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Prepared for SJSU International & Extended Studies

IT group, Russian Federation October 26th, 2011

  Abstract & Motivation

  Data Sources and Data Collection

  Creating a Profile of US Trade in Services

  US Trading CompPartners

  Looking forward – are Trade Barriers just over

the Horizon?

  Implications for US Service Sector

  Conclusion

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Currently the service sector accounts for over eighty percent of the US economy and forty percent of the world economy according to the International Labor Organization. The growth in trade in services has become increasingly an important factor in the global economy. Countries which had enjoyed a trade surplus in manufactured goods (such as Taiwan, Korea, Japan, etc.) are now facing an increasing trade deficit in services with the US which had maintained a competitive position. In the case of China, the service sector is one area the US had kept a growing surplus in trade in contrast to a substantial deficit in other sectors. China had recognized the importance of its service sector and designated it for development in its current 2006-2011 Five Year Plan. This research will use US Department of Commerce and WTO data to create a profile of US trade in services. An attempt will be made to identify whether traditional methods employed in the manufactured goods and farm product sectors such as protectionist measures, subsidies to domestic producers, domestic standards, etc. are being employed by US and its trade partners as technical barriers to trade in services. We will draw examples from countries such as China and Korea and will also consider other countries (such as Singapore) and groups (such as APEC, Trans-Pacific Partnership, etc.) that have trade agreements with the US. We will consider how the current state of trade in services impacts on the growth of the US service sector economy domestically and globally and, in the long run, affects US’s competitive position.

Technical Barriers to Trade

Countries with Trade Deficit in Services with US

US Competitive Position and Policy

Service Sector in US Economy

APEC, TPP

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Panel: National Policies on Service Sector and Innovation

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Acting Deputy Assistant Secretary for Service

Industries

Thanks to Bob Vastine et al

J. Bradford Jensen (2011)

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42% 64 33 3 1.4 Germany

37% 26 11 63 2.1 Bangladesh

19% 20 10 70 1.6 Nigeria

45% 67 28 5 2.2 Japan

64% 69 21 10 2.4 Russia

61% 66 14 20 3.0 Brazil

34% 39 16 45 3.5 Indonesia

23% 76 23 1 5.1 U.S.

35% 23 17 60 14.4 India

142% 29 22 49 25.7 China

40yr Service Growth

S %

G %

A %

Labor %

Nation

World’s Large Labor Forces A = Agriculture, G = Goods, S = Service

2009 2009

The largest labor force migration in human history is underway, driven by global communications, business and technology growth, urbanization and

regional variations in labor and infrastructure costs and capabilities.

US shift to service jobs

(A) Agriculture: Value from harvesting nature

(G) Goods: Value from making products

(S) Service: Value from enhancing the

capabilities of people and their ability to interconnect and co-create value

Employment Change

Numeric change in wage-salary employment by industry sector, projected 2004-14 (Thousands)

Professional and business service 4566

Healthcare and social assistance 4303

CIA Handbook, International Labor Organization Note: Pakistan, Vietnam, and Mexico now larger LF than Germany

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Kwan  2011  

Kwan  2011  

In its 11th Five-Year Plan, China had targeted an increase of the service sector’s output to 43.3% of GDP by 2010, up from 40.3% in 2005

In its 12th Five-Year Plan, China had targeted an increase of the service sector’s value-added

output to 47.3% of GDP by 2015, up 4%.

But don’t forget the WTO!

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•  78.3% of GDP ≈ $8.5 Trillion •  Export of $535 Billion •  Import of $367 Billion •  Trade Surplus of $168 Billion •  Employs 93 million people •  Average annual pay $55,000+

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Modes of Trade Some Examples

Cross Border Trade Software, Insurance, telediagnosis from country B into A

Consumption Abroad A’s residents obtain education or hospital treatment in B

Commercial Presence Bank, telecommunications firm, hospital from B set up subsidiary in A.

Movement of Natural Persons Engineers, doctors from B provide services in A

Adapted from WTO definitions

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Total          294,301        306,345            355,075            391,127          437,879          506,792          551,610    

 Growth   4%   16%   10%   12%   16%   9%  

12  Total          233,071        252,368            293,228            315,545          356,138          377,222          407,295    

 Growth   8%   16%   8%   13%   6%   8%  

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70,513 68,279 78,184

89,010 96,886

139,926

161,420

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2002 2003 2004 2005 2006 2007 2008

US

$Mill

ion

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14  -10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

2002 2003 2004 2005 2006 2007 2008

US

$ M

illio

n

Canada

Europe

Latin America & Other Western Hemisphere Africa

Middle East

Asia and Pacific

International Organizations & Unallocated

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15  Total Service Sector 86.3 86.6 88.2 89.9 91.6 93.1 93.1

93.1/116=80.25% Private Sector Jobs

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WTO Doha Round of Trade Talks with goals of

Reduce Trade Barriers Open Market Access….

“..fundamental disagreements between the developed nations and the major

developing countries…”

BIC nations…

R

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With plurilateral agreements derailed, nations are now engaged in more (inefficient) negotiations for

•  Bilateral agreements •  Regional agreements – e.g., NAFTA – to be renewed soon

•  Sector/Sector Agreements – US has service sector agreements with Japan and EU

•  Free Trade Agreements (FTA) – US has FTA (or pending) with Australia, Andean Countries, Bahrain, CAFTA, Chile, Colombia, FTAA, Korea, Israel, Jordan, Malaysia, Morocco, Oman, Panama, Peru, Singapore.

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G20 and APEC meeting in November 2008 agreed on a “standstill” policy: •  revive Doha talks •  no imposition of new trade barriers •  12 months

Ineffective Global

Financial Crisis

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“The US Service Sector contracted for the 11th straight month, …”

“Global trade is expected to shrink 10% in 2009.”

•  Less imports, less exports •  less consumption, particularly for services (less disposable income) •  stimulus of domestic markets (more protectionist measures)

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Global Trade Alert: G20 members passed over 100

“blatantly discriminatory measures”.

WTO reported 53 new measures this year.

Everyone sinned a little, or a lot…

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  White House policy decisions + Trade Representative   Bottom Up pressure from Private Sector   Education about Competitiveness   Trade Adjustment Assistance   Trade Promotion Authority (Expiring!)   Free Trade Agreements   Need Doha talks for plurilateral agreements (efficient)   Help Private Sector promote trade (e.g., “golden door” program)   ………

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•  Industry Trade Advisory Committees •  “doing a good job in promoting trade in services” •  “do not see any problems with trade barriers in services”

“ I get points for promoting export of US manufactured products into China. But I do not get points for promoting export of US services……”

Senior Official at US Embassy in Beijing

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•  Complacency – “We have a huge trade surplus…. We are doing fine…” •  Other countries that are “top-down” will catch up or exceed US in their service sector abilities •  No Intellectual Property protection on Service Concepts – no patents •  Very little International Service Standards – potential for national and domestic standards development •  Continued weak economy – shrinking of global trade •  Loss of confidence in US services – e.g., financial services

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33.6

2.1

2.2

2.3

2.3

2.6

2.6

2.8

3.4

3.5

4.1

4.2

4.3

6.6

7.2

12.2

0 5 10 15 20 25 30 35 40

Other Members

Canada

Singapore

Korea, Republic of

Belgium

India

Netherlands

Ireland

Spain

Italy

France

China

Japan

United Kingdom

Germany

United States

%

Example of a “top down” approach

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0

10

20

30

40

50

60

70 19

75  

1976

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77  

1978

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79  

1980

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81  

1982

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83  

1984

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85  

1986

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87  

1988

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89  

1990

 19

91  

1992

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93  

1994

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95  

1996

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97  

1998

 19

99  

2000

 20

01  

2002

 20

03  

2004

 20

05  

2006

 20

07  

2008

 

Korean  Economic  Sectors  (Based  on  %  of  Nominal  GDP)  

Services Goods Agriculture/Fishery

From “The analysis of Korean industry structure change through I/O tables’ time series, 2003, Dong-Suk Kim, Korea Development Institute. Data from 2002-2008 are extrapolated.

The United States has a services trade surplus of $6.2 billion with Korea

in 2007 (latest data available).

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“Ranging from architecture to voice-mail telecommunications and to space transport, services are the largest and most dynamic component of both developed and developing country economies. Important in their own right, they also serve as crucial inputs into the production of most goods. Their inclusion in the Uruguay Round of trade negotiations led to the General Agreement on Trade in Services (GATS). Since January 2000, they have become the subject of multilateral trade negotiations.”

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Technical regulations and product standards may vary from country to country. Having many different regulations and standards makes life difficult for producers and exporters. If regulations are set arbitrarily, they could be used as an excuse for protectionism. The Agreement on Technical Barriers to Trade tries to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles.

Conformity Assessment Problems

and service

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US $ 3.7 Billion Trade surplus with China in

2007

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“2009 Joint Commission on Commerce and Trade (JCCT) Input on Standards and Conformance Issues in China” cited the following concerns:

•  Transparency – national “GB” standards are easily accessible but not so with regulatory agencies, local/provincial, professional, decrees, etc. •  Uneven Enforcement – inadequate enforcement for local companies, tedious procedures put US companies at a competitive disadvantage, etc. •  Conformity Assessment Policies – only by designated Chinese bodies, does not recognize external certifications, etc. •  Revisions to “China Compulsory Certification” Program •  Foreign Participation on Chinese Technical Committees

Will what happened to Manufactured Goods going to happen with Services?

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Completed Service

Standards

Research Directions

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June 30,2011

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•  US cannot become complacent – real/potential trade barriers

•  Learn from (non-protectionist) best practices in other countries

•  Sustainability of Competitive Advantage requires Innovation

J. Bradford Jensen (2011)

Much more details Available in this new book

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Prepared for SJSU International & Extended Studies

IT group, Russian Federation October 26th, 2011