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Kwan US Trade in Services
The document discusses the growing importance of the service sector in the US and global economy. It notes that the service sector currently accounts for over 80% of the US economy and 40% of the world economy. It also discusses how countries that previously had trade surpluses in manufacturing goods are now facing increasing trade deficits in services with the US. The document uses US and WTO data to analyze trends in US trade in services and examines whether countries are employing protectionist measures to create barriers to trade in services, as has been done with other sectors. It provides examples of the growth of the service sector in the economies of countries like China and discusses how trade in services impacts US competitiveness.
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Kwan US Trade in Services
- 1. 10/25/11 Prepared for SJSU International & Extended Studies IT group, Russian Federation October 26th, 2011 1 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 1
- 2. 10/25/11 Service Sector in US Economy 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, Countries with facing an increasing trade deficit in etc.) are now Trade Deficit in services with the US which had maintained a competitive position. In the case of Services with US 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 Technical such as protectionist measures, subsidies to domestic producers, domestic standards, etc. to Trade Barriers are being employed by US and its trade partners as technical barriers to trade in services. APEC, TPP 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 US Competitive economy domestically and globally and, and the long run, affects US’s competitive Position in Policy position. Panel: National Policies on Service Sector and Innovation 4 2
- 3. 10/25/11 Thanks to Bob Vastine et al Acting Deputy Assistant Secretary for Service Industries J. Bradford Jensen (2011) 5 US shift to service jobs World’s Large Labor Forces A = Agriculture, G = Goods, S = Service 2009 2009 Nation Labor A G S 40yr Service (A) Agriculture: % % % % Growth Value from harvesting nature China 25.7 49 22 29 142% India 14.4 60 17 23 35% (G) Goods: U.S. 5.1 1 23 76 23% Value from making products Indonesia 3.5 45 16 39 34% (S) Service: Brazil 3.0 20 14 66 61% Value from enhancing the capabilities of people and their ability Russia 2.4 10 21 69 64% to interconnect and co-create value Japan 2.2 5 28 67 45% Nigeria 1.6 70 10 20 19% Bangladesh 2.1 63 11 26 37% Germany 1.4 3 33 64 42% CIA Handbook, International Labor Organization Note: Pakistan, Vietnam, and Mexico now larger LF than Germany Employment Change Numeric change in wage-salary employment by industry sector, The largest labor force migration in projected 2004-14 human history is underway, driven by (Thousands) global communications, business and Professional and business service 4566 technology growth, urbanization and regional variations in labor and Healthcare and social assistance 4303 infrastructure costs and capabilities. 6 3
- 4. 10/25/11 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! Kwan 2011 4
- 5. 10/25/11 • 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+ 9 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 10 5
- 6. 10/25/11 Total 294,301 306,345 355,075 391,127 437,879 506,792 551,610 Growth 4% 16% 10% 12% 16% 9% 11 Total 233,071 252,368 293,228 315,545 356,138 377,222 407,295 12 Growth 8% 16% 8% 13% 6% 8% 6
- 7. 10/25/11 180,000 160,000 161,420 140,000 139,926 120,000 100,000 US $Million 96,886 89,010 80,000 78,184 70,513 68,279 60,000 40,000 20,000 - 2002 2003 2004 2005 2006 2007 2008 13 60,000 50,000 Canada 40,000 Europe Latin America & Other Western 30,000 Hemisphere US $ Million Africa 20,000 Middle East Asia and Pacific 10,000 International Organizations & Unallocated 0 2002 2003 2004 2005 2006 2007 2008 -10,000 14 7
- 8. 10/25/11 93.1/116=80.25% Private Sector Jobs Total Service Sector 86.3 86.6 88.2 89.9 91.6 93.1 93.1 15 16 8
- 9. 10/25/11 WTO Doha Roundof 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 17 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. 18 9
- 10. 10/25/11 G20 and APEC meeting in November 2008 agreed on a “standstill” policy: • revive Doha talks • no imposition of new trade barriers • 12 months Global Financial Ineffective Crisis 19 • Less imports, less exports • less consumption, particularly for services (less disposable income) • stimulus of domestic markets (more protectionist measures) “The US Service Sector contracted for the 11th straight month, …” “Global trade is expected to shrink 10% in 2009.” 20 10
- 11. 10/25/11 21 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… 22 11
- 12. 10/25/11 White Housepolicy 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) ……… 23 • 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 24 12
- 13. 10/25/11 • 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 25 United States 12.2 Germany 7.2 United Kingdom 6.6 Japan 4.3 China 4.2 France 4.1 Italy 3.5 % Spain 3.4 Ireland 2.8 Netherlands 2.6 India 2.6 Belgium 2.3 Korea, Republic of 2.3 Example of a “top down” approach Singapore 2.2 Canada 2.1 Other Members 33.6 0 5 10 15 20 25 30 35 40 26 13
- 14. 10/25/11 Korean Economic Sectors (Based on % of Nominal GDP) 70 60 50 40 30 The United States has a 20 services trade surplus of $6.2 billion with Korea 10 in 2007 (latest data available). 0 2000 2002 1976 1977 1979 1980 1983 1984 1986 1987 1988 1989 1990 1992 1993 1994 1996 2003 2004 2005 2006 2008 1995 1997 1998 1999 1982 1985 2001 2007 1991 1981 1978 1975 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. 27 28 14
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- 17. 10/25/11 33 “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.” 34 17
- 18. 10/25/11 rvice and se 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 35 US $ 3.7 Billion Trade surplus with China in 2007 36 18
- 19. 10/25/11 “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? 37 Research Completed Directions Service Standards 38 19
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- 21. 10/25/11 June 30,2011 41 42 21
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- 24. 10/25/11 • US cannotbecome complacent – real/potential trade barriers • Learn from (non-protectionist) best practices in other countries • Sustainability of Competitive Advantage requires Innovation Much more details Available in this new book J. Bradford Jensen (2011) Prepared for SJSU International & Extended Studies IT group, Russian Federation October 26th, 2011 48 24