WORLD TRADE
ORGANIZATIONTN/S/W/5
1 October 2002
(02-5260)
Council for Trade in Services
Special SessionOriginal:  English
COMMUNICATION FROM THE UNITED STATES
Small and Medium-Sized Services Enterprises
The following communication has been received from the delegation of the United States
with the request that it be circulated to the Members of the Council for Trade in Services.
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I. INTRODUCTION
1. The United States presents this proposal on small and medium-sized services enterprises
(SMEs) for consideration of all Members.  It is intended to stimulate discussion and liberalization for
SME services exporters, a vital part of global trade in services.
II. IMPORTANCE OF SMALL AND MEDIUM-SIZED SERVICES ENTERPRISES
2. Small-medium-sized enterprises (SMEs) are generally classified by number of employees.
An OECD study defined SMEs as “non-subsidiary independent firms which employ fewer than a
given number of employees.” (OECD Policy Brief, “Small and Medium-Sized Enterprises: Local
Strength, Global Reach”, June 2000).  For research purposes, the U.S. Small Business Administration
often defines SMEs as firms with fewer than 500 employees, small firms having fewer than 100
employees and medium firms with 100-499 employees.  SMEs can also be defined by asset value and
annual sales, with small enterprises having total assets of up to $3 million and total annual sales of up
to $3 million, and medium enterprises having total assets of up to $15 million and total annual sales of
up to $15 million. (International Finance Corporat ion’s Small and Medium Enterprise Department).
3. SMEs are the drivers of global economic growth and employment and play a key role in the
services sector in both developed and developing countries.   In OECD countries, over 95% ofenterprises are SMEs, accounting for 60-70% of employment.  The approximately 24 million SMEs in
the United States have provided virtually all of the 20 million net new jobs since 1992.
4. In much of the developing world, the private economy is almost entirely comprised of SMEs.
The International Finance Corporation’s Small and Medium Enterprise Department cites Ecuador as
an example, where 99% of all private companies have no more than 50 employees.
5. SMEs also play a crucial role in income generation and technology development.  A February
2002 report by the U.S. Small Business Administration states that in the United States, SME share of
private, non-farm GDP increased to 52% over the last decade, with the growth driven by shifts in the
economy towards small business-dominated sectors, including services.  The report found that SMEs
constitute 68% of the service sector and 65% of wholesale and retail trade.  SMEs are prominent invarious services sectors, from engineering and management services, construction services,TN/S/W/5
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distribution services (including wholesale and retail trade), hotel and restaurant services, to
communication and business services.  Fast growing service sectors where SMEs are increasingly
present include information technology services and biotechnology.  Firm downsizing, outsourcing of
services, and advances in information technology, the Internet, and electronic commerce will continue
to provide business opportunities for services SMEs.
6. While international trade statistics often include both goods and services (due to the lack of
services data, including for SMEs), services SMEs  play an important role in international trade.
Roughly 97% of total U.S. exporters are SMEs.  Since 1990, the number of SMEs that export goods
and services has tripled, while the value of SME exports increased by 300% between 1992 and 1997.
Despite the relatively large number of SMEs engaged in exporting, small business exports account for
only 30% of total U.S. export sales, and nearly two-thirds (64%) of U.S. SMEs export to only one
market, primarily to Canada and Mexico.  Fast growing markets for U.S. SME exports includeArgentina, Brazil, Canada, China, Hong Kong, Is rael, Malaysia, Philippines, Thailand, and United
Kingdom.
III. SME TRADE BARRIERS AND PROPOSAL FOR GATS NEGOTIATIONS
7. Services SMEs face trade barriers similar to those of larger service suppliers; however, these
barriers disproportionately impact small business, which lacks the capital, human resources, technicalexpertise and presence in foreign markets necessary to overcome barriers.  Key barriers affecting
SMEs, and recommendations for addressing them in the GATS negotiations, include:
A. T
RANSPARENCY IN DOMESTIC REGULATION
8. The APEC-SME Business Forum held in Ottawa, Canada in September 1997 identified
access to international markets as the greatest challenge faced by SMEs, citing regulations and “redtape” as major structural barriers to trade and investment.  Discriminatory, non-transparent regulations
or extensive and complicated regulatory paperwork increase compliance costs for SMEs.  Delays in
the administration and processing of applications for licenses, as well as arbitrary and unexplained
denials of licenses, are barriers restricting SME market access.  Small business must understand
foreign legal and regulatory environments, with access to timely, clear, and accurate information onnew and existing laws, regulations, and procedures affecting their business.
9. Transparency requirements designed to permit notice and comment opportunities on the same
basis afforded domestic providers can address these concerns.  An initial step is to ensure that, where
institutional capacity permits, information on new and existing regulations, procedures, and measures
affecting SME business interests is readily available on the Internet.  Access to information on
domestic regulations will assist SMEs to comply with regulatory requirements in a more efficient, less
costly manner.
10. In addition to providing access to information, domestic regulations should afford SMEs and
others meaningful notice and the opportunity to comment on new regulatory measures prior to
implementation, provide procedural reviews and remedies in the event of disputes and with simple,
publicly available procedures for obtaining, renewing or relinquishing licenses.
B. C
OMMERCIAL PRESENCE REQUIREMENTS
11. As Canada noted in its SME proposal (S/CSS/W/49), size and capital constraints result in
SMEs supplying services primarily through Mode 1 (cross-border) and Mode 4 (movement of natural
persons).  With technology advances and increasing use of the Internet for transacting business, SMEs
are able to leverage small size and adaptability to provide services cross-border, often through
out-sourcing from larger service suppliers.  Thus, requirements in country schedules that foreignTN/S/W/5
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service suppliers maintain a local presence or ot her commercial presence requirements raise the cost
of doing business for services SMEs, often preventing entry into foreign markets.
12. Examples of commercial presence requirements to be addressed in the negotiations include
residency requirements and mandatory requirements for partnerships with local providers as a
condition of establishment (e.g. U.S. lawyers required to partner with host country lawyers toestablish a law firm in certain jurisdictions), and obstacles to establishing non-resident local currency
or foreign currency accounts.   Removing Mode 3 commercial presence requirements should not
interfere with a Member’s right to regulate to meet national policy objectives, such as protection of
consumers.
C. M
OVEMENT OF NATURAL PERSONS
13. SMEs have cited restrictions on the movement of natural persons (Mode 4) as a significant
trade barrier.  As SMEs often rely upon Mode 4 to deliver services, improvements in commitmentsfor movement of natural persons are vital to SMEs.  Delays in visa processing is one important area
restricting the mobility of SME business personnel.
14. Providing greater access to information and procedural transparency with respect to entry and
stay provisions for temporary personnel will assist services SMEs.  In addition, WTO Members may
wish to consider arranging multiple entry business visas (providing stays of one year or less) andshort-term work permits for business personnel (professionals and highly skilled  employees), as
means to expedite business travel by persons from SMEs.
D. ELECTRONIC DELIVERY OF SERVICES
15. Increasing use of the Internet and other vehicles of electronic commerce have given SMEs a
global reach, allowing them to compete in global markets, expand their customer base, and improvebusiness efficiency.  SMEs use electronic commerce to customize services and manage supplies and
inventory efficiently.  Internet-based commerce is especially important to providers of information
technology services, many of which are SMEs that provide computer-related services on an
out-sourcing basis.  Barriers such as burdensome licensing requirements which raise costs and impede
access to the Internet, are obstacles to SME trade.
16. Governments should refrain from unnecessarily regulating electronic commerce thus
encouraging the entry of new market participants, including SMEs, that are using technology
advances to compete globally.  As noted in the Doha Declaration, WTO Members recognize the
importance of creating and maintaining an environmen t which is favorable to the future development
of electronic commerce.  In this regard, Memb ers should maintain a domestic environment that
promotes the entrepreneurship of SMEs and pr omotes the development of new technologies.
E. C
OMMITMENTS IN RELATED SERVICES
17. SMEs rely upon a number of related services (from distribution, express delivery, computer,
advertising, financial, telecommunications services, advertising, legal services, and accounting
services) to enter foreign markets.  Therefore, tr ade barriers which exist in these related service
sectors will restrict SME market access.
18. In financial services, expanded commitments will facilitate SME cross-border transactions by
stimulating competition in financial services markets, creating more funding choices and higher
quality services for SMEs, particularly greater access to equity and venture capital, a major
impediment to SME growth.  Stronger financial services commitments will also provide SMEs accessTN/S/W/5
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to needed services such as brokers, financial advisers, insurance, credit bureau, and risk rating
services.
19. Members should also strive for full and immediate liberalization of telecommunications
services. Telecommunications liberalization can reduce the costs to SMEs of providing services in
foreign markets.  SMEs will also benefit from improved commitments in education and trainingservices, primarily distance learning, which will make training opportunities more available and
affordable to small business.  Partnerships among public and private educational enterprises, as well
as financial assistance for Internet access and training, will benefit services SMEs.
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