Liberalizing Trade In Services Critical To U.S. Economy

This article originally appeared in the Legal Backgrounder, October 18, 2002

The United States has consistently been at the forefront of the movement to liberalize trade in services under the 1994 General Agreement on Trade in Services ("GATS"). This advocacy transcends political leadership and is directly related to the structure of the United States economy, some 63 percent of which involves the supply of services both domestically and around the world. On July 1, United States Trade Representative ("USTR") Robert Zoellick announced the submission of a new proposal for liberalization of international trade in services, which in accordance with the agreed negotiating guidelines is comprised of specific requests directed at individual countries. Although details of the specific requests remain confidential, statements from the USTR's office make clear that the United States proposal conflicts with the services liberalization agenda of countries in the European Union and the developing world. This latest proposal should be viewed therefore as an opening offer in a multilateral bargaining process, on the basis of which many concessions will certainly be made and compromises struck as the Members proceed down the road toward a final agreement in 2005.

Background: the GATS Framework for Negotiation. The General Agreement on Trade in Services came into being in 1994 as a result of the Uruguay Round of negotiations under the General Agreement on Tariffs and Trade ("GATT"). Ostensibly a service-oriented counterpart to the GATT, the GATS is actually a much more far-reaching and politically sensitive agreement than the GATT, due to the nature of trade in services. First, regulation of services is fundamentally an internal domestic issue. Whereas trade in goods can for the most part be regulated through border measures, which intrude only minimally on national government policy, the vast majority of trade in services takes place not at the borders but within the territory of a country, either through foreign consumption of services on domestic soil or provision of domestic services on foreign soil. Second, provision of services, to a much greater degree than supply of goods, implicates issues of national policy: the need to protect investors and consumers from dishonest or unstable financial institutions, for example; or the widely held conviction that certain basic services such as telecommunications, energy and education should remain in the hands of one's own nationals.

In order to accommodate these concerns on the part of Member countries, the GATS permitted Members to establish exceptions to the general principles of open market access and national treatment, through the use of individual country "schedules." In these schedules, member countries were permitted to limit their obligations under the GATS in certain enumerated ways. Once the schedules were in place, no further exceptions were permitted, although a country may voluntarily increase its commitments under the GATS.

The schedules were designed as a stop-gap measure, to allow the GATS to proceed despite the fact that the Member countries were not, in 1994, in a position to agree on uniform market access rules for the myriad service sectors and modes of supply covered by the GATS. To ensure that further liberalization in trade in services occurred, the GATS established a mandatory series of negotiations "with a view to achieving a higher level of liberalization" of such trade. GATS Article XIX. The negotiations began, as stipulated, in January 2000, in the WTO Council for Trade in Services. Since then, every country has submitted multiple proposals, some comprehensive, some concentrating on one or more key services sectors...