the negotiations, and the language of paragraph b(1) makes it clear that the committee should include "representatives of ... service industries."

Section 163 of the Trade Act dealt with the annual report which the president must submit to the Congress on the administration of trade policy. Section 163a directed the president to include information on "the results of action taken to obtain the removal of foreign trade restrictions (including discriminatory restrictions against U.S. exports) and the removal of foreign practices which discriminate against U.S. service industries (including transportation and tourism)."

Section 301 directs the president to retaliate against foreign practices that burden the commerce of the United States, and at the end of paragraph a the Senate Finance Committee had added, "For purposes of this subsection, the term 'commerce' includes services associated with international trade."


THE EFFORT TO NEGOTIATE ON TRADE IN SERVICES IN THE TOKYO ROUND

The Tokyo Round of multilateral trade negotiations was launched in September 1973, on the basis of an agenda approved by trade ministers at a ministerial meeting held in Tokyo. By the time the Congress passed the legislation authorizing U.S. participation (January 3, 1975), the negotiations had already been under way for more than a year. The agreed agenda for the negotiations was extremely ambitious even without the inclusion of trade in services, and services was a totally unfamiliar subject for most trade policy officials, including officials in the United States.


Development of a U.S. Government Strategy

The first step taken by the government was to ask one of the young professionals who had recently joined the Office of the Special Trade Representative to prepare a policy paper for consideration by the interagency policy committee. The professional assigned to the task was Bruce Wilson, who is now the assistant U.S. trade representative for industry and services.


Wilson reached a number of key conclusions:
International trade in services has become an important element of almost every country's balance of payments. Consequently, it is necessary that such trade he carried on in a manner that is fair and equitable to each party involved. The aim of multilateral negotiations on trade problems is to create a world trading system that is just to all who participate in that system. For that reason, it may be no longer appropriate for the participants to focus exclusively on international trade in goods without giving proper attention to the problems still encountered in international trade in services.... Although the GATT is not presently structured to address problems of international trade of services, the President may seek to reform the GATT to include such problems should he deem it necessary (Wilson, 1975, p. 3).
Interagency discussion of the issue on the basis of Wilson's paper led to a decision to establish a White House Interagency Task Force on Services and the MTN to identify the problems faced by U.S. service industries in international commerce and to develop recommendations for addressing them. To support the work of the task force, the Commerce Department commissioned a comprehensive study of trade in services by Wolf and Company, a private consulting firm (Wolf and Company, 1976).

The task force concluded that trade in services posed far too many complex issues to permit a comprehensive negotiation with so little preparation. The U.S. administration, however, could not ignore the legislative mandate without possibly jeopardizing congressional approval of the final results of the negotiations. Moreover, Frederick Dent, who had become the special trade representative in 1975, was determined to negotiate an agreement that would receive the support of all U.S. industries and economic groups, including the services industries. Dent also took a special interest in services. The task force report, issued in December 1976, therefore recommended that issues related to trade in services should be raised in the multilateral trade negotiations on a "carefully selected" basis. More specifically, the report proposed that the special trade representative should be requested to explore the feasibility of
l. Introducing selected and specific trade-related service industry problems into discussion of codes pertaining to subsidies and to government procurement practices
2. Discussing a limited number of barriers pertaining to services trade with selected countries in the bilateral phase of the MTN
3. Introducing service industries in the broader context of improving the GATT (U.S. Department of Commerce, 1976, p. 62)
Tokyo Round Negotiating Results in Services
On the basis of this strategy, the United States succeeded in inserting references to services in three nontariff agreements. The three references to services established relatively modest, indirect obligations on the treatment of services and they applied to services only insofar as they affected trade in goods. Nevertheless, a precedent was set for addressing services issues in trade agreements.
One of the three nontariff codes with a reference to services was the Government Procurement Code, which established agreed bidding procedures for purchases made by government in order to assure that foreign suppliers would not be disadvantaged. The provisions of the Government Procurement Code were extended to services such as transportation and insurance, insofar as such services were required to sell internationally traded goods to governments.

The second nontariff code that contains a provision dealing with services is the Standards Code, which establishes some basic rules and procedures for the adoption of government standards on internationally traded goods, in order to assure that such standards do not discriminate against foreign goods. The Standards Code includes provisions dealing with the recognition of test results provided by foreign testing laboratories. Such testing, of course, is a service and use of such test results in other countries constitutes trade in services.

The third nontariff code that contains language on services is the Subsidies Code, which limits the use of government subsidies with respect to internationally traded goods. Under the Subsidies Code, services used to export goods are not allowed to be subsidized.

In addition to these provisions, the United States obtained an informal commitment from the other industrial countries to undertake a comprehensive study of trade in services in the Trade Committee of the Organization for Economic Cooperation and Development. The objective of the study was to determine if it was possible to identify trade issues in services that would lend themselves to negotiation in future trade agreements.

Ultimately, the Tokyo Round achieved some results because business leaders such as Shelp and Greenberg from AIG and Harry Freeman from American Express were not willing to let the administration forget about services. Bob Strauss appointed Greenberg to the Presidential Advisory Committee for Trade Negotiations, which provided high-level private sector advice to U.S. negotiators, and once on the committee, Greenberg kept reminding Strauss of the legislative mandate on services. At the same time Shelp persuaded the U.S. Chamber of Commerce to organize a services committee, which could monitor the government's response to the legislation and exert pressure on the administration to take the legislation seriously.


DEVELOPMENT OF A STRATEGY TO BUILD SUPPORT FOR NEGOTIATION

With the decision to launch a comprehensive study of trade in services in the OECD, the work on trade in services entered a new stage. It was now possible to approach the subject in terms of serious, long-term effort to lay the groundwork for future negotiations. Since I represented the United States in the OECD Trade Committee, it fell to me to organize the campaign, and soon thereafter I was given full responsibility for all facets of U.S. trade policy in services.

At about the same time, a change in administration led to the appointment of William E. Brock as the new U.S. trade representative. Brock had developed a keen interest in services previously as a member of the Banking Committee of the U.S. Senate, and he brought dynamic political leadership to the effort to integrate services into the domestic and international trade policy framework.

It had become quite apparent that building an international consensus in support of multilateral trade negotiations represented a major challenge. First, except for the excellent study carried out by Wolf and Company in 1975-76 and the 1975 study prepared by Brian Griffiths for the Trade Policy Research Center in London, information about trade in services and barriers to such trade was totally inadequate. Moreover, very few businessmen, including those in the services sector, looked at international services activities in trade terms. In fact, most people, including most economists, thought that one of the principal distinctions between services and goods was that services were not tradeable and that economic activity in the services sector was therefore insulated from global economic pressures.

Trade officials had little knowledge about services and the policy responsibility was scattered among dozens of departments, ministries, and regulatory agencies in the national government, and in lower levels of government. The industries benefiting from existing systems of protection and the regulatory agencies that administer that protection are well entrenched and politically powerful, and the protective measures are not easy to identify because they are embedded in domestic regulations. How are you to know what is a trade barrier and what is a purely domestic regulatory measure? Giving trade officials a role in the administration of domestic regulatory policies in services was bound to be highly controversial, and it was easy to understand why the average trade official would want to shirk the resulting bureaucratic wars.

In order to break through the widespread public ignorance and sectoral resistance it was necessary to develop a comprehensive strategy that would address both directly. A strategy was needed that would change public perceptions of the nature and role of services in the international economy and would institutionalize a role for trade policy officials in services. Accordingly I developed such a strategy in cooperation with a loose international coalition of about a dozen key business executives and government officials. The strategy included a comprehensive program of studies and conferences, a pubic information campaign, full integration of services into the trade policy machinery, active use of bilateral trade channels to resolve bilateral disputes in services, full utilization of all existing international institutions and mechanisms in the trade area, and a long--term program to improve government statistics on trade in services.2

The aim of the program of studies and conferences was not only to supplement the fairly limited resources available to trade officials to gather information, but to develop a core of government officials, business leaders, and academicians knowledgeable about trade in services, involved in the work on trade in services, and committed to the effort to build a consensus in support of multilateral negotiations.

The public information program was designed to create public awareness of trade in services to overcome the wide public view that such trade did not exist, and to educate the trade policy community about the issues in trade in services and how they might he tackled in trade negotiations. In each country, a certain number of business executives, academicians, and former trade policy officials play an important role in developing a national consensus on trade policy, and this collection of individuals had to become informed on the substantive issues in trade in services in order to change the policies of the countries involved.

The effort to integrate services into the trade policy machinery and trade policy process in the United States was designed both to provide some immediate benefits for U.S. exporters of services and to engage trade officials in other governments on issues dealing with trade in services. Dealing with current issues on a bilateral basis provided an immediate rationale for building the governmental machinery that was needed to support multilateral trade negotiations on services. It also forced governments to sort out the responsibilities of dozens of bureaucratic fiefdoms in each government.

Building Up Information and Knowledge on Services

With the completion of the Tokyo Round, the relationship between the U.S. government and the American business community entered a new cooperative phase. Up to this time, the business community felt it was fighting an uphill battle trying to persuade a reluctant government to adopt a more activist trade policy in services. The government on its part was sympathetic to the cause but felt that its resources and the time available were inadequate to achieve major breakthroughs in the Tokyo Round. Once the Tokyo Round was completed, however, the government was willing to dedicate itself to the more long-term task of building the domestic and international consensus necessary to pursue successful negotiations. In turn, the business community recognized that it had to shoulder part of the responsibility for developing the information and analysis needed to prepare for the negotiations and for building wider support in the business community at home and abroad for negotiations on services.


Ron Shelp continued to play a key part in this effort in multiple roles. For some time, Shelp had been attending meetings of the OECD insurance committee, and this had given him unique insights into the OECD process and how it could be used to build governmental consensus. As chairman of the services committee of the Chamber of Commerce, he was able to help the government in collecting information on barriers to trade in services, and later, as chairman of the Industry Sector Advisory Committee on Services, he worked closely in crafting a trade strategy for services. Shelp also wrote a path-breaking book on trade in services titled Beyond Industrialization, and publication of that book helped to broaden public understanding of the issue.


In addition to Shelp, Harry Freeman and Joan Spero from the American Express Company assumed leading roles in organizing conferences, developing press material, lobbying in Congress, and building support in the business community at home and abroad. Freeman and Spero used their participation in bilateral business meetings with business leaders from other countries to develop statements of business support for negotiations on trade in services. Together with other business leaders, they helped to support conferences on trade in services in the United States and abroad. They also used their membership in a variety of business organizations and public policy research institutes to persuade these organizations to launch research studies on trade in services. When the time came to establish a senior advisory committee to the U.S. trade representative on services trade policy, Freeman persuaded James D. Robinson, the chairman and CEO of the American Express Company, to become its chairman.

Through the efforts of Shelp, Freeman, and others a long list of organizations and institutions became involved in carrying out studies of trade in services, in sponsoring seminars and conferences, and in passing resolutions in support of trade negotiations in services. The list of organizations includes the U.S. Council for International Business, the Council of Foreign Relations, the National Foreign Trade Council, the Committee for Economic Development, the Conference Board, the Center for Strategic and International Studies, and the American Enterprise Institute. With the help of the German Marshall Fund, I organized a research conference that brought together international economists and economists who specialized in specific areas of services.

The government also had more specific needs for information in order to support the establishment of policy objectives and priorities for future negotiations on trade in services and to provide the necessary raw material for studies in the OECD and the GATT. The government could have chosen to collect this information through official surveys, but the bureaucratic requirements proved too cumbersome and time consuming. U.S. trade officials therefore turned to the U.S. Chamber of Commerce and its services committee to help organize a survey of barriers faced by U.S. service industries in selling services abroad. The data collected from that survey, organized by industry and type of barrier, provided the first comprehensive overview of the barriers faced by businesses engaged in international trade in services. This document, which has come to be referred to as the U.S. trade representative's inventory, remains one of the most detailed sources of information about barriers in this area. (See Office of the U.S. Trade Representative, 1979.)

In addition to the information about barriers to trade, trade policy officials needed information about the market structure in each industry, both in the United States and abroad. In order to provide this information, analysts at the Commerce Department, under the able leadership of Brandt Free, provided sectoral profiles of the key industries. (See, for example, U.S. Department of Commerce, 1982 and 1984.)

On the basis of these profiles and the information contained in the USTR Inventory of Barriers to Trade in Services, USTR policy analysts developed sectoral policy papers for each major services industry. These papers summarized the key international trade issues in each industry and presented some initial ideas on how future trade negotiations might address those issues. They became the basis for interagency policy discussions and served to establish initial negotiating objectives for each sector that could be discussed with the private sector. These sectoral papers were subsequently included in the U.S. National Study on Trade in Services submitted to the GATT in 1983 (Office of the U.S. Trade Representative, 1983).

Internationally, Hugh Corbet and the Trade Policy Research Center continued to play a leading role in organizing conferences and sponsoring studies. In fact, conferences organized by the Trade Policy Research Center in places like Ditchley Park outside Oxford, Bellagio in northern Italy, and Wiston House near Steyning (south of London) provided focal points for the international coalition-building efforts. The meetings provided a unique opportunity to compare notes on the evolution of thinking in various countries, to coordinate plans for conferences and seminars, and to develop an informal consensus on the future direction of work in the OECD, in the GATT, and elsewhere.

Studies sponsored by the Trade Policy Research Center also provided a growing body of literature on trade in services that could be used as background material by governments when preparing their position on issues discussed in the OECD and the GATT. The Trade Policy Research Center also publishes a quarterly journal, The World Economy, and that publication gave researchers an opportunity to publish articles on trade in services at a time when more mainstream journals did not believe trade in services was a suitable subject for their publication.

In addition to the Trade Policy Research Center, the International Chamber of Commerce played a key role in developing an international consensus in the business community in support of multilateral trade negotiations aimed at the liberalization of trade in services. Hans Svedberg, a Swedish businessman, became head of a services working group in the International Chamber of Commerce, and this group produced a clear and forceful statement in support of the negotiations in 1981. Another key participant in the work of the international chamber was Bill Eberle, who headed the Trade Committee of the chamber.

More recently, many different organizations have organized international conferences, seminars, and discussions, including the World Bank, the Center for the Study of International Negotiations in Geneva, the Center for Transnational Corporations in New York, the Atwater Institute in Montreal, Promethee in Paris, and the Services World Forum, a private support group headquartered in Geneva.

Developing a Public Information Program

It is difficult to launch negotiations on a difficult and complex issue such as trade in services without some degree of support from the educated public-the one-tenth of 1 percent of
the population that participates in serious discussions of public policy issues. In addition, every government draws to some extent on an informal network of trade policy specialists in developing its position on trade policy issues, and it is therefore important that such individuals develop a reasonable understanding of the issues related to negotiations on trade in services. Both the Office of the U.S. Trade Representative and the Department of Commerce spent considerable effort in developing background materials that could be provided to the press for articles on trade in services and more in-depth papers that could be shared with trade specialists around the world who expressed an interest in trade in services and wanted access to available policy papers, analytical studies, and data.

For a number of years, the services section of the Office of the U.S. Trade Representative also circulated a mimeographed newsletter to individuals around the world who were working on policy issues related to trade in services. Eventually, other organizations such as the Coalition of Service Industries in the United States, the Liberalization of Trade in Services Committee (LOTIS) in the United Kingdom, and Progres in Geneva took over the task of circulating-informative newsletters that kept everyone with an interest in trade in services posted on conferences, books, key events, and progress made in various negotiations.

Ironically, countries such as Brazil and India that were opposed to launching multilateral negotiations on trade in services helped considerably in spreading information about trade in services. Their opposition to U.S. efforts in various meetings to advance international discussions and negotiations on trade in services created the drama needed to make news. While some success had been achieved earlier in persuading various newspapers and magazines to write background stories on trade in services and the preparation of negotiations, that coverage was nothing compared with the worldwide treatment of the confrontations over services in the GATT. Such news stories inevitably led to increased requests by the press for additional materials, which in turn led to more articles.


Integrating Services into the Trade Policy Machinery

Services cover a large number of sectors, each with its own domestic regulatory structure, international agreements, and problems. In order to demonstrate that negotiations covering all of these sectors would be a feasible undertaking, it became necessary to develop a group of trade policy professionals who could become experts in the different service industries. Accordingly, both the Office of the U.S. Trade Representative (USTR) and the Office of the Department of Commerce established separate units for services, each staffed with professionals assigned to specific industries.

Both the USTR and the Department of Commerce also took steps to bring the services industries fully into the private sector advisory process, thus giving the services industries the same status in that process as the goods-producing industries. The USTR established a Services Policy Advisory Committee, made up largely of chief executive officers of major firms in each of the major services industries. At the same time, the USTR and Commerce jointly established a working level Industry Sector Advisory Committee on Services, largely made up of industry representatives at the vice-president level.

The establishment of separate units with responsibility for trade in services made it possible to take other steps to integrate services into U.S. trade policy programs. The Commerce Department, for example, has a variety of programs to support U.S. exports. The Export-Import Bank helps finance exports. The USTR conducts bilateral consultations and negotiations with trade officials from other countries on a regular basis. By extending each of these programs to services, the government was able to give the service industries some immediate commercial benefits.

Using bilateral trade channels to solve trade problems in services had a number of benefits aside from the immediate commercial benefits. It helped to demonstrate to foreign governments that there were real trade problems in services and that the United States would use its commercial leverage to deal with those problems bilaterally even if it proved impossible to launch multilateral negotiations. Such bilateral problem-solving efforts also helped to educate foreign trade policy officials about services issues and made it necessary for foreign governments to establish internal mechanisms for resolving bureaucratic conflicts between trade ministries and ministries responsible for regulating individual service industries. In effect, it was possible to use the bilateral trade policy process to induce foreign governments to integrate services into their own trade policy machinery. Bilateral negotiations thus helped pave the way for the future multilateral negotiations.

In more recent years, the negotiation of bilateral free trade area agreements with Israel and Canada provided an opportunity to develop agreements on trade in services that could provide models for the multilateral negotiations. It also enabled trade officials in the countries involved to give their business communities and regulatory agencies in services an operational reason for addressing the many issues that will have to be covered in the multilateral negotiations. In other words, these negotiations served as dress rehearsals for the multilateral negotiations, and enabled the officials involved to work out many of the problems associated with organizing and implementing agreement on trade in services.


THE OECD STUDY OF TRADE IN SERVICES

The OECD study on trade in services went through several phases, and each phase was characterized by a debate over different, though related issues, and foreshadowed the debates that later took place in the preparation of negotiations on trade in services in the GATT. The debate in the first phase was over the desirability of conducting a comprehensive study of trade in services. There was obviously widespread skepticism whether there was such a thing as trade in services. The debate in the second phase was over what aspect of trade in services should be studied. The debate in the third phase revolved around the question whether the factual information collected in the course of the study should be analyzed on an industry-by-industry basis, or whether it would be possible and meaningful to analyze the information on an aggregate, cross-sectoral basis. The debate in the fourth phase concerned whether it was possible to relate the issues that had been identified to existing trade concepts. The debate in the last phase was over the possibility of developing meaningful rules and principles for trade in services. Each of these phases took about a year.


Discussion of Rationale and Scope of Study

The debate over the desirability of conducting a study of trade in services in the Trade Committee of the OECD, as against the Invisibles Committee that had dealt with services in the past, took place in 1978-79. Everyone understood, of course, that the primary reason for agreeing on the study was the need of the United States to be able to demonstrate to the Congress that it had taken steps toward preparing comprehensive negotiations on trade in services. Nevertheless, it was obviously necessary to establish an objective rationale for the study, which would enable trade officials to justify their action to their colleagues in the other ministries. In preparing its case for such a study, the U.S. delegation to the Trade Committee was considerably helped by a background paper that had been prepared on the subject by Ron Shelp (1979), who was familiar with the OECD and who had thought the most about the subject.

The Trade Committee agreed in the course of 1979 to undertake a study of trade in services, and this led to a debate over what information to collect. Some members of the Trade Committee argued that the study should be based on a collection of statistics on trade in services. Others argued that the study should focus on government regulations in each services industry in member countries. Still others argued that the study should examine existing international agreements and arrangements on services. The United States argued that the study should focus on barriers to trade in services.

The positive reason for the U.S. proposal to focus on trade barriers in services was that a study of trade barriers in services would most directly and effectively demonstrate the need for negotiations on trade in services. The negative reason was that every other approach had major drawbacks. Government data on trade in services were very poor, and a focus on such data could have quickly convinced everyone that nothing could be done until governments had prepared better data, an effort that has only just begun and could take another five to ten years to yield results. A study of government regulations on services would have proved so overwhelming that the committee would quickly have gotten lost in a sea of information they did not understand. A study of existing agreements and arrangements would be useless unless you could evaluate such agreements and arrangements vis-à-vis an unfulfilled public policy objective related to trade in services.

In responding to the U.S. proposal for a study of barriers to trade in services, other delegations asked how such information could be obtained, and for which industries relevant information could be made available. Some proposed that the committee embark on a case study involving a particular sector. The United States responded that the information could be obtained by asking the representatives of businesses involved in trade in services about the barriers they face and that such an exercise should cover the full range of services. Most members of the Trade Committee expressed great skepticism about the feasibility of such an approach.

To overcome the skepticism expressed by other members of the Trade Committee regarding the feasibility of obtaining information on barriers to trade in services, the United States decided to demonstrate to the committee that it could be done. By drawing on information collected by the Wolf and Company study in 1975, the United States compiled an initial inventory of trade barriers to services and proposed to undertake a more comprehensive survey that would provide more up-to-date information. Since the United States agreed to do the work, the committee ultimately agreed to pursue the approach it had proposed.


Analysis of Information on Barriers to Trade in Services

U.S. trade officials turned to the U.S. Chamber of Commerce and its services committee to help organize a survey of. barriers faced by U.S. service industries in selling services abroad. The data collected from that survey, organized by industry and type of barrier, provided the first comprehensive overview of the barriers faced by businesses engaged in international trade in services. The USTR inventory remains one of the most detailed sources of information about barriers in this area (Office of the U.S. Trade Representative, 1979).

The USTR inventory had its weaknesses. Some of the information about foreign laws and regulations provided by businesses was outdated. In other cases, the businessmen had misunderstood the scope and application of foreign laws and regulations. Later editions of the inventory were subjected to a more intense scrutiny by U.S. embassies in the countries involved, and most of the factual errors were eliminated. The purpose of the inventory, however, was not to accuse foreign governments of wrongdoing in individual areas but to get an insight into the range of barriers faced by business. The survey defined barriers as discriminatory measures or laws that served as an impediment to the sale of services by foreign suppliers. Eventually, other countries undertook to collect information about barriers to trade in services from their own businesses, and this information supplemented the information made available to the OECD Secretariat by the United States.

With the question of the study's focus settled, the discussions in the Trade Committee turned to the method of analyzing the data. Many members of the committee argued that the information about barriers should be analyzed on a sectoral basis, since the institutional, regulatory, and market structure in each services industry is quite different. The United States argued that the barriers should be analyzed in terms of the type of barriers encountered by exporters of services, regardless of industry. The reason for this approach was that it would help demonstrate the applicability of trade negotiating techniques and trade concepts in services, and that it was possible to achieve broad-based liberalization of trade in services through comprehensive negotiations that simultaneously covered all sectors. The U.S. concern was that an analysis focused on sectors would quickly reduce the scope of the study to one or two sectors, that it would emphasize all the sectoral regulatory issues that will make negotiations difficult, and that it would ultimately reduce the scope for liberalization. After considerable debate, the committee agreed to follow a dual approach to the analysis of trade barriers.

As information from the USTR-Chamber of Commerce survey of barriers to trade in services became available, the USTR used its in-house computer processing facilities to organize the information on barriers by type of barrier, by industry, and by country. This information provided much of the raw material for Secretariat papers analyzing major types of barriers.

The next question was how papers on the individual sectors should be prepared. Since the OECD has a number of committees that have responsibility for specific services industries, it was felt that those committees should be asked to provide the Trade Committee with background papers on those sectors, while the Trade Directorate agreed to prepare papers on sectors not covered by sectoral committees in the OECD. The first such sectoral paper prepared by the Secretariat, with the help of trade officials from the member governments, covered the construction and engineering sector. Interestingly enough, many delegates discovered to their surprise that their national industry was a large exporter of construction services, and this helped generate greater enthusiasm for the whole trade in services effort.


Development of a Conceptual Framework for Trade in Services

The papers prepared by the Secretariat on various , types of barriers led to a discussion in the next phase of the OECD work of the applicability of trade concepts and techniques. After considerable debate the committee came to accept the transferability of many of the trade concepts and principles to services. This led to a decision to draft a document that would discuss the key concepts and principles that could serve as the foundation for a future trade regime for services. This document, "Elements of a Conceptual Framework for Trade in Services" (OECD, 1987), was published by the OECD in 1987.

With the achievement of substantial consensus in the committee on the conceptual framework that might be used to negotiate on trade in services, it was agreed that the applicability of the conceptual framework to trade in individual service industries should be tested, in cooperation with the sectoral committees of the OECD. That process is still under way. The next step in the OECD work is likely to focus on the development of possible sectoral interpretations or annotations of the general trade concepts and principles contained in the conceptual framework.


THE GATT DEBATE

At the same time that the United States persuaded the OECD Trade Committee to launch a study of trade in services, U.S. representatives continued to pursue the discussion of issues related to trade in services in the GATT. For example, the United States used the opportunity provided by a GATT exercise to update the inventory of nontariff barriers to include an illustrative notification of barriers to trade in services. The United States also tabled proposals for a work program on trade in services in the Consultative Group of 18, an informal advisory body of senior trade officials that meets periodically to advise the director general of the GATT on trade policy issues that should be addressed by the GATT. U.S. representatives to the GATT also circulated a number of background papers.


The Debate over Services at the 1982 GATT Ministerial

Discussion of trade in services in the GATT reached a more intense level in 1981 with the preparation of a meeting of GATT trade ministers. In 1981 OECD ministers had concluded that there were a number of trade issues, including barriers to trade in services, which should be examined as possible topics for another round of multilateral trade negotiations. This led to a discussion in the GATT of a possible meeting of trade ministers to decide on a work program in preparation for a future round of multilateral trade negotiations. GATT member countries agreed in November 1981 to hold such a meeting in November 1982 and to prepare a draft work program for the consideration of ministers.

As a result of the work undertaken in the OECD Trade Committee most developed countries had come to the conclusion by 1981 that they had an economic interest in trade in services, and that the issue should be examined in the GATT as a possible topic for future multilateral negotiations. Developing countries, however, strongly resisted the discussion of trade in services in the GATT, and this set the stage for a confrontation at the ministerial meeting. After a fairly contentious meeting, the U.S. trade representative, Bill Brock, succeeded in hammering out a compromise agreement. It was agreed that interested countries could prepare national studies of trade in services and that the GATT could arrange for an exchange of views based on such studies. Even though this outcome fell short of the original U.S. objective of establishing a GATT committee or working party on trade in services, the legitimacy of work on trade in services in a GATT context had been established.

In spring 1983, the United States and other developed countries decided it would be desirable to organize an informal discussion in the GATT of the information that should be included in national studies. This request inevitably led to procedural struggles with Brazil and India over the use of GATT facilities to arrange such meetings, the attendance of members of the GATT secretariat, and the preparation of minutes and other documents. These struggles continued through most of 1983 and 1984, first in connection with the coordination of the national studies and next in connection with the exchange of views on the national studies.

The United States was the first country to submit a national study on trade in services at the end of 1983. Other countries followed.


The Debate Leading to the Decision to Launch Negotiations on Trade in Services

The ministerial communiqué on the GATT work program provided for a review of the work at the end of 1984, with the objective of deciding on the topics that might be ripe for inclusion in a new round of multilateral trade negotiations. The GATT council took up the issue at its meeting in November 1984 but could not reach a consensus on the terms for the establishment of a preparatory committee that could lay the groundwork for a new round of multilateral negotiations. The failure to reach a consensus on the agenda of a new round of multilateral trade negotiations was largely due to disagreements over the inclusion of trade in services. It was all the more noteworthy that the council agreed on the establishment of a committee to examine whether services should be included in a new round of negotiations.

The committee promptly elected Ambassador Jaramillo, the Colombian ambassador to the GATT, as chairman. Ambassador Jaramillo had previously been chairman of the more informal sessions organized to exchange information on the national studies. He now played an indispensable role in facilitating a dialogue between developed countries and developing countries on trade in services. The meetings proved invaluable in persuading a substantial group of developing countries to support the inclusion of services, thus isolating such hardliners as Brazil .and India, and paving the way for a consensus by the trade ministers. Besides Ambassador Jaramillo, the key players in this process were Richard Self, the U.S. representative on the committee, and John Richardson, the representative of the European Community.

In preparation for the meeting of ministers at Punta del Este, a group of mostly small and medium-sized developed and developing countries, acting under the leadership of the Swiss and Colombian ambassadors to the GATT, developed a draft text of a mandate for the negotiations. That draft text ultimately became the key working document at the ministerial. As in the 1982 GATT ministerial, the debate over trade in services was one of the principal issues facing ministers at their meeting in Punta del Este. Clayton Yeutter, who had replaced Bill Brock as the U.S. trade representative in 1986, was as determined as Brock to include services in the negotiations, and was prepared to allow the meeting to fail if acceptable terms could not be worked out for including services in the negotiations. In the end, agreement was achieved on a mandate acceptable to everyone, and the Uruguay Declaration was approved by the ministers as the basis for launching the Uruguay Round of multilateral trade negotiations. 3


NOTES

1. For other sources on the history of U.S. and international efforts to build support for multilateral negotiations, see Margaret Sims and Richard Rivers (1987), Ron Shelp (1979), and Christopher Madison (1981(.
2. 1 described the elements of the strategy in some detail in testimony provided before a committee of the U.S. Senate in 1980 and before a committee of the House of Representatives in 1982. See Feketekuty (1980b/ and Feketekuty (1982a). Major elements of the strategy were also incorporated in a government policy statement on trade in services adopted in 1981; see Office of the U.S. Trade Representative (1981). For a contemporary news account, see Madison (1981(.
3. The final debates that took place in hammering out the final text are more fully discussed in Chapter 10.



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