RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/71
24 November 1998
(98-4734)
Council for Trade in Services Original:  English
COMMUNICATION FROM THE UNITED STATES
Transportation Services
The attached paper has been received from the delegation of the United States with the
request that it be circulated to the Members of th e Council for Trade in Services to assist in the
discussion on Education Services in the context of the information exchange programme.
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A. GROWTH OUTLOOK AND BENEFITS OF LIBERALIZATION
The demand for transportation services is derived from the growth in world trade.  One of the
most basic benefits of liberalization of  trade in transport services is that it increases the variety andamount of transport services available to WTO Members.  The sector also is labour and capital
intensive, contributing to employment gains.
Transportation services also support the development of a strong infrastructure and thereby
provide important benefits beyond the sector itself.  A modern transportation network - in whichvarious modes of transportation (air, land, water) function together - supports the smooth flow of
imports, exports and transit of goods.  This leads to economic growth and increased trade in both
goods and services.  Conversely, antiquated transportation networks can unfairly undercut the ability
of WTO Members to compete on the basis of quality and price of traded goods and services.  The
emerging economies stand to benefit especially from allowing  commercial presence and cross-borderactivity in  transportation services  sectors to help  lessen the financial burden of needed infrastructure
improvements.
With respect to international air transport, substantial liberalization has taken place since the
conclusion of the Uruguay Round.  The U.S. has concluded open skies agreements with 32 nationsaround the globe.  Some of these countries have in turn made similar agreements with one another.  In
addition, major air transport liberalization was achieved in agreements between the United States and
Canada, Japan and France.  These 35 bilateral air transport markets account for a large percentage of
the world’s international passenger and freight traffic.
Official U.S. trade data for transportation services include passenger revenues, freight
transportation revenues, and revenues for port services and other transportation services.  The U.S.
collects data for both cross-border and majority-owned affiliate transactions.  The relative importance
of the two categories varies by type of transportation service and geographic location of countries
involved, including regulatory barriers on cross-border trade.
According to official U.S. trade data, U.S. transportation services cross-border exports for
1997 totaled US$ 47.8 billion.  Cross-border imports for 1997 totaled US$ 47.2 billion.  Sales by
foreign-based affiliates of U.S. firms for 1996 (latest year for which data is available) totaledS/C/W/71
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US$ 10.6 billion.  Purchases from U.S.-based affiliates of foreign firms for 1996 totaled US$ 9.7
billion.
B. POSSIBLE AREAS FOR FUTURE DISCUSSION AND WORK
- Increased privatization, competition within and deregulation of transportation
services sectors provides a good foundation for improved market access and
national treatment commitments from WTO Members, including for Mode 3 -
establishment of commercial presence,   Mode 1 - cross-border  and Mode 2-
consumption abroad. Effective market access in this sector also must include
access to and use of ancillary  services and multimodal transport services.
- The experience of WTO Members who have undertaken deregulation of the
transportation sector would be useful as we take a look at  remaining
regulations and their relationship to the requirements of GATS Article VI.
- It would be useful to review the current classification in transportation sectors
to make sure that it covers all important services.  Contrary to the assertion in
one of the Secretariat’s papers, we do not believe as a general matter thataggregation is a deterrent to progressive liberalization, as long as all relevant
commercial activities are captured in the classification.    Reliance should be
placed on definitions using terms well-understood among transport
institutions and businesses.  The multimodal nature of modern transportation
must also be kept in mind as we develop meaningful classifications.  A majortask, as mentioned in the Secretariat paper, will be the identification of
maritime transport-related activities, particularly door-to-door operations
involving connecting transportation elements.
- Issues raised during earlier GATS Council discussions of the  postal and
courier sector also could be relevant for discussion of the transportationsector.
- The Annex on Air Transport Services contains a requirement that the Council
for Trade in Services shall review periodically, and at least every five years,
developments in the air transport sector and operation of this Annex with a
view to considering possible further application of the Agreement in this
sector.  The U.S. is undertaking review of commercial activities in the air
transport sector to be able to participate constructively in the exercise. TheU.S. urges other countries to begin this same preparatory process.
C. U.S. SCHEDULE AND REGIME
Regarding air transport services, in its Uruguay Round schedule, the U.S. has made full
market access and national treatment commitments for aircraft repair services in Mode 2 -
consumption abroad and Mode 3 - commercial presence.  Mode 1 - cross border is unbound for
reasons of technical feasibility.  Mode 4 - movement of persons is bound by the horizontal provisions
of the schedule.  The U.S. maintains an MFN exemption for measures which pertain to selling and
marketing of air transport services and to operation and regulation of CRS services.  The measure
applies to all partners with which the U.S. has active aviation relations covered by bilateral or otherair services agreements and comity and reciprocity regimes.  As noted above in the section on benefitsS/C/W/71
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of liberalization, the U.S. also has undertaken substantial liberalization of the air transport sector since
the conclusion of the Uruguay Round.
As a general matter, the U.S. has historically welcomed foreign investment and services
commercial presence for road transport.  Se veral U.S. railroads are under foreign ownership.
In addition, surface transportation in the U.S. has, for the most part, been deregulated.
Regarding rail transport services,  in its Uruguay Round schedule, the U.S. has made full
market access and national treatment commitments for passenger transportation (excluding high speed
rail), freight transportation, and maintenance and re pair of rail transport equipment for Mode 1 and
Mode 2.  Mode 3 is also fully bound for market access and national treatment except, in the case of
passenger and freight transportation, for a reservation specific to direct or indirect ownership of thestock of a railroad company incorporated in Vermont.  Mode 4 is bound by the horizontal provisions
of the schedule.
Regarding road transport services, in its Uruguay Round schedule, the U.S. has made full
market access and national treatment commitments for passenger transport: interurban regular
transport for Modes 1 and 2.  Mode 3 market access and national treatment is unbound until January
1, 2001, at which time no limitations will apply.  For freight transport (cargo that has either an origin
or a destination outside the U.S.), the U.S. has made full market access and national treatment
commitments for Modes 2 and 3.  Mode 1 market access and national treatment is fully bound for
transport to or from California, Arizona, New Mexico and Texas through different ports of entry. Asof January 1, 2000, this mode of supply will be fully bound.   For maintenance and repair of road
transport equipment, the U.S. provides full market access and national treatment for Modes 2 and 3.
Mode 1 is unbound for reasons of technical feasibility. Mode 4 for  the road transport services
inscribed in the schedule is bound by the horizontal provisions of the schedule.  The U.S. maintains an
MFN exemption allowing it discretion to limit the issuance of trucking licenses to persons fromcontiguous countries on the basis of reciprocity.  The measure applies to Mexico and Canada.
The U.S. also has made commitments in its Uruguay Round schedule for “other supporting
and auxiliary transport services: customs house brokers.”  The U.S. provides for full market access
and national treatment for Mode 2 and full national treatment for Mode 3. The Mode 3 market access
commitment requires services to be supplied by a corporation, association or partnership; one officer
of a corporation or association or one of the members of a partnership must hold a valid customs’brokers license in order for the entity to engage in such business; and a customs brokers’ license may
only be obtained by a U.S. citizen.  Mode 1 market access and national treatment is unbound for
reasons of technical feasibility. Mode 4  is bound by the horizontal provisions of the schedule.
The United States regime does not limit the number of maritime transport service suppliers in
the form of numerical quotas, monopolies, exclusive service suppliers.  The U.S. does not limit the
total value or quantity of maritime transport service transactions or  operations.  Only a small portion
of U.S. oceanborne trade is reserved to U.S.-flag vessels, mainly the transport of U.S. Government
cargoes.
The United States maintains only two measures that limit the total number of foreign natural
persons that may be employed in the maritime transport service sector - one that applies to vessels
operating in the U.S. domestic trades or receiving certain forms of U.S. government benefits, and a
second requiring that not more than 25 percent of the total seamen on a vessel be legal aliens and that
licensed crew be U.S. citizens.
With the limited exception of cabotage requirements, there are no restrictions on the ability of
shipping lines to provide multimodal services.  Except for customs brokerage services, there are no
measures limiting the provision of maritime transport auxiliary services.  All port services are freelyS/C/W/71
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available on a non-discriminatory basis to the user at U.S. ports.    The U.S. does not grant preferential
treatment to any countries with respect to the use of port and harbor facilities, except for limited
restrictions applied to vessels of certain countries for national security purposes.    The U.S. maintains
an MFN exemption covering restrictions on perfor mance of longshore work when making U.S. port
calls by crews of foreign vessels owned and flagged in countries that similarly restrict U.S. crews on
U.S. -flag vessels from longshore work.  The measure applies to countries that prohibit longshore
work by crew members aboard U.S. vessels.
D. REMARKS ON SECRETARIAT PAPERS/QUESTIONS FOR DISCUSSION
All papers:  While we appreciate the work of the Secretariat to summarize the existence or
importance of barriers in each mode of supply, and to provide suggestions on classification issues, we
emphasize that this is for the background use of WTO Members and WTO Members will have toconduct their own review of the situation.
Road:  We support international work to reduce border-crossing difficulties as a means to
support enhanced access under Mode 1 or emanating from Mode 3 access.  The current WTO work on
trade facilitation may prove helpful in this regard.
Road: The U.S. will have to further consid er the issue raised in para. 12 regarding
maintenance activities carried out via electronic means.
Road/Rail:  The Secretariat references earlier work carried out on classification issues under
the GATS Committee on Specific Commitments. These documents were for the background use of
the Committee members and may or may not be relevant for current work on classification issues.
1. Air:
General:  The Secretariat paper begins with a discussion of paras. 2 and 3 of the Air Transport
Annex and factors bearing on the inclusion or exclusion of certain services from the coverage of the
GATS.  Para. 2 states that the GATS Agreement shall not apply to traffic rights or services directly
related to the exercise of traffic rights, except as provided for under para. 3 which states that the
Agreement shall apply to measures affecting aircraft repair and maintenance services; the selling and
marketing of air transport services; and computer re servation (CRS) services.  Countries negotiate air
traffic rights through separate bilateral or other types of agreements.
So for example, if a bilateral air traffic agreem ent is in effect for a particular commercial air
route, we would consider fuelling (a ground handling service) performed for an air carrier to be
directly related to the exercise of traffic rights a nd thus it currently would not be subject to the GATS.
This analysis can usefully be applied to many of the activities treated in the Secretariat paper.
Para. 14: The factors influencing the delivery of aircraft repair and maintenance services by
Modes 2 and 3 can best be understood by recognizing that under the Chicago Convention,
responsibility for overseeing the safety of the wo rk goes to the country in which the aircraft is
registered - not where the work happens to be performed.  Repair stations within a country are under
continuous surveillance by its aviation authorities; this is not practical for repair stations abroad, socountries with large registries conduct periodic inspection of foreign repair stations.
Paras. 61 and 69:  Most non-transport air activities are performed by small aircraft with
limited range, making international trade in these se rvices relatively insignificant in comparison with
domestic operations.  That said, it is clearly an area for consideration as we prepare for review of theAir Annex.S/C/W/71
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Para. 65: This paragraph treats rental and leasing of aircraft with/without crews as a single
type of service.  However, leasing with crew is un iversally regarded as providing an air transportation
service.  Leasing of the airframe to an operator is essentially a leasing service not regulated as air
transportation.
Para. 124: There are only four U.S. airports for which landing slots are established; the other
12,000 or more are without slot limitations for domestic or international flights.
2. Maritime:
Para. 21: Reflagging of vessels to so-called second registries and flags-of-convenience is
about taxation of shipping as well as labour costs.
Para. 23:  The discussion of maritime alliances does not reflect current arrangements.
Para. 24:  The Ocean Reform Act was signed into law in October and will amend the
Shipping Act of 1984 effective 1 May 1999.  Under the Act, the Federal Maritime Commission has
retained its independent regulatory authority.  The Federal Maritime Commission is preparing
implementing regulations for public comment.
Same Para:  The statement that TIACA (actually TACA - Trans Atlantic Conference
Agreement) members were recently fined heavily for illegal fixing of landleg tariffs by the
Competition Directorate of the EU is not true.
Para. 30:  The discussion of shipping safety and environmental protection overlooks the
leading role of the International Maritime Organization (IMO).  Port state control activities are carried
out until the terms of multilateral conventions drafted by the IMO.  The U.N. Convention on the Law
of the Sea sets out the responsibilities of flag states, coastal states and port states.
Same Para:  The subject of “port state control” is not relevant to the WTO or the Secretariat
paper.
Para. 61: The U.S. does not limit international freight and passenger services using internal
waterways (the St. Lawrence and Mississippi).
Classification (paras. 43-68): The Secretariat paper correctly notes the discrepancies between
the so-called “draft model schedule,” W/120 and the CPC.  We agree that the area of classification
and scheduling of commitments will require further work.  This section also introduces the issue of
multimodal transport.  We believe that a more thorough review of this important activity should be
addressed in other parts of the Secretariat paper and in discussions among WTO Members.  Thediscussion of inland waterways and coastal shipping may raise questions of cabotage practices.  It
should be recalled that cabotage was excluded from extended maritime negotiations following the
Uruguay Round.
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