United States WT/TPR/S/88
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I. RECENT ECONOMIC DEVELOPMENTS
1. After a long period of strong expansion, U.S. economic growth decelerated as of the third
quarter 2000, and projections pointed to a deceleration of growth to as low as 1.5% for the whole
of 2001.  Indicators suggesting a slow down include declines in exports, private inventories, industrial
production, and capacity utilization for total industry.  Consumer expenditure has remained strong but
imports have fallen considerably.  As a response, the U.S. authorities started relaxing monetary policyin early 2001;  fiscal policy has also been eased.
2. Recent changes in the economic environment since the previous U.S. Review in July 1999
may impinge on U.S. trade policy implementation.  A slowing economy is likely to increase pressures
on U.S. companies and the labour force, who might seek greater protection against imports,
particularly through contingency measures (Chapter III(1));  it might also lead to calls for moregovernment support, both through direct outlays an d fiscal concessions (Chapter III(3)).  More
generally, the United States, in the midst of a cyclical slowdown, is less of a growth engine for the
rest of the world, with particular consequences for those trading partners whose exporters have come
to rely heavily on the U.S. market.
(1) O
UTPUT , EMPLOYMENT AND PRICES
3. The services sector continues to dominate the U.S. economy.  The share of service-producing
activities rose from 76% of (nominal) GDP in 1997 to 78% in 1999;  in those two years, services
accounted for 74% and 75% of employment.  Construction has also expanded some in recent years.
In contrast, both manufacturing and agriculture have seen their nominal GDP shares fall slightly.1
4. The U.S. economy began to slow down as of th e third quarter of 2000.  Annualized growth in
the first quarter of 2001 was 1.3%, after a 1% incr ease in the fourth quarter of 2000.  The slowdown
was mainly due to a sharp reduction in private inventories, and to a decline in exports:  the Bureau ofEconomic Analysis (BEA) estimated that changes in private inventories reduced GDP by
0.62 percentage points in fourth quarter 2000 and by 2.96 percentage points in first quarter 2001,
while exports subtracted 0.74 and 0.30 percentage points in, respectively, fourth quarter 2000 and first
quarter 2001 (see also section (4)(i) below).
2  Other indicators pointing to an economic slowdown
included a 1% decline in industrial production in the 12 months to April 2000, with manufacturingoutput contracting by 1.6%.
3  The rate of capacity utilization for total industry fell further, to 78.5%,
some 3.5 percentage points below its 1967-2000 average.  Growth in fixed investment has also
declined.
5. The slowdown of the U.S. economy followed a long period of strong growth:  real GDP
growth peaked at 5% in 2000, with a four year average (1997-2000) of 4.5% (Table I.1).Underpinning this strong growth had been high levels of private domestic consumption, which
outstripped increases in disposable personal income, as well as strong investment growth.  Partially
because of the high spending levels, the U.S. personal savings rate has been falling consistently, and
turned negative in 2000, to a dissaving rate of -0.1% of GDP.  Gross private investment growth
remained strong in both 1999 and 2000, particularly in the latter year, when it was just over 10%.
                                                     
1 The authorities noted that the decline in manufacturing was partly due to a shift in relative prices,
which led to a decline in its nominal share of GDP.
2 BEA, News Release 01-13, 25 May 2001.
3 Federal Reserve Statistical Release, 14 May 2001 [Online].  Available at:  http://www.federalreserve.
gov/releases/G17/Current/.WT/TPR/S/88 Trade Policy Review
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Table I.1
Selected macroeconomic indicators, 1996-01
(US$ billion and per cent, annualized values, except as indicated)
1996 1997 1998 1999 2000 III 2000 IV 2000 I 2001
GDP (US$ billion) 7,813.2 8,318.4 8,790.2 9,299.2 9,963.1  10,039.4 10,114.4 10,229.4
Change in per cent
Real GDP 3.6 4.4 4.4 4.2 5.0 2.2 1.0 1.3
Private consumption 3.2 3.6 4.7 5.3 5.3 4.5 2.8 2.9
Durable goods 5.6 6.6 10.6 12.4 9.6 7.6 -3.1 12.2
Non-durable goods 2.9 2.9 4.0 5.6 5.0 4.7 1.0 1.5
Services 2.8 3.3 3.9 3.7 4.5 3.7 4.9 1.8
Gross private fixed investment 9.0 12.1 12.5 6.6 10.2 1.8 -4.1 -13.3
Fixed investment 9.3 9.6 11.8 9.2 9.3 3.1 -0.9 2.3
Change in private inventories (contribution to GDP
change).. .. 0.2 -0.4 0.2 -0.2 -0.6 -3.0
Public consumption and investment 1.1 2.4 2.1 3.3 2.8 -1.4 2.9 4.7
Real exports of goods and services 8.2 12.3 2.3 2.9 9.1 13.9 -6.4 -2.7
Goods 8.7 14.5 2.2 4.0 11.6 21.0 -9.9 -4.6
Services 6.8 7.0 2.4 0.5 2.9 -2.8 3.4 2.3
Real imports of goods and services 8 . 61 3 . 71 1 . 91 0 . 71 3 . 61 7 . 0 - 1 . 2 - 9 . 1
Goods 0.4 14.2 11.8 12.5 13.9 16.2 -2.1 -10.2
Services 4.8 10.9 12.2 1.7 11.5 22.3 4.0 -2.8
Exports of goods and services (per cent of GDP) 10.9 11.3 10.6 10.3 10.7 11.3 11.0 10.8
Imports of goods and services (per cent of GDP) 12.2 12.5 12.5 13.1 14.4 15.1 15.0 14.4
Industrial production (end of period) 6.1 7.0 2.7 5.7 3.1 6.1 3.2 -1.0a,b
Saving and investment Per cent of GDP
Gross national saving 17.3 18.1 18.8 18.5 18.3 18.5 18.0 17.5
Private 16.5 16.2 15.7 14.4 13.0 13.1 12.5 12.2
Personal savings rate (% of disposable income) 4.8 4.2 4.2 2.2 -0.1 -0.2 -0.7 -0.9
Public 0.8 1.9 3.2 4.0 5.3 5.4 5.5 5.3
Gross domestic investment 17.7 18.4 18.5 17.7 17.5 17.2 17.5 17.0
Private 15.9 16.7 17.6 17.7 18.4 18.4 18.3 17.5
Public 3.2 3.2 3.2 3.3 3.4 3.3 3.6 3.4
Net foreign investment -1.4 -1.5 -2.3 -3.4 -4.3 -4.5 -4.4 -3.9
Prices Change in per cent
CPI (period average) 3.0 2.3 1.6 2.2 3.4 3.5 3.4 3.3 a,b
GDP deflator (implicit) 1.9 1.9 1.3 1.5 2.0 1.6 2.0 3.3
Employment/unemployment
Employment (changes in per cent) 1.4 2.2 1.5 1.5 1.3 -0.1 0.4 0.2 a,b
Unemployment rate (end-of-period) 5.4 4.9 4.3 4.2 4.0 3.9 4.0 4.5 a
Productivity Change in per cent
Labour productivity 2.5 2.0 2.7 2.5 4.2 2.9 2.4 -0.1
Capital productivity 0.1 0 -0.7 -1.8 .. .. .. ..
Total factor productivity 1.4 1.0 1.4 0.6 .. .. .. ..
.. Not available.
aA p r i l .
b Compared to the same period in the previous year.
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business  [Online].  Available at:
http://www.bea.doc.gov/bea/pubs.htm, Bureau of Labour Statistics (www.bls.gov).United States WT/TPR/S/88
Page 3
6. Strong output and consumption growth went ha nd-in-hand with high import growth:  in 1999
and 2000, imports of goods and services expanded at over 10.7% and 13.6%, respectively in real
terms.  In this respect, the U.S. economy had been s upportive of growth in the rest of the world.  This
changed considerably in late 2000, imports falling at annualized rates of 1.2% and 9.1% in fourth
quarter 2000 and first quarter 2001.  This trend may be a matter of concern for trading partners,
especially those that depend heavily on the U.S. market.4  For example, in 1999 exports to the U.S.
market represented more than one quarter of th e GDP of six WTO Members (export to GDP ratio
between parentheses):  Canada (35%), Costa Rica (31%), Mexico (31%), Singapore (26%), Malaysia
(26%) and Hong Kong, China (25%).
7. Imports decreased despite a 2.8% rise in personal consumption expenditures in the fourth
quarter 2000 and a similar increase in the first quarter 2001.  Although personal expenditure in
services made a strong contribution to GDP in 2000, the brunt of this spending was on non-tradeable
or mainly domestically supplied services (e.g. housing, medical care, and recreation).  Moreover, in
both fourth quarter 2000 and first quarter 2001, government expenditure, which has a greater impacton domestically produced goods than imports, grew faster than personal consumption spending.  Also,
part of the decline in imports can be explained by falling inventories.
8. Both savings and investment lost some share of GDP in 1999 and 2000, compared with their
peaks in 1998;  this decline continued in the first quarter of 2001.  Gross national savings had been
growing fast in recent years, due primarily to the strengthening of government finances at all levelsbut particular at the federal level.  The personal savings rate, on the other hand, fell sharply in 1999and 2000, going into negative in 2000, and declining further in the first quarter of 2001.
9. Despite the rapid expansion of the economy, inflation has been low;  the annual increase in
the consumer price index (CPI) averaged 2.4% in the period 1997-2000 (Table I.1).  Although the CPI
rose some in 1999 and 2000, partly due to an increase in oil prices, and core inflation (excluding oil
prices) and import prices (despite the appreciation in the exchange rate) also increased, inflation
remains largely under control.  The CPI increased at  a moderate rate of 3.3% for the twelve-month
period ended April 2001.  The long-term fall in unempl oyment did not result in inflationary pressures,
which suggests that high productivity has reduced the non-accelerating inflation rate ofunemployment (NAIRU, the lowest level of unempl oyment sustainable without raising inflation).
The current estimate of 4.5% for the NAIRU is expected to rise to a long-run rate of 5.1%.
5
10. Labour productivity continued to expand briskly in 1999 and 2000;  private non-farm-
business productivity grew in particular in 2000, at some 4.2%.6  Since mid-2000 labour productivity
growth has declined;  in the first quarter of 2001 it became slightly negative but recovered again in the
second quarter.  Most gains in labour productivity have been in manufacturing, as well as in financial,
communications, and wholesale and retail trade services;  productivity in other services areas actually
declined during the period.7  The latter service activities were responsible for most employment
creation in recent years, while employment in manufacturing did not increase.8  Driven by fast labour
productivity growth, total factor productivity increased in 1998 and 1999, the last two years for which
data were available;  capital productivity, on the other hand, has been declining (Table I.1).
                                                     
4 WTO, Annual Report 2001, p. 20.
5 Economic Report of the President (2001).
6 Non-farm business labour productivity increased at an annual average 2.4% growth rate in the
1996-99 period;  a nnual growth in the preceding 20 years was some 1.5%.
7 For this disaggregation of labour productivity by sectors, the BEA uses income-side data including
agriculture, while private non-farm-business productiv ity figures are based on the average of income-and-
product-side measures of output per hour worked.  Council of Economic Advisers (2001), p. 32.
8 Council of Economic Advisers (2001), pp. 32 and 328-329.WT/TPR/S/88 Trade Policy Review
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(2) MONETARY AND EXCHANGE RATE POLICIES
11. The main objective of monetary policy during the period under review shifted from inflation
control to avoiding an economic recession, a period of contractionary policy through interest rate
increases having been followed by a period of expansionary policy.  Between June 1999 and
May 2000, the Federal Reserve raised its target for the Federal funds rate (the rate banks charge each
other for overnight lending), by 175 basis points, from 4.75 to 6.5%.9  During that period, rapid
economic growth, and unemployment as low as 4%, led to concerns over increasing inflation.
Although later in 2000 it became apparent that the economic expansion was beginning to decelerate
and core inflation was remaining fairly steady, rises in oil prices and increasing wage settlements
encouraged the fairly tight stance on monetary policy.
12. Starting in early 2001, as the economic slowdow n became more evident, there was a change
in monetary policy stance:  during the first five months of 2001 the Federal Open Market Committee
(FOMC) decided on five interest rate cuts.  The cuts lowered the target for the Federal funds rate from
6.5% at the beginning of the year to 4% by 15 May;  over the same period, the discount rate was
lowered from 6% to 3.5%.  On taking the decisions to  cut interest rates, the FOMC remarked that the
risks were weighted mainly toward conditions that could generate economic weakness in theforeseeable future, considering that there had been a significant reduction in excess inventories,
consumption and housing expenditures had flattened some, and investment in capital equipment had
declined.  The FOMC also took into consideration the decline in capital spending, the possible effects
of earlier reductions in equity wealth on consumpti on, the risk of slower growth abroad, and lessened
concerns about inflation as pressures on labour and product markets eased and the underlying rate of
productivity increase appeared to be largely intact.
10
13. The cuts in the Federal funds rate led to a decline in nominal market interest rates and to
faster growth of the monetary aggregates M2 and M3 in the first quarter of 2001 (Table I.2).  They
also contributed to a rebound in the stock market, since, with inflation stable, real interest rates
decreased considerably in the first few months of 2001.  Thus, among lending rates, the prime rate
had declined to 7.8% in April 2001, equivalent to a real rate of some 4.5%;  among passive rates, the
one-month CD rate was at 4.8%.
14. In 1999, the real and nominal effective exchange rates depreciated, for the first time
since 1995, only to rebound again in 2000.  The real exchange rate in 2000 was the highest it has been
since 1985.  The changes in the exchange rate have mirrored those of short-term interest rates.
Capital inflows, until 2001 attracted by high interest rates and expectations of higher growth in the
United States relative to other investment destinations, were a major factor in the currencyappreciation.  The high real exchange rate is likely to have also contributed to the widening of the
current account deficit.  Despite the five interest rate cuts during the first half of 2001, the U.S. dollar
remained strong.
                                                     
9 The last increase took place on 16 May 2000;  for the re st of the year, rates were left unchanged.  FRB
Press Release, 16 May 2000 [Online].  Available at:  http://www.federalreserve.gov/BoardDocs/Press/General/2000/20000516/default.htm.
10 FRB Press Release, 18 April 200, and 15 May 2001 [Online].  Available at:
http://www.federalreserve.gov/boarddocs/press/General/2001/20010515/default.htm;  and http://www.federal
reserve.gov/boarddocs/press/Ge neral/2001/20010418/default.htm.United States WT/TPR/S/88
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Table I.2
Selected monetary and exchange rate indicators, 1996-01
1996 1997 1998 1999 2000 III 2000 1V 200 I 2001
Money stock (end of period, per cent change)
M1 -4.1 -0.7 2.2 2.5 -3.0 0.0 -3.3 -0.1a
M2 4.7 5.7 8.8 6.1 6.4 6.3 6.3 8.2a
M3 7.5 9.2 11.0 8.3 8.7 10.5 8.8 10.7a,e
Interest rates (per cent)
Federal funds rate (effective)b5.3 5.5 5.4 5.0 6.2 6.5 6.4 4.8c
Prime lending rate 8.3 8.4 8.4 8.0 9.2 9.50 9.50 7.8c
Treasury bill rate (3-months, secondary market) 5.0 5.1 4.8 4.6 5.8 6.0 5.8 3.9
Treasury note rate (10-year maturity) 6.4 6.4 5.3 5.7 6.0 5.8 5.2. 5.1
Commercial paper (financial) b .. 5.6 5.4 5.1 6.3 6.5 6.5 4.7c
Certificates of deposit (CDs, 1 month) 5.4 5.5 5.5 5.2 6.4 6.6 6.6 4.8
Exchange rate (yearly average)c
Nominal effective exchange rate (1973=100) 84.6 91.2 95.8 94.0 98.3 .. .. ..
   Per cent change 4.7 7.8 5.0 -1.8 4.6 .. .. ..
Real effective exchange rate (1973=100) 84.9 92.2 97.2 96.7 102.9 .. .. ..
   Per cent change 6.3 8.6 5.4 -0.6 6.4 .. .. ..
US$ per Euro .. .. .. 1.07 0.92 0.93 0.90 0.92
US$ per £ 1.56 1.64 1.66 1.62 1.52 1.53 1.47 1.45
Yen per US$ 108.8 121.1 131.0 113.7 107.8 106.7 107.5 118.0
.. Not available/applicable.
a Twelve months to April 2001.
b The Federal funds rate is the cost of borrowing immediately-available funds, primarily for one day.  The effective rate is a
weighted average of the reported rates at which different amounts of the day's trading through New York brokers occurs.  Rates
for III 2000 and IV 2000 are averages for September and December, respectively.  Financial commercial papers are short-term
negotiable promissory notes issued by companies and sold to investors.
cI M F ,  World Economic Outlook , various issues.
Source: Federal Reserve Board online information.  Available at:  http://www.federalreserve.gov/releases/;  and IMF,  World Economic
Outlook .
(3) FISCAL POLICY
15. The Federal Government's fiscal balance remained in surplus over the period under review,
rising from 0.8% of GDP in 1998 to 2.4% in 2000.  The overall surplus has been made possible by the
high net surplus in social security contributions.  Although lower, the structural balance, which
excludes cyclical economic activity, was also in su rplus, as have been state and local governments
fiscal balances.  The overall fiscal surplus has allowed a reduction in public debt as a share of GDP, to
55% in the first quarter of 2001, down from 67% in 1996 (Table I.3).11
16. Fiscal policy has been prudent in recent years and, indeed, the surplus is projected to increase
in the coming decade;  as a result, public sector savings were 5.3% of GDP in 2000.  Building on
changes introduced through the Omnibus Budget Reconciliation Act of 1993 and the Balanced Budget
Act of 1997, a major factor for the increase in the fiscal surplus has been the sustained level of
economic growth, which has continued to generate large increases in revenue.  Also, reductions ingovernment expenditure have taken place, primarily in national defence, the justice system, and
                                                     
11 Up-to-date information on the stock of public debt may be found in U.S. Treasury, Bureau of the
Public Debt online information.  Available at:  http://www.publicdebt.treas.gov/opd/opdpenny.htm.WT/TPR/S/88 Trade Policy Review
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economic affairs.12  Another important contributor to the increasing surplus has been the five-year rise
in the stock market, generating revenue from the capital gains tax.
Table I.3
Selected fiscal indicators
1996 1997 1998 1999 2000 III 2000 IV 2000 I 2001
Fiscal balance (per cent of GDP)
Federal government fiscal balance -1.4 -0.3 0.8 1.4 2.4 .. .. ..
State and local government fiscal balance 0.3 0.4 0.5 0.5 0.6 .. .. ..
Structural federal government balance a-1.1 -0.7 -0.2 0.2 1.1 .. .. ..
Public debt (US$ billion, fiscal year) 5,224.8 5,413.1 5,526.2 5,656.9 5,674.2 5,674.2 5,662.2 5,661.3
Public debt (% of GDP) 66.9 65.1 62.9 60.8 57.0 56.5 56.0 55.3
a The structural budget balance is defined as the actual budget deficit (or surplus) less the effects of cyclical deviations of output
from potential output.
Source : Budget for FY 2002;  U.S. Treasury, Bureau of the Public Debt online information.  Available at:  http://www.publicdebt.treas.
gov/opd/opdpenny.htm;  and data from the International Monetary Fund, World Economic Outlook .
17. In May 2001, Congress approved the FY 2002 Budg et and a ten-year Budget Plan, which
contained tax cuts estimated at US$1.35 trillion over FY2001-11, down from the originally envisaged
US$1.6 trillion.13  The Budget Plan estimated the fiscal surplus for FY2002 at US$231 billion,
somewhat lower than the US$281 billion surp lus for FY2001.  Of the estimated US$5.6 trillion
surplus over the next ten years, US$2.6 trillion is to come from Social Security, with such funds to be
devoted to Social Security and debt retirement, with no funds intended for other spending initiatives
or tax relief.  The Budget Plan estimated that by devoting revenues to debt retirement the United
States can pay off all the debt in securities with maturity dates up to 2011, some US$2 trillion over
2002-11.  The Plan also allocated, out of the ten-year surplus, US$1 trillion to an Additional Needsand Contingency Reserve.  This Reserve was expected to provide a cushion in case budget surpluses
turn out to be smaller than currently projected.
(4) B
ALANCE OF PAYMENTS
18. Mainly as a consequence of the increase in the deficit on goods and services, the U.S. current-
account deficit increased in 2000 to a record US$444.7 billion, or 4.5% of GDP;  the previous recordwas US$324.4 billion, in 1999 (Table I.4).  In this respect, the surplus in the capital account continued
to grow, to $444 billion or 4.4% of GDP in 2000, up from US$373.4 billion in 1999.
19. Both exports and imports of goods rose in 1999 and 2000:  the increase in exports, of some
14% in nominal terms in 2000, was fuelled in particular by non-agricultural goods.  The large increase
in imports more than offset the strong export performance and the deficit on goods rose;  the surplus
in services remained virtually unchanged, with im ports again expanding faster than exports.  The
deficit on income decreased slightly in 2000.
20. The inflow of foreign capital into the United States led to a sharp increase of foreign-owned
assets in 2000:  these increased by some US$1.02 trillion in 2000, after an increase of US$814 billion
                                                     
12 See "Government spending by function: a new presentation" in U.S. Department of Commerce,
Survey of Current Business , June 2000, for a full description.
13 More information on the ten-year Budget Plan and on the Budget for FY 2002 may be found in:
Budget of the United States Government, Fiscal Year 2002 [Online].  Available at:  http://www.whitehouse.gov/
omb/budget/.United States WT/TPR/S/88
Page 7
in 1999.  This reflected the following net foreign transactions in 2000 (corresponding values for 1999
between parentheses):  sales of U.S. Treasur y securities, US$52.8 billion (US$20.5 billion);
purchases of U.S. securities other than U.S. Treasury securities, US$485.6 billion (US$344 billion);
and net direct investment of US$287.7 billion (US$301 billion).14
Table I.4
Current and capital accounts, 1995-00
(US$ billion)
1996 1997 1998 1999 2000 2000-
III2000-
IV2001-
I
Current account balance -121 -140 -217 -324 -445 -115 -116 -110
   Exports of goods, services and income 1,078 1,196 1,192 1,243 1,419 361 363 356
     Exports of goods 612 678 670 685 772 199 196 195
     Exports of services 240 257 262 273 294 73 74 74
    Income receipts 226 261 259 285 353 89 93 87
   Imports of goods, services and income 1,159 1,295 1,365 1,516 1,809 463 463 454
     Imports of goods 803 876 917 1,030 1,224 314 315 308
     Imports of services 151 166 182 189 217 56 56 57
    Income payments 205 252 265 299 368 94 92 90
   Net unilateral transfers abroad 40 41 44 49 54 13 17 12
Balances:
Goods and services -102 -108 -167 -262 -376 -97 -100 -9.5
      Goods -191 -198 -247 -346 -452 -115 -119 -113
      Non-factor services 89 90 80 84 77 17 18 18
   Net investment income 21 9 -6 -14 -15 -5 1 -3
   Official transfers -20 -17 -18 -18 -21 -5 -8 -4
   Private transfers -20 -24 -27 -31 -32 -8 -8 -8
Capital and financial account balance (+ inflows) 173 272 146 373 444 114 113 81
   Capital account transactions, net 101 - 4100 0
   U.S. investment abroad, net (increase)a
-414 -488 -360 -437 -581 -108 -182 -157
   Foreign investment in the United States, net (increase)b
586 760 505 814 1,024 222 295 238
Statistical discrepancy -52 -133 72 -48 1 1 2 29
Memorandum:
Current account balance as a percentage of GDP -1.6 -1.7 -2.5 -3.5 -4.5 .. .. ..
.. Not available.
a Capital outflow (-).
b Capital inflow (+).
Note: Figures may not add-up due to rounding.
Source : U.S. Department of Commerce, Bureau of Economic Analysis online information.  Available at:  http://www.bea.doc.gov.
(i) Merchandise trade
21. The composition and direction of U.S. merchandise trade is presented in tables AI.1 to AI.4.
As can be seen there, the combination of a strong economy and a generally open import regime
resulted in considerable growth in merchandise imports, which expanded by over 60% or
                                                     
14 BEA, News Release, U.S. International Transactions: Fourth Quarter and Year 2000 [Online].
Available at:  http://www.bea.doc.gov/bea/newsrel/trans400.htm.WT/TPR/S/88 Trade Policy Review
Page 8
nearly US$487 billion over 1996-2000;  import growth accelerated to an average 13% per year over
1999-2000.  Exports increased by over one third over 1996-2000; growth also accelerated, to an
average 7% over 1999-2000.
22. The most striking development in the pattern of U.S. merchandise exports is the expansion of
exports to Mexico, by nearly US$33 billion, or 19% per year, over 1999-2000.  Exports to Mexico
accounted for 14% of total U.S. exports in 2000.  Free-trade provisions (Chapter II) may haveencouraged such sizeable expansion, together with the growth of U.S. imports from Mexico, as some
of these imports have a high content of U.S. inputs.   With exports to Canada, the United States' single
largest export market, maintaining their share, the share of U.S. exports to NAFTA partners increased
from 34% in 1998 to 37% in 2000.  In contrast, exports to non-NAFTA partners in the Americas
declined by US$4 billion between 1998 and 2000, refl ecting the economic slowdown in some of these
countries.
23. Exports to the European Union, the second largest export market for U.S. products, rose by
33% in the period 1996-2000, the same rate as overall export growth.  Subdued export growth was
recorded for shipments to Asia, particularly South Asia and to Japan.  However, exports to South-East
Asia recorded strong advances in 2000, notably to Korea and Chinese Taipei (although they had yet torecover 1995 levels).  China was the only destination in Asia recording above-average export growth
over 1996-2000.  Exports to the former USSR countries fell considerably in 1999, as did exports to
sub-Saharan Africa and other African countries, before recovering somewhat in 2000.
24. Merchandise imports from Mexico grew at the fastest pace, while imports from Canada, the
United States' largest supplier, remained stable in terms of market share.  In 2000, imports from the
Americas represented 36% of all U.S. imports.  During 1996-2000, import growth from European
countries was slightly above average, and imports of petroleum from Norway rose particularlyrapidly.  Similarly, imports of petroleum from Eastern Europe and the Middle East advanced fast,
reflecting higher oil prices.  Imports from China expanded by over 15% annually, more than doubling
over 1996-2000.  Imports from Korea have also increased sizeably in 1999-2000.
25. By product, recent trends show a strong growth of primary imports mostly reflecting strong
price increases for fuel products (Table AI.1).  The strongest import growth was recorded for keroseneand other medium oils and for liquified natural gas.  Fuels represented 11% of total U.S. imports
in 2000, up from 8% in 1995.  Among manufactures, in value terms, the strongest import growth over
1996-2000 was recorded for chemicals and the slowest for iron and steel shipments, which have
experienced strong gyrations (Annex II.1).
26. Exports, in contrast showed stronger growth in manufactures than primary commodities;
exports of the latter declined in value terms over the 1996-2000 period.  Mining exports expanded
again briskly in 2000 mostly due to stronger world fuel prices.  Agri-food exports remained below
their 1995 levels.  In manufacturing, export growth has been strong for office machines and
telecommunications equipment, and aircraft.  In contrast, exports of passenger vehicles exhibit no
expansion since 1995.
(ii) Trade in services
27. Data for U.S. trade in services are estimated and published by the Bureau of Economic
Analysis (BEA).
15  Trade in services through cross-border trade encompasses GATS mode 1 (cross-
border supply), mode 2 (consumption abroad) and mode 4 (movement of natural persons), and entails
                                                     
15 BEA online information is available at:  http://www.bea.doc.gov.  See BOP and related data.United States WT/TPR/S/88
Page 9
sending persons, information, or money across national borders.  The other channel, affiliate
transactions, or GATS mode 3, entails selling services thought affiliates established by companies in
foreign markets.16  Trade in services through mode 3 is measured using gross sales before deductions
for expenses and taxes, as these are more directly comparable across countries, industries, and firms;
however, using sales, rather than, for example, investment income or value added, may overestimate
the value of trade in such services compared with traditional measures of merchandise trade.
(b) Trade through cross-border supply
28. In 1998, the most recent year for which data were available, cross-border services trade
generated U.S. exports (sales) valued at US$255 billion (Chart I.1);  this resulted in a US$83 billion
surplus, in contrast to a U.S. merchandise trade deficit of nearly US$250 billion.  In 1998-2000, U.S.
cross-border service exports grew more slowly, at  7%, than cross-border service imports, which grew
at 9%.  This had already been the case in 1997, and stands in contrast with the pattern over 1986-96,
when exports grew much faster than imports.  These trends may reflect the faster U.S. economic
growth;  they could also suggest an erosion of the U.S. comparative advantage in services trade.
Nevertheless, the surplus in trade in services continued to grow, albeit at a slower pace, as exports
(US$255 billion in 1999) considerably  exceeded imports (US$175 billion).
50100150200250300350
1995 1996 1997 1998 1999Source: U.S. De partment of Commerce, Survey of Current Business , October 2000.Chart I.1
Imports and exports of servic es through cross-border supply 
and through sales of majority -owned affiliates, 1995-1999
US$ billion
Cross-border importsCross-border exportsSales to foreign persons by foreign 
affiliates of U.S. companies
Sales to U.S. persons by U.S. 
affiliates of foreign companies
                                                     
16 Majority-owned foreign affiliates of U.S. firm s are defined as foreign affiliates for which the
combined direct and indirect ownership interest of all U.S. parents exceeds 50%.  Majority-owned U.S. affiliates
of foreign firms are U.S.-based affiliates for which the combined direct and indirect  ownership interest of all
foreign parents exceeds 50%.WT/TPR/S/88 Trade Policy Review
Page 10
29. Exports and imports of private services (excluding government trade, e.g. military) are
presented in Table AI.5.  Transportation (including travel, passenger fares, and other transportation)
remains the most important item, accounting for 49% of total service exports (earnings) in 1998, and
65% of imports.  Both shares have increased subs tantially since 1998, as higher expenditure on freight
and port services mirrored the increased merchandise trade.
30. The largest surplus in services trade continue s to be in royalties and licence fees, which
represent receipts and payments for intellectual property rights (Chapter III(3)(iii)).  Significant
exports were also recorded for education, financial, and business services, where sizeable trade
surpluses also prevail.  In telecommunications, the Un ited States continues to record a deficit, which
may reflect remaining international interconnecti on arrangements (Chapter IV(5)).  Cross-border
imports of insurance services, as discussed in Chapter IV, are relatively large.
(c) Trade through commercial presence
31. Services sold abroad by the United States through affiliates exceeded US$300 billion in 1998,
the most recent year for which data were available.  As is the case for cross-border trade, the value of
services sold abroad through commercial presence exceeds the value of services sold in the United
States through this mode.
32. As can be seen from Chart I.1, services delivered through affiliates are growing much faster
than cross-border trade.  This suggests that mode 3 is becoming a more important mode of delivery
both for imports and exports of U.S. services.  In turn, this may reflect the need for the service
provider to be proximate to the consumer in the provision of many services, for practical and
regulatory reasons.  For example, the delivery of certain travel and tourism services, such as hotel and
restaurant services, is not feasible across borders;  and accounting and legal firms prefer to provide
services to oversees clients through foreign affiliates, in part because regulations may restrict cross-border transactions (Chapter IV(6)).  These trends may also reflect a more welcoming foreign
investment climate in many countries, partly as a result of the GATS.
33. Services sold abroad through commercial presence amounted to US$309 billion in 1998
(growth of 21%), up from US$190 billion in 1995.  Affiliates in Europe, particularly the United
Kingdom, accounted for 60% of the total;  affiliates in Canada and Japan accounted for 9% and 7%.The largest export sectors are computer and data processing services, but sales are also large in
insurance, and in financial services except depository institutions.  On the "import" side, sales to U.S.
customers by majority-owned affiliates of foreign companies in the United Sates increased 14%
in 1998, to US$255 billion.  European firms were the main suppliers (62%), followed by Canada
(17%), Asia and Pacific (16%) and Latin America (3%).
(iii) Foreign direct investment
34. Foreign direct investment (FDI) in the United States continued to boom in the period under
review, after a dip in 1998, rising to 9.6% of GDP in 2000.
17  U.S. investments abroad have also been
increasing, but at a slower rate.  The BEA points out  that the strong inflows posted in 2000 reflected a
sizeable increase in net intercompany debt inflows and an increase in net equity capital inflows, whilereinvested earnings changed little.
18  The increase in inward FDI has come almost entirely from
Europe whilst investment from Ca nada and Japan has fallen.  The stock of FDI in the United States
                                                     
17 Regulations on FDI are summarized in Chapter II.
18 BEA,  U.S. International Transactions:  Fourth Quarter and Year 2000 , News Release 01-06,
15 March 2001 [Online].  Available at:  http://www.bea.doc.gov/bea/newsrel/trans400.htm.United States WT/TPR/S/88
Page 11
was close to US$1 trillion in 1999, compared with a stock of U.S. FDI abroad of US$1.13 trillion
(Table I.5).  The highest stocks of FDI in the Unit ed States are owned by U.K. and Japanese interests.
Conversely, the highest stocks of U.S. FDI abroad are in the United Kingdom and Canada.
Table I.5
Major indicators of U.S. direct investment abroad (USDIA) and foreign direct investment in the United States (FDIUS), by select ed
country and sector
U.S. direct investment abroadForeign direct investment in the
United States
(outbound investment) (inbound investment)
Stocks Sales aStocks Sales b
US$ billionGrowth rate
(%)US$ billion US$ billionGrowth rate
(%)US$ billion
1999 1999/1998 1998 1999 1999/1998 1998
All countries 1,132.6 11.7 2,443.4 986.7 24.3 1,882.0
Brazil 35.0 -9.1 83.7 0.7 2.5 3.9
Canada 111.7 9.7 264.0 79.7 7.5 153.2
France 40.0 -5.0 141.9 77.6 33.7 142.4
Germany 49.6 6.9 253.8 111.1 17.7 282.8
Japan 47.8 34.1 182.3 148.9 10.6 453.4
Mexico 34.3 20.7 98.3 3.6 48.0 9.2
Netherlands 406.4 334.3 140.4 130.7 32.1 145.6
United Kingdom 213.1 10.6 366.1 183.1 27.9 269.1
By industry
Petroleum 99.9 7.5 .. 55.9 8.1 95.3
Manufacturing 318.1 8.1 .. 391.0 16.8 739.1
Services, wholesale trade, depository
institutions, finance, insurance and real
estate624.9 14.2 .. 448.6 23.5 721.1
.. Not available.
a Sales of non-bank foreign affiliates.
b Sales of non-bank U.S. affiliates abroad.
Source : U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business [Online].  Available at:
http://www.bea.doc.gov/bea/di1.htm, and July (p. 39) and August (p. 156) 2000 issues.
35. Because of its size, foreign direct investment is the source of an increasing share of world
commerce.  Total sales (of goods and services) in the United States by majority-owned affiliates of
foreign firms exceeded US$1.8 trillion in 1998 (Table I.5).19  Sales by majority U.S.-owned foreign
affiliates abroad totalled nearly US$2.5 trillion in that year.
(5) OUTLOOK
36. A deceleration of U.S. economic growth is expected in 2001, in line with what was observed
in the first quarter of the year.  The IMF is foreca sting GDP growth of 1.5% in the United States in
2001, and a certain upturn in 2002, when GDP is expected to expand by 2.5%.20  These forecasts are
considerably lower than those made in 2000.  The current account deficit is expected to continueincreasing in value terms, but to stabilize at its current level as a share of GDP.  The IMF considers
that the mechanism for correcting the U.S. cu rrent account imbalance is likely to be a real
depreciation of the U.S. dollar linked to slowing domestic demand.  The recent reductions in interest
rates could temper the slowdown and contribu te to a depreciation of the U.S. dollar.
                                                     
19 See also USITC (2001).
20 International Monetary Fund Chapter I.WT/TPR/S/88 Trade Policy Review
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37. The U.S. administration is forecasting GDP growth of 2.4% in 2001, and projecting an
acceleration to some 3% average per year for the next ten years.  Unemployment is expected to
remain in the 4.5 to 5.5% range, and inflation below 3% (Table I.6).
Table I.6
U.S. economic projections for 2001-11 (calendar year)
(US$ billion and per cent)
Forecast Projected annual average
Item 2001 2002 2003-06 2007-11
Nominal GDP (US$ billion) 10,446 11,029 13,439 17,132
Nominal GDP (percentage change) 4.7 5.6 5.1 5.0
Real GDP (percentage change) 2.4 3.4 3.1 3.1
CPI (percentage change) 2.8 2.8 2.6 2.5
Unemployment rate (per cent) 4.4 4.5 4.7 5.2
Three-month Treasury Bill rate 4.8 4.9 4.9 4.9
Ten-year Treasury Note rate 4.9 5.3 5.6 5.8
Source : Congressional Budget Office (http://www.cbo.go/showdoc).