WORLD TRADE
ORGANIZATIONTN/S/W/12
31 March 2003
(03-1814)
Council for Trade in Services
Special SessionOriginal:  English
COMMUNICATION FROM THE UNITED STATES
An Assessment of Services Trade and Liberalization
in the United States and Developing Economies1
The following communication has been received from the delegation of the United States
with the request that it be circulated to Members of the Special Session of the Council for Trade in
Services.
_______________
I. INTRODUCTION
1. The service sector comprises a wide variety of  industries, including professional and related
services; computer and related services; advertising; management consulting services;
telecommunications services; audiovisual services; express delivery services; construction and related
engineering services; wholesale, retail, and franchising services; educational and training services;
environmental services; energy services; insuranc e and insurance-related services; banking and
securities services; health-related and social services; tourism and travel-related services; recreational,
cultural and sporting services; and transport services.
2. Service industries play an important role in both developed and developing markets,
accounting for a large and growing share of economic output and employment in the United States
and developing economies.  Although the United States and other developed economies continue to
account for a larger share of the world market for services, developing economies' participation in this
market has increased in recent years due, in pa rt, to the new cross-border delivery options made
possible by innovations in information and communi cations technology.  U.S. data also suggest a
growing role for some developing economy service providers.  Such data indicate that certain
developing economies account for rapidly increasing sh ares of U.S. direct investment abroad, and that
U.S. admissions of temporary workers from middl e- and low-income economies are growing at a
                                                     
1 To the greatest extent possible, economies were classified using a World Bank definition, under
which high-income economies are those in which gross national product (GNP) per capita is US$9,266 orhigher, middle-income economies are those in which GNP per capita is US$756 - US$9,265, and low-incomeeconomies are those in which GNP per capita is US$755 or less.
To the greatest extent possible, "services" was considered to comprise those activities included in the
W/120.  However, all figures should be considered estimates, as economy classification and the definition ofservices vary slightly in each case due to data availability.
The term "developing" economy is used in this paper only with respect to World Bank and other
international economic references. The use of the term has no relation to U.S. views regarding the treatment of acountry's development status within the WTO.TN/S/W/12
Page 2
faster-than-average rate.  Available evidence suggests that past services liberalization has had a
positive effect on the United States and developing economies, and that future liberalization would
likely yield further benefits.
3. The current General Agreement on Trade in Services (GATS) negotiations provide member
countries the opportunity to improve their current services commitments.  GATS commitments do notprevent governments from taking actions necessary for the protection of national security interests,
public morals and order, human, animal or plant life or health, to secure compliance with non-
discriminatory laws or regulations, to equalize imposition or collection of direct taxes, or avoid
double taxation.
II. THE IMPORTANCE OF THE SERVICE SECTOR
A. U
NITED STATES
4. Throughout the latter half of the twentieth century, the service sector has been both the largest
and the fastest growing component of the U.S. economy.  Fifty years ago, the service sector accounted
for about sixty per cent of U.S. output.  By 2000, the service industry share of U.S. private-sector
gross domestic product (GDP) had grown to 79.2 per cent.
5. Services firms provide more jobs, and more new jobs, than all other sectors of the U.S.
economy combined.  In 2001, service industries accounted for 81.1 per cent of total private-sectoremployment in the United States.  Service sector payrolls have risen 65 per cent over the past twenty
years, with almost 40 million more employees today than there were in 1978.  These new service
sector jobs accounted for the entire net gain in non-farm employment since the 1970s, a trend that is
forecast to continue into the next decade.
6. U.S. Department of Labour data indicate that  average hourly earnings in U.S. manufacturing
industries ($14.83) exceeded average hourly earnings in U.S. services-producing industries ($13.84)
in 2001.  However, real hourly earnings in U.S. serv ices-producing industries increased at an average
annual rate of 1.6 per cent during 1995-2001, faster than the average annual growth rate of real hourly
earnings in U.S. manufacturing industries (0.6 per cen t) and contributing to an overall increase of 1.3
per cent in real average hourly earnings during the time period.
B. D
EVELOPING ECONOMIES
7. In middle- and low-income economies, the service sector accounts for the largest share of
total economic output.  According to data published by the World Bank, the service sector accounted
for 54 per cent of middle-income economies' total GDP in 2000, while industry and agriculture
accounted for 36 per cent and 11 per cent, respectively.  In that same year, services, industry, and
agriculture respectively accounted for 44 per cent, 33 per cent, and 23 per cent of total GDP in low-
income economies.   Services typically account for a larger share of total output in small, openmarkets, such as the Caribbean island countries.
2
8. World Bank data also indicate that service sector GDP is the fastest-growing component of
total GDP in both low- and middle-income economies.  Moreover, service sector GDP in such
economies is growing faster than the world average.  During 1990-2000, service sector GDP in low-
income economies increased at an average annual rate of 5.1 per cent, faster than the average annualgrowth rates experienced by world service sector  GDP (2.9 per cent) and total GDP in low-income
economies (3.2 per cent).  Likewise, in middle-income economies, average annual growth in service
                                                     
2 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries",
Organization of American States, Trade Unit, February 1999.TN/S/W/12
Page 3
sector GDP (3.9 per cent) exceeded that of total world service sector GDP (2.9 per cent) and total
GDP in middle income economies (3.6 per cent).
9. Barriers to the provision of services may raise manufacturing prices and prevent productivity
gains, as services are often used as production inputs.3  In contrast, efficiency in service industries
such as telecommunications, transportation, and financial services improves competitiveness in thegoods sector, enables firms to track consumer demand, facilitates product distribution, and builds
capability to engage in international trade.
4
10. Efficiency in service industries may yield other benefits for both consumers and the overall
economy in developing markets.  For example, access to efficient accounting and legal services may
lead to lower transaction costs.  Access to envi ronmental services facilitates efforts to achieve
sustainable economic development.  Effective regulation and efficiency in the financial services
industry enables investors to distribute their resources in a manner that maximizes returns and spreadsrisks.  Access to health and education services may benefit and build a country's labour force.
5
Domestic social services in developing economies also benefit from the availability of foreign-provided information technology services.
6
11. Service sector output makes an important contri bution to other market sectors.  For example,
a recent World Bank study7 indicates that in Bangladesh, every unit increase in infrastructure services
output (including output in the energy, health, public administration, and transport industries) led to a
30- to 43-per cent increase in demand in other sectors.  Unit increases in banking and insurance,
construction, and housing sector output creates 15 to 20 per cent increases in the demand for output
produced by other sectors.8
12. Approximately 20 to 25 per cent of production in Bangladesh's ready-made garments sector,
that economy's top source of foreign exchange earnings, is comprised of services inputs.9
13. A substantial share of workers in developing economies are employed in the services sector.
Between 1960 and 1999, the share of workers in Latin America and the Caribbean that were
                                                     
3 World Bank, Global Economic Prospects and the Developing Countries, 2002 , (World Bank:
Washington, DC, 2001), pages 70, 76, found at Internet address http://www.worldbank.org/, retrieved8 January 2003.
4 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries,"
Organization of American States, Trade Unit, February 1999;  and World Bank, Global Economic Prospects
and the Developing Countries, 2002 , (World Bank: Washington, DC, 2001), page 70, found at Internet address
http://www.worldbank.org/, retrieved 8 January 2003.
5 World Bank, Global Economic Prospects and the Developing Countries, 2002 , (World Bank:
Washington, DC, 2001), page 70, found at Internet address http://www.worldbank.org/, retrieved
8 January 2003.
6 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries,"
Organization of American States, Trade Unit, February 1999.
7 For more information, see A.K. Azad, "Inter-industry Linkages of Services in the Bangladesh
Economy (With a Case Study of the Ready-made Garments Industry) and Potential Service Trade," (World
Bank: Washington, DC), paper prepared for presentation at WTO 2000 South Asia Workshop, New Delhi,
India, 20-21 December 1999.
8 A.K. Azad, "Inter-industry Linkages of Services in the Bangladesh Economy (With a Case Study of
the Ready-made Garments Industry) and Potential Service Trade," (World Bank: Washington, DC), paperprepared for presentation at WTO2000 South Asia Workshop, New Delhi, India, 20-21 December 1999; andOECD, GATS: The Case for Op en Services Markets , 2002, page 37.
9 OECD, GATS: The Case for Op en Services Markets , 2002, page 37.TN/S/W/12
Page 4
employed in service industries increased from 31 per cent to over 50 per cent.  Likewise, more than
half of workers in East Asia are employed in the services sector.10
III. CROSS-BORDER TRADE AND SALES THROUGH AFFILIATES
A. DEVELOPED /DEVELOPING ECONOMY COMPARISONS
14. Due to the development of advanced informat ion and communications technology, firms are
now able to procure services that they once performed in-house - such as computer and related
services, financial services, and professional services - from service providers in foreign economies.
Low labour costs and the falling price of information and communications technology are among the
factors that have enabled many developing economies to become important cross-border suppliers of
these services.11  For example, companies such as America Online, American Express, British
Airways, Hong Kong Shanghai Bank Corp., and Mc Kinsey & Co. outsource back office services such
as accounting, customer service, finance, and research from low-wage economies.12
15. Since the establishment of the WTO, middle- and low-income economies' services exports
have increased at a faster rate than services e xports by high-income economies.  According to data
published by the WTO Secretariat, exports of commercial services by middle- and low-income
economies increased at an average annual rate of 4.2 per cent during 1995-2001, while services
exports by high-income economies increased at an average annual rate of 3.3 per cent.
16. WTO data also indicate that several middle- and low-income economies experienced
remarkably high services export growth during 1995-2001.  Economies which registered increases in
services exports of more than 10 per cent per year include, inter alia , Albania (31.9 per cent),
El Salvador (20.6 per cent), India (20.2 per cent), Angola (17.9 per cent), Lithuania (15.5 per cent),
Belarus (14.0 per cent), Cape Verde (13.2 per cent), Kazakhstan (13.0 per cent), Croatia (12.0 percent), Malawi (11.9 per cent), Estonia (11.1 per cent), Morocco (11.1 per cent), and China (10.1 per
cent).  By comparison, U.S. services exports grew at a faster-than-average annual rate of 4.8 per cent
during 1995-2001.
17. Middle- and low-income economies account for a growing share of total world services
exports.  The share of services exports accounted for by middle- and low-income economies rosefrom 18.2 per cent in 1995 to 19.1 per cent in 2001, while the share of total world services exports
accounted for by high-income economies decreased from 81.8 per cent to 80.9 per cent.  During 1995-
2001, the share of world services exports accounted fo r by the United States increased from 16.7 per
cent to 18.1 per cent.
18. Trade in services has created a substantial number of jobs in developing markets.  For
example, General Electric employs at least 10,000 persons in India who provide services such as
accounting and customer service to its offices throughout the world.  Call centers in countries such asthe Czech Republic, Estonia, Hungary, India, Jamaica, Morocco, and the Philippines provide services
to foreign economies.  In Morocco alone, such call centers employ at least 2,000 workers.
13
Approximately 3,300 software engineers are employed by Hewlett-Packard Co. in India.  Proctor &
Gamble Co. employs 650 tax preparers in the Philippines.  Other back-office and technology services
                                                     
10 Percentages are regional averages.  Sherry M. Stephenson, "Approaches to Services Liberalization
by Developing Countries," Organization of American States, Trade Unit, February 1999.
11 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries,"
Organization of American States, Trade Unit, February 1999.
12 Douglas Lavin, "Globalization Goes Upscale," The Wall Street Journal,"  1 February 2002,
page A18.
13 Douglas Lavin, "Globalization Goes Upscale," The Wall Street Journal,"  1 February 2002,
page A18.TN/S/W/12
Page 5
which developing-country professionals prov ide to developed-country firms include, inter alia ,
medical services, research and development, architecture, and financial analysis.14
B. UNITED STATES
19. Services trade makes an important contribution to the economic welfare of both U.S. firms
and U.S. workers.  Imports of foreign services give domestic businesses and consumers access to awider variety of products at lower prices than would otherwise be available.  This enables businesses
to lower their costs and become more efficient, a nd enables consumers to increase the real purchasing
power of their income.  Imports provide the competition that encourages domestic firms to operate
more efficiently and increase their productivity, and increased productivity is the ultimate determinant
of rising standards of living.  In addition, over 12 million American jobs are supported by goods and
services exports.
20. The United States is highly active in the global services market, ranking as the world's
premier exporter and a top importer of services.  In 2001, U.S. cross-border exports of private services
totaled $266.2 billion, while imports totaled $192.3 billion.  U.S. cross-border services trade is a
significant component of total trade, having accounted for 20.8 per cent of total U.S. cross-border
trade volume in 2001.  U.S. trade in private services
15 typically generates a substantial surplus.  For
example, in 2001, trade in private services generated a surplus of $73.9 billion, which offset 17.3 percent of the $427.2 billion U.S. merchandise trade deficit.
21. U.S. cross-border trade in services increased at an average annual rate of 4.6 per cent during
1995-2001, with several discrete service industries-- including financial services; accounting,
auditing, and bookkeeping services; computer and data processing services; database and other
information services; legal services; medical services; operational leasing; and research, development,and testing services-- posting average annual growth rates of over 10 per cent (table).
22. Despite the substantial volume of U.S. cross-border trade in services, transactions carried out
by foreign affiliates account for a larger share of total U.S. services sales to foreign clients.  In 2000,
sales by majority-owned, foreign-based affiliates of U.S. companies totaled $392.8 billion, exceeding
cross-border exports of services by $115.3 billion.  Purchases from majority-owned, U.S.-basedaffiliates of foreign firms amounted to $346.7 billion in 2000, $144.6 billion greater than the value of
U.S. services imports in that same year.
23. Although relatively small, U.S. affiliate purchases from certain middle- and low-income
economies have increased rapidly in recent years.  For example, during 1997-2000, U.S. purchases
from Philippine-, Indian-, and Brazilian-owned affiliates increased by 35.7 per cent, 27.8 per cent, and
24.2 per cent, respectively.  During the same period, total U.S. purchases from Eastern European-
owned affiliates increased by 38.4 per cent per year.
16
C. DEVELOPING ECONOMIES
24. In developing economies, services trade is becoming an increasingly important source of
foreign exchange earnings.  In the coming years, services exports by developing economies could
                                                     
14 Pete Engardio, Aaron Bernstein, Manjeet Kripalani, et al ., "The New Global Job Shift," Business
Week Online , Feb. 3, 2003, found at Internet address http://www.businessweek.com/, retrieved 27 January 2003.
15  In 2001, the total services surplus stood at $68.9 billion, offsetting 16.1 per cent of the merchandise
trade deficit.
16 Comparable data on U.S. affiliate sales are available only for 1999 and 2000, precluding a
meaningful analysis of growth rates.TN/S/W/12
Page 6
double, as the use of communication and computer technologies has facilitated the cross-border
provision of services.17
25. Certain developing economies have demonstrated a comparative advantage in international
services markets.  For example, Panama has demonstrated a comparative advantage in financial
services.  Other developing economies that have an established comparative advantage ininternational services markets include, inter alia , Mexico, India, Malaysia, Thailand, and Egypt.
18
26. Computer and related services exports by India and certain Caribbean economies are
increasing rapidly.19  A recent industry association study pr edicts that by 2008, India's exports of
information technology (IT) services and IT enabled services will total approximately $49-54
billion.20  Potential also exists for developing economies to increase exports in traditional service
industries, such as tourism, and to create export capacity in other service industries, such as
advertising and audiovisual services.21
IV. INVESTMENT
A. DEVELOPED /DEVELOPING ECONOMY COMPARISONS
27. Although OECD countries account for the vast majority of world foreign direct investment
(FDI) stock, developing economies host a more rapidl y increasing share of such stock.  The World
Bank indicates that, during 1988-1997, FDI stock in OECD countries experienced a three-foldincrease, while stocks in east Asia and the Pacific, South Asia, and Latin American and the Caribbean
grew by ten-fold, seven-fold, and five-fold, respec tively.  Data were available for only three Sub-
Saharan African countries, in which FDI stock decreased from 1.2 billion to 0.6 billion during the
time period.  Investment in service industries co mprises approximately half of total FDI stock in
developing regions, with the exception of Sub-Saharan Africa.  This represents a major shift in SouthAsia and Latin America and the Caribbean, where services respectively accounted for about one third
and one fifth of these regions' FDI stock in 1988.
B. U.S. D
IRECT INVESTMENT ABROAD
28. U.S. direct investment in service industries has grown at a particularly rapid rate in some
middle- and low-income economies.  During 1995-2001, th e stock of U.S. direct investment abroad in
services industries increased at an average annual rate of 15.1 per cent, from $345.3 billion to $801.2
billion.  During that same period, U.S. direct invest ment in services increased at a faster-than-average
rate in China (25.9 per cent), Argentina (17.3 per cent), and Brazil (16.6 per cent).22
                                                     
17 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries",
Organization of American States, Trade Unit, February 1999.
18 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries",
Organization of American States, Trade Unit, February 1999.
19 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries",
Organization of American States, Trade Unit, February 1999.
20 NASSCOM, "NASSCOM-McKinsey Report Predicts Robust Growth for Indian IT Services and IT
Enabled Services Industry," June 10, 2002, found at Internet address http://www.nasscom.org/, retrieved
28 January 2003.
21 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries",
Organization of American States, Trade Unit, February 1999.
22 Data were not available for many developing economies, as BEA does not routinely publish discrete
data for all developing economies, and because some da ta were suppressed in order to avoid disclosure of
confidential information.TN/S/W/12
Page 7
29. U.S. firms provide a significant number of jobs in middle- and low-income economies.  In
1999, foreign services affiliates of U.S.-owned firms employed no less than 845,600 persons in
middle- and low-income economies, and accounted for at least 22.7 per cent of total employment by
such affiliates.  Middle- and low-income economies that account for a particularly large share of
employment by U.S.-owned foreign services affiliates include Mexico (224,800, or 6.0 per cent),Brazil (109,500, or 2.9 per cent), and South Africa (at least 67,100, or 1.8 per cent).
V. ADMISSIONS TO THE UNITED STATES
30. A large number of temporary workers
23 are admitted to the United States each year, and in
recent years, the number of such admissions has grown rapidly.  During 1996-2000, the number of
temporary workers, exchange visitors, and intrac ompany transferees admitted to the United States
increased at an average annual rate of 19.3 per cent, from 610,359 to 1,234,112.
31. Temporary workers from middle- and low-income economies account for a significant share
of total U.S. admissions of temporary workers, particularly in the specialty occupation alien category.
In 2000, citizens from middle- and low-income economies accounted for 43.8 per cent of all U.S.
admissions of temporary workers, exchange visitors, and intracompany transferees, and 59.9 per cent
of all U.S. admissions of specialty occupation aliens.
32. In recent years, U.S. admissions of temporary workers from middle- and low-income
economies has grown at a faster rate than total U.S. admissions of temporary workers.  During 1996-
2000, U.S. admissions of temporary workers, exchan ge visitors, and intracompany transferees from
middle- and low-income economies increased at an average annual rate of 21.9 per cent, while
admissions of such persons from high-income economies increased at a rate of only 17.3 per cent.  A
similar trend was recorded for specialty occupation aliens.  U.S. admissions of specialty occupationaliens from middle- and low-income economies increased at an average annual rate of 29.2 per cent
during 1996-2000, while admissions of specialty occupation aliens from high-income economies
increased by 20.3 per cent per year.
33. The U.S. market also hosts a significant number of foreign consumers of U.S. services.  For
example, approximately 135,000 foreigners received inpatient or outpatient medical care in the UnitedStates during 1997.  In 2002, the number of foreign students attending U.S. institutions of higher
education reached 582,996, with India, China, and Korea ranking as the top three sending countries of
such students.
24
VI. BENEFITS OF SERVICES LIBERALIZATION
A. UNITED STATES
34. The liberalization and expansion of U.S. trade overall, and services trade in particular, has
benefitted U.S. consumers.
                                                     
23 Data on admissions of temporary workers reflect total admissions of temporary workers, regardless
of whether the workers are employed in a goods or service industry.  However, as services accounted for
79.2 per cent of  U.S. private-sector gross domestic product (GDP) in 2000, it is likely that a significant share ofsuch workers are employed in the services sector.
24 Institute of International Education (IIE), "I nternational Student Enrolment in U.S. Rose in
2001/2002, Matching Last Year's Increase as Highest Growth Since 1980 - India is the Top Sending Country",press release, 18 November 2002, found at Internet  address http://opendoors.iienetwork.org/, retrieved
30 January 2003.TN/S/W/12
Page 8
35. Services liberalization has resulted in lower consumer prices.  For example, as a result of
airline deregulation in the United States, average airfares decreased by 45 per cent during 1970-1997,
from $0.144 per mile to $0.079 per mile.25   Moreover, liberalization of the U.S. telecommunication
sector and the completion of WTO negotiations on basic telecommunication services led to decreases
in the price of international calls placed in the United States.  For example, the price of telephone callsfrom the United States to the United Kingdom and Japan fell by 86.8 per cent and 67.3 per cent,
26
respectively, upon completion of the WTO basic telecommunications agreement in 1997.27  S u c h
price decreases result in increased call volumes and cost-savings to businesses and consumers that use
telephone services.
B. OECD
36. OECD member economies in general have realized a number of benefits from service sector
reform.  Such benefits include modernization of air transport and distribution networks; increasedefficiency in the energy, telecommunications, and air transport sectors; product diversification; and
innovation.  In addition, competition resulting from market liberalization has led firms to invest in
inputs that increase their productivity.
28
C. DEVELOPING ECONOMIES
37. Anecdotal evidence suggests that services liberalization has had a positive impact on
developing economies.
38. The liberalization of Chile's telecommunication industry in 1994 led to rapid infrastructure
modernization and the introduction of new services.  In addition, rates for local calls, long-distance
calls and international calls dropped by 36 per cent, 38 per cent, and 50 per cent, respectively.29
39. Liberalization of El Salvador's telecommuni cations industry led to service quality and
infrastructure improvements, the coverage of the entire country for cellular service, and a reduction in
the waiting period for fixed line connection from as long as 6 years to a few days.30
40. During 1993-1998, the number of telephone lines in the Philippines increased from 1 million
to 6.5 million as a result of telecommunication sector reforms.  These reforms also led to an increase
in the share of municipalities with telephone service, from 20 per cent to 37 per cent.31
41. Increased competition in the telecommunication sector has also contributed to greater
participation by developing economies in the global markets for accounting, consulting, marketing,
and other services.32
42. Financial sector reform in Chile has had a positive effect on that country's banking system.
As a result of this reform, deposits increased from $350 million to $12.2 billion, interest rates fell
from 40 per cent to about 9 per cent, and productivity increased from $27,000 loans per employee to
                                                     
25 Prices expressed in 1999 dollars.  OECD, GATS: The Case for Op en Services Markets , 2002,
pages 29-30.
26 Based on the price of a seven-minute phone call.
27 OECD, GATS: The Case for Op en Services Markets , 2002, pages 29-30.
28 OECD, GATS: The Case for Op en Services Markets , 2002, page 28.
29 OECD, GATS: The Case for Op en Services Markets , 2002, page 39.
30 OECD, GATS: The Case for Op en Services Markets , 2002, page 39.
31 OECD, GATS: The Case for Op en Services Markets , 2002, page 39.
32 Douglas Lavin, "Globalization Goes Upscale," The Wall Street Journal" , 1 February 2002,
page A18.TN/S/W/12
Page 9
$490,000 loans per employee during 1989-1997.  Reforms also led to improvements in, inter alia ,
loan availability and banking services, benefitting society as a whole.33
43. In Colombia, the mere announcement of market opening led to increased competition in the
banking sector.  Reforms in the Colombian banking sector led to a decline in interest spreads and an
improvement in loan quality.34
44. In South Africa, expansion of the financial services market has led to a significant increase in
employment.  Additionally, South Africa has become a regional financial center, as foreign
participation has led to lower prices, a greater variety of products, and improved service quality in that
country's financial services market.35
45. As a result of reform, privatization, human resource improvements, and international
cooperation, Sri Lanka has experienced an average annual increase of 13 per cent in its air transport,
port, and shipping services surplus.36
VII. BENEFITS OF FUTURE SERVICES LIBERALIZATION
A. THE UNITED STATES AND DEVELOPING ECONOMIES
46. Recent studies suggest that further services trade liberalization could have a positive impact
on the economic welfare of the United States, as well as developing economies.  A 1999 study
contends that the United States would experience a 1.2 per cent increase in economic welfare if bothtariffs and service sector restrictions were reduced by 25 per cent, but only a 0.2 per cent increase in
welfare if such reductions were limited to tariffs.  India's economic welfare would increase by 1.4 per
cent due to a 25 per cent decrease in tariffs and services restrictions, and by 0.7 per cent due to a
reduction in tariffs only.  The rest of South Asia (Bangladesh, Bhutan, Maldives, Nepal, Pakistan, and
Sri Lanka) would experience welfare gains of 3.0 per cent and 2.1 per cent, respectively, under thesescenarios, while NIE (Hong Kong, China; Singapore; Korea; and Chinese Taipei) would experience
welfare gains of 2.5 per cent and 0.8 per cent.
37
47. Another study estimates that a 33 per cent reduction in all trade barriers under the WTO
would increase U.S. economic welfare by $177.3 billion, while a 33 per cent reduction in services
barriers only would increase welfare by $150.0 bi llion.  Developing economies would also experience
the greatest potential gain from service sector liberalization.  Specifically, a 33 per cent reduction in
trade barriers would increase the economic welfare of developing economies by $122 billion, with
liberalization in the services, manufacturing, and agriculture sectors respectively accounting for $59.9
billion, $51.6 billion, and $8.5 billion of this increase.  In Mexico, such trade liberalization would
increase welfare by $6.5 billion, with liberalization in the services, manufacturing, and agriculture
sectors accounting for $5.2 billion, $1.1 billion, and $0.1 billion, respectively.38
                                                     
33 OECD, GATS: The Case for Op en Services Markets , 2002, page 40.
34 OECD, GATS: The Case for Op en Services Markets , 2002, pages 40-41.
35 OECD, GATS: The Case for Op en Services Markets , 2002, page 40.
36 OECD, GATS: The Case for Op en Services Markets , 2002, page 41.
37 Rajesh Chadha, "GATS and Developing Countries: A Case Study of India", 1999; and OECD,
GATS:  The Case for Op en Services Markets , 2002, page 37.
38 Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, "CGE Modeling and Analysis of
Multilateral and Regional Negotiating Options", University of Michigan, Discussion Paper No. 468,23 January 2001; and Cordula Thum, "Trade Liberalization Benefits to NAFTA Countries", and "TradeLiberalization Benefits to Developing Countries", found in Globalization, Trade Liberalization and Benefits ,
(Mark Twain Institute, July 2002).TN/S/W/12
Page 10
48. Liberalized services markets may also have a positive effect on long-term economic growth.
A recent study found that economic growth in economies with open financial services markets
exceeded growth in other economies by an average of 1 per cent.  Countries in which both financial
services and telecommunications markets were liberalized experienced economic growth rates
exceeding growth in other countries by an average of 1.5 per cent.  However, a World Bank reportindicates that the success of services liberalization depends on well-structured reform programs and
effective regulation.
39
B. UNITED STATES
49. Access to low-cost, foreign-provided services may have a positive effect on productivity in
the United States.40
C. DEVELOPING ECONOMIES
50. Services trade liberalization is important for developing economies for several reasons, such
as the service sector's role in promoting economic development, the expense of maintaining services
restrictions, and the service sector's increasing contribution to trade and GDP in many developing
economies.41  In addition, an increase in cross-border services trade could alleviate poverty and
increase wealth in developing economies.42
51. Multilateral liberalization under the GATS may be of greater benefit to developing countries
than unilateral reform, as reductions in foreign market access barriers cannot be achieved unilaterally.
Multilateral liberalization may also facilitate domestic reform, as the opportunity to increase market
access abroad could reduce opposition to liberalization in the home market.43
52. Information technology could enable developing economies to achieve rapid economic
development.  However, in order for this to occur, developing economies must liberalize theirtelecommunications markets.
44
                                                     
39 World Bank, Global Economic Prospects and the Developing Countries, 2002 , (World Bank:
Washington, DC, 2001), pages 77-78, found at Internet address http://www.worldbank.org/, retrieved
January 8, 2003.
40 Douglas Lavin, "Globalization Goes Upscale," The Wall Street Journal , February 1, 2002, page A18.
41 Sherry M. Stephenson, "Approaches to Services Liberalization by Developing Countries,"
Organization of American States, Trade Unit, February 1999.
42 Douglas Lavin, "Globalization Goes Upscale," The Wall Street Journal,"  Feb. 1, 2002, page A18.
43 World Bank, Global Economic Prospects and the Developing Countries, 2002 , (World Bank:
Washington, DC, 2001), page xvi, 86, found at Internet address http://www.worldbank.org/, retrieved8 January 2003.
44 Sherry M. Stephenson, Organization of American States, Trade Unit, "The Benefits of a Service-
Based Economy and Electronic Commer ce to Developing Countries," XIII Annual Meeting of the Coalition of
Service Industries, Santiago de Chile, 28-29 September 1998.TN/S/W/12
Page 11
SOURCES
Council of Economic Advisors, "Trade and the American Economy: The Case for Trade Promotion
Authority", February 12, 2002, found at Internet address http://www.whitehouse.gov/cea/pubs.html,
retrieved 18 September 2002.
INS, 2000 Statistical Yearbook of the Immigration and Naturalization Service , table 38, and 1997
Statistical Yearbook of the Immigration and Naturalization Service , table 40, found at Internet address
http://www.ins.gov/, retrieved 11 October 2002.
U.S. Department of Labour  (DOL), Bureau of Labour Statisti cs (BLS), Employment, Hours, and
Earnings from the Current Employment Statistics Survey (National), found at Internet address
http://www.bls.gov/, retrieved 14 January 2003.
USDOC, BEA, discussion with BEA official, January 23, 2003.USDOC, BEA, Survey of Current Business , October 1998, August 2002, September 2002, and
October 2002.
USDOC, BEA, U.S. Direct Investment Ab road: Operations of U.S. Parent Companies and their
Foreign Affiliates , Preliminary 1999 Estimates, table II.H.3.
USDOC, ITA, Services Exports and the U.S. Economy , July 2002, found at Internet address
http://www.ita.doc.gov/, retrieved 18 September 2002.
USDOC, ITA, The Role of Services in the Modern Economy , January 1999.
USITC, Recent Trends in U.S. Services Trade , May 2002.
World Bank, Global Economic Prospects and the Developing Countries, 2002 , (World Bank:
Washington, DC, 2001), found at Internet address http://www.worldbank.org/, retrieved
8 January 2003.
World Bank, World Development Indicators 2002 , May 2002, table 4.1.
World Bank, World Development Report 2002 , September 2001, table 3.
WTO, World Exports of Commercial Services by Selected Region and Economy, 1980-2001 (table),
found at Internet address http://www.wto.org/, retrieved 11 October 2002.TN/S/W/12
Page 12
Table:  U.S. Cross-border Trade in Private Services, 1995-2001
Exports Imports
Industry 1995 2001 Average annual
growth rate,
1995-20011995 2001 Average annual
growth rate,
1995-2001
Millions of dollars Per cent Millions of dollars Per cent
Travel 63,395 73,119 2.4 44,916 60,117 5.0
Passenger fares 18,909 18,007 (0.8) 14,663 22,418 7.3
Freight and port services 26,081 28,306 1.4 27,034 38,823 6.2
Royalties and license fees 30,289 38,668 4.2 6,919 16,359 15.4
Education 7,515 11,493 7.3 1,125 2,378 13.3
Financial services 7,029 15,209 13.7 2,472 4,016 8.4
Insurance 11,296 18 (51.0) 5,360 4,906 (1.5)
Telecommunications 3,228 4,796 6.8 7,305 4,298 (8.5)
Accounting, auditing, and bookkeeping services 181 403 14.3 170 928 32.7
Advertising 425 513 3.2 833 881 0.9
Computer and data processing services 1,340 2,644 12.0 126 1,016 41.6
Construction, engineering, architectural, and mining services 2,550 2,623 0.5 345 471 5.3
Database and other information services 1,078 2,192 12.6 160 260 8.4
Industrial engineering 726 780 1.2 160 260 8.4
Installation, maintenance, and repair of equipment 3,218 4,546 5.9 160 996 35.6TN/S/W/12
Page 13Exports Imports
Industry 1995 2001 Average annual
growth rate,
1995-20011995 2001 Average annual
growth rate,
1995-2001
Legal services 1,667 3,143 11.1 469 755 8.3
Management, consulting, and public relations services 1,489 1,859 3.8 465 998 13.6
Medical services 856 1,676 11.8 (2)(2)(2)
Operational leasing 978 2,753 18.8 407 212 (10.3)
Research, development, and testing services 638 1,317 12.8 364 1,064 19.6
Other services 30,880 52,144 9.1 15,328 31,149 12.5
Total private services 203,768 266,209 4.6 128,781 192,305 6.9
1 Cross-border trade data for insurance services are presented on a net basis; i.e., imports comprise premiums paid to foreign in surers minus claims received, and exports comprise
premiums received from foreign policy holders minus claims paid.
2 Not available
__________