KEYNOTE SPEECH:
Services in America's Trade Agenda

Remarks of Ambassador Charlene Barshefsky
United States Trade Representative

Coalition of Service Industries
Washington, D.C. September 24, 1998

Good morning, everyone. Thank you for coming. And thank you, Dean, for that introduction, and for inviting me to speak here today.

 U.S. AGENDA ON TRADE IN SERVICES

We have a full agenda on trade in services in the next few years. At the World Trade Organization, we are considering the accession of 32 economies; when complete, this will make the coverage of the General Agreement on Trade in Services, for all practical purposes, universal. The GATS 2000 negotiations have the potential to open world markets to a wide array of service sectors. We have an opportunity to ensure that Global Electronic Commerce remains unfettered by tariffs and nontariff trade barriers. We have regional negotiations with the European Union in the Transatlantic Economic Partnership, with our neighbors toward a Free Trade Area of the Americas, and in Asia and Africa as well; and bilateral talks, for example the Enhanced Initiative on Deregulation with Japan; all of which have implications for trade in services. I will touch upon each of these this morning, and in the months to come, I hope to hear your thoughts and advice. But my purpose today is to place our negotiating agenda in broader context. And let me begin at home.

THE WORLD ECONOMY TODAY

We believe in personal freedom; rewards for hard work and innovation; and open markets under the rule of law. These principles together with a balanced budget and investment in education have given us prosperity and stable growth. And they are the principles we have sought to promote abroad for fifty years, through the continuous development of the world trading system, with remarkable success. The GATT and WTO have reduced tariffs alone by an average of 90%. They have created a contractual set of rules which promote fairness, the rule of law, and peaceful resolution of disputes. As a result, trade has grown fifteen fold, and world per capita income doubled since 1960. Regions of the world once known for wars and poverty Southeast Asia, Latin America, most recently Africa have developed at astonishing speed. China and Russia, great nations which once sought to overthrow the market system, now aspire to join. America s highest skilled, highest wage industries have boomed, with exports rising from $617 billion to $938 billion just since the Clinton Administration took office. And the effects are visible in every walk of life. As the novelist A.S. Byatt writes, these are years when: "men and women hurtle through the air on metal wings, when they wear webbed feet and walk on the bottom of the oceans ... when folk in Norway and Tasmania in dead of winter could dream of fresh strawberries, dates, guavas and passion fruits and find them spread next morning on their tables." These blessings have extended from the world s richest to its poorest. The dissemination of new medicines has helped raise life expectance from 48 years in 1955 to 65 today, and cut infant mortality from 148 per thousand to 59. With the growth in agricultural trade, famine has receded from all but the most remote corners of the world. New telecommunications and the Internet open worlds of information and opportunity to anyone with a computer terminal. And yet the accomplishment is incomplete. That has never been more clear than this year, when the Asian financial crisis has shown how rapidly growth overseas can come to a halt. How quickly our overseas markets can shrink. And how profoundly disruptions in the banks of Thailand or Mexico can affect the income of farm families in Kansas and North Dakota; the jobs of factory workers in Washington and St. Louis; and the balance sheets of companies everywhere.

DANGERS OF CLOSED SERVICES MARKETS

One of our principal tasks, then, is to create a world economy less volatile and vulnerable to crisis. And that brings us to our goals in services because closed services markets are an important factor in this volatility. In our economy, sectors like financial services, telecommunications, transport, legal services, information and distribution create most of our jobs and much of our economic growth. And with some notable exceptions as Bob Vastine can tell you from his days at the Resolution Trust Corporation RTC we have developed transparent and impartial regulations which promote competition, keep these sectors relatively free of imbalances and cronyism, and in the end create highly competitive industries. Internationally, however, the situation is quite different. Particularly in developing and newly industrialized countries, many service markets remained relatively closed. This is also true of the reforming communist economies. In some cases this inhibited both modernization of service industries and development of effective regulation. As former Korean Finance Minister Han Seung Soo noted earlier this year, speaking about the causes of the spread of the Asian financial crisis: In contrast to the developing industrial sector, the financial sector has been closed to foreign competition, with limited integration of the international market. As a consequence, the financial sector remained large and inefficient, creating a structural imbalance in the Korean economy. Thus we have seen repeated financial crises, with this year s by far the largest and most dangerous. And closed markets in services create other risks. Inefficient, pollution prone power and transport reduce efficiency, worsen the quality of life and waste investment. Telecommunications markets reserved for government monopolies make service worse for consumers and business more difficult for firms. Monopolies in express delivery reduce the efficiency not only of the service sector but farms, fisheries and manufacturers.

OPPORTUNITIES IN MORE OPEN SERVICES MARKETS

All Americans thus have an interest in the more stable, sustainable growth and higher productivity that open services markets can create worldwide. And service firms will of course benefit directly, as Americans lead the world in high technology, health, education, express delivery, professional services and many other areas. Our performance in a relatively closed world $265 billion in services exports last year, supporting four million jobs shows how much we can achieve in an open market. More open services will also support eased exports of goods. To quote the classical Chinese historian Ssu ma Ch ien, writing in the second century B.C., for an economy to function: "There must be farmers to produce food, men to extract the wealth of mountains and marshes, artisans to process these things, and merchants to circulate them. There is no need to wait for government orders: each man will do his part as he gets what he desires. So cheap goods will go where they fetch more, while expensive goods will make men search for cheap ones. When all work willingly at their trades, just as water flows ceaselessly downhill day and night, things will appear unsought and people will produce them without being asked." In our own day, to use Ms. Byatt's examples, plants which make aircraft require computer software and design to get their metal wings off the ground, and strawberries will not get from growers in the San Fernando Valley to consumers in Norway without efficient transport. Likewise, exports of cars to Japan are inseparable from freedom to establish auto dealerships; and without open distribution in China, our exports of goods will suffer even if tariffs and quotas relax.

UNIQUE PROBLEMS

As we look to the future, then, we have the opportunity to create a safer and more stable international economy, which promotes more rapid development and offers Americans greater opportunity. Thus our goal in the coming services negotiations is to obtain broad commitments for significantly improved market access from other countries, achieving maximum liberalization and improved transparency in a wide range of sectors. We seek this goal in the GATS 2000, in accessions to the WTO, in regional negotiations like the Free Trade Area of the Americas and the Transatlantic Economic Partnership, and in bilateral talks with some of our major trade partners. In each case we will seek to open more service sectors, ensure that countries are more open to US providers on a nondiscriminatory basis; prevent discrimination against particular methods of delivering services (in particular electronic transmissions and rights of establishment); and promote high standards of honesty, transparency and consumer protection in regulation. But in these efforts we face challenges often more complex than those presented by trade in goods. Barriers to banking, legal practice or distribution rights are generally not tariffs or quotas. Some are regulatory or licensing standards, which may have legitimate goals like consumer protection. These standards, including in America, may be established not by national governments but by state governments or even private professional associations. There are often very good reasons for this, and trade policy must respect and work with the relevant bodies, while ensuring that the standards fulfill a legitimate purpose rather than simply restricting trade. Likewise, rules for trade in services must anticipate the development of new technologies. Examples are obvious in almost every field, from colleges which can teach, hold examinations and grant degrees over great distances; home entertainment products delivered by satellite; and advanced health care delivered directly to the home or to rural clinics via telemedicine. We must take care to ensure that trade agreements do not quickly become obsolete. And finally, trade in services is simply a new and highly complicated issue for many countries. The National Statements circulated by many of the developing countries at the WTO Ministerial Conference in May, for example, showed a widely shared concern that domestic regulatory agencies are having trouble meeting even existing WTO commitments.

PROGRESS SO FAR

These are formidable obstacles; but we are nonetheless optimistic, and the record of the past five years shows why. First, as recently as 1993, when the Clinton Administration took office, there were virtually no international standards for trade in services. With the introduction of the General Agreement on Trade in Services in January of 1995, we created an overall framework which like our domestic standards promotes competition, openness and transparency. The GATS deters discrimination against foreign providers; helps ensure that governments treat their trade partners equally; promotes the principle that regulation of services should be transparent and done for valid policy reasons rather than to exclude foreigners; and makes public lists of exemptions from basic principles. Second, in some sectors we have given content to these rules through concrete liberalization and market access. By the end of 1997, these included concrete commitments in two of the highest value services sectors: basic telecommunications and financial services. The Agreement on Basic Telecommunications includes 70 countries and over 95% of world telecom revenue in a $750 billion industry. It provides U.S. and foreign companies access to local, long distance and international service through any means of network technology, and ensures that U.S. companies can acquire, establish or hold a significant stake in telecom companies around the world. In doing so, it replaces a 60 year tradition of national telecommunications monopolies and closed markets with market opening, deregulation and competition. The Agreement on Global Financial Services includes banking, securities, insurance and financial data services. It covers 95% of the global financial services market, and 102 WTO members now have market opening commitments in the financial services sectors. They encompass $18 trillion in global securities assets; $38 trillion in global (domestic) bank lending; and $2 trillion in worldwide insurance premiums. Third, new applicants to the WTO are making commitments that go well beyond these accomplishments. Several of them have taken commitments in broader ranges of service sectors, recognizing the value to consumers and producers of comprehensive, predictable rules. Taiwan is one. Kyrgyzstan, the Baltic states, Georgia and Armenia are others. These accession agreements include commitments in areas many other countries have avoided professional services, distribution, construction and more. They set baselines for future accessions, including larger economies like China and Russia, and an example for improving the commitments of today WTO members. And fourth, we are building consensus on crucial issues for the future. At the WTO Ministerial Conference last May, we won a standstill on tariffs applied to electronic transmissions. We are now moving on to an electronic commerce work program at the WTO to achieve a permanent agreement to avoid tariffs and open markets for Internet service providers; and which links these commitments to open markets in express delivery, which is crucial to the efficiency and rapid service for customers electronic commerce can promote.

THE WORK AHEAD UNDONE

Thus, in financial services and basic telecom, while we can achieve more, we have already done a lot. In a few other sectors, like travel services and tourism, service markets are quite open and many countries have made binding commitments. But these are the exceptions, and so we have a long way to go. In most service sectors we see few specific commitments. Only fourteen WTO members have made commitments in audiovisual services. No developing countries or economies in transition have made commitments on gathering and dissemination of news some in fact have tried to go backward, as China recently did by attempting to give its state agency Xinhua a monopoly on financial information. Less than a third of the WTO have made commitments in distribution.

PREPARING FOR GATS 2000

Therefore our goal in the coming services negotiations is to obtain broad commitments for market access, including maximum liberalization and improved transparency, in a range of sectors. The negotiating structure best suited to this goal is still undetermined. Should negotiations be conducted sector by sector? Are horizontal negotiations across all sectors more likely to win the best result? Would a formula approach to liberalization be possible? We must begin with a sector by sector review of the issues raised by GATS principles like market access, MFN and national treatment. We must also discuss whether, and if so how, today s classification of service sectors can be improved. And we must address the question of classifying newly developed services and ensuring that GATS principles can be applied to them. At the same time, we will review our existing agreements and the lessons we can draw from them. In the Agreement on Basic Telecommunications, GATS principles led to fundamental questions of regulatory policy, transparency and rule of law. To give these principles meaning, governments needed to provide guarantees to prevent anti competitive behavior, maintain open and transparent licensing, and ensure the impartiality of government regulation. Financial services raised similar questions. But while each of these agreements may offer lessons for GATS 2000, each sector is unique. As an old Chinese saying has it, a dog resembles a baboon, and a baboon resembles an ape, and an ape resembles a man; but a man is very far from a dog. Thus we must accept the possibility that each may require a different approach.

REGIONAL NEGOTIATIONS

We also expect to draw a great deal from the regional negotiations we have underway. These can help us set precedents and establish standards for the GATS 2000 and beyond, find quick agreement on areas of less controversy, and allow us to serve our interests in sectors where we are competitive but in which international consensus is difficult to achieve. For example, in the Transatlantic Economic Partnership (TEP) with the European Union, we will seek to find areas where liberalization will benefit both of us, develop joint positions in areas of mutual interest for WTO 2000, and to reduce conflicts in areas which have the potential to make the broader multilateral talks more difficult. In the Asia Pacific Economic Cooperation forum (APEC) we are discussing liberalization of services including energy, environmental services and telecommunications. These can push GATS 2000 forward, just as APEC s agreement on information technology two years ago was the catalyst for the ITA. APEC can also help us on questions of classifying services, particularly in the energy and environmental service sectors. In Japan, our bilateral agenda with the world s second largest economy addresses both market opening and implementation of agreements in individual sectors like insurance, civil aviation and distribution, and broad questions of regulatory policy and transparency. And in Latin America, we have already begun formal negotiations toward the establishment of a Free Trade Area of the Americas, with a Negotiating Group entirely devoted to trade in services. CSI has already offered very helpful comments, and the schedule calls for the services Negotiating Group to produce an annotated outline of an FTAA services chapter by September of 1999 that is, eleven months from now. Thus, assuming the working group stays on schedule, we have an opportunity to begin the GATS 2000 with a well developed model of what we can achieve on a world scale.

CSI AND THE NEXT GATS NEGOTIATIONS

This is an ambitious agenda which will require detailed and complex negotiations, and we need your help and advice. So in the next months, I look forward to your thoughts on the proper form of negotiations and the specific objectives we should set in particular sectors. I expect that you will also be speaking with your counterparts in services industries overseas, to build a private sector consensus for a successful negotiation. CSI s commitment and hard work was essential to the success of the services talks in the Uruguay Round, as well as to the Basic Telecom and Financial Services agreements. You will be still more important in the GATS 2000. We will also need to work together here at home, as the United States prepares to host the next WTO Ministerial; and on institutional reforms at the WTO beyond the substantive services negotiations. As services negotiations proceed, the public will expects and deserve a full explanation of their implications for our economy. And as the WTO s coverage expands, the public will naturally expect the WTO to become more open and accessible. Thus I hope you will work with us in our effort, for example, to open dispute panels to the public.

CONCLUSION

And let me remind you that the consequences will be profound. For fifty years, beginning with the establishment of the GATT after the end of the Second World War, we have worked toward a world which is made wealthier, more peaceful and more vital through respect for freedom, rewards for hard work and creativity, and the rule of law. In our negotiations on trade in services, we can bring this achievement toward completion. A more stable and productive world economy, as competition brings both innovation and transparency to world financial systems, and efficient power and transport reduce costs and allow faster growth together with a cleaner environment. Better health and a higher quality of life, as telemedicine brings the world s most advanced health care to rural clinics and isolated villages; and information becomes more freely available everywhere. And the advance of American values, as new forms of communication and information promote freedom of speech and freedom of thought. It is an inspiring task. And we are lucky to be here together as it begins. Thank you very much.