concession.'’ Each of the four subject countries that offered commitments on enhanced
telecommunication is discussed separately in the following sections.

Argentina

Among the South American countries that scheduled commitments on enhanced
telecommunication services, Argentina appears to have the least restrictive market. Argentina
indicates that it places no restrictions on foreign provision of enhanced telecommunication
services, whether provided on a cross-border basis or through an Argentine affiliate.
Limitations on the presence of natural persons remain unbound, although Argentina may not
impose restrictions on temporary entry and stay that nullify the benefits conferred on foreign
firms by its industry-specific commitments.

Despite the full commitments scheduled by Argentina, foreign provision of enhanced
telecommunication services in the Argentine market may be problematic. Non-Argentine firms
report that service providers must use a network operated by Telintar, a state-sanctioned
monopoly, to deliver enhanced telecommunication services to Argentine clients on a cross-
border basis.'* This requirement may place U.S. and other foreign firms at a competitive
disadvantage to Argentine competitors because calls to Argentina are subject to a high
accounting rate, which increases the price that foreign firms pay Telintar to terminate inbound.
international calls. For instance, AT&T reported that outbound calls to Argentina were billed
at $2.22 per minute during peak periods as of December 1995, versus $1.91 in Chile, $2.07
in Colombia, and $2.18 in Peru.’?

Chile

Chile’s enhanced telecommunication market is open to competition. Chile encourages new
technologies and value-added services, as well as foreign investment in telecommunications.
Chile also allows consumers to choose their long-distance provider.” However, Chile’s
commitments pertain solely to electronic mail, on-line information and database retrieval, and.
enhanced/value-added facsimile services provided over private networks. Limitations on all
other enhanced telecommunication services are unbound. The services addressed in the
Chilean schedule, when supplied through cross-border trade or a commercial presence, are
subject to a “correspondence convention” with a “concessionaire.” In other words, because
foreign providers of enhanced telecommunication services may operate private networks only,
these firms must establish agreements with public network operators to communicate with
entities not connected to the private network, whether inside or outside Chile. Chile made no
industry-specific commitment with respect to the presence of natural persons, although cross-
industry commitments allow senior personnel and specialists to stay for 2 years, and to extend

'7U.S. Department of State telegram, “Brazilian Senate Passes “Minimal” Telecom Law,”
message reference No. 03260, prepared by U.S. Embassy, Brasilia, July 19, 1996.

8 Industry representative, interview by USITC staff, July 19, 1996.

'° Federal Communications Commission, Statistics of Communications Common Carriers, Dec.
1995, pp. 254-257.

© USDOC, “Chile-Telecommunications Equipments,” Market Research Reports, May 21, 1995.

4.9


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10-5


Obstacles Inherent in Examining the GATS

As noted, the GATS breaks new ground in terms of its coverage and comprehensiveness. As
a consequence of the agreement’s broad coverage and recent derivation, an examination of this
nature encounters significant obstacles. The principal obstacle has been the sheer complexity
of the agreement, which is largely a function of the complexity of the industries covered under
the agreement, and the often technical nature of government regulation pertaining to certain
service industries (e.g., telecommunications). The difficulty of this task has been compounded
further by imprecise language found in the schedules, which provides for rapid technological and
regulatory change and reflects signatories’ desire for some latitude in implementing scheduled
commitments. These factors combine to make precise interpretation of certain commitments
very difficult.

In addition, identifying the difference between de facto and de jure*’ restrictions emerged as
another obstacle in analyzing the GATS. In some cases, trading partners have listed restrictions
based on obsolete laws that may not be enforced in practice. In this instance, a country may
appear to be more restrictive than it actually is. Staff attempted to identify such cases through
interviews with industry representatives and government officials.

Organization of Study

Chapter 2 provides an overview of U.S. trade in services, both by industry and by trading
partner. Chapters 3 through 12 examine specific service industries.” Finally, chapter 13
presents a summary of findings that provides an overall perspective on the accomplishments of
the Uruguay Round with respect to services. This chapter employs simple quantitative
techniques to summarize the extent of bindings undertaken by the subject countries.
Recognizing that some readers may only be interested in reading such a summary, chapter 13
is presented in a manner that does not require familiarity with chapters 2 through 12 to
understand the principal report findings.

*' De facto restrictions are restrictions that are imposed in practice, whereas de jure restrictions are
those that are recorded in national regulations, but may not be applied in practice.

*” Since no commitments were offered by any of the subject countries on audiovisual or education
services, these industries are not addressed in individual chapters.

1-11


gross domestic product and 50 percent of employment in the world’s largest economies will
promote global economic growth.*

The GATS framework is complemented by national schedules that specify, primarily on an
industry-by-industry basis, whether and to what degree foreign firms will be accorded market
access and national treatment. Ideally, national schedules serve two immediate purposes. First,
they provide benchmarks that identify export opportunities and trade impediments specific to
service industries and modes of delivering services. In the context of the GATS, these
benchmarks also discourage countries from imposing further restrictions, or making existing
restrictions more burdensome. Second, national schedules provide regulatory transparency,
supplying information regarding the nature and extent of trade-impeding measures.

Overview of South American Countries’ Schedules

The following discussion summarizes the degree of transparency and the extent of
benchmarking found in South American schedules. The discussion begins with a summary of
cross-industry commitments, proceeds to a summary of industry-specific commitments, and
concludes with a summary of MFN exemptions. The summaries indicate that, in general, South
American schedules are lacking in terms of transparency and benchmarking, although there are
significant differences between countries.

Cross-industry Commitments by South American Countries

Countries were not required to schedule cross-industry commitments and the GATT Secretariat
provided no formal guidelines for presenting them. However, eight of the nine subject countries
scheduled such commitments, and these commitments generally address the same issues. The
cross-industry commitments offered by South American countries, like those presented by most
countries, generally present restrictions that affect the establishment of a commercial presence
and the presence of natural persons. Table 13-1 highlights the major cross-industry
commitments made by South American countries.

Restrictions that affect commercial presence generally involve investment. These include
limitations on the purchase of land, usually in selected areas such as along the coastline or near
territorial borders or in relation to mineral rights; requirements concerning the form of business
establishment, such as requiring foreign firms to incorporate in the host country as

* World Bank and United Nations Centre on Transnational Corporations, The Uruguay Round:
Services in the World Economy (World Bank: Washington, DC, 1990), pp. 29-31; and Geza
Feketekuty, International Trade in Services: An Overview and Blueprint for Negotiations
(Cambridge, MA: Ballinger Publishing Co., 1988), pp. 191-195.

13-2


of natural persons, except for those defined as senior managerial personnel, with staff training
programs, in lodging services, food and beverage services, and travel agency and tour operator
services. Similarly, Paraguay left restrictions unbound pertaining to natural persons delivering
tourist guide services, except for those “specialists” defined as suitable persons exercising the
profession of tourist guide. As noted previously, Paraguay did not include cross-industry
commitments in its schedule.

Peru

Peru’s schedule appears to be restrictive on travel and tourism services. Restrictions on all
such services are unbound when supplied through consumption abroad, which is the most
important mode of supply pertaining to traveling abroad. Restrictions on foreign provision of
beverage services and tourist guide services are unbound for all modes of supply. Lodging
services, food services (not including beverage services), and travel agency and tour operator
services supplied through commercial presence are subject to market access measures affecting
registration’ and licensing, but no national treatment restrictions are indicated. Cross-industry
limitations cite a legislative decree'* that provides that foreign investors and the enterprises in
which they participate have the same rights and obligations as domestic investors, with the only
exceptions being laid down in Peru’s Political Constitution and the previously noted legislative
decree. Also with regard to private investment, the schedule cites a legislative decree!’ that
specifies the rights, guarantees, and obligations applicable to all domestic and foreign persons
owning investments in Peru in order to ensure freedom of initiative and existing or future
private investment in all economic sectors, forms of enterprise or contracts permitted by the
constitution and legislation. Peru’s cross-industry commitment pertaining to natural persons
indicates that certain foreign service providers may obtain 3-year work permits, which may be
renewed at 3-year intervals.

Uruguay

Uruguay’s commitments on travel and tourism services are among the most liberal. The
country bound full market access and national treatment for all such services delivered through
consumption abroad and commercial presence. Furthermore, no cross-industry limitations are
scheduled with respect to commercial presence. Uruguay did not specify permissible lengths
of stay for managers, executives, and specialists, suggesting that it retains broad discretion
with respect to regulating the entry of foreign service providers.

"3 Any supplier of services with the intention of operating a lodging and/or restaurant establishment
must apply for enrolment in the Unified Register to which Supreme Decree No. 118-90-PDM refers,
according to Peru’s schedule. Travel and tourist agencies must, in addition to enrollment, submit a
joint, irrevocable and unconditional bond, which is executed automatically and permanently in force
issued by a financial and/or insurance company to the satisfaction of the Ministry of Industry,
Tourism, Integration and International Commercial Negotiations. Additionally, Supreme Decree No.
021-92-ICTI sets forth the criteria by which travel agency and tour operator services may operate.

“ Legislative Decree No. 662, Law on the Promotion of Foreign Investment.

'S Legislative Decree No. 757, Framework Law for the Promotion of Private Investment.

12-15


U.S. International Trade Commission

COMMISSIONERS

Marcia E. Miller, Chairman
Lynn M. Bragg, Vice Chairman

Don E. Newquist
Carol T. Crawford
Janet A. Nuzum

Robert A. Rogowsky
Director of Operations

Vern Simpson
Director of Industries

Project Staff

Norman McLennan, Division Chief
Richard Brown, Branch Chief

Staff assigned:
Christopher Melly, Project Leader
Tsedale Assefa, James Bedore, James Brandon,
William Chadwick, Heidi Colby, Patrick Coleman,
Vincent DeSapio, Christopher Johnson,
Kathleen Lahey, Dennis Luther,
Deborah McNay, Marie Wold

Support Staff:
Phyllis Boone, Cindy Payne, Wanda Tolson

Address all communications to
Secretary to the Commission
United States International Trade Commission
Washington, DC 20436


CHAPTER 10
Legal Services'

Introduction

Legal services comprise legal advisory and representation services in various fields of law (e.g.,
criminal law), advisory and representation services in statutory procedures of quasi-judicial
bodies, legal documentation and certification services, and other legal advisory and information
services.’ Recently, the legal service industry has experienced significant growth both in the
United States and abroad, spurred primarily by increased demand from firms secking advice on
deregulation, corporate restructuring, and the emergence of new financial instruments.? In
addition, changes in Federal and State law have created demand for legal services in areas such
as product and personal liability, bankruptcy, family law, and civil rights.

Nature of International Trade in Legal Services

Legal services are traded in a variety of ways. U.S. law firms sometimes establish affiliates in
foreign markets where longstanding clients from the home market have established operations.
The affiliate’s lawyers may become members of foreign bars, giving them the right to appear
in local courts and to prepare advice on local law. However, most U.S. lawyers in foreign
markets operate as so-called foreign legal consultants. Foreign legal consultants are members
of a bar in the United States, but are not members of the bar in the foreign countries in which
their clients reside. They variously provide legal advice to clients on U.S. law, international law,
and third-country law, but are precluded from appearing in local courts or giving independent
advice on local law.

' Among the individuals consulted by USITC staff in preparation of this discussion were those
affiliated with the following organizations: Masamichi Kono, Trade in Services Division, World
Trade Organization (WTO), Richard Self, formerly Deputy Assistant United States Trade
Representative for Services, U.S. Trade Representative’s (USTR) Office, now in the USTR office,
Geneva; Bonnie K. Richardson, formerly Director of Bilateral Services Negotiations for the Uruguay
Round of Trade Negotiations, USTR; Steve Nelson, Dorsey & Whitney, American Bar Association;
and the Bureau of Economic Analysis, U.S. Department of Commerce.

? Legal services are captured under the SIC code 811.

> Richard H. Sander and E. Douglass Williams, “Why Are There So Many Lawyers? Perspectives
ona Turbulent Market,” Law and Social Inquiry: Journal of the American Bar Foundation, Summer
1989, p. 435; and as seen in USITC, Legal Services Industry and Trade Summary, Feb. 1993, p. 1.


applicable to cross-border supply are unbound. Venezuela’s commitments addressing presence
of natural persons also are unbound, but cross-industry commitments provide for the entry and
temporary stay of sales representatives, administrative staff, and specialists. Persons within
these categories are entitled to renewable one-year stays. However, foreign business persons
who enter Venezuela are subject to Venezuelan labor laws and may not account for more than
10 percent of the personnel or 20 percent of the total remuneration paid to personnel in foreign-
owned establishments.

Industry Opinion

The U.S. courier services industry generally supports the GATS and is pleased that courier
services were addressed during the trade negotiations. However, U.S. industry representatives
have indicated that burdensome customs regulations, monopolies, postal taxes, and concession
fees imposed by certain South American countries have reduced their efficiency. In addition,
industry representatives note that their business actually encompasses aspects of other service
industries, specifically air and land transportation and distribution services. Consequently,
commitments undertaken on courier services may be substantially undermined by restrictions
in these other sectors. Representatives of the U.S. industry indicated that they are hopeful that
future rounds of negotiations will address these problematic aspects of commitments on courier
services.”

Summary

Despite the existence of numerous barriers to trade in certain South American countries, U.S.
providers of courier services still consider those countries to be lucrative markets for overnight
delivery services and the expansion of operations. Argentina, Brazil, Venezuela, and Uruguay
appear to have established effective benchmarks and enhanced transparency somewhat. The
national schedules suggest that Argentina, Brazil, and Venezuela appear to have the least
restrictive markets. However, U.S. industry representatives have identified Argentina as being
most restrictive. Bolivia, Chile, Colombia, Paraguay, and Peru declined to schedule
commitments on courier services. As a result, they established no benchmarks and failed to
enhance regulatory transparency. Yet, the U.S. industry considers these countries to be
important markets for overnight delivery services.”

» Prehearing Brief of Federal Express Corp., submitted to the USITC, investigation No. 332-367,
July 12, 1996, p. 94, and industry representatives, interviews by USITC staff, May 8, 1996. Ibid.
3 Industry representatives, interviews by USITC staff, Washington, DC, May 23, 1996.

5-6




CHAPTER 7
Accounting Services!

Introduction

Accounting firms often provide accounting services in conjunction with other business services,
including auditing, bookkeeping, tax consultation and tax representation, management
consulting, and legal services. Trade data collected from accounting firms do not differentiate
between accounting revenues and revenues generated from these related services. As a result,
the following discussion of trade data encompasses these related services. However, the
analysis of the commitments focuses on accounting services only.”

Nature of International Trade in Accounting and Related
Services

International trade in accounting services principally transpires as sales through foreign-based
affiliates. Reflecting the close relationship between accounting and other business services,
trade data on sales by affiliates reflect revenues generated by accounting, bookkeeping, auditing,
research, management, and other related services. By contrast, trade data on cross-border
transactions reflect accounting, auditing, and bookkeeping services only.

US. accounting firms began to establish operations in foreign markets after the Second World
War in order to continue business relationships that had originated in the United States.
Accounting professionals believe that clients are best served through development of an intimate
knowledge of local market conditions. In addition, there are fewer legal restrictions on servicing
clients locally rather than across borders.* Foreign operations are established through wholly-
owned branches or subsidiaries located abroad, or through the creation of partnerships or other
affiliations with local firms in foreign markets. In a partnership arrangement, the foreign firm
generally is owned by the foreign partners, not by the multinational firm with which it is

* Among the individuals consulted by USITC staff in preparation of this report were those affiliated
with the following companies and organizations: Arthur Andersen and Company, Ernst & Young Inc,
the International Federation of Accountants (IFA), and Price Waterhouse EC Services, SA.

? These trade data include services under U.S. Standard Industrial Classification (SIC) codes 872,
accounting, auditing, and bookkeeping services; 873, research, development, and testing services; and
874, management and public relations services. The trade information that follows is provided by
U.S. Department of Commerce (USDOC), Bureau of Economic Analysis (BEA), Survey of Current
Business.

* Industry representatives, interviews by USITC staff, Washington, DC, May 25, 1995.


CHAPTER 1
Introduction

One achievement of the Uruguay Round of multilateral trade negotiations under the General
Agreement on Tariffs and Trade (GATT) was the agreement regarding international
transactions in services. This agreement, entitled the General Agreement on Trade in Services
(GATS), is the first multilateral, legally enforceable agreement covering trade and investment
in service industries. Key components of the agreement are national schedules of commitments
submitted by all member countries. These schedules specify commitments to accord market
access and national treatment! to foreign service providers, and to serve as benchmarks? for
future efforts to liberalize global trade in services.

Purpose and Scope

At the request of the United States Trade Representative (USTR), the United States
International Trade Commission (USITC) has examined the schedules of commitments
submitted by nine South American countries.* The nine countries are Argentina, Bolivia, Brazil,
Chile, Colombia, Paraguay, Peru, Uruguay, and Venezuela. These trading partners account for
less than 10 percent of U.S. exports of services (see chapter 2). This USITC study follows an
earlier examination of schedules of commitments submitted by the European Union, Japan,
Canada, and Mexico. That report, entitled General Agreement on Trade in Services:
Examination of Major Trading Partners’ Schedules of Commitments (USITC publication
2940, Dec. 1995) was submitted to the United States Trade Representative (USTR) in
December 1995.4

With respect to this second report, the USTR asked the Commission (1) to examine the content
of the foreign schedules of commitments and explain the commitments in non-technical

' National treatment generally accords to foreign firms the same rights and obligations accorded to
domestic firms.

? Benchmarks comprise full and partial commitments. Full commitments are obligations to accord
foreign firms full market access and national treatment. Partial commitments are obligations to accord
foreign firms at least some degree of market access and/or national treatment subject to specified
limitations. Where GATS signatories have scheduled full and partial commitments, they may
introduce new trade-impeding measures only if they are willing to compensate aggrieved parties.
Where trade impediments remain unbound, no benchmarks have been established, and signatories
may introduce trade-impeding measures without penalty.

> A copy of the request letter and the Federal Register notice instituting the investigation, can be
found in appendices A and B, respectively.

* The full text of the schedules of commitments and exemptions to most-favored nation (MFN)
treatment may be obtained by ordering volumes 28-30, 32 and 34 of Legal Instruments of the
Uruguay Round (price: SF 420) from theWorld Trade Organization, Publications Services, Centre
William Rappard, Rue de Lausanne 154, CH-1211 Geneva, Switzerland. WTO publications also are
available by telephone: (022) 7395208/5308; by fax: (022) 7395458, and through the Internet
address: publications@wto.org.


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E-9


For other transportation services, such as freight forwarding, a commercial presence is not
necessary. These services involve only the arrangement of freight transportation. Because the
modes of supply vary depending on both the type of service provided and the geographic
location of the countries involved, it is not possible to determine the relative importance of
cross-border transactions and sales by affiliates.

Cross-Border Transactions

The largest components of U.S. trade in land transportation services covered by this report
include freight transportation by truck and rail, port services other than maritime, and auxiliary
transportation services. In 1994, U.S. exports of these transportation services totaled
$3.2 billion (figure 11-1).° During 1990-94, cross-border exports increased by an average
annual rate of 14.8 percent, but imports generally kept pace, resulting in a persistent U.S. trade
deficit during 1991-94. Canada represents the largest market for U.S. exports of land
transportation services, accounting for approximately 59 percent of total exports in 1994
(figure 11-2). The Asia-Pacific region is the second largest export market, with approximately
15 percent of total exports. Other smaller markets for U.S. land transportation services are
Europe, South and Central America, and Mexico. The trading partners covered in this study
accounted for just under 7 percent of U.S. cross-border exports of all land transportation
services.

Figure 11-1

Cross-border trade in land transportation services: U.S. exports, imports, and trade
balance, 1990-94

4 Billion dollars

[1] Exports Imports —-— Balance

3

2

1

0

1 T T T T T
1990 1904 1902 1993 1904

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

* USDOC, BEA, Survey of Current Business, Sept. 1995, p. 81.

11-2


Summary

Overall, the United States’ trading partners in South America scheduled few commitments that
will significantly ease trade restrictions pertaining to land transportation services. Trading
partners that have scheduled commitments regarding road and rail transport have retained some
ability to regulate new suppliers. The subject trading partners’ commitments provide a rough
framework for future liberalization but do not, in general, appear to provide comprehensive
benchmarks or improve transparency. In addition, the commitments do not accurately reflect
current market conditions in South America, which are evolving rapidly as a result of
deregulation and privatization programs.

11-8


APPENDIX E
CROSS-INDUSTRY COMMITMENTS





Brazilian health care companies to establish private clinics and managed care networks in
Argentina.”” In other South American countries, prepaid health care companies are a relatively
new development. In Colombia, Cosanitas S.A. of Spain, and a local health care company,
Seguros Medicos Voluntarios, held a virtual monopoly on the Colombian managed health care
services market during the 1980s. However, the situation changed five years ago, when several
major Colombian private hospitals, financial institutions, and traditional insurance companies
started to establish their own prepaid medical care systems. A Brazilian health care firm also
entered the Colombian prepaid health care services market at about that time. Although such
systems now cover approximately 2 percent of the total Colombian population, there has been
no known entry by U.S. health care service companies. U.S. government officials there believe
that Colombians would be well disposed to services offered by U.S. health care companies since
a large number of Colombians have been treated in the United States, and many Colombian
physicians have been residents in U.S. hospitals and institutions. Moreover, both the
Colombian Government and industry have been concerned about containing rapidly increasing
health care costs and recognize the U.S. health care services industry as a leader in prepaid
health care with success in reducing costs.”

In Brazil, the health care system is undergoing considerable change, which made it impossible
for the government to offer commitments during the Uruguay Round.” Constitutional
amendments liberalizing foreign investment have yet to be implemented through legislation on
health care, so existing law still holds that foreign investors are permitted to hold up to 50
percent equity and one-third of the voting rights of a Brazilian health care company.”* Further
change is anticipated, as the Brazilian health care system has come under sharp public criticism
because public services are perceived to be of poor quality while private services are
prohibitively expensive for most people.”

The health care system in Venezuela is relatively open to foreign participation, including foreign
investment, although some barriers remain with respect to the recognition of professional
qualifications.* While representatives of the Venezuelan Government declined to explain why
no commitments were undertaken for health care services, they did observe that this sector was
not discussed in any of the bilateral meetings that they held during the Uruguay Round.”
Venezuela could represent an attractive market for U.S. health management organizations
because it has a tremendous need for improving resource management and controlling medical

°° The Argentine firm Innovacion Medica, in association with U.S. Mercy International Health
Services, University of Pittsburgh, Duke University Hospital and Health Network, Massachusetts
General Hospital, and a Brazilian firm, Barcelo, is the only health group currently applying managed
care practices in Argentina. More recently, the Argentine prepaid health care firm, Docthos, entered
into an agreement with the John Alden National Hospital Network of the United States to establish
another managed care network in Argentina. USDOC, "Argentina Health Care Systems,
Privatization," Market Research Reports, Oct. 18, 1995, p. 7.

1 USDOC, "Colombia Pre-Paid Health Care Services," Market Research Reports, Mar. 21, 1995.

” Brazil Health Ministry representative, interview by USITC staff, Brasilia, Brazil, Aug. 7, 1996.

Tid.

* Industry representative, interview by USITC staff, Sao Paulo, Brazil, Aug. 8, 1996.

*5 Venezuela trade ministry representative, interview by USITC staff, Aug. 13, 1996.

6 Tid.

6-6


Figure 2-5

Affiliate transactions: U.S. exports, imports, and trade balance, 1987-93

Billion dollars

450 -| oO Exports Z Imports Balance |=
128 - ~ - ------------- t= ib --| GB-- Y —
1 i ee {| 7-7 7-7 ~~ _
50 Y -- -- -- -- -- -
25 —— -- -- —- —s -
0 t pS
1987 1988 1989 1990 1991 1992 1993

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1992, Sept.

1994, and Sept. 1995.

Figure 2-6

Affiliate transactions: U.S. exports and imports, by industry, 1993

Distribution
11.3%

Nonbank fInance
9.5%

Insurance
19.3%

Computer
9.0%

‘Transportation.
4%

Other
48.2%

Total exports = $143 billion

Insurance
36.2%

Motion pictures
5.4%
Nonbank finance
4.0%

Total imports = $140 billion

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

2-6


capital. Authorization to provide such services through a commercial presence may take into
account a variety of economic and national interest criteria. In addition, cross-industry
limitations on national treatment stipulate capital repatriation time frames, activities in frontier
zones, and staffing requirements for foreign service providers. Capital repatriation by foreign
investors is permitted only three years after initial entry into the Chilean market.

Chile’s cross-industry commitments relating to natural persons are applicable only to the AEC
sectors listed in its schedule. Restrictions on natural persons limit transfers of senior and
specialized personnel to those with a minimum of two years performing the same duties within
the foreign parent company. In addition, employment of foreign natural persons by a foreign
enterprise is limited to no more than 15 percent of total staff employed in Chile. Foreign
personnel are admitted for a 2-year period, which can be renewed for another 2 years. Such
personnel are subject to the Chilean labor and social security legislation in force.

Colombia

Like many other South American countries, Colombia’s commitments concentrate on a narrow
segment of the AEC services sector. These commitments are limited to specific construction
services -- pre-erection work at construction sites, general construction work for buildings,
general construction work for civil engineering,*° assembly and erection of prefabricated
constructions,’! and installation work. Because of the targeted nature of these commitments,
many significant AEC sectors may be subject to trade restrictions. These sectors include
architectural, engineering, and integrated engineering services and miscellaneous construction
services.”

Cross-border supply of the aforementioned construction sectors remains unbound, meaning
Colombia has reserved the right to impose restrictions on this mode of supply. However, this
action would have a greater impact on architectural and engineering services firms, which
deliver a larger share of their services cross-border in the form of blueprints and drawings, for
example, than on construction firms.

Colombia imposes no industry-specific restrictions on commercial presence for services treated
by commitments, but foreign service providers are subject to cross-industry commitments
related to foreign investment, taxes, unappropriated land, and special provisions for land
acquisition on two Colombian islands. The most significant of these cross-industry
commitments is the tax on profit remittances for foreign corporations, which creates an
unattractive investment climate for these firms.

*° Commitments for this sector are applicable only to construction work for dams and golf courses
(part of CPC codes 51330 and 51372).

*! Commitments for this sector are specific to derrick operations (listed in the Colombian Schedule
as part of CPC code 51570).

*» These are special trade construction work, building completion and finishing work, and renting
services related to equipment for construction or demolition of building or civil engineering works,
with operator.

8-13


the early development stages; however, the high performance and efficiency of many Chilean
firms have led foreign franchisors to grant regional licenses to Chilean franchisees. Some of
these licenses even extend into other South American countries. As of mid-1995, approximately
60 percent of the total franchising businesses in Chile were of U.S. origin.'*

The market for franchising services in Venezuela is very different from that in the three
countries discussed previously. While existing franchisors continue to expand selectively, high
unemployment, inflation, recession, and exchange controls in Venezuela reportedly have
discouraged potential foreign franchisors from entering the country. Venezuelans have partially
filled the gap by creating local enterprises modeled after U.S. operations, which could inhibit
US. firms’ future market entry. U.S. franchisors currently operating in Venezuela include firms
engaged in fast food, vehicle rentals, electronics, and aerial ambulances, among other
businesses. There are believed to be few non-U.S. foreign franchise operations in Venezuela.'?

Cross-Border Transactions

Franchising is the only distribution service that is tracked on a cross-border basis by measuring
flows of royalties and license fees. During 1990-94, U.S. cross-border franchising exports grew
by 17 percent per year, on average, amounting to $458 million in 1994 (figure 3-1). In that
year, the largest regional markets for U.S. cross-border franchising exports were Europe (41
percent), Asian and Pacific countries (26 percent), and Canada (12 percent). South and Central
America accounted for 6 percent of U.S. franchising exports (figure 3-2). The franchise fees
teceived by U.S. franchisors from leading South American markets amounted to $5 million from
Brazil, and $4 million each from Argentina, Chile, and Venezuela, each representing
approximately | percent of total U.S. franchise exports. Data on U.S. imports of franchising
services from South America are not available on a country-specific basis. However, U.S.
imports of franchising services from all countries were only $10 million in 1994, which resulted
in a trade surplus of $448 million.

Sales by Majority-Owned Affiliates

Wholesale trade services represent the largest component of distribution services as well as a
significant portion of U.S. sales through foreign affiliates. Wholesale trade conducted by
foreign affiliates of U.S. firms (U.S. exports) stood at $15.4 billion in 1993, approximately
$470 million below the 1990 level. The similarity in wholesale trade export values at the
beginning and end of the period masks 4 percent average annual export growth during 1990-92,
followed by an 11-percent decline in 1993 (figure 3-3). Declining U.S. sales through foreign-
based affiliates during 1993 were largely attributable to weak economic growth and higher
inflation in European markets, which accounted for two-thirds of wholesale trade sales by
forcign-based affiliates of U.S. firms (figure 3-4). Latin America, including the Caribbean,
accounted for just 7 percent of U.S. wholesale trade service exports in 1993.14

“Chile - Franchising,” USDOC, ITA, market research report, June 2, 1995, NTDB.

3 “Venezuela - Franchising,” USDOC, ITA, market research report, Oct. 12, 1995, NTDB.

“ Wholesale distribution services for consumer goods are not widely developed in certain South
American markets. Industry representative, interview by USITC staff, Caracas, Venezuela, Aug. 12,
1996,

3-3


Table 13-A-1
GATT services sectoral classification list

Number Subject Industry Subsector
Distribution services
1. Commission agents’ services
2. Wholesale trade
3. Retailing
4, Franchising
5. Other!
Education services
6. Primary education services
7. Secondary education services
8. Higher education services
9. Adult education
10. Other!
Communication services:
WW. Land-based courier services (none)
Enhanced telecommunication services
12. Electronic mail
13. Voice mail
14. On-line information and data base retrieval
15. Electronic data interchange
16. Enhanced/value-added facsimile services
17. Code and protocol conversion
18. On-line information and/or data processing
19. Other’
Audiovisual services
20. Motion picture, video tape production and distribution
21. Motion picture projection services
22. Radio and television services
23. Radio and television transmission services
24. Sound recording
25. Other’
Health care services
26. Medical and dental services
27. Veterinary services
28. Services provided by midwives, nurses, et. al.
29. Hospital and other health care facilities
30. Other human health services
31. Other"
Professional services:
32, Legal services (none)
33. ‘Accounting services (none)
34, Advertising services (none)
Architecture, engineering, and
construction
35. Architectural services
36. Engineering services
37. Integrated engineering services
38. General construction work for buildings
39. General construction work for civil engineering
40. Installation and assembly work
4. Building completion and finishing work
42. Other

13-A-2



one major U.S. company delivers packages through affiliates in Argentina, Brazil, Chile,
Uruguay, and Venezuela (these countries are the largest markets for courier services in South
America), but also operates through contractual agreements with local service providers in
Bolivia, Colombia, Paraguay, and Peru.’ In addition to transporting packages from the United
States to South American countries, U.S. couriers may also render point-to-point service within
South American countries and transport packages from South America to the United States and
other countries. Regardless of the type of service, government approval is required before
service can be provided in a particular country.

U.S. firms’ expansion to South America reflects increasing demand for expedited delivery
services, resulting largely from the relative inefficiency of postal services in Argentina,
Colombia, Peru, and Venezuela. In addition, the geographic proximity of these countries has
served as further enticement for U.S. couriers to expand operations.°

DHL, which is the largest supplier of courier services to South America, entered that market in
1977. DHL currently ships approximately 2.5 million pieces of expedited parcels, packages,
and similar products monthly to customers in South America.’ About 35 percent of DHL’s
business originating in South America is shipped to the United States, approximately 25 percent
remains within the region, and most of the remainder is shipped to Europe.’ Given the reported
deficiencies of South America’s postal systems, DHL established a “remail’” center in Ecuador
to serve as a continental supplier for its worldwide “remail” operation based in the Netherlands.
Reportedly, Ecuador was selected because its postal system no longer operates as a monopoly.

In 1987, FEC entered the South American market by acquiring Island Courier (Cayman Islands)
as a distribution point. Currently, FEC is operating from more than 40 locations in Latin
America and the Caribbean.’° UPS considers Brazil, Paraguay, Peru, Uruguay, and Venezuela
to be lucrative markets for expanding operations.'' In Venezuela, UPS currently operates
through a contractual arrangement with Transvalcar, a well-established Venezuelan courier and
transportation company." As an indication of this company’s interest in South America, UPS
recently established weekend flights into Brazil and Venezuela, in addition to daily flights
during the business week.'?

Argentina has been identified as the South American country having the most significant
barriers to U.S. trade of courier services.'* U.S. couriers in that country reportedly encounter

Industry representative, telephone interview by USITC staff, May 1, 1996.

® “Clearing Hurdles In Latin America,” Distribution, Sept. 1995, p. 43.

TTbid., p. 46.

* Tid.

°“Remail” refers to a situation where materials, such as catalogs or packages, are transported to
the post office of another country for delivery by that country’s postal system. Ibid.

1° “Clearing Hurdles In Latin America,” Distribution, Sept. 1995, p. 44.

" Industry representative, interview by USITC staff, Washington, DC, May 23, 1996.

” Industry representative, interview by USITC staff, Caracas, Venezuela, Aug. 13, 1996.

"3 1996 Knight-Ridder/Tribune Business News.

'4 Warren A. Goff, managing attorney, Federal Express Corp., testimony before the USITC,
investigation No. 332-367, July 18, 1996, transcript of hearing, p. 58.

5-2


APPENDIX G
CALENDAR OF WITNESSES
APPEARING AT THE PUBLIC HEARING



Chile

Chile scheduled few limitations on travel and tourism services.'? However, it left limitations
on the presence of natural persons unbound, except for provisions in the cross-industry
commitments for selected personnel. Among the numerous requirements pertaining to these
workers, however, are residency or domicile requirements. Additional cross-industry
requirements with regard to foreign workers stipulate that at least 85 percent of an enterprise’s
employees must be Chileans, except in the case of small firms. The types of commercial
presence to which the schedule applies include only corporations (open or closed), private-
limited companies, and subsidiaries, which under Chilean law are the equivalent of agencies
of corporations. Finally, limitations exist on real estate acquisitions in frontier areas.

Colombia

Colombia’s schedule is moderately liberal. There are no restrictions in the sector-specific
commitments on lodging services or travel agency services when delivered through
consumption abroad or commercial presence. However, Colombia left restrictions on foreign
provision of food and beverage services unbound and the nature of its commitments on tourist
guide services is uncertain. In its cross-industry commitments, Colombia scheduled limitations
with respect to its tax on remittances of profits by foreign corporations, but considers this tax
compatible with provisions of the GATS. In the islands of the San Andres and Providencia
Archipelago, the acquisition of real estate by foreigners, as well as immigration and human
settlements, are governed by “special provisions,” which are not specified in the schedule.
Finally, the cross-industry commitments set forth require minimum proportions of Colombians
to be staffed at various levels of responsibility, for firms with more than 10 employees. The
latter requirement presumably applies to domestic as well as foreign-owned firms.

Paraguay

Paraguay committed to a relatively open regime with respect to travel and tourism services.
No restrictions are scheduled with regard to lodging services, food and beverage services, or
tourist guide services, as relates to consumption abroad and commercial.presence. The
government permits market access to travel agencies and tour operators that provide services
in Paraguay to foreign travelers through a commercial presence. However, Paraguay left
unbound national treatment limitations on travel agency and tour operator services delivered
through commercial presence. Paraguay also left unbound measures pertaining to the presence

” Differing from the other trading partners examined in this report, Chile included in its national
schedules specific commitments on computer reservation systems (CRS) services under Auxiliary Air
Transport Services. Although the other countries made no separate provision for CRS services, these
services are believed to be included in the other countries’ schedules within travel agency and tour
operator services, because CRS services pertain to the provision of travel information, the
arrangement of passenger transportation, and ticket issuance services. Chile made full commitments
on CRS services delivered through cross-border supply and commercial presence, which are the
primary modes through which CRS services are delivered. Chile left unbound CRS services
delivered through consumption abroad, the incidence of which is believed to be minimal.

12-14


Affiliate Transactions with South America

As noted, services trade through affiliates in South America represents a small portion of total
U.S. affiliate trade in services. Despite this, U.S. trade with South America contributes
substantially to the U.S. affiliate trade surplus. In 1993, the U.S. affiliate trade surplus with
South and Central America, including Mexico and the Caribbean, amounted to $6.3 billion,
which helped to offset the deficits recorded with larger trading partners such as Canada, Europe,

and Japan.'' The U.S. surplus reflects the relatively strong presence of U.S. transnational
corporations in South America.

Within South America, the largest export markets for services trade by affiliates correspond to
overall market size. Brazil represents by far the most significant export market, accounting for
46 percent of sales by foreign affiliates of U.S. companies operating in South and Central
America, including Mexico and the Caribbean, in 1993 (figure 2-9). Argentina places second,
with 18 percent of U.S. exports, followed by Chile and Venezuela, each with approximately 11
percent.

Figure 2-9

Affiliate transactions: U.S. exports to South America, by country, 1993
Brazil
464%

Colombia
6.5%

Chile Venezuela
1N.2% 11.0%

Total = $4.1 billion

‘Source: U.S. Department of Commerce, Bureau of Economic Analysis, U.S. Direct Investment Abroad, preliminary
1993 estimates, June1995; and USITC staff estimates.

" Data on the U.S. affiliate trade surplus is available only for the entire region of South and Central
America, including the Mexico and the Caribbean, because affiliate import data are too small to be
reported on a country-specific basis.

2-9


Argentina

Argentina imposes no restrictions on cross-border supply and commercial presence of foreign
providers of courier services. With respect to presence of natural persons, however,
Argentina’s limitations on market access and national treatment are effectively unbound as
Argentina declined to specify the length of stay permissible for foreign business persons. The
cross-industry commitments scheduled by Argentina most significantly affect commercial
presence. With respect to commercial presence, Argentina reserves the right to limit land
acquisitions in “frontier areas;” i.e., within 150 kilometers of its land borders and 50
kilometers of its coastal areas.

Brazil

Like Argentina, Brazil imposes no limitations on cross-border supply and commercial
presence, but the scope of Brazil’s commitments appears to be narrower. Brazil’s
commitments exclude tracking and transfer services and reserve the right to impose future
restrictions on the presence of natural persons. Brazil declined to specify permissible lengths
of stay for foreign business persons, thereby scheduling no binding commitment. With respect
to cross-industry commitments applicable to courier services, Brazil requires that all foreign
investment in that country be registered with the Central Bank of Brazil to be eligible for
remittances. Beyond this, Brazil has listed an MFN exemption that allows it to accord
preferential treatment to firms from Argentina, Bolivia, Chile, Paraguay, Peru, and Uruguay
under the Agreement on International Land Transport.

Uruguay

With respect to cross-border supply and commercial presence, Uruguay’s schedule indicates
that the National Post Office issues operating licenses that expire at the end of a three-year
period, unless the licensee indicates an intention to renew the license prior to the expiration
date. Like Argentina and Brazil, Uruguay declined to specify permissible lengths of stay for
foreign business persons, effectively leaving limitations on the presence of natural persons
unbound. Through two MFN exemptions, Uruguay reserves the right to (1) provide
preferential treatment to signatories under the Agreement On International Land Transport and
(2) guarantee the freedom to invest and transfer capital to firms from countries with which it
has investment promotion and protection agreements.

Venezuela

Venezuela’s commitments on courier services appear to apply equally to postal services such
as those typically provided by national postal administrations; e.g., collecting and delivering
periodicals, parcels, and packages, selling postage stamps, handling certified and registered
mail, and renting postal boxes. Thus, the scope of the Venezuelan commitments on courier
services is broader than the commitments scheduled by other South American countries.
Venezuela imposes no restrictions on commercial presence, but indicates that trade restrictions

5-5


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E-2


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Limitations on market access and national treatment by means of the temporary entry and stay
of natural persons affect managers, legal representatives, and technical specialists. Cross-
industry commitments restrict non-Colombian staffing levels to 10 percent of ordinary
employees and to not more than 20 percent of skilled employees or specialists, administrative
staff, or persons in positions of responsibility. Colombia also declined to specify permissible
lengths of stay for foreign business persons, retaining broad discretion to regulate the entry and
stay of most foreign AEC service providers. As with restrictions on these modes of supply in
other South American countries, AEC service providers may be adversely impacted by the
limitations placed on their operations.

Peru

Market access and national treatment for foreign AEC service providers are generally restricted
in Peru. Except for certain architectural and engineering services,** Peru has reserved the right
to maintain and impose restrictions on foreign supply of AEC services. Industry-specific
commitments pertaining to commercial presence limit market access to foreign architects and
engineers with officially recognized professional degrees (unless reciprocity is accorded).
These service professionals must also enroll in the relevant professional colleges, albeit on a
temporary basis.

Peru’s cross-industry commitments on market access affect both commercial presence and the
temporary entry and stay of natural persons in architectural and engineering services. Foreign
nationals of GATS signatories may be permitted entry for 3 years, with renewal for successive
3-year periods possible. Foreign nationals may comprise no more than 20 percent of the total
number of staff employed in a commercial presence, and their remuneration may not exceed
30 percent of the enterprise’s total payroll. Multinational service enterprises, however, are not
subject to these staffing allocations.**

Peruvian law stipulates that foreign investors and enterprises have the same rights as their
domestic counterparts. Foreign investment must be registered with the competent national
authority, and certain limitations exist concerning frontier land acquisitions by foreigners. In
addition, Legislative Decree No. 757 establishes the rights, guarantees, and obligations
applicable to domestic or foreign persons with investment in Peru. These decrees are intended
to promote foreign investment in a multitude of economic sectors and enterprises.

* Only miscellaneous architectural and engineering services are excluded from these commitments
(CPC codes 86719 and 86729).

** Criteria for meeting the terms of a “multinational service enterprise” are unavailable. There are
other exceptions to these limitations, as well as exemptions foreign employers may request concerning
specialized professional or technical personnel.

8-14


franchising.'* Argentina’s full commitments number zero with respect to commission agents”
services, six for wholesaling, six for retailing, and six for franchising, for a combined total of
18 full commitments. Since there are 4 subsectors comprising distribution services, and 8
possible entries within cach subsector,'* there are 32 entries applicable to distribution services.
Hence, full commitments account for 56 percent of all of Argentina’s entries applicable to
distribution services.

Composite shares for trading partners were derived in a similar manner. In Argentina’s
schedule, full commitments in all of the subject industries totaled 136. Dividing the number of
full commitments by Argentina’s 440 total possible entries results in a composite share of
31 percent.

Composite shares for the subject industries reflect a similar methodology. For example, the nine
South American countries made a total of 288 entries with respect to distribution services. Full
commitments on distribution services scheduled by the subject trading partners number 28,
accounting for 10 percent of total entries.

Table 13-A-3

Table 13-A-3 expresses the number of full and partial commitments as a share of the total
entries made by each trading partner for each industry. Composite shares have been calculated
for each trading partner (bottom row) and cach industry (right-hand column). These composite
shares are represented graphically along the horizontal axis in figures 13-1 and 13-2, The
higher the share, the greater the extent of benchmarking. Both full and partial commitments
identify trade-impeding measures and prohibit trading partners from making these measures
more restrictive. Hence, both act as benchmarks.

For example, the first cell of table 13-A-3 reflects Argentina’s full and partial commitments
regarding distribution services. As in the previous discussion, the distribution services industry
consists of four subsectors: commission agents’ services, wholesaling, retailing, and
franchising.’° Argentina’s full commitments number 18, and partial commitments number 6
with respect to all of these subsectors, for a combined total of 24. Since there are 32 entries
applicable to distribution services, full and partial commitments account for 75 percent of all
of Argentina’s entries applicable to distribution services.

\ The subsector entitled “other distribution services” was omitted from the calculations. This has
the effect of reducing the total possible entries under the major heading of distribution services by
eight.

* Schedule entries correspond to modes of supply. Four entries are made with respect to market
access, and four more are made with respect to national treatment.

‘ The subsector entitled “other distribution services” was omitted from the calculations. This has
the effect of reducing the total possible entries under the major heading of distribution services by
eight.

13-A-5


Summary

The schedule of commitments in legal services offered by Argentina was the most extensive
and cleanest of any of the subject countries. The offers by Chile, Colombia, and Venezuela
represent, to varying degrees, positive movement toward greater predictability and
transparency in legal services trade. Conversely, the failure by Brazil to schedule any legal
services commitments represents the largest disappointment to legal services providers. By
declining to schedule such commitments, Brazil failed to establish effective benchmarks and
to enhance regulatory transparency. The absence of commitments from the much smaller
economies of Bolivia, Paraguay, Peru, and Uruguay is similarly disappointing to U.S. legal
firms.

10-8


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3-9


Colombia

Colombia scheduled partial commitments on commercial presence. Market access measures
require that at least 80 percent of partners must be public accountants and that the legal
representative of the foreign firm shall be a public accountant when all partners are public
accountants. In addition, Colombian nationality and Colombian residency are required for
registry as an accountant. Colombia scheduled no limitations on consumption abroad, but left
limitations on cross-border supply and the presence of natural persons unbound.

Peru

Foreign accountancy firms may provide only financial auditing, accountancy review, and
compilation services in Peru. Peru scheduled a partial commitment on market access with
respect to commercial presence, requiring that foreign accounting professionals have their
professional degrees officially recognized and fulfill additional requirements, such as enrolling
ina relevant professional college and complying with unspecified provisions of the College of
Public Accountants and the Banking and Insurance Supervision Department. Peru scheduled
a full commitment on national treatment with respect to commercial presence. Peru left
limitations on cross-border supply and consumption abroad unbound, while the presence of
natural persons was left unbound, except as indicated in the cross-industry commitments.
Cross-industry commitments indicate that initial stays of up to 3 years are permitted, which
may be extended for successive periods of up to 3 years thereafter.

Venezuela

Venezuela imposed no limitations on consumption abroad but left limitations on commercial
presence and cross-border supply unbound. Industry-specific limitations on the presence of
natural persons were left unbound, although cross-industry commitments allow administrative
staff, managers, executives, specialists, and representatives negotiating contracts to remain in
Venezuela for 1 year initially. Foreign business persons’ stay may be reviewed on an annual
basis thereafter.

Industry Opinion

Industry representatives believe that the GATS is a useful step toward full liberalization of
trade in accounting services. The GATS does this by establishing the principle that regulation
of domestic economic activity has international consequences, thereby laying the basis for the
global harmonization of regulations.'> The GATS also helps to promote trade liberalization
by broadening the definition of “trade” to include movement of capital and people, critical
issues for accounting firms. Many accounting professionals have expressed disappointment
that signatories did not schedule commitments that provide for the mutual recognition of

?? Jobn F. Gay, Andersen Worldwide Inc., testimony before the USITC, July 18, 1996.

7-9


CONTENTS-Continued

Chapter 13. Annex-Continued

Table 13-A-2
Table 13-A-3
Appendices
A. Request letter... 000. nee nce nee es A-l
B. Federal Register notice ©... 2.0... occ B-1
C. Glossary of terms ........ C-1
D. Concordance of industry classifications D-1
E.  Cross-industry commitments ........ E-1
F. Most-favored-nation (MFN) exemptions . . F-l
G. Calendar of witnesses appearing at the public hearing.............0..... 002.00 eee eee Gl
H. List of companies, associations, and government agencies interviewed by Commission
Staff. nec een ene e ees H-1

Figures
1-1. Structure of the General Agreement on Trade in Services .. . 1-3
2-1. Modes of supply for international delivery of services 2-3
2-2. Cross-border service transactions: U.S. exports, imports, and trade balance, 1986-94 2-3
2-3. U.S. merchandise, service, and current account balances, 1986-94 2-4
2-4. U.S. cross-border service exports and imports, by industry, 1994 ... 2-4
2-5. Affiliate transactions: U.S. exports, imports, and trade balance, 1987-93 . 2-6
2-6. Affiliate transactions: U.S. exports and imports, by industry, 1993 .................00. 2-6
2-7. U.S. services trade volume, by region 2-7
2-8. U.S. cross-border services trade with South and Central America, by country, 1994 ....... 2-8
2-9. Affiliate transactions: U.S. exports to South America, by country, 1993 ................ 2-9
3-1. Cross-border trade in franchise fees: U.S. exports, imports, and trade balance,

1990-94 once e net e bennett teens 3-4
3-2. Franchise fees: U.S. cross-border exports, by principal markets, 1994 .................. 3-4
3-3. | Wholesale trade transactions by majority-owned affiliates: U.S. exports, imports, and

trade balance, 1990-93 0.0... n bene ence ences 3-5
3-4. Wholesale trade exports: Sales by majority-owned affiliates of U.S. firms, by principal

markets, 1993 20... cece n nee cent t etn ene b entre eee ee 3-5
3-5. Retail trade transactions by majority-owned affiliates: U.S. exports, imports, and trade

balance, 1990-93 20... cece cee cnet teen eet e ete e eee eeenees 3-7
4-1. Cross-border trade in enhanced telecommunication services: U.S. exports and

imports, 1986 and 1991 .. 4-3
6-1. Health care services: U.S. cross-border exports, imports, and trade balance, 1990-94 ..... 6-3

viii


PREFACE

Following receipt on April 9, 1996, of a request from the United States Trade Representative
(appendix A), the U.S. International Trade Commission instituted the investigation General
Agreement on Trade in Services: Examination of South American Trading Partners’
Schedules of Commitments (investigation 332-367). The purpose of this report is to examine
the schedules of commitments of nine South American countries, explain the commitments in
nontechnical language, and identify the potential benefits and limitations of the commitments.

Copies of the notice of the investigation were posted in the Office of the Secretary, U.S.
International Trade Commission, Washington, DC 20436, and the notice was published in the
Federal Register (61 F.R. 24510) on May 15, 1996 (appendix B). The Commission held a
public hearing in connection with the investigation on July 18, 1996. All persons were allowed
to appear by counsel or in person to present information. In addition, interested parties were
invited to submit written statements concerning the investigation.

The information and analysis provided in this report are for the purpose of this report only.
Nothing in this report should be considered to reflect possible future findings by the
Commission in any investigation conducted under statutory authority covering the same or
similar subject matter.


Venezuela

Venezuela’s commitments on travel-related services are relatively liberal, with several caveats.
Full market access and national treatment are accorded to foreign providers of lodging services,
food (although not beverage) services, and travel agency and “wholesale tourism” services,
except when delivered through the presence of natural persons. However, restrictions on
foreign provision of beverage services and tourist guide services remain unbound for all modes
of supply. Venezuela’s schedule also includes full commitments, similar to those on lodging
services, with respect to various auxiliary tourism enterprises, including services such as
private car leasing and rentals, sports and other recreation, museums and culture, hairdressing,
drycleaning, and other services yet to be clarified. Additionally, a measure pertaining to
“holiday camps” stipulates that only foreigners who have been residents in Venezuela for more
than five continuous years may own and operate such camps. For most travel and tourism
services, natural person limitations are unbound, except for cross-industry measures affecting
entry and temporary stay. Preference is given to graduates of Venezuelan tourism institutes
at all levels of employment, but foreigners are said to be as able as Venezuelans to enroll and
earn a degree from the tourism institutes.’

Industry Opinion

USS. industry representatives report that, in practice, South American markets are substantially
free of market access and national treatment barriers to trade with respect to travel and tourism.
services.'’ World tourism industry data appear to support such perceptions. International
passenger arrivals to South America were said to increase by 8 percent in 1994, more than
double the world average, with strong proportional growth over the previous year in arrivals
and receipts recorded for large countries such as Argentina and Brazil as well as smaller
countries such as Uruguay and Bolivia.'®

USS. sources indicate that South American market openness contrasts with experiences in many
of these markets prior to the 1990s,’° and industry representatives are hopeful that
opportunities for foreign investment will proliferate. U.S. and South American sources
indicate substantially increased opportunity for investment by U.S. firms such as Choice,
Hilton, Hyatt, Marriott, Radisson, and Sheraton, as tourist areas are developed both inland and

*© Venezuelan Government official, interview by USITC staff, Caracas, Venezuela, Aug. 13, 1996.

"’ Industry representatives, telephone interviews by USITC staff, June 10, 1996.

181994 Good Year for Tourism in South America,” WO News, World Tourism Organization,
Madrid, July 1995, p. 6.

' For example, since 1990, the Brazilian Government has eliminated impediments to foreign
travel erected for over two decades which attempted to limit foreign exchange fluctuation by
controlling foreign travel by Brazilians. See USDOC, International Trade Administration, “Brazil -
Discretionary Pleasure Travel to the USA,” market research report, Mar. 21, 1995, National Trade
Data Bank.

12-16


In the same year, wholesale trade conducted by U.S.-based affiliates of foreign firms (U.S.
imports) rose by 30.4 percent to $9.8 billion. U.S.-based, foreign-owned wholesalers increased
in number as well as sales, benefitting from higher economic growth in the United States than
in other regions. The resulting wholesale trade surplus of $5.6 billion in 1993 was smaller by
$4.1 billion, or 42 percent, than the $9.8 billion surplus recorded in 1992.'°

U.S. exports of retail trade services by foreign-based affiliates of U.S. firms during 1990-93
increased at an average annual rate of 12 percent (figure 3-5).'° The slight decline in sales
through foreign affiliates during 1993 is explained partially by lingering recessions in Europe,
which held more than 40 percent of the assets of foreign-based retail trade affiliates of U.S.
parent firms.!” During 1990-93, U.S. imports of retail trade services appear to have grown
steadily to reach $1.1 billion in 1993.'* Accelerated growth in imports during 1991-93
increased the deficit in retail trade services, which stood at $370 million in 1993. The U.S.
deficit in retail trade services reflects significant foreign direct investment in the large and
highly-developed U.S. retail sector. In 1993 alone, direct investment in U.S. retail
establishments by foreign parent firms increased by 8 percent, accompanied by increases in the
number of U.S.-based, foreign-owned affiliates and employment by such affiliates.’°

Examination of Commitments on Distribution Services

The schedules of commitments address a number of nontariff trade barriers that affect trade in
distribution services (table 3-1). As noted previously, these barriers generally limit the ability
of distribution service firms to establish a commercial presence in a foreign country and to staff
their establishments with nationals from their home country. Barriers to the remaining two
modes of supply, cross-border supply and consumption abroad, are negligible. Among the four
distribution services, wholesalers and retailers rely most heavily on the freedom to establish
commercial presence in the form of a foreign affiliate. Consequently, commercial presence
barriers adversely affect these distribution services more significantly than franchising and
commission agents’ services, which typically are owned by local residents and therefore are not
considered to be foreign establishments.

* The average annual growth rate for wholesale imports cannot be calculated reliably because
import data prior to 1992 did not include data for countries where such data would disclose the
operations of individual companies.

*6 Data on retail trade transactions by affiliates are not available on a country-specific basis.

*USDOC, BEA, U.S. Direct Investment Abroad, Preliminary 1993 estimates, Table IIIB 6.

6 Data on imports of retail services for 1990 are estimated by USITC staff because selected data
from the BEA were suppressed in order to avoid disclosures relating to the operations of individual
companies.

 USDOC, BEA, Foreign Direct Investment in the United States, Preliminary 1993 estimates,
Table J-2,

3-6


Table 13-2
Most-favored-nation (MFN) exemptions pertaining to subject industries"

\Country Services affected Description of Measures

Bolivia Land transportation National treatment accorded preferentially in international transportation of passengers
and freight (including combined road-rail transport) reserving transportation rights among
the parties or through the territory of the contracting party concerned.

Audiovisual services _| National treatment accorded preferentially for co-produced cinematographic works in
accordance with existing or future agreements.

Brazil Land transportation National treatment accorded preferentially to cargo and passenger transport suppliers
from countries that are members of the Agreement on International Land Transport.

Audiovisual services National treatment for motion pictures accorded preferentially to countries with which
Brazil maintains a co-production agreement.

Chile All services Investment dispute settlement procedures apply only to members of existing or future
bilateral treaties on the protection of investment.
Land transportation National treatment accorded preferentially to cargo and passenger transport suppliers
from countries that are members of the Agreement on International Land Transport.
Audiovisual services National treatment accorded preferentially for co-produced works in accordance with
existing or future cinematographic co-production agreements.
\Colombia Telecommunication National treatment with respect to commercial presence is granted only to value-added
services service suppliers from Andean Group countries.
Land transportation Preferential treatment accorded to service providers from countries that are members of

the Andean Road Freight System.

Audiovisual services Preference accorded to members of existing or future co-production agreements for the
cinema or television, in particular with regard to distribution, access, and financing
conditions.

Peru All services Preferential treatment accorded to countries with which Peru maintains a reciprocal labor
agreement, a dual nationality agreement, or other bilateral or multilateral agreements
relating to the movement of natural persons.

Land transportation Preferential treatment is granted to members of the Andean Group with respect to
carriage of freight by road; international transport of passengers by roads; multi-modal
transport; and freedom of access to freight originating within the subregion, including
cabotage.

Audiovisual services Preference accorded to Latin American artists interpreting Latin American themes in
recreational, cultural and sporting services.

Uruguay All services Preferential treatment accorded to investors from countries with which Uruguay
maintains bilateral investment promotion and protection agreements.

Land transportation National treatment accorded preferentially for authorized cross-border suppliers from
member-countries of the International Land Transport Convention.

Venezuela Professional services _| National treatment for professional services governed by special laws, some of which
require reciprocity. Applies in particular to physicians, engineers, lawyers, architects,
veterinary surgeons, pharmacists, and economists.

Distribution services Preferences accorded on the basis of bilateral agreements for the distribution and

marketing of petroleum and petroleum products, advisory services, and the exchange of
technology.

Audiovisual services _| Preference accorded to service providers from countries that are members of co-
production agreements.

Preference accorded to service providers from countries that are signatories to the Ibero-
American Cinematographic Integration Agreement, the Latin American Cinematographic
Co-production Agreement, and the Agreement on the Creation of a Latin American
Cinematographic Common Market.

Preference accorded to amateur radio service providers from countries that are members
of the Inter-American convention on radio amateur services (“Lima Convention”).

Preference accorded to amateur radio service providers from countries with which
Venezuela maintains bilateral agreements on radio amateurs.

‘Argentina and Paraguay listed no MFN exemptions.
Source: Compiled by the staff of the U.S. International Trade Commission.

13-9


Figure 6-3
Health care service transactions by majority-owned affiliates: U.S. exports, imports,
and trade balance, 1990-93

Billion dollars

CJ Exports Imports Balance
2
1
o| | I [4 LI
“4 ——___
2 1 1 T T
1990 1991 1992 1993

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1992-95,
and USITC staff estimates.

The U.S. deficit in affiliate trade of health care services amounted to slightly over $1 billion in
1993. Much of the deficit is attributed to fairly extensive U.S. networks of hospitals owned by
the majority-owned Australian health care organization, Ramsey Group, and the German-owned
health care system, Paracelsus. Although a number of U.S. health care companies maintain.
affiliate operations overseas, their operations are not nearly as extensive as those of the
Australian and German systems in the United States.

In South America, opportunities for U.S. health care service firms were previously limited due
to the preponderance of public sector involvement in the health care sector. However, in recent
years there has been an increase in private sector provision of health care services in this region,
increasing actual and potential opportunities for U.S. health care services firms, particularly
managed care companies. Currently, the percentage of the population obtaining its health care
services from the for-profit private sector ranges from a low of about 3 percent in less developed
countries, such as Paraguay and Bolivia, to an estimated 12-15 percent in more advanced
countries such as Argentina, Colombia, and Brazil.'®

In Argentina, the lack of a clear national health policy in the last 20 years has resulted in the
vigorous growth of private sector health clinics at the expense of public hospitals. In recent
years, some U.S. hospitals and companies have entered into agreements with Argentinean and

1° Pan American Health Organization (PAHO), “Peru,” “Chile,” “Venezuela,” “Colombia,”
“Bolivia,” “Argentina,” and “Paraguay,” Health Conditions in the Americas, 1994, pp. 1-150.

6-5


Figure 7-3
Accounting and related services exports: Sales by majority-owned affiliates of U.S.
firms, by principal markets, 1993

‘
Latin America

Total = $5.3 billion

‘Includes the Caribbean region.
? Includes Africa, the Middle East, and other Asian and Pacific countries.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

the same period in total U.S. exports by overseas affiliates of U.S. accounting firms. Increased
affiliate sales south of the United States is largely the result of increasing activity by U.S.
multinational accounting firms as foreign investment expanded, spurred by privatization of
certain critical industries in South American markets.

Examination of Commitments on Accounting Services

Some of the more significant policies that affect affiliate sales of accounting services include:
limitations on international payments and capital movements, movement of personnel, transfer
of technology and information, nationality of personnel, professional certification and entry,
intercorporate relationships, and use of firm name.* Restrictions on commercial presence? and
on the presence of natural persons, the latter of which principally consist of nationality
Tequirements and limits on the stay of accounting professionals in foreign markets, include some
of these restrictive policies. Because most exports of accounting services are transacted by

§ John Hegarty, “The Accountancy Profession,” Workshop on Professional Services, Sept. 26-27,
1994, pp. 15-18.

° Limitations on commercial presence stipulate conditions under which foreign service suppliers
may establish, operate, or expand a commercial presence, such as a branch, agency, or majority-
owned subsidiary, in another country’s territory.

7-4


General Agreement on Trade in Services:
Examination of South American Trading
Partners’ Schedules of Commitments

Investigation No. 332-367

Publication 3007 December 1996
U.S. International Trade Commission

Washington, DC 20436





Presence of natural persons: One of four possible modes of delivering services to foreign consumers,
whereby one individual, acting alone or as an employee of a service supplier, provides a service while
present in a foreign market.

Rollback commitment: A type of bound commitment wherein a country maintains some, but not all,
currently existing regulations that limit market access or national treatment in a given sector and mode of
supply. In the national schedules, a rollback commitment will describe the remaining measures that are
inconsistent with free market access and national treatment.

Supply of a service: The production, distribution, marketing, sale, and delivery of a service.

Standstill commitment: A type of bound commitment wherein a country maintains all existing
regulations that limit market access or national treatment in a given sector and mode of supply. In the
national schedules, a standstill commitment will describe the measures that are currently inconsistent with
free market access and national treatment.

Sector-specific commitment: Legally enforceable commitment affecting trade in a specific service
sector. They generally specify limitations regarding market access or national treatment.

Transparency: Transparency exists in a commitment when the nature and extent of all regulatory
impediments to trade are explained in their entirety, with precision and clarity.

Unbound measure: A measure that may be inconsistent with market access or national treatment that
can be made more restrictive in the future. In the national schedules, an unbound measure is reflected by
the word "unbound" in the relevant service sector and mode of supply. In the event that a service sector
or mode of supply is unbound, a new measure that is inconsistent with market access and national
treatment may be introduced in the future. The word "unbound" may be accompanied by an asterisk if a
particular mode of supply is not technically feasible.

C4


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11-5


Figure 13-1
Shares of total possible schedule entries, by country

50

* European Union
© Canada
0
“ Tapan
2
€
&
£ x Argentina
3 Mexico
g¢
— 3
3
3.8
= »
5
in
Venezuela
10
Unguy © © Colombia
Chee .e Pent
P
areguay @ pola Brazil
o + : 1
° 10 2» 2» « 20 # 7 ey

percent
Partial and full commitments

Source: Compiled by the staff of the U.S. International Trade Commission.

The extent to which South American countries, taken as a group, established benchmarks and
enhanced transparency differed significantly by industry. Figure 13-2 shows, along the
horizontal axis, that the subject countries undertook commitments (full and partial) in 70
percent of their combined schedule entries pertaining to travel and tourism services. Full
commitments, reflected along the vertical axis, represented 47 percent of South American
countries’ schedule entries regarding these services. The large number of commitments
scheduled with respect to travel and tourism reflect initiatives to encourage inbound tourism,
a significant source of foreign exchange in many economies.

Other subject service industries did not fare as well. As noted in chapter 1, South American
countries scheduled no commitments on audiovisual and education services. Consequently,
South American countries did not establish benchmarks or enhance transparency in these
industries. Health care and transportation services received only slightly better coverage, with
commitments undertaken in only 2 percent of the applicable schedule entries. Poor coverage
of these industries reflects the strong interest of national governments in maintaining domestic
control over sectors important to public health and safety. In recent years, many of the subject
countries have begun to explore deregulation and privatization programs that may substantially
alter the competitive environment in these industries. However, such programs were in the early
stages of development as the Uruguay Round concluded, making it difficult for negotiators to
schedule any binding commitments at that time.




E-3

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Aiddns jo apow

\S}uauWWOS Ajsnpul-ssolD,


Governmental Agencies
Argentine Mission to the World Trade Organization
Bolivian Mission to the World Trade Organization
Brazilian Mission to the World Trade Organization
Chilean Mission to the World Trade Organization
Colombian Mission to the World Trade Organization
Department of Health and Human Services
Federal Highway Administration
Federal Railroad Administration
Foreign Ministry, Brazil
Foreign Trade Institute, Venezuela
Health Care Financing Administration
International Trade Administration, Department of Commerce
Ministry of Health, Brazil
Ministry of Transportation, Brazil
Paraguay Mission to the World Trade Organization
Peruvian Mission to the World Trade Organization
Transportation Secretariat, State of Sao Paulo, Brazil
United States Trade Representative
Uruguayan Mission to the World Trade Organization
US. Consulate, Sao Paulo, Brazil
U.S. Embassy, Brasilia, Brazil
U.S. Embassy, Caracas, Venezuela
Venezuelan Mission to the World Trade Organization

International Organizations
Organization of American States
United Nations
World Trade Organization

H-5


CHAPTER 9
Advertising Services’

Introduction

The advertising services covered in this report include writing copy, developing artwork,
designing graphics, and other creative work, as well as the placement of advertisements in
periodicals, newspapers, radio, television or other advertising media for clients on a contract or
fee basis.? U.S. firms are among the most competitive participants in the international
advertising market.

Nature of International Trade in Advertising Services

Trade in this sector comprises both cross-border transactions and sales by foreign affiliates. Of
these channels of delivery, sales by affiliates predominate because firms that establish a foreign
commercial presence reportedly develop a keen understanding of the local media, consumer
tastes, language, and culture, and thereby develop a competitive advantage over firms
attempting to export advertising services from home offices. Many U.S. advertising firms have
established offices overseas to serve affiliates of other U.S. companies. In 1993, sales by U.S.
majority-owned advertising affiliates amounted to $3.5 billion, compared to $338 million earned
through cross-border exports of advertising services.

* Among the individuals consulted by USITC staff in preparation of this report were those affiliated
with the following organizations: J. Walter Thompson, McCann-Erickson Worldwide; Ogilvy &
Mather; American Association of Advertising Agencies, Association of National Advertisers;
International Advertising Association; International Business-Government Counsellors; Procter &
Gamble; Ralston Purina, Xerox; and Pepsi Cola Company.

? Advertising services are captured under the U.S. SIC code 731.

* USDOC, BEA, Survey of Current Business, Sept. 1995, pp. 101, 104.


Figure 2-3
U.S. merchandise, service, and current account balances, 1986-94'
Billion dollars

200
(1 Merchandise balance YZ Services balance
450-4 Current account balance HE eResidual

100 -

50+

o-+

505

“100 +

-150 ~}

T r T T T T T T T
1988 1987 1988 1989 1990 1991 1992 4993 1994

* The balance on trade in services includes public sector and intracorporate trade. The residual reflects the sum of
net unilateral transfers and net investment income. The current account balance reflects the sum of total net
merchandise trade, net services trade, net unilateral transfers, and net investment income.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

Figure 2-4
U.S. cross-border service exports and imports, by industry, 1994

Travel & tourism Travel & tourism
40.1% 39.4%

Transportation
3% Transportation. Other
25.7% 4%
ed Professional
10.7% tons
‘Telecommunications
Education mm
Arh Finance & insurance
Finance & ineurance Passenger fares
87% 11.5% 9.3%
Total exports = $151 billion Total imports = $110 billion

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

2-4


will eventually adopt the model of trade liberalization included in the North American Free-
Trade Agreement (NAFTA) agreements.'*

Industry sources also believe that international trade in accounting services should continue to
grow as firms operating internationally require the services of professionals to prepare
worldwide accounting records and reports, and to provide expertise in such accounting-related
fields as auditing, tax preparation, and management consulting.'? Because U.S. multinational
accounting firms are among the largest and most competitive in the global market for these
services, these firms are expected to be among the principal beneficiaries of increasing trade
with South American nations.”

Summary

The commitments negotiated under the GATS generally provide effective benchmarks.” All
except three subject trading partners address accounting services in their schedules, listing
partial or full commitments in most instances. In addition, most commitments scheduled by
the subject trading partners have enhanced regulatory transparency.” Although major trade
impediments still exist with respect to the establishment of a commercial presence and the
presence of natural persons, accounting professionals feel these measures will be resolved
eventually through efforts of the Working Party on Professional Services.

"8 Ibid.

*° David L. McKee and Don E. Garner, Accounting Services, the International Economy and
Third World Development (Westport, CT: Praegar Pub., 1992), p. 107.

°° Richard Greene and Katherine Barrett, “Auditing the Accounting Firms,” Financial World, Sept.
27, 1994, p. 31.

7! Representative of U.S. accounting industry, telephone interview by USITC staff, May 12, 1996.
2 Ibid.

Tl


APPENDIX F
MOST-FAVORED NATION (MEN)
EXEMPTIONS



Ziz99 ‘1298 Odo *

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“syuawuwos Asnpul-ssolo 84)
Ul peyeoipul se ydaoxe ‘punoquy +
rssa00y JOXeW

SUON :JUaWyBaLL |EUOREN
BUON :SSB99y JOE.

punoqun :juaujeas, euoNeN
punoqun :ssaaay JaxeW

punoqur :juauzeas) [eUOIEN
punoqun :ssaaay Jaye

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Uaujead] [eUOHEN,
“sjuauj!LWWOo Aqsnpul-Ssos9 84)
ul payeoipul se ydaoxs ‘punoqun +

“pamolio} 8q SMU
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ueyzeig “suoyeloosse
eo] pue sBulAes pue suojnysul
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uBlalo) y ‘pamojje OU si! sjeUCHeU

punoqun :uaujeady JeuoHeN

Punoqun :juawujead] |EUOREN

‘sy! apao Aew Jaljddns aces
‘uBiaioj e yeu) \daoxa ‘punoquy +

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“SUaUNIUULUOD ARSNpUl-SsoI0 Su)
ul payeoipul se deoxe ‘punoquy, +
syuaUjeas) FEUOKEN
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ui payeoipul se deoxa ‘punoquy + UON sJuaUARaI) |EUCTEN SUON sJuUaWRaIL [EUOHEN @UON sJuaWRadL JeUOEN
798 Odd * issa2oy Jaye BUON iSsadzy JayEW BUON :ssaaoy Jaye, BUON ?SSa29y Jaye! eujuabiy
“SiUaURLIOD. Su0siag jeINJBN JO BIUaseld SoUdSoId JEIDISUNOD- peaigy uonduinsuog Aiddng Japiog-ssoig. (Anunod,
\Aiddng jo apow

seomues Guljunosse UO suO}o1}Se1 SYyI9ads-Ayjsnpul Jo S}YByYy6IH

L-Z 219e1

7-6


their schedules of commitments. This discrepancy reflects both recent policy changes and
negotiating tactics. Since the conclusion of the Uruguay Round, a number of deregulation and
privatization programs have been initiated across the region that have liberalized the
competitive environment substantially. In addition, negotiations related to Mercosur, NAFTA.
accession, or APEC may have provided incentive for countries to make limited concessions
under the GATS in order to maintain bargaining power in other negotiating fora.

Assessment by Country

South America represents less than 10 percent of total U.S. services trade, with the most
significant U.S. export markets being Brazil, Argentina, Venezuela, and Chile. Argentina
scheduled the most commitments, covering more sectors than any other South American
country. By contrast, the schedules from Brazil and Chile are less ambitious, with few sectors
covered by commitments. Smaller countries, such as Bolivia and Paraguay, tended to schedule
very few sectors.

Assessment by Industry

The service industries accounting for the greatest U.S. export volume are travel and tourism,
transportation, professional services, and distribution services. Several South American
countries scheduled full commitments pertaining to travel and tourism services, indicating that
trade in the industry is largely unrestricted. Land transportation services did not fare as well,
although Brazil and Uruguay scheduled commitments that address the industry. Treatment of
professional services varied by service industry. For example, commitments on accounting
services and legal services were scheduled by a number of countries, whereas architectural and
engineering services were addressed Jess frequently. Commitments on distribution services were
scheduled by three countries.

Labor Mobility

As was customary among most GATS signatories, South American countries’ commitments on
the entry and stay of business persons applied only to selected types of employees, typically
senior managers and specialists. A number of the South American countries impose stringent
restrictions in this area. For example, Bolivia, Chile, Colombia, Peru, and Venezuela limit the
percentage of foreign employees to between 10 and 20 percent of total staff. Other countries,
such as Argentina, Brazil, and Uruguay, declined to specify the permissible duration of stay.
In such cases, foreign regulators appear to retain broad discretion regarding the entry and
temporary stay of business persons.

Capital Investment

A number of South American countries listed investment-related restrictions. For example,
Brazil requires that investment capital be registered with the central bank, Chile restricts the
repatriation of investment capital for a 3-year period, and Colombia imposes a tax on profit
remittances by foreign companies. Similarly, Bolivia and Brazil limit market entry options by
requiring foreign companies to establish separately incorporated subsidiaries. Investment-
related measures generally reflect current regulation.

xii


PANEL 3

U.S. Council for International Engineering Practice (USCIEP),
Alexandria, Virginia

Jose I. Guerra, P.E., Jose I. Guerra Inc., Consulting
Engineers

PANEL 4
Andersen Worldwide, Washington, D.C.

John F. Gay, Senior Manager, Office of Government
Affairs

G3


telecommunication lines; and underdeveloped or unreliable telecommunication infrastructure.'?
Limitations vary widely across markets and are abundant in most South American countries.

US. providers of enhanced telecommunication services encounter numerous restrictions in each
of the South American markets assessed in this study.'* This restrictiveness is reflected in the
commitments, and lack of commitments, scheduled by the subject trading partners. Table 4-1
highlights the industry-specific commitments that are inconsistent with market access and
national treatment for enhanced telecommunication services, by trading partner and mode of
supply.

Cross-industry commitments will also affect suppliers of enhanced telecommunication services
in the countries that made commitments on enhanced telecommunication services, namely
Argentina, Chile, Colombia, and Peru. Cross-industry restrictions most often pertain to the
establishment of a commercial presence and the movement of natural persons. Most subject
trading partners have restricted foreign firms’ market access by limiting investments in real
estate and by imposing performance criteria for establishing commercial presence. Cross-
industry restrictions regarding the movement of natural persons generally provide for the
employment of technical, executive, or managerial personnel from the home country as well as
intra-corporate transferees for a limited period of time. They also impose limits on the number
of foreign nationals employed. Among the subject trading partners, only Colombia lists a most-
favored-nation (MFN) exemption that applies directly to enhanced telecommunication services.

Five South American trading partners - Bolivia, Brazil, Paraguay, Uruguay, and Venezuela-
elected to offer no commitments on enhanced telecommunication services, leaving potential
restrictions on foreign service providers unbound. These nations may maintain or impose
restrictions on foreign firms at their discretion. However, the absence of commitments does not
necessarily mean that South American regulators deny foreign firms market access and national
treatment. For instance, in Venezuela, value-added telecommunication services are generally
unrestricted and even basic telecommunication services are being opened to foreign
participation,'> Similarly, it has recently been reported that Brazil allows foreign companies to
provide enhanced telecommunication services as long as the firms use the state monopoly carrier
to transmit those services.'* In addition, a 1991 law states that private sector firms with similar
communication needs may create and operate their own data transmission networks, telephone
networks, and satellite communication systems. Brazil also passed a law in July 1996 opening
cellular Band-B, satellite transmission, and enhanced telecommunication services to private

* Industry representatives, interviews by USITC staff, Washington, DC, Feb. 10 and 17, 1995, and
telephone interview by USITC staff, Feb. 28, 1995.

* Although enhanced telecommunication service suppliers historically have used
telecommunication trade agreements, international value-added network services agreements, and
regional agreements, such as the North American Free-Trade Agreement, to gain access to important
foreign markets, the United States does not have any such agreements with South American countries.

5 Venezuela’s state-owned telecommunication company is being managed by a consortium of
companies, including GTE and AT&T, that holds 49 percent of the equity.

*®USDOC, “Brazil, Value-Added Telecommunications Services,” Market Research Reports, Mar.
2, 1996.

4-4


APPENDIX A
REQUEST LETTER



Examination of Commitments on Architectural, Engineering,
and Construction Services

As noted, AEC services are principally supplied through sales by affiliates, although
architectural and engineering services are also delivered on a cross-border basis. Therefore,
limitations to commercial presence, such as investment restrictions, nationality requirements,
restricted access to local utilities and institutions, and restrictions on types of corporate entities,
all greatly affect the ability of U.S. firms to provide AEC services in foreign markets.
Moreover, residency and nationality requirements may discriminate against certain U.S. service
providers in foreign markets. Residency, nationality, or establishment requirements, and other
restrictions on the use of services supplied from abroad can also inhibit cross-border trade in
AEC services."® Barriers to these modes of delivery may be administered through government
regulators and/or private sector professional associations, and may also be industry-specific, or
apply across industries, such as foreign equity participation limits.” In summary, restrictions
on commercial presence, the presence of natural persons, and cross-border supply are significant
in light of the nature of trade in AEC services. Consumption abroad, in which the customer
crosses into a foreign country to receive the service, is not a typical mode of delivery for AEC
services.” Therefore, the following analysis will focus on commitments pertaining to
commercial presence, cross-border supply, and the presence of natural persons.

With respect to cross-border trade, AEC commitments by the subject countries are generally
restrictive, tending to limit market access and discriminate against foreign service providers
(table 8-1). However, with the exception of Bolivia, Paraguay, and Uruguay, all South
American countries under review offered some commitments in the AEC services sector as
discussed in the following sections. Argentina and Venezuela provided the best coverage of
AEC sectors, although they have opted to maintain certain limitations.

Examples of cross-border trade in AEC services include sending blueprints and designs via mail,
telephone, or other means across national boundaries.

© "Issues Paper (Note by the Secretariat)," OECD Workshop on Professional Services, Paris, Sept.
26-27, 1995, pp. 8-9.

2! Specific barriers to trade in AEC services include national prohibitions on competition; lack of
transparency; problems associated with recognition of diplomas, professional licensing, and
admission into national registers; competition from government and parastatal entities, subsidies and
other discriminatory financial arrangements; lack of adherence to a qualifications-based selection
process; and discriminatory guarantees, liability, and insurance requirements. "Engineering
Consultancy and Related Professions," OECD Workshop on Professional Services, Paris, Sept. 26-
27, 1994, pp. 9-13.

8-6


Concordance of industry classification--continued

GATT Secretariat's Services Sectoral Classification List

United Nations’ Provisional Central Product Classification
System (CPC)

F. Other business services

a) Advertising services

Group 871: Advertising services

2. COMMUNICATION SERVICES
B. Courier services
C. Telecommunication services

f) Facsimile services

h) Electronic mail

i) Voice mail

j) On-line information and data base retrieval
k) Electronic data interchange

|) Enhanced/value-added facsimile services (including
‘store and forward, store and retrieve)

m) Code and protocol conversion

n) On-line information and/or data processing (including
transaction processing)

D. Audiovisual services

a) Motion picture and video tape production and
distribution services

b} Motion picture projection service

c) Radio and television services
d) Radio and television transmission services

) Sound recording

f) Other

Class 7512: Courier services
Subclass 75121: Multi-modal courier services

Class 7521: Public telephone services

Class 7529: Other telecommunication services

Class 7523: Data and message transmission services
Class 7523: Data and message transmission services
Class 7523: Data and message transmission services
Class 7523: Data and message transmission services

Class 7523: Data and message transmission services

No corresponding CPC

Group 843: Data processing services

Class 9611: Motion picture and video tape production and
distribution services
Subclass 96112: Motion picture or video tape production
services

Class 9612: Motion picture projection services
Subclass 96121: Motion picture projection services

Class 9613; Radio and television services
Class 7524: Program transmission services

No corresponding CPC

No corresponding CPC

D-3





costs.?” However, the payment system and general commercial environment reportedly are in
such a poor state that it would be very difficult for a U.S. company to be profitable. Price
controls on pharmaceuticals create market distortions that have severely restricted supply,
facilities cannot afford medical equipment, and the system has not developed a means of sharing
resources. Consequently, the state-owned facilities have severely limited resources and
reportedly offer a poor level of care, but the privately-owned clinics are too expensive for
ordinary citizens.” The health insurance system also provides limited coverage with caps on
reimbursement, so only those with considerable wealth may receive the best level of care, and
these individuals may be more likely to travel to the United States to receive treatment.*”

Examination of Commitments on Health Care Services

As indicated in the previous section, trade in health care services principally transpires as
consumption abroad and sales by foreign affiliates. There are minimal limitations on
consumption abroad or on the cross-border supply of health care services.” The principal
barriers to trade in health care services are limitations on the establishment of a commercial
presence and the presence of natural persons.** Consequently, this section will focus on
examining foreign commitments pertaining to commercial presence and presence of natural
persons.

All the South American countries covered in this report continue to have measures that make
it difficult for U.S. health care companies to establish a commercial presence in their markets.**
Except for Bolivia, none of the subject South American countries scheduled GATS
commitmentsTM on any health care services and therefore have reserved the right to maintain,
change, or add trade restrictions in the future (table 6-1). All of the South

7” Industry representative, interview by USITC staff, Caracas, Venezuela, Aug. 13, 1996.

8 Toid.

® Industry representative, interview by USITC staff, Caracas, Venezuela, Aug. 12, 1996.

* Ibid.

*! Although some trading partners’ GATS commitments placed limitations on the cross-border
supply of health care services, U.S. industry officials indicate that barriers in that mode are minimal
and are not expected to significantly affect U.S. global competitiveness in the health care sector. U.S.
industry analysts and officials, telephone interviews by USITC staff, and interviews by USITC staff,
Washington, DC, Jan.-Mar. 1995.

» U.S. Government officials and industry representatives, in-person and telephone interviews by
USITC staff, Mar. 1995.

* Industry analysts and representatives, interviews by USITC staff, Washington, DC, Jan.-Mar.
1995; and Santa Monica, Long Beach, Fountain View, and Los Angeles, CA, Mar. 8-10 and June 12-
15, 1995.

* Paraguayan officials indicated to USITC staff that Peru did not offer commitments on health care
services because it had not completed the required studies or consulations needed in order to offer
commitments in health care services. Rigoberto Gauto, Minister of Business Commission,
Government of Paraguay, Permanent Mission of Paraguay, Geneva, in letter to USITC staff dated July
17, 1996.

6-7




Juridical person: Any legal entity duly constituted or otherwise organized under applicable law,
whether for profit or otherwise, and whether privately- or governmentally-owned. Juridical persons
include any corporation, trust, partnership, joint venture, sole proprietorship, or association. Branches
and representative offices are not included.

Limitations on market access: The column on a country’s GATS schedule that lists the restrictions on
specific modes of supply (cross-border supply, consumption abroad, commercial presence, or presence of
natural persons) that apply to conducting a services business in the Member country for the given sector
or subsector.

Limitations on national treatment: The column on a Member's GATS schedule that lists the
restrictions on specific modes of supply (cross-border supply, consumption abroad, commercial presence,
or presence of natural persons) that apply to how foreign services companies are treated in comparison to
domestic ones in a given sector or subsector.

Measure: A law, regulation, rule, procedure, decision, or administrative action that affects trade in
services. Measures may pertain to: (1) the purchase of, payment for, or use of a service; (2) a service
supplier's access to, and use of, services which are available to the general public; and (3) a service
supplier's ability to establish a presence, including a commercial presence, in a host country.

Modes of supply: Means of delivering services to foreign consumers. Modes of supply are defined on
the basis of the origins of the service supplier and consumer, and the degree and type of territorial
presence which they have at the moment that the service is delivered. There are four modes of supply:
(1) cross-border supply; (2) consumption abroad; (3) commercial presence; and (4) presence of natural
persons. See definitions of each for more information.

Most-Favored-Nation (MFN): Trading status accorded to a nation wherein the terms and conditions of
trade with that nation are as favorable as those granted any other nation. The MFN obligation in Article
Il of the GATS states that the most favorable treatment actually accorded in all sectors, whether the
subject of a commitment or not, must also be accorded to all other Members.

Most-Favored-Nation (MFN) exemption: Specific exceptions to the MFN obligation are included in
each Member’s "List of MFN Exemptions."

National treatment: Treatment of a foreign service supplier that is no less favorable than that accorded
to domestic service suppliers.

Natural person: A person who is a national of a country under the law of that country (c.g., persons
eligible to hold a passport of that country), or in the case of a country which does not have nationals (¢.g.,
territories), a person who has the right of permanent residence under the law of that country.

Partial commitment: This is recorded in the national schedule of a country that wishes to impose some
limits on market access or national treatment in a given sector and mode of supply. Unless otherwise
stated, the limitations presented in the national schedule are the only limitations that apply to a specific
mode of supplying the service.

C-3


initially stay in Peru for 3 years, and extend their stays in 3-year increments thereafter. In this
sense, Peru appears more liberal than Argentina and Brazil.

Industry Opinion

Distribution service firms generally approve of the results of the Uruguay Round. Reductions
in tariff levels likely will increase sales volume and profitability for all distribution service
providers,” and anticipated improvements in intellectual property protection may benefit
retailers and franchisors that rely heavily on trademarks or brand names. Industry
representatives also regard the inclusion of distribution services in the General Agreement on
Trade in Services as a step forward by clarifying existing barriers and providing a forum for
future liberalization.

Nevertheless, distribution service organizations believe that considerable work remains to be
done.” In particular, industry representatives allege that nontransparent barriers persist, such
as variable administrative fees, inconsistently applied customs clearance procedures, and
administrative inexperience regulating distribution systems in newly privatized industries.”
USS. firms also report that they have experienced myriad ad hoc taxes and irregular procedures
at national borders in recent years.”

According to industry representatives, the lack of adequate intellectual property protection
remains a serious concern with respect to most countries examined in this report, although they
are encouraged by recent efforts by countries such as Brazil to improve enforcement. The
revenue loss as a result of infringement on intellectual property rights amounts to many
millions of dollars for U.S. producers and foreign affiliates of U.S. retailers. Accordingly,
the USTR has added Argentina to its “priority watch list” and Brazil, Chile, Colombia,
Paraguay, Peru, and Venezuela have been placed on the “watch list” under the Special 301
provision of the Trade Act of 1974. Most South American countries are described as falling

* Tn contrast to most services discussed in this report, distribution services have a very close
relationship with trade in goods due to their primary functions of sourcing, transporting, and
merchandising goods.

* Industry representative, telephone interview by USITC staff, June 5, 1996,

6 Industry representatives, interviews by USITC staff, Sao Paulo, Brazil, and Caracas, Venezuela,
Aug. 8-11, 1996.

TM Industry representative, telephone interview by USITC staff, June 5, 1996.

8 “Fistimated Trade Losses Due to Piracy of U.S. Copyrighted Works in 97 Countries (1994)”
(Washington, DC: International Intellectual Property Alliance, Dec. 1995).

» USTR, “Fact Sheet -- ‘Special 301' on Intellectual Property Rights,” May 2, 1996. The “Special
301" provision requires the USTR to determine whether the acts, policies, and practices of foreign
countries deny adequate and effective protection of intellectual property rights or fair and equitable
access for U.S. persons who rely on IPR protection.

3-12


of supply are left unbound, with some exceptions to accommodate the presence of selected
natural persons. With respect to advertising services provided through a commercial presence,
Peru levies duties and requires payment guarantees for commercial advertising produced.
abroad and transmitted into the country. As for the presence of natural persons, Peru permits
entry and stay for up to two consecutive 3-year periods. Foreign nationals may not constitute
more than 20 percent of the employees of an enterprise and their combined earnings may not
exceed 30 percent of the total payroll. Some exceptions may be made to the percentage
requirements with respect to senior managers or specialized personnel.

Venezuela

Venezuela’s commitments on advertising services are limited to the supply of planning,
creating and placement services. Other advertising services are not addressed, suggesting that
restrictions on such services are unbound. Venezuela’s schedule provides full market access
and national treatment for advertising services supplied through consumption abroad or
through a commercial presence. With respect to cross-border supply, the only limitation is that
foreign firms must retain local legal representation. Venezuela left restrictions concerning the
presence of natural persons unbound except for senior administrative staff, managers, and
specialists. These types of staff are permitted to stay in Venezuela for a renewable period of
one-year. However, they may not constitute more than 10 percent of the number of employees
of any enterprise and their remuneration may not exceed 20 percent of the total payroll. In
addition, selected positions are reserved for Venezuelan nationals, such as the director of
personnel and supervisors, subject to some exceptions.

Industry Opinion

Industry representatives indicate that they do not experience any barriers to doing business in
South America that are so severe as to significantly impede their activities. Chile reportedly
has the least restrictive market, however, other South American markets are not perceived as
being substantially more restrictive.’* Nevertheless, industry sources indicated that some
regulatory measures do impede their ability to function optimally. For example, Argentina,
Brazil, Paraguay, Peru, and Venezuela all require the use of local talent in the production of
television commercials, and Argentina requires the use of “certified” television announcers
with regulated salaries.'? Such requirements limit the ability of advertising agencies to use
films produced abroad and to select talent freely. In addition, Argentina and Brazil restrict
comparative advertising, while Colombia taxes television commercials at different rates for
foreign or mixed foreign-local productions.'*

” Industry representative, telephone interview by USITC staff, Washington, DC, May 31, 1996.
8 Industry representatives, telephone interviews by USITC staff, May 3 and May 23, 1996.
‘ Industry representatives, telephone interviews by USITC staff, May 23 and May 31, 1996.

9-9


Figure 4-1
Cross-border trade in enhanced telecommunication services: U.S. exports and
imports, 1986 and 1991

Million dollars
(1 Exports Imports

70

60

30

20

1986 1991

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Oct. 1988, and
Sept. 1992

Examination of Commitments on Enhanced
Telecommunication Services

As noted, enhanced telecommunication services are either supplied to foreign consumers across
borders or through a foreign commercial presence. Some of the major impediments in foreign
markets affecting these delivery channels include restrictive licensing requirements;"' explicit
prohibitions on the provision of certain services; limitations on foreign ownership and
participation in joint ventures; discriminatory access to, and non cost-based pricing"? of, leased

TM To guard against potential bottlenecks posed by foreign public telecommunication network
carriers, the GATS, through provisions outlined in the Telecommunications Annex, ensures a
signatory member “access to and use of public telecommunication transport networks and services”
when such services or facilities are required to supply a service included in its national schedule.
Under the terms of the Annex, firms must be provided access on “reasonable and nondiscriminatory
terms and conditions,” but the annex does not impose disciplines in this area.

” Cost-based pricing involves adding a moderate rate of return to the actual cost of providing the
service.

43


CALENDAR OF PUBLIC HEARINGS

Those listed below appeared as witnesses at the United States International Trade
Commission’s hearing:

Subject : GENERAL AGREEMENT ON TRADE IN
SERVICES: EXAMINATION OF SOUTH
AMERICAN TRADING PARTNERS’
SCHEDULES OF COMMITMENTS

Inv. No. : 332-367

Date and Time : July 18, 1996 - 9:30 a.m.

Sessions were held in connection with the investigation in the Main hearing room
101, 500 E Street, S.W., Washington, D.C.

ORGANIZATION AND WITNESS

PANEL 1
The Freeman Company, Chevy Chase, Maryland

Harry L. Freeman, President

PANEL 2
Stewart and Stewart
Washington, D.C.
on behalf of
Federal Express Corporation, Memphis, TN

Warren A. Goff, Managing Attorney, International
Regulatory Affairs

Jimmie V. Reyna--OF COUNSEL

-MORE-

G2


Figure 12-3
Travel and tourism transactions by majority-owned affiliates: U.S. exports, imports,
and trade balance, 1990-93

Billion dollars

: 1 Exports Imports Balance

5

4

3

2

1

0)

“1

2 —

3

4 1 1 1 T
1990 1991 1992 1993

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1992,
Sept. 1994, and Sept. 1995.

Figure 12-4
Travel and tourism exports: Sales by majority-owned affiliates of U.S. firms, by
principal markets, 1993

. ‘
oe Latin America
oe 25.0%

19.7%

Total = $1.9 billion

‘Includes the Caribbean region.
? Includes Africa, the Middle East, and Asian and Pacific countries.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

12-4


considerably short of provisions under the World Trade Organization’s Trade-Related Aspects
of Intellectual Property Rights.°°

Investment barriers have been lowered significantly in recent years in many South American.
countries, such as in Argentina as a result of its bilateral investment treaty with the United
States that took effect in October 1994. Problems remain in certain other countries, like
Venezuela, where U.S. firms experienced delays in payments to suppliers of imported goods
during 1995-96 due to the imposition of foreign exchange controls. The lingering issue is
whether U.S. firms will have to pay suppliers with currency that was substantially devalued
upon the removal of exchange controls.*!

On balance, industry representatives operating in South American markets indicate relatively
less concern over restrictions to market access and greater concern over anticompetitive
practices, removal of restrictions on communication services, and on the need for
improvements to roads, ports, and airports in order to expedite distribution of goods and
services.

Summary

The three South American countries that made commitments on distribution services generally
permit market access and national treatment for U.S. distribution service firms that establish
a commercial presence. Limitations regarding the temporary entry and stay of foreign
nationals could affect distribution service firms by placing some restraints on staffing and
management. However, these limitations do not appear to be so severe as to preclude
establishment or operations.

An examination of the schedules of commitments suggests that Peru is somewhat more
restrictive and Argentina relatively less restrictive for distribution services. Industry
representatives, however, indicate that, prior to the removal of foreign exchange controls, they
perceived Venezuela to be the most restrictive subject country. Many industry sources note
that, contrasted with earlier periods, the early- to mid-1990s mark a watershed of reduced
barriers to distribution services in South America. They expect the future to be an era of
unprecedented opportunity for expansion, especially in Chile, which some hold is the least
restrictive market in the region.>*

The commitments on distribution services scheduled by South American trading partners
generally do not serve the purposes of providing benchmarks and improving transparency,
primarily because two thirds of the subject countries did not make any commitments. Among

3°U.S. Senate, Committee on Foreign Relations, Committee on Finance, and U.S. House,
Committee on International Relations, Committee on Ways and Means, report submitted by U.S.
Department of State, “Country Reports on Economic Policy and Trade Practices,” (Washington, DC:
GPO, 1996), pp. 319-443.

*! Industry representative, telephone interview by USITC staff, June 5, 1996, and industry
representative, interview by USITC staff, Caracas, Venezuela, Aug. 13, 1996.

* Industry representatives, telephone interviews by USITC staff, June 5, 1996.

3-13


Distribution services
Avon Products
Brownstein, Zeidman, and Lore
Home Depot
International Franchise Association
International Mass Retail Association

J.C. Penney

Liz Claiborne

Wal-Mart

Enhanced Telecommunication services
AT&T
COMSAT
Electronic Data Systems (EDS)
Lockheed Martin
MCI
Sprint International/Global One

Health Care services
American Hospital Association
Beverly Enterprises
Charter Medical
Columbia/HCA Healthcare
Federation of American Health Systems
Hillhaven
Humana
Johns Hopkins University Hospital
Manor Healthcare
Massachusetts General Hospital
Mayo Clinic
Pacific Health
Paracelsus Healthcare
Pro Salud, Venezuela
Tenet Healthcare
UCLA Medical Center

H-3


Summary

will positively affect health care personnel. In addition, no cross-industry commitments
address the temporary entry and stay of independent (not associated with a corporation) health
care providers. Finally, Venezuela listed an MFN exemption with respect to professional
services, which includes services provided by physicians, veterinary surgeons, and pharmacists.
The exemption permits Venezuela to employ the principle of reciprocity in its treatment of
foreign professionals.

Cross-border exports should represent a growing portion of total health care service trade as
incomes rise and travel to the United States increases.” However, the most significant
opportunities for expanded health care service exports stem from the potential liberalization
of rules and regulations that presently place limitations on the provision of health care services
through both commercial presence and the presence of natural persons.

The GATS commitments in the health care sector made by Bolivia will likely be of limited
value to the U.S. health care industry due to the lack of potential demand in that market.
Further, since none of the other subject South American countries made any commitments in
this area, their schedules provide no effective benchmarks and no improvements in terms of
transparency.

“| Industry representatives, telephone interviews and in-person interviews by USITC staff,
Washington, DC, Jan.-Mar. 1995.

6-10


accounting credentials and the removal of exchange restrictions.'> However, international
accounting professionals are optimistic that through the activities of the Working Party on
Professional Services, established in April 1994, the accounting profession and governments
will coordinate domestic regulations on licensing credentials, recognition, and other
professional standards.'* Thus far, the working party has held four meetings, with additional
meetings scheduled for later in 1996. A considerable amount of time has been devoted to the
collection of data and analysis of regulation in the accounting sector. In the January 1996
meeting of the working party, a non-exhaustive list was compiled of priority issues for further
consideration in later meetings.'° Such issues included qualification requirements, licensing
requirements, regulations on the establishment of commercial presence, nationality and
residency requirements, professional liability and ethics, the temporary entry of natural
persons, guidelines for the recognition of qualifications, and international accounting
standards.

In the view of accounting executives operating in South America, the business climate there
for accounting firms has improved significantly during the past decade as nations have
liberalized their economies in order to attract foreign capital. As the environment for business
in these markets improves, U.S. multinational accounting firms can be expected to continue
increasing their participation.'® U.S. firms presently operate in virtually all South American
markets and it appears that, with few exceptions, restrictions in South America are no more
severe than those in other world markets. Chile, Colombia, and Brazil are said to be among
the least restrictive South American nations in terms of allowing entry to foreign multinational
accounting firms.

According to some members of the U.S. accounting industry, South American nations did not
go far enough in their GATS commitments to dismantle regulatory restrictions. Three nations
failed to offer any commitments at all while the commitments that were offered by the other
nations were simply standstill agreements that froze in place existing restrictions.!” Finally,
few subject trading nations offered commitments on auditing, taxation, computer-related
services, and management consulting, areas of increasing activity for major integrated
accounting firms. However, industry members still viewed the adoption of the accounting
commitments positively given the rapid economic development that has occurred within many
of these economies in recent years and the efforts of the accounting industry in South America
to accommodate itself to these changes. Industry sources hope that South American markets

3 John Hegarty, “GATS: A Chance to Take the Lead,” Accountancy, Feb. 1994, pp. 72-73 and
representatives of European accounting industry, FEE, telephone interview by USITC staff,
Washington, DC, Mar. 25, 1995.

* Organization for Economic Co-operation and Development (OECD) representative, interview
by USITC staff, Paris, July 19, 1995; and industry representative, interview by USITC staff,
Washington, DC, Mar. 25, 1995,

'S Leonora de Sola Saurel, “The WTO Working Party on Professional Services: Tackling Domestic
Regulatory Barriers to Trade,” CSI Reports: Occasional Paper (Coalition of Service Industries),
Mar. 1996.

‘6 Industry representative, telephone interview by USITC staff, Washington, DC, May 2, 1996.

1 John F. Gay, Andersen Worldwide Inc., testimony before the USITC, July 18, 1996.

7-10


Figure 3-5
Retail trade transactions by majority-owned affiliates: U.S. exports, imports, and
trade balance, 1990-93

Million dollars
CI exports ZY imports

1200

Balance

1000

800

600

400

200

-200 OO

-400 T : ; ee

T
1990 1991 1992 1993

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Bushess, Sept. 1992,
Sept. 1994, and Sept. 1995.

The primary commercial presence and natural person barriers to trade in distribution services
include limitations on the purchase of real estate, restrictions on equity holdings, product or
service exclusions due to state monopolies or national interest, nationality quotas, residence
Tequirements, and limitations on the length of stay of foreign nationals. With the exception of
real estate limitations, which appear only as cross-industry restrictions, trade barriers to
distribution services may appear in the schedules as either cross-industry restrictions or
industry-specific restrictions, depending upon how each country completed its schedule.”

° For detailed information on the cross-industry commitments, see appendix E. In addition, general
exemptions to most-favored-nation treatment are listed in appendix F.

3-7


Figure 11-2
Land transportation services: U.S. cross-border exports, by principal markets, 1994

Canada

58.9%

‘South & Central Ameriea
7.0%

Total = $3.2 billlon

* Principally includes the Middle East, Africa, and the Caribbean.
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Bushess, Sept. 1995.

Sales by Majority-Owned Affiliates

Data for sales by majority-owned affiliates are available only in a highly aggregated form. Sales
of all transportation services to foreign persons by majority-owned foreign affiliates of U.S.
companies totaled $6.8 billion in 1993.° This includes receipts for air and maritime
transportation. For the purposes of this study, the portion of this figure attributable to land
transportation is estimated at less than $350 million in 1993.’ Imports of all transportation
services (including air and maritime) through sales by majority-owned U.S. affiliates of foreign
companies totaled approximately $9.0 billion in 1993. Country or regional breakouts are not
available because certain data have been suppressed to avoid disclosing confidential
information. The trade deficit in affiliate sales of all transportation services reached $2.3 billion
in 1993, down from $2.8 billion in 1989.

° USDOC, BEA, Survey of Current Business, Sept. 1995, p. 104.
TUSITC staff estimate.

11-3


Examination of Commitments on Advertising Services

Advertising is overwhelmingly produced in the country for which it is intended. As noted, U.S.
advertising firms mainly provide advertising services to overseas clients through foreign-based
affiliates. U.S. advertising firms also depend upon their ability to move personnel around the
world to establish new offices, manage affiliates, or provide client-specific services, making
restrictions on the temporary entry and stay of personnel especially burdensome. The types of
employees most commonly transferred include managers, account executives, and creative
personnel. Other significant trade barriers in advertising services may include local content
requirements and other import restrictions on foreign-produced commercials, caps on foreign
ownership and investment, and limitations on remittances of commissions and fees.

The commitments scheduled by South American trading partners reveal some limitations on the
important modes of supply for advertising services (table 9-1). In cross-industry commitments,
all subject countries left unbound restrictions on the presence of natural persons, except for
various measures affecting managers, senior executives, and creative personnel.'® With respect
to industry-specific commitments, Brazil and Peru listed various limitations on establishing a
commercial presence. Bolivia, Chile, Colombia, Paraguay and Uruguay did not offer any
commitments on advertising services.

Argentina

Argentina’s sector-specific commitments on advertising services provide for full market access
and national treatment for all modes of supply except for the presence of natural persons. As
stated, cross-industry limitations on the presence of natural persons were left unbound except
for measures affecting managers, executives, and specialists. In addition, Argentina declined
to specify the length of stay permissible for foreign business persons, thereby retaining
considerable discretion in this respect. Argentina also scheduled limitations applicable to all
services industries on the acquisition of land within 150 km of the national frontier and 50 km
of coastal areas, but these restrictions do not present a substantial obstacle to foreign advertising
firms.

° P.W.A. Daniels, “The Internationalization of Advertising Services,” The Service Industries
Journal, vol. 15, No. 3 (London: Frank Cass, July 1995), p. 288.
*° See appendix E for a detailed presentation of cross-industry commitments.

9-5


Examination of Commitments on Legal Services

Bolivia, Brazil, Paraguay, Peru, and Uruguay scheduled no commitments pertaining to legal
services, and thus may impose restrictions on market access or national treatment in the future
without penalty. However, it is possible that some of these countries have no current legal or
regulatory restrictions on the importation of legal services and no plans to impose such
restrictions. Brazil, for example, reportedly showed considerable interest in including legal
services in its WTO schedule earlier in the Uruguay Round negotiations, but later dropped its
interest and scheduled no commitments.’ Conversely, Argentina, Chile, Colombia, and
Venezuela did schedule commitments pertaining to legal services (table 10-1).

For cross-border legal services, advances in telecommunications have made seeking legal advice
much simpler, and for practical purposes it is nearly impossible for governments to limit or
prevent the reception of such advice or legal documents.'® Rather, the greater concern within
the U.S. legal community regards restrictions on establishing legal offices abroad for the
purposes of rendering advice as a foreign legal consultant. Such restrictions, for example, can
keep foreign firms from establishing an office with a local member of the bar. The legal
profession reportedly encounters nontariff barriers such as restrictions on the movement of
professional, managerial, and technical personnel; discrimination in the licensing process; and
the lack of recognition of foreign qualifications."!

Commitments scheduled by the subject trading partners are most importantly restrictive with
respect to commercial presence. In addition, all subject trading partners left limitations
regarding the presence of natural persons unbound.’? However, cross-industry commitments
regarding the temporary entry and stay of natural persons provide important exemptions to these
restrictions in certain instances.

° USTR official, telephone interview by USITC staff, May 3, 1996.

° See Peter D. Ehrenhaft, Esquire, testimony before the USITC, June 7, 1995.

“ USDOC, ITA, Benefit to Service Industries of the General Agreement on Trade in Services
(Washington, DC: GPO, 1994), p. 14.

An unbound commitment allows a country to maintain or impose measures that are inconsistent
with market access and national treatment.

10-4


Legal services
American Bar Association
Baker and McKenzie
Bryan Cave
Morgan, Lewis, and Bockius
White and Case
Donovan, Leisure, Newton and Irvine
LeBoeuf, Lamb, Greene & MacRae
Oppenheimer, Wolff & Donnelly

Transportation services
American Association of Port Authorities
American Trucking Associations
Association of American Railroads
National Customs Brokers and Forwarders Association of America
Railway Progress Institute

Travel and Tourism services
American Hotel and Motel Association
American Society of Travel Agents
Federation of Hotels, Restaurants, Bars and Similar Establishments of the State of Sao Paulo, Brazil
HFA Hospitality
The Jefferson Group
Sabre Venezuela
US. Tour Operators Association
United Airlines

General
American Chamber of Commerce, Sao Paulo, Brazil
Coalition of Service Industries
Commercial Federation of the State of Sao Paulo, Brazil
Economic Institute of the Commercial Association of Sao Paulo, Brazil
U.S. Chamber of Commerce
Venezuelan-American Chamber of Commerce, Caracas, Venezuela

H-4


CHAPTER 11
Land Transportation Services’

Introduction

For the purpose of this study, transportation services are defined as: road transportation (both
passenger and freight); railroad transportation (both passenger and freight); other
transportation, such as pipeline transportation; auxiliary freight services, such as warehousing
and the arrangement of transportation of freight and cargo; and other auxiliary services.” This
report does not address air or maritime transportation services.* Air transport agreements
continue to be bilaterally negotiated, and the GATS does not yet include a formal maritime
agreement.

Nature of International Trade in Land Transportation
Services

International trade in land transportation services comprises both cross-border transactions and
sales by affiliates.‘ The nature of the transportation service to be provided usually determines
the mode of delivery that is used. For some types of transportation services, geographic
proximity (to the United States) determines whether or not a permanent commercial presence
is required to provide the services. For example, a U.S. trucking firm would find it difficult to
provide transportation in Brazil without a commercial presence there. However, a U.S. trucker
could provide transportation to Canada with or without a commercial presence in that country.

* Among the individuals consulted by USITC staff in the preparation of this report were those
affiliated with the following organizations: the American Trucking Association; the Association of
American Railroads; the Railway Progress Institute; the American Association of Port Authorities; the
Federal Railroad Administration; the Federal Highway Administration; and the Census Bureau and
the Bureau of Economic Analysis (BEA), U.S. Department of Commerce (USDOC).

? The corresponding U.S. Standard Industrial Classification codes are 40, railroad transportation;
41, local and suburban transit and interurban highway passenger transportation; 42, motor freight
transportation and warehousing; 46, pipelines, except natural gas; 4731, arrangement of
transportation of freight and cargo; 4741, rental of railroad cars; parts of 4785, fixed facilities and
inspection and weighing services for motor vehicle transportation; and parts of 4922, natural gas
transmission.

> These sectors were not included in the study request (appendix A).

* Itis possible that the goods transported never enter the country exporting and/or the country
importing the service. For example, a service provider in country A (the exporter of the service) may
have a contract with a firm in country B (the importer of the service) to transport goods from country
C to country D.


along vast beaches.”° In certain markets, an emerging South American middle class with
greater discretionary income and incentive to travel is expected to buoy growth in such services
especially within South America but also to destinations outside the region. Industry sources
regard lower- to mid-priced hotel chains as a major area for future growth, as indigenous South
American chains have few such properties and U.S. hotel companies primarily have built 4-
and 5-star luxury hotels.” Collateral improvements in infrastructure such as roads are
considered important to sustaining tourism growth.” In certain South American countries,
travel to other countries including the United States is considered easier and more affordable
than travel within the country.”

Summary

Travel and tourism services are reasonably unimpeded with respect to trade barriers, including
those on foreign investment and personal freedom to travel and pay for such services, when
compared to most other service industries. Argentina, Chile, Paraguay, and Uruguay
committed to full market access and national treatment for all travel and tourism services with
respect to consumption abroad, which is uppermost in importance to trade in such services.
In contrast, Brazil and Peru left market access and national treatment unbound with respect to
consumption abroad.

Only three countries placed commercial presence restrictions on lodging services. Similar
restrictions on food and beverage services were slightly more prevalent, especially on beverage
services, which were left unbound by three countries that had nevertheless bound commitments
on food services. Tourist guide services received the fewest commitments of all the travel and
tourism services, as five countries left restrictions on tourist guide services unbound for all
modes of supply.

In general, regulatory transparency appears to be partially accomplished, but lack of clarity in
administrative procedures and changing regulatory measures present problems for certain
subsectors in travel and tourism services. Overall, the goal of benchmarking was substantially
achieved with regard to the schedules of Argentina, Chile, and Uruguay, moderately achieved
in relation to Bolivia, Colombia, Paraguay, and Venezuela, and mostly lacking in the case of
Brazil and Peru.

°° Industry representatives, interview by USITC staff, Sao Paulo, Brazil, Aug. 9, 1996, and
telephone interview by USITC staff, June 10, 1996. See also, USDOC, International Trade
Administration, “Argentina - Tourism Services,” market research report, Apr. 19, 1995, National
Trade Data Bank, and, “Tourism - New Directions,” Latin Trade, Mar. 1996, pp. 36, 38.

*! Industry representative, interview by USITC staff, Sao Paulo, Brazil, Aug. 9, 1996.

® Industry representatives, telephone interviews by USITC staff, June 1996.

* Industry representative, interview by USITC staff, Sao Paulo, Brazil, Aug. 9, 1996.

12-17


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13-3


U.S. International Trade Commission

Washington, DC 20436

General Agreement on Trade in Services:
Examination of South American Trading
Partners’ Schedules of Commitments

Publication 3007 December 1996


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12-11


U.S. industry sources have also remarked that government procurement procedures lack
sufficient transparency and standardization. As a result, U.S. firms often find themselves at
a disadvantage when bidding against firms from Europe and Asia that are not subject to the
standards established by the Foreign Corrupt Practices Act. The development of national
procurement codes with standardized procedures would enhance U.S. firms’ prospects in many
of these markets. In addition, U.S. industry representatives have noted that bureaucratic
practices virtually demand that foreign firms affiliate with a local partner who can be effective
when dealing with administrative issues and maintaining working relationships with
government and industry representatives. While such arrangements often are commercially
appropriate, they also may increase costs and diminish the level of control exercised by U.S.
firms.”

Although South American markets may hold the prospect of greater opportunities for U.S.
services providers, the small size of some of these markets could mitigate U.S. involvement.
The level of U.S. participation in these markets will likely reflect, in part, the openness of
economically important industrial sectors, such as mining, petroleum, and infrastructure.**

In response to concerns of various service industries on the international recognition of
credentials, the World Trade Organization (WTO) established the Working Party on
Professional Services in April 1994. The working party will first look at the accounting
industry, but it is expected that the group will eventually explore mutual recognition of
architectural and engineering qualifications.*®

Summary

Despite the commitments offered by many South American countries in the AEC services
sector, this market remains relatively restricted. Less than one-third of possible schedule
entries were covered by full or partial commitments, and only about one-sixth of all
commitments bind full market access and national treatment. Because sales by affiliates is the
predominant mode of delivery for AEC services, commitments to liberalize commercial
presence and the presence of natural persons have the greatest effect on AEC services trade.
However, these modes of supply are subject to limitations in a majority of the South American
countries under review.

In addition, commitments were often applicable to a narrow portion of the AEC sector, with
significant AEC services excluded from coverage. The industry sector with the fewest
commitments from the South American countries under review was integrated engineering
services, which only Venezuela addressed. Special trade construction work, building

*” Industry representatives, interviews by USITC staff in Washington, DC, Aug. 15, 1996, and
Caracas, Venezuela, Aug. 12, 1996.

* Industry representative, interview by USITC staff, Washington, DC, Aug. 15, 1996.

* EU Commission official, interviews by USITC staff, Brussels, July 19, 1995; OECD
representatives, interviews by USITC staff, Paris, July 19, 1995; and WTO officials, interviews by
USITC staff, Geneva, July 24-25, 1995.

8-16


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5-4


(U.S.); BT Tymnet (U.K.); SITA, an airline consortium; SprintNet (U.S.); IBM Information
Network (U.S.); AT&T (U.S.); and CompuServe (U.S.).

As users of basic telecommunication services, providers of enhanced services may benefit from
ongoing WTO negotiations pertaining to basic telecommunication services,’ scheduled to
conclude February 15, 1997.° Principal objectives of these talks are the liberalization of
restrictions pertaining to foreign investment and service provision and establishment of pro-
competitive regulatory environments. Currently, restrictions on foreign investment and
provision of basic telecommunication services limit opportunitics for enhanced
telecommunication firms since many prospective clients favor companies that are authorized to
provide both basic voice services and enhanced services. Enhanced telecommunication firms
also may benefit if extended negotiations reduce prices and improve other terms and conditions
of access to network infrastructure. Leases that allow lessees to share circuits and resell excess

capacity, for instance, significantly reduce the costs of constructing private telecommunication
networks.”

U.S. Government surveys completed in 1986 and 1991 provide aggregate data pertaining to
cross-border supply of enhanced telecommunication services. The data are not broken out by
country. In 1986, the survey reported that the United States registered a trade surplus in
enhanced telecommunication services of $31 million. This figure rose substantially over the
next 5 years, to $60 million in 1991. In both years, trade in this sector represented less than
1 percent of overall international service trade flows.* While the U.S. surplus in enhanced
telecommunication services increased markedly during this 5-year period, imports grew faster,
rising by nearly 900 percent (figure 4-1). Data pertaining to foreign affiliate sales are not
available.

Consequently, it is not known with certainty whether cross-border trade or sales by affiliates is
larger. With respect to South America, it is estimated that the market for enhanced
telecommunication services increased by more than 10 percent in 1993.’ Brazil represents the
largest South American market, with sales revenues expected to have reached $280 million in
1995.1

* Basic telecommunication services entail the straightforward transmission of voice and data
without change in form or content.

* U.S. Department of State Telegram, “WTO Basic Telecom Negotiations: Extension Until 1997,”
message reference No. 3124, prepared by U.S. Mission, Geneva, May 1996.

© Industry representative, telephone interview by USITC staff, Feb. 28, 1995.

” Industry representative, interview by USITC staff, Washington, DC, Feb. 17, 1995.

* USDOC, BEA, Survey of Current Business, Oct. 1988, pp. 27-29, and Sept. 1992, p. 84.

° Dr. Pekka Tarjanne, Secretary-General, International Telecommunication Union, Keynote
Address, Tenth Anniversary and Eleventh Annual Conference and Trade Exhibition, Caribbean
Association of National Telecommunications Organizations (CANT), June 5, 1995.

© USDOC, “Brazil - Value Added Telecommunications Services,” Market Research Reports,
Mar. 2, 1996.

42


The Honorable Peter S. Watson
Page 2

The Commission is requested to deliver this report no Ister.than December 13, 1996.
Discussions regarding the feasibility and timing of an additional follow-on report examining
commirments pertaining to the services mentioned above in Australia. Hong Kong, India,

held upon delivery of this report.

It is the intent of this office to make the Commission's reports available to the general public in
The Commission's assistance in this matte? is greatly appreciated.

Ys

A-3


Argentina

Argentina scheduled more full and partial commitments regarding AEC services than any other
South American trading partner. These commitments expand market prospects and improve
the treatment of Argentine-based U.S. affiliates. Trade restrictions remain unbound only with
respect to integrated engineering services and general construction work for civil engineering.
Argentina scheduled no restrictions specific to other AEC services when they are provided
across borders or through commercial presence, although the Argentine schedule does indicate
that foreign providers of professional services must obtain recognition of their credentials,
enroll in relevant colleges, and establish a legal residence in Argentina. Argentina declined to
specify permissible lengths of stay for foreign business persons, thereby preserving broad
discretion with respect to regulating inbound flows of most foreign AEC service providers.

Brazil

Brazil scheduled commitments on commercial presence and the presence of natural persons
only, and only for certain segments of the AEC services industry. Engineering services
excluded from these commitments -- and therefore subject to unbound restrictions -- are
miscellaneous engineering design services and other engineering services during construction
and installation phases (CPC codes 86726 and 86727, respectively).

Industry-specific commitments require that foreign architectural and engineering firms
establish a commercial presence by forming a legal entity called a consércio,” in which a
Brazilian partner maintains leadership. Other forms of joint ventures are not permissible.
Other industry-specific commitments restrict foreign firms’ current access to certain
construction service sectors.” Providers of these specific AEC services will be granted access
to the Brazilian market in the year 2000, at which point they will receive the same treatment
as domestic firms.

Cross-industry restrictions on commercial presence also affect foreign provision of these AEC
services. Investment restrictions require that all foreign capital invested in Brazil be registered
with the Central Bank of Brazil to be eligible for remittances. The Central Bank establishes
the procedures related to remittances and transfer of funds abroad. In addition, foreign service
suppliers seeking juridical person status must be organized as a legal entity under Brazilian
law.

? A consorcio is a form of joint venture that is used mainly to render services. This joint venture
type is neither a juridical person nor a form of capital association. It is a contract of two or more
enterprises for the accomplishment of one specific undertaking. Each joint venture member maintains
its respective organizational structure and identity.

* These sectors include pre-erection work at construction sites, general construction work for
buildings and civil engineering, assembly and erection of prefabricated constructions, and installation
work. Brazil’s schedule does not list commitments specific to several other construction sectors,
thereby permitting the application of unbound trade restrictions (see table 8-1).

* Brazil reportedly delayed its commitments on these AEC services in response to the U.S.
position of maintaining relatively high tariffs on imports of orange juice. Brazil Foreign Ministry
representative, interview by USITC staff, Brasilia, Brazil, Aug. 6, 1996.

8-11




An additional complicating factor is that the schedules do not reflect all of the service sectors
addressed during negotiations. The GATS employed a “positive listing” approach that required
countries to list in their national schedules only those sectors in which they accord foreign
service providers either market access or national treatment with respect to at least one mode
of supply. Thus, if'a signatory offered no market access or national treatment commitment for
any mode of supply within a sector, then that sector does not appear in its national schedule and
trade impediments remain unbound. As such, signatories may impose new or additional trade
restrictions pertaining to this sector in the future. On the other hand, once a country has made
a partial or full commitment to provide foreign firms with market access or national treatment
in a specific service sector, then that sector is listed in that country’s national schedule.

Most commitments that were submitted by individual countries are, essentially, standstill
commitments; i.¢., a continuation of current policies with promises not to impose additional or

new trade restrictions in the future.”" Although standstill commitments do not liberalize trade,
they meet important objectives of the first round of GATS negotiations. Standstill
commitments establish benchmarks that identify trade impediments and impose limits on the
restrictions specific to an industry. In addition, standstill commitments enhance the
transparency, or clarity, of existing restrictions by listing current regulations.

Annexes and Ministerial Decisions

Eight annexes are attached to the GATS and form an integral part of the agreement. For the
purpose of this discussion, the Annex on Article II Exemptions, which provides for MFN
exemptions, may be the most important.” This annex allows countries to attach a list of MFN
exemptions” to national schedules, although the annex stipulates that the duration of these
exemptions may not exceed 10 years in principle, and must be reviewed within 5 years. About
two-thirds of GATS signatories, including seven of the nine countries examined in this report,
attached MFN exemptions to their schedules. Signatories included MFN exemptions because
of concerns regarding “free-ridership,” particularly in the financial and basic
telecommunications industries. Free-riders enjoy beneficial terms and conditions of trade in
foreign markets, but do not accord similar benefits to individuals and foreign firms operating
in their own markets. Most of the MFN exemptions scheduled by South American countries,
however, accord preferential treatment to selected trading partners in the transportation and
audiovisual service industries (table 1-3). A detailed presentation of MFN exemptions
scheduled by the subject countries may be found in appendix F. Other annexes and ministerial

2! Negotiations on financial services, basic telecommunication services, and maritime transport
services are exceptions to this rule. Because financial services and telecommunications affect so
many sectors of the economy, countries sought actual liberalization of these service markets in this
round of negotiations.

TM See USTR, Final Texts of the GATT Uruguay Round Agreements, p. 30S.

?3 MEN exemptions list measures that are accorded preferentially to selected countries in all or
some service industries. For example, a number of South American countries’ MFN exemptions
provide preferences to neighboring countries with respect to transportation services.

* Bernard Hoekman, Tentative First Steps: An Assessment of the Uruguay Round Agreement on
Services, paper presented at The Uruguay Round and the Developing Economies Conference of the
World Bank, Washington, DC, Jan. 26-27, 1995, p. 6.

1-8


Venezuela

Venezuela is the only South American country to offer commitments for all AEC service
sectors. Because Venezuela is one of the largest South American markets for AEC services,
commitments regarding this sector would likely benefit U.S. service providers. However,
Venezuela is also the only country to list an MFN exemption specific to AEC services. This
exemption allows Venezuela to condition market access and regulatory treatment of foreign
enterprises on reciprocity.

Venezuela has reserved the right to maintain or impose limitations on the cross-border supply
of all AEC services, which has a greater potential effect on providers of architectural and
engineering services. Venezuela has also reserved the right to impose restrictions on
commercial presences that provide architectural, engineering, and integrated engineering
services.

With respect to the movement of personnel, cross-industry commitments apply to all AEC
services. Administrative staff, managers, executives, and specialists are subject to 1-year
renewable periods of stay. However, certain supervisory positions must be held by Venezuelan
nationals, 90 percent of the staff must be Venezuelan nationals, and total remuneration to
foreigners, including manual workers and employees, may not exceed 20 percent of the payroll
to personnel in either category. These restrictions have certain temporary exceptions that may
be authorized by the Ministry of Labor under limited circumstances. Limitations on freedom
of movement and personnel staffing may reduce foreign service providers’ efficiency and
competitiveness.

Despite the restrictions listed in the Venezuelan Schedule, the AEC services market is reported
to be fairly open to foreign participation. In fact, competition is intense among international
firms from Europe, Japan, and Brazil. One of the major industries attracting foreign AEC
services providers is the petroleum sector. Venezuela released foreign investment restrictions
pertaining to this sector in 1993. Infrastructure development is also expected to generate
opportunities for foreign construction firms to participate in local projects.>*

Industry Opinion

US. industry sources have indicated that they feel that the GATS improves prospects for trade
in the AEC industry. U.S. industry sources have indicated, however, that the commitments are
difficult to comprehend, and that it is difficult to assess where U.S. firms have gained ground
and where they have lost.>*

% Industry representatives, interviews by USITC staff, Caracas, Venezuela, Aug. 12, 1996, and
Washington, DC, Aug. 15, 1995.
% Tid.

8-15


audiovisual service providers is likely to be minimal, particularly since the ability of these
trading partners to enforce the exemptions is somewhat dubious at present and likely will
decline further over time. The Annex on Negotiations on Basic Telecommunications, in
conjunction with many full and partial commitments pertaining to enhanced telecommunication
services, may permit foreign firms to provide certain audiovisual services over
telecommunication networks and ubiquitous information networks such as the Internet. The
ability and willingness of any government to monitor services provided over such networks is
questionable. Thus, any adverse effects on U.S. audiovisual service suppliers may be short-
lived owing to technological advances, global networking, and the deregulation of information
networks.®

Conclusion

The participation of the South American countries in the GATS scheduling process is
significant in light of the apparent reluctance of some South American countries to address
services trade within the framework of the GATT at the beginning of the Uruguay Round.
While the schedules of commitments presented by South American countries clearly are not as
comprehensive as those offered by developed countries, the schedules do provide a foundation
for potential trade liberalization in future rounds of negotiations. Since the conclusion of the
Uruguay Round, a number of South American countries have continued to endorse liberalization
by participating in the extended negotiations regarding financial and basic telecommunication
services.

With respect to South American countries, the achievements of this first round of the GATS
represent only modest movement toward liberalization. The subject countries have scheduled
few commitments, suggesting that U.S. service providers are likely to realize few immediate
benefits in the South American market. However, the schedules of commitments do provide
benchmarks where few or none had been established before, and offer some improvement in
regulatory transparency. As a result, these commitments mark the beginning of a process that
will likely be beneficial to U.S. firms over the long term.

° U.S. Government official, interview by USITC staff, Washington, DC, Aug. 14, 1995; and EU
Commission official, interview by USITC staff, Brussels, July 19, 1995. It is unclear whether
ongoing negotiations pertaining to basic telecommunication services will directly affect the foreign
provision of audiovisual services in a significant manner.

13-10


Table 13-A-1
GATT services sectoral classification list

Number Subject Industry Subsector
Transportation services:
Rail transport
43. Passenger transport
44. Freight transport
45. Pushing and towing services
46. Maintenance/repair of rail transport equipment
47. ‘Supporting services for rail transport services
Road transport
48. Passenger transport
49. Freight transport
50. Rental of commercial vehicle with operator
51. Maintenance/repair of road transport equipment
52. Supporting services for road transport services
Services auxiliary to all modes of transport
53. Cargo-handling services
54. Storage and warehouse services
55. Freight transport agency services
56. Other
57. Other transport services’ (none)
Travel and tourism services
58. Hotels and restaurants (excl. catering)
59. Catering
60. Travel agencies and tour operators
61. Tour guide services
62. Other!

‘Entries for these subsectors were discarded from the calculations.

Source: General Agreement on Tariffs and Trade, Services Sectoral Classification List (MFN.GNS/W/120).

13-A-3



Table 13-A-2

The share of schedule entries binding full market access and national treatment

(Percent)
Industry Argentina] Bolivia} Brazil | Chile | Colombia |Paraguay| Peru | Uruguay | Venezuela Composie
industry

Distribution services’ 56 i} 19 oO oO i} 413 (e) te) 10
Education services' oO oO oO oO oO i) oO 9 te) 0
Communication services

Enhanced telecormmunication services’ 75 oO () 14 2 i) 25 te) Ce) 15

Courier services 7 oO 50 0 oO oO oO 50 50 25

Audio-visual services! 0 0 0 0 0 0 oO oO o 0
Health care services’ ) 10 i} i} te) (e) i) oO i} 1
Professional services

Accounting services 7 0 i} 2 25 te) 13 i} 2 18

Architecture, Engineering, and Construction 44 0 8 oO 6 0 3 0 4 W

services

Advertising services 75 oO oO i) i: i} 13 oO 50 15

Legal services 75 i] 0 2 50 oO o ) 25 19
Transportation sewvices! 0 0 5 0 0 0 0 5 0 1
Travel and tourism services’ 75 38 6 50 44 69 9 75 56 47
Composite share, by trading 31 4 5 6 9 5 6 8 13 10
partner

‘Calculations for this industry exclude a subsector for miscellaneous services, for which commitments were

not comparable across subject trading partners.

Source: Compiled by the staff of the U.S. International Trade Commission,

Table 13-A-3
The share of schedule entries binding full and partial market access and national treatment
(Percent)
Ind: justry Argentina| Bolivia | Brazil Chile Colombia | Paraguay| Peru | Uruguay | Venezuela oe
Industry
Distribution services" 75 ) 4 i oO o 25 O i} 16
Education services! 0 0 0 o t) o| 0 t) 0) )
‘Communication services
Enhanced telecommunication services’ 100 0 0 433 63 o| 75 o oO 31
Courier services 100 0 75 t) 0 o| 0} 100 75 39
Audio-visual services’ oO i) i} LY) t) 0 i} 0 i} 0
Health care sewices' te) 15 oO t) ) t) te) te) i} 2
Professional services
‘Accounting services 100 i) 38 50 50 ie} 50 oO 50 38
Architecture, Engineering, and Construction 75 0 38 13 38 o| 13 0 66 ar
services
Advertising services 100 0) 63 0 0) o| 50 0) 100 35
Legal services 100 i} te) 50 50 O oO 0 50. 28
Transportation sewices! 0) t) 14 0) C) o| o 7 v) 2
Travel and tourism services! 100 | 56 25 75 63 97 | 38 100 75 70
Composite share, by trading “4 5 7 15 20 7| 18 4 20 7
partner

‘Calculations for this industry exclude a subsector for miscellaneous services, for which commitments were

not comparable across subject trading partners.

Source: Compiled by the staff of the U.S. International Trade Commission.

13-A-7



Cross-Border Services Trade with South America

Whereas South America accounts for a relatively small portion of total U.S. cross-border
services trade, the region nevertheless contributes significantly to the U.S. surplus in services
trade. In 1994, South and Central America accounted for 11 percent of U.S. cross-border
services exports, or $16 billion. By contrast, U.S. imports from the region amounted to only
$7 billion, which resulted in a rather substantial U.S. surplus of $9 billion in 1994, Among
South American countries, Brazil, Argentina, and Venezuela account for the majority of trade
with the United States (figure 2-8). In addition, most of the U.S. services trade surplus recorded
with South America results from substantial surpluses with Brazil and Argentina, which
measured $2.5 billion and $1.7 billion, respectively, in 1994.

Figure 2-8
U.S. cross-border services trade with South and Central America, by country, 1994

Argontina Argontina
tay 8.5%

Venezuela 20.8% Se
13.5%

chia,
58%

Other *

‘Other * 621%
461%
Total exports = $16 billion Total imports = $7 billion

* Comprised of other South and Central American countries.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

2-8


APPENDIX B
FEDERAL REGISTER NOTICE



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E-6


Cross-Border Transactions

In 1994, the U.S. travel and tourism industry generated a $16.8 billion cross-border trade
surplus (figure 12-1), accounting for 42 percent of the total cross-border services trade surplus.
Receipts of $60.4 billion from travel and tourism trade represented 40 percent of total U.S.
service exports,’ while U.S. travelers abroad spent an estimated $43.6 billion. Cross-border
exports in travel and tourism grew at an average annual rate of 9 percent during 1990-94.5 A
relatively weak dollar compared to other major currencies and a low inflation rate in the United
States increased the flow of inbound tourists. Visitors to the United States from Europe and
Asian/Pacific countries accounted for 33 percent and 30 percent, respectively, of U.S. travel and
tourism cross-border receipts in 1994, followed by visitors from South and Central America (13
percent), Canada (10 percent), and Mexico (8 percent) (figure 12-2).° Of the travelers visiting
the United States from South and Central America, 24 percent came from Brazil, 15 percent
came from Venezuela, and 14 percent came from Argentina.

Sales by Majority-Owned Affiliates

Data on affiliate trade in travel and tourism are available only for the lodging industry, and
teflect lodging, food, and beverage services offered in hotels, motels, and similar establishments.
Foreign affiliates of U.S. lodging firms generated revenues (U.S. exports) totaling an estimated
$1.9 billion in 1993 (figure 12-3).’ However, sales by foreign affiliates of U.S. lodging
establishments decreased irregularly at an average annual rate of 9 percent during 1990-93. The
largest export markets for foreign affiliates of U.S. lodging firms are Europe (47 percent), Latin
America and other countries of the Western Hemisphere south of the United States @s percent),
and Canada (9 percent) (figure 12-4).

With respect to U.S. imports, foreign lodging companies with travel- and tourism-related
investments in the United States earned an estimated $5.3 billion in 1993,* with sales increasing
at an average annual rate of 8 percent during 1990-93. Strong imports reflect foreign ownership
of several widely recognized hotel systems in the United States. For example, because Holiday
Inn is a British-owned firm, all purchases of services from Holiday Inn in the United States are
counted as imports. The U.S. deficit in travel and tourism trade by affiliates doubled from
$1.7 billion in 1990 to $3.4 billion in 1993.7

* USDOC, Bureau of Economic Analysis (BEA), Survey of Current Business, Sept. 1995, pp. 76,
81.

5 USDOC, BEA, Survey of Current Business, Sept. 1993, pp. 125-126, and Sept. 1995, pp. 78-
81.

®USDOC, BEA, Survey of Current Business, Sept. 1995, p. 81.

TTbid., p. 104.

® These figures do not include travel agencies and tour operators.

° USDOC, BEA, Survey of Current Business, Sept. 1992, pp. 129, 131; Sept. 1993, pp. 153-156;
Sept. 1994, pp. 135-138; and Sept. 1995, pp. 104, 105.

12-2


Federal Register / Vol. 61, No. 95 / Wednesday, May 15,

1996 / Notices 24511

earliest practical date and should be
received no later than the closa of
business on August 1, 1996. All
submissions should be fuldrassed 10 the
Secretary, U.S. International Tra
Commission, 500 E Street SW.,
Washington, DC 20436,

Persons with mobility impairments
who will need special assistance in
gaining access to the Commission
should contact the Office of the
Secretary at 202-205-2000.

By order of the Commission.

Issued: May 7, 1996.

Donna R. Koehnke;

Secretary,

IFR Doc. 96~12182 Filed 5-14-96; 6:45 ara}
SLUNG CODE Te20-42-p

ae

Nnvestigations Nos. 731—TA-726, 727, and
729 (Final)

Polyvinyl Alcohol from Chine, Japan,
and Taiwan
Determinations

‘On thé basis of the record! developed
in the subject investigations, the
Commission determines, pursuant to
section 735(b) of the Tariff Act of 1930
(19 U.S.C. § 1673d(b)) (the Act), that an
the United States is
materially injured or threatened with
material injury by reason of imports
from China, Japan, and Taiwan of
polyvinyl alcoho! (PVA). provided for
in subheading 3905.30.00 of the
Harmonized Tariff Schedule of the
United States,¢ that have been found by
the Department of Commerce to be sold
in the United States at less than fair
value (LTFV),5

—

‘The record is defined in sec. 207.2{0 of the
Commission's Rules of Practice and Procedure (19
CFR § 207.21},

2 Chairman Watson. Vice Chairman Nuzum, and
Commissioner Rohr dissenting.

*The imponed product subject to these
investigations ia PVA, which is a dry, white to
‘Team-colored, water-soluble synthetic polymer,
This product consists uf PVA hydrolvand in excess
of 85 percent, whether or not med or diluted orth
jpfioamer or boric acid. Excluded from the scope of
{ho investigations is PVA covalently bonded with
acctoacetyiaic, carboxylic acid. or sulfonic acid
unilormly present on all polvmer chains ina
Cont entration equal to oF greater than two mole
Percent, andi PVA covalently donaed with silane
snitormiy oresent on al! pot
roncentration equal to or xr
ine mole percent. PVA in fiber (orm 13 not included.
1 the scope of these investigations

(Prior ta lan, 1996. PVA was provided farin
xubheading 3903.20.00 of the Harmanized Tariff
Cheaule of the United States.

; Commissioner Newquist and Commissioner
akg. who und that an industry in the United
{ales is threatened with maverial injury, further
termine pursusnt to 19 U.S.C. § 16734{b)4]IB),
‘a they would not havo found material injury bat

{the suspension of liquidation of entries of the
erchandise under investigation.

Background

by the ant ol ‘commerce fat
imports of PVA. ina, Japan,
Taiwan were being sold at LTFV within
the meaning of section 733(b) of the Act
(19 U.S.C. §1673b(b)). Notice of the
institution of the Commission's
investigations and of a public hearing to
given by posing cgior aT

ven by pi copies af in
a Office of the Secretary, U.S,
International Trade Sommision,
Washington, DC, ant Publishing the
notice te the Federal Register of
November 9, 1995 (60 FR 56614). The
hearing was held in We . DC, on
March 26, 1996, and all persons who
Tequested the opportunity were
Permitted to appear in person or by
coun:

The Commission transmitted its
determinations in these investigations to
the of Commerce on May 6,
1996. The ae of the ion are
Contained in USITC Publication 2960
(May 1996), entitled “Polyvinyl Alcohol
from China, Japan, and Taiwan:
Investigations Nos. 731-TA-~726, 727,
and 729 (Final)."

By order of the Commission,

Issued: May 9, 1996,

Donna R. Koehnke,

Secretary.
IFR Doc. 96-12184 Filed 5-14-96; 8:45 am]
(MLUNG CObE 7ar0.02-—

Oinvestigation 322-237]

Production Sharing: Use of U.S.
Components and Materiais in Foreign
Assembly, 1992-95 (U.S. imports
Under Production Sharing Provisions
of Harmonized Tarif! Schedule Heading
9802)

AGENCY: United States International
Trade Commission,

ACTION: Opportunity to submit written
statements in connection with the 1996
Teport, and retitling of. investigation.

EFFECTIVE DATE: May 6, 1996.
SUMMARY: The Commission has
Prepared and published annual Feports
on production sharing under this series
since 1986. The Commission Plans to
publish the next Teport in December
1996, which will cover U.S. import date
on production sharing for the years
1992-95,

FURTHER INFORMATION CONTACT:
Questions about the Production sharing
Teport may be directed to the ject
leader. Adam Topolansky, Office of

B-3

Industries (202-205-3394) or the
assistant project leader, Ms. Jennifer
Rorke, Office of Industries (202-205~
3489). For information on aspects,
please contact Mr. William art,
Office of Genera! Counsel (202~205-
3091). The media phould contact Ms.
O'Laughlin. Office of lic
roheti terry Hearing
impaired individuals are advised that
information on this matter can be
obtained by contacting the TDD
terminal on (202~205-1810).

Background

‘The initial notice of institution of this
investigation was published in the
Federal B Register of September 4, 1986
(51 FR 31729). The report has been
Published in the current series under
investigation No. 332-237 annually
since December 1986. The report,
originally entitled “Im, ‘Under Items
806.30 and 807.00, of the Tani a:
Schedules o! United States, 1982—
85.” has undergone a number of ‘changes
in the title to reflect adaption of the
Harmonized Tariff Schedule (HTS) and

ification to the provisions in

heading 9802 of that schedule. HTS
Provision 9802.00.60 involves tariff
treatment for metal of U.S. origin a
Processed in a foreign location an
Tetumed to the United States for further

rocessing; provision 9802.00.80
Eovolves tariff treatment for imported
‘goods that contain U.S.-made

components,
"Ad in past years, the report will
provide an analysis of developments in
U.S. imports under the production
sharing provisions of tariff heading 9802
focusing on shifts in trade and product
mix. and trends by principal country
Sources and industry Broups. The report
will also assess U.S, Production
generated as a result of foreign
assembly, the use of production shari
by foreign manufact
the North INA Rn Free Trade
Agreement (NAFTA) on U.S. parts
Producers, and davelopments in the
Blobal integration of ‘specific industries.
The report will also provide information
on Companies involved in
Production sharing in Mexico have
changed their Operations in response to
NAFTA,

Written Submissions

No public hearing is Planned.
However, interested persons are invited

must be provided on se} rate sheets of
Paper, each clearly marked
“Confidential Business Information” at


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Advertising service transactions by majority-owned affiliates: U.S. exports, imports,
and trade balance, 1990-93

6 Billion dollars
LJ Exports YY \mports ——— Balance

1990 1991 1992 1993

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1993,
1994, and 1995.

Figure 9-4
Advertising service exports: Sales by majority-owned affiliates of U.S. firms, by
principal markets, 1993

Total = $3.5 billion

Europe
12%

‘South America”
44%

Other!

6.1%
Japan
4.8%
2 Australia
4.9%
Canada
8.6%

* Principally includes the Middle East, Africa, Asia and Pacific countries, excluding Japan and Australia,
? Includes trade with Mexico, Central America, and the Caribbean.
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

9-4


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6-8


The GATS identifies four narrower channels, or “modes,” of supplying services to foreign
consumers. Figure 2-1 shows the relationship of these four modes of supply to the balance of
payments entries for cross-border and affiliate trade. As noted earlier, the modes of supply
listed in the GATS comprise cross-border supply, consumption abroad, commercial presence,
and presence of natural persons.

Cross-border trade encompasses three of the four GATS modes of supply: cross-border supply,
consumption abroad, and the presence of natural persons. Services provided to foreign
consumers via cross-border supply are reported as service exports in the U.S. balance of
payments. For example, when U.S. firms mail, electronically transmit, or otherwise transport
services across a national border, the payment received is recorded as a cross-border export.
So, too, are transactions completed through consumption abroad, wherein services like tourism
or education are purchased outside the consumer’s home country. In other words, U.S. exports
are recorded when foreign tourists or students enter the United States and spend money. In
addition, sales made by U.S. persons who have entered a foreign market temporarily are
counted as cross-border exports. In GATS terminology, such sales are transacted through the
presence of natural persons. Such sales take place, for instance, when a U.S. attorney briefly
travels abroad to provide legal services to a foreign-based client, and then returns to the United
States.

Sales through affiliates are equated with the fourth GATS mode of supply, commercial
presence. A commercial presence is established when, for example, an advertising agency
establishes a foreign-based affiliate to sell its services to other firms located in the foreign
market. Sales receipts from majority-owned affiliates are captured by data collection agencies
and the income retumed to the U.S.-based advertising agency as a result of its foreign affiliate’s
sales enters the U.S. balance of payments as investment income.

Cross-Border Trade

U.S. cross-border exports of services consistently have exceeded imports, creating a large
surplus on the services trade account (figure 2-2). The surplus on cross-border trade in services
increased from $3.2 billion in 1986 to $40.1 billion in 1994. As a result, trade in services has
helped to reduce the current account deficit of the United States (figure 2-3).> Travel and
tourism, transportation, and passenger fares (predominantly air fares), taken together, account
for 69 percent of service exports and 77 percent of services imports (figure 2-4).

‘ Trade figures referenced in this discussion exclude public sector and intra-corporate transactions
(i.e., sales made by a parent firm to an affiliate, or vice versa). The single exception is the data
presented in figure 2-3, where an accurate comparison of the services trade balance to the
merchandise trade balance required the inclusion of public sector and intra~corporate trade.

5 The current account is one component of the balance of payments. The current account reflects
cross-border trade in merchandise and services, international flows of investment income, and
unilateral transfers (e.g., U.S. Government grants).

2-2


Figure 8-1
Cross-border trade in architectural, engineering, and construction services: U.S.
exports, imports, and trade balance, 1990-94

Million dollars

[1 exports Imports Balance

2500
| 4
2000 — |
LA
1500 ea
4
1000 —
500
° Li, UY

1990 1994 1992 1993 1994
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1985.

Figure 8-2
Architectural, engineering, and construction services: U.S. cross-border exports, by
principal markets, 1994

a»

South & Central America
124

‘Argentina
3.23%

chile
10%
Bradll
12%

18.9% pe

Europe
3.2% Mah
Mexico,
2A%

World = $2.7 billlon South & Central America = $334 million

‘Principally includes the Middle East, Africa, and the Caribbean.
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

8-4


CONTENTS-Continued

Page
Figures-Continued
6-2. Health care services: U.S. cross-border exports, by principal markets, 1994 ............. 6-3
6-3. Health care service transactions by majority-owned affiliates: U.S. exports, imports,
and trade balance, 1990-93 2.00. eect n eee eens 6-5
7-1, Cross-border trade in accounting and related services: U.S. exports, imports, and
trade balance, 1990-94 7-3

7-2. Accounting and related services transactions by majority-owned affiliates: U.S. exports,

imports, and trade balance, 1990-93 0.0.0.0... cece eet eceece cece e eens 7-3
7-3. Accounting and related services exports: Sales by majority-owned affiliates of U.S.

firms, by principal markets, 1993 . .
8-1. Cross-border trade in architectural, engineering, and construction s services: U.S. exports,

imports, and trade balance, 1990-94 2.20... 2 0. cece cece eee eee eee 8-4
8-2. Architectural, engineering, and construction services: U.S. cross-border exports, by

principal markets, 1994 8-4
8-3. Architectural and engineering service transactions by majority-owned affiliates: U.S.

exports, imports, and trade balance, 1990-1993 2.0.2... ec ecee eee 8-5
9-1. Cross-border trade in advertising services: U.S. exports imports, and trade balance,

1990-94 2. nnn tenet n tenes 9-3
9-2. Advertising services: U.S. cross-border exports, by principal markets, 1994 ............ 9-3
9-3. Advertising service transactions by majority-owned affiliates: U.S. exports, imports,

and trade balance, 1990-93 2.00... ccc tence ne eeee 9-4
9-4. Advertising service exports: Sales by majority-owned affiliates of U.S. firms, by

principal markets, 1993 2.0.0... cnet nent eee 9-4
10-1. Cross-border trade in legal services: U.S. exports, imports, and trade balance, 1991-94... . 10-3
10-2. Legal services: U.S. cross-border exports, by principal markets, 1994 ................. 10-3
11-1. Cross-border trade in land transportation services: U.S. exports, imports, and trade

balance, 1990-94 see 11-2
11-2. Land transportation services: U.S. cross-border exports, by principal markets, 199. eeeae 11-3
12-1. Cross-border trade in travel and tourism: U.S. exports, imports, and trade balance,

1990-94... 12-3
12-2. Travel and tourism: U.S. cross-border exports, by principal markets, 1994 12-3
12-3. Travel and tourism transactions by majority-owned affiliates: U.S. exports, imports,

and trade balance, 1990-93 12-4

12-4, Travel and tourism exports: Sales by majority-owned affiliates of U.S. firms, by

principal markets, 1993 0... n eee tere ener e eee 12-4
13-1. Shares of total possible schedule entries, by country .... 13-7
13-2. Shares of total possible schedule entries, by industry . . . . 13-8



American governments maintain significant powers over the actual administration of the health
care systems within their own jurisdictions.*°

Bolivia

Bolivia scheduled commitments that accord full market access and national treatment to
foreign companies in the hospital service sector, provided that hospital services are supplied
via consumption abroad or commercial presence. However, it offered no binding commitments
with respect to cross-border supply and the presence of natural persons. Nor did it offer
commitments with respect to other health care service sectors, including professional services
such as physician, nurse, or dental services.*°

Industry Opinion

U.S. industry representatives were disappointed in the lack of GATS commitments made by
South American countries with respect to health care services.*’ They assert that the lack of
such commitments by all countries, except Bolivia, does nothing to enhance the transparency
of rules and regulations in each of the South American countries.* Furthermore, the small
Bolivian market offers little in terms of market prospects for U.S. health care companies. The
markets of most interest to U.S. health care service companies are Argentina, Brazil, Chile, and
Colombia.

The various registration and certification provisions maintained by all subject trading partners
on doctors, dentists, and other health care service professionals constitute additional burdens
on U.S. health care services companies” that often employ, or would like to employ, U.S. or
third-country health care specialists in foreign-based facilities.” Cross-industry commitments
on the temporary entry and stay of personnel are not explicit enough to determine whether they

** PAHO, “Peru,” “Chile,” “Venezuela,” “Colombia,” “Bolivia,” “Argentina,” and “Paraguay,”
Health Conditions in the Americas, 1994, pp. 1-150.

%© Peru, which offered no commitments with regard to health care services, indicated in its schedule
that it generally applies no restrictions on the physical movement of people. However, it continues to
have restrictions with respect to professional equivalency for professional positions, including for
health care practioners. It further indicated that it would maintain such restrictions until it received
reciprocity in the U.S, market, where it contends its health care practioners face numerous restrictions
with respect to professional practice. Javier Paulinich, Minister, Deputy Permanent Representative,
Geneva, in a letter to USITC staff dated July 30, 1996.

*’ Industry representatives, telephone interviews by USITC staff, Apr-May 1996.

* Tid.

* Despite such limitations, there is no evidence that the U.S. Government or industry has pursued
mutual recognition agreements in this area. Industry representatives, telephone interviews by USITC
staff, Apr.~May. 1996.

* The OECD is encouraging member countries to speed up efforts to inventory various national
regulations pertaining to the movement of natural persons to provide a basis for further liberalization
of the GATS in this area. OECD representative, telephone interview by USITC staff, Paris, July 20,
1995.

6-9


foreign-based affiliates of U.S. firms, commitments on commercial presence and on the presence
of natural persons have the greatest relevance for accounting firms.

Bolivia, Paraguay, and Uruguay did not offer any commitments on accounting services. A
review of the remaining partners’ commitments on accounting and related services under the
General Agreement on Trade in Services (GATS) indicates that all made at least partial
commitments pertaining to commercial presence. On the other hand, only Chile, Peru, and
Venezuela scheduled substantial commitments on the presence of natural persons (table 7-1).

Argentina

Argentina scheduled full commitments on trade in accounting services through commercial
presence, cross-border supply, or consumption abroad. Argentina preserved broad discretion
with respect to permitting trade through the presence of natural persons. Argentina declined to
specify permissible lengths of stay for foreign business persons in its cross-industry
commitments, thereby making no binding commitment in this respect.

Brazil

Brazil scheduled limitations on commercial presence that restrict the participation of non-
residents in enterprises controlled by Brazilian nationals. In addition, special registration
requirements were included for accountants wishing to audit financial institutions and savings
and loan associations. Brazil does permit affiliates of foreign firms to use the foreign name,
however the name must be ceded to a locally established firm owned by Brazilian nationals.
Limitations on cross-border supply were left unbound, except that a foreign service supplier
again may cede its name to Brazilian professionals. Brazil, like Argentina, declined to specify
permissible lengths of stay for foreign business persons, thereby preserving broad discretion
with respect to regulating inbound flows of foreign service providers.

Chile

Chile scheduled no limitations on the establishment of a commercial presence,'° although
foreign accountancy firms are confined to providing financial auditing and accounting review
services only." Chile left limitations on cross-border supply and consumption abroad unbound.
Limitations on the presence of natural persons were left unbound, too, except as indicated in the
cross-industry commitments. Chile’s cross-industry commitments indicate that senior and
specialized personnel connected to commercial presences may stay in Chile for 2 years initially,
and may extend their stay for 2 additional years.

*° However, Chile requires that financial statements must be endorsed by a professional legally
authorized to practice in Chile.

‘Foreign accountancy firms appear to be proscribed from providing compilation services and
other services such as attestations, valuations, and preparation of pro forma statements.

7-5


CONTENTS-Continued

Chapter 6-Continued Page
Sales by majority-owned affiliates ................ 6-4
Examination of commitments on health care services 6-7
Bolivia 6-9
Industry opinion 6-9
6-10
Chapter 7. Accounting Services
Introduction 7-1
Nature of international trade in accounting and related services . 7-1
Cross-border transactions ................... 7-2
Sales by majority-owned affiliates .. 7-2
Examination of commitments on accounting sc services 7-4
Argentina 7-5
Brazil 7-5
Chile .. 7-5
Colombia 7-9
Peru 7-9
Venezuela 7-9
Industry opinion 7-9
Summary........ 7-1
Chapter 8. Architectural, Engineering, and Construction
Services
Introduction 2.00... eee cece cece eee eee 8-1
Nature of international trade in AEC services 8-2
Cross-border transactions ........... 8-3
Sales by majority-owned affiliates 8-5
Examination of commitments on architectural, engineering, and construction services ......... 8-6
Argentina 8-11
Brazil 8-11
Chile 8-12
Colombia . 8-13
Peru 8-14
Venezuela .. 8-15



Figure 9-1
Cross-border trade in advertising services: U.S. exports, imports, and trade balance,
1990-94

Million dollars
OO Exports

Imports Balance

-400

—____,

T T T T T
1990 1991 1992 1993, 1994

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1993,
1994, and 1995,

Figure 9-2

Advertising services: U.S. cross-border exports, by principal markets, 1994
Europe
48.6%

South America?

6.5%

1
Other
10.8%

Mexico
3.3%

AsiaiPacific
14.5%

Total = $399 million

' Principally includes the Middle East, Africa, and the Caribbean region.
? Includes trade with Central America.

‘Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

9-3


Figure 7-1
Cross-border trade in accounting and related services: U.S. exports, imports, and trade
balance, 1990-94

0 Million dollars

[] Exports YA imports Balance
150
400
|
50
lr
0
1990 1991 1992 1993 1994

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

Figure 7-2
Accounting and related services transactions by majority-owned affiliates: U.S.
exports, imports, and trade balance, 1990-93

Billion dollars

oO Exports Z Imports Balance
5
i
4
a
3
2
1
lo)
1990 1991 1992 1993

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

7-3


Concordance of industry classification--continued

GATT Secretariat's Services Sectoral Classification List United Nations’ Provisional Central Product Classification

System (CPC)
11. TRANSPORT SERVICES
E. Rail transport
a) Passenger transportation Class 7111: Rail passenger transportation
b) Freight transportation Class 7112: Rail freight transportation
F. Road transport
a) Passenger transportation Subclass 71211: Urban and suburban regular transportation

Subclass 71213: Interurban regular transportation

Class 7122: Other non-scheduled passenger transportation

Subclass 71221: Taxi services

Subclass 71222: Rental services of passenger cars with
operator

Subclass 71223: Rental services of buses and coaches with
operator

b) Freight transportation Class 7123: Freight transportation

Subclass 71231: Transportation of frozen or refrigerated goods
Subclass 71232: Transportation of bulk liquids or gases
Subclass 71233: Transportation of containerized freight
Subclass 71234: Transportation of furniture

c) Rental of commercial vehicles with operator Class 7124: Rental services of commercial freight vehicles with
operator
Class 7213: Rental services of seagoing vessels with operator

G. Pipeline transport

b) Transportation of other goods (excluding fuel) Class 7139: Transportation of other goods

H. Services auxiliary to all modes of transport

a) Cargo handling services Class 7411: Container handling services
Class 7419: Other cargo handling services

b) Storage and warehouse services Group 742: Storage and warehousing services

©) Freight transport agency services Group 748: Freight transport agency services

d) Other

Group 749: Other supporting and auxiliary transport services

|. Other transport services No corresponding CPC

Source: GATT Secretariat's Services Sectoral Classification List (MTN/GNS/W/120).


completion and finishing work, and renting services related to equipment for construction or
demolition of buildings or civil engineering works (with operator) were the subject of
commitments by only two countries, Argentina and Venezuela.

Argentina and Venezuela provided the best coverage of AEC sectors and modes of supply,
often providing full market access and national treatment to many foreign providers of AEC
services. Argentina offered full or partial commitments for about three quarters of all potential
schedule entries, and more than one-half of Argentina’s entries bind full market access and
national treatment. Venezuela’s full or partial commitments accounted for two-thirds of
schedule entries, with less than one-half binding full market access and national treatment.
Movement of personnel, one of the most important modes of supply for AEC services, remains
subject to restrictions in both countries by means of cross-industry commitments. These
restrictions generally affect the temporary stay of administrative personnel and specialists, and
impose staffing requirements on AEC services providers. Commercial presence, however, was
fully liberalized in most AEC service sectors for these two countries.

Of the remaining South American countries, Brazil, Chile, Colombia, and Peru covered less
than one-half of the schedule entries, and bound full market access and national treatment in
one-quarter or less of these entries. Bolivia, Paraguay, and Uruguay made no offers on AEC
services, meaning restrictions may be maintained or imposed in the future.

With respect to the schedules’ twin objectives of providing benchmarks and improving
transparency, the results are mixed. These South American countries generally offered
standstill agreements with the understanding that the GATS process would continue and
evolve.” For those countries that provided broad sectoral coverage, particularly Argentina and
Venezuela, the commitments present some effective benchmarks and improve transparency.
However, for the larger group of countries with less comprehensive schedules, effective
benchmarks have not been established and transparency has been enhanced only marginally.

*° Brazil Foreign Ministry representative, interview by USITC staff, Brasilia, Brazil, Aug. 6, 1996.

8-17


of Latin American billings for design services.> The largest U.S. contractors accounted for 32
percent ($2.1 billion) of the total revenues generated by international construction projects in
the Latin American market in 1994.° Although the Latin American market has been plagued
by economic instability, which has been a deterrent to AEC services activity,’ U.S. and foreign
AEC firms have reported recent improvement in the region, particularly in Chile.* Many
governments in Latin America are privatizing services and industrial sectors, thereby reducing
reliance on the public sector for infrastructure and industrial development. One result of these
changes reportedly has been greater business opportunities for U.S. and other foreign AEC
service suppliers in Latin America. Economic stabilization and privatization could also drive
construction activity in areas such as infrastructure (¢.g., roads, power projects, ports) and
industrial projects (e.g., auto plants in Brazil and petrochemical facilities in Venezuela),
spurring greater interest in Latin American markets. As with entry into other foreign markets,
however, careful evaluation of market conditions and prospects will help determine future U.S.
AEC investment decisions in Latin America.’

Nature of International Trade in AEC Services

Trade in AEC services is predominantly undertaken by majority-owned affiliates located in
foreign markets.’° AEC firms that engage in international trade generally establish some type
of affiliate, joint venture, or branch office in important foreign markets, as contracts are more
likely to be awarded to firms that have a commercial presence.'' These foreign-based U.S.
affiliates can also benefit from the knowledge and networks of foreign national employees.’*

* Among the top 10 design firms reporting billings in Latin America in 1995 were the U.S. firms of
Foster Wheeler, The Louis Berger Group, Harza Engineering, and the Bechtel Group. The other
design firms are headquartered in Finland, Canada, Italy, and the Netherlands. “The Top 200
International Design Firms,” Engineering News-Record, July 22, 1996, pp. 34 and 37.

® Among the top 10 international contractors reporting revenues from the Latin American market
in 1994 were the U.S. firms of Fluor Daniel Inc., The M.W. Kellogg Co., and the Bechtel Group Inc.
Odbrecht, SA, a Brazilian contractor specializing in water projects, was among the top 10
international contractors in Latin America. The other leading international contractors are
headquartered in the United Kingdom, Italy, Japan, and Spain. “The Top 225 International
Contractors,” Engineering News-Record, Aug. 28, 1995, pp. 36-42.

7 US. industry representative, interview with USITC staff, Washington, DC, Aug. 15, 1996.

* Mr. Jose Guerra, testimony before the United States International Trade Commission, July 18,
1996. Mr. Guerra, representing the United States Council for International Engineering Practice,
indicated during the Commission’s public hearing that Chile presents one of the best opportunities for
marketing U.S. engineering services.

° Information for this section from “The Top 200 Design Firms,” Engineering News-Record, July
24, 1995, pp. 34-38, and “The Top 225 International Contractors,” July 22, 1996, pp. 33-39.

*° Architectural services are the least traded of the three services.

"' Industry representative, interview by USITC staff, Washington, DC, Feb. 1, 1995.

” <The Top 400 Contractors,” Engineering-News Records, May 20, 1996, pp. 37-47.

8-2


APPENDIX C

GLOSSARY OF TERMS

Benchmarks : Benchmarks are commitments that identify trade-impeding measures and under the terms
of the GATS, prevent these measures from becoming more onerous in the future.

Bound commitment: A commitment that cannot be made more restrictive in the future; only further
liberalization is permitted (unless an agreed penalty is paid). See measure.

Commercial presence: One of four possible modes of delivering services to foreign consumers,
whereby a service supplier establishes any type of business or professional establishment in the foreign
market. Commercial presence comprises entities such as corporations, trusts, joint ventures, partnerships,
sole proprietorships, associations, representative offices, and branches. See modes of supply.

Commitment: An agreement regarding a measure, usually regarding market access and national
treatment, that affects international trade in services. Commitments are listed in national schedules and
identify service sectors and modes of supply that are affected. See bound commitment, unbound measure,
full commitment, partial commitment, standstill commitment, rollback commitment, and sector-specific
commitment.

Consumption abroad: One of four possible modes of delivering services to foreign consumers, whereby
the consumer, or the consumer's property, receives a service outside the territory of the home country,
either by moving or being situated abroad. See modes of supply.

Cross-border supply: One of four possible modes of delivering services to foreign consumers, whereby
the service is transported beyond the home country of the service supplier to the foreign consumer.
Cross-border supply may entail transportation by mail, telecommunications, or the physical movement of
merchandise embodying a service (e.g., a diskette storing information) from one country to another. The
mode is "cross-border" when the service supplier is not present within the territory where the service is
delivered. See modes of supply.

Cross-industry commitment: Commitment that applies to international trade in multiple service sectors.
Typically, cross-industry commitments include limitations on market access or national treatment. Cross-
industry commitments appear at the beginning of the national schedules where they are referred to as
“horizontal commitments.”

Full commitment: This is recorded in the national schedule of a country that wishes to impose no limit
on market access or national treatment in a given sector and mode of supply. In the national schedules, a
full commitment is reflected by the word "none" (meaning no limitations) in the entry for the relevant
service sector and mode of supply.

Home country: The country in which the service supplier is based. See host country.

Host country: The country in which services are rendered by a foreign service supplier, in the form of a
natural person or commercial presence. See home country.

C-2


APPENDIX D

CONCORDANCE OF INDUSTRY
CLASSIFICATIONS



their stay for up to 2 years thereafter. However, foreign personnel must establish a residence
in Chile, and may not comprise more than 15 percent of the staff employed by any foreign
service provider.

Chile’s cross-industry commitments place stringent restrictions on the establishment of a
commercial presence. Authorization to provide services through a commercial presence is
dependent upon an assessment of the enterprise’s expected effect on product sourcing, exports,
technological development, competition in the sector, and consumer welfare. In addition,
foreign investors may not transfer their capital abroad during the first 3 years of establishment.

Colombia

Colombia’s schedule addresses virtually all enhanced telecommunication services (except
“other telecommunication services”), yet it indicates that many restrictions are placed on
foreign service providers. Colombia specified that limitations on cross-border supply of
enhanced telecommunication services are unbound. With respect to commercial presence,
Colombia indicates that the State will provide telecommunication services directly or through
contracts with private sector providers. Colombia reserves the right to grant contracts to
Colombian persons only. If U.S. firms are successful in obtaining a telecommunications
concession, their ability to compete may be adversely affected as a result of an exemption to
most-favored-nation (MFN) treatment listed by Colombia. This exemption, which will last
“indefinitely,” obligates Colombia to grant national treatment only to companies from the
Andean group.” Furthermore, Colombia notes that it levies a tax on the remittance of profits
but does not state the rate at which remittances are taxed.

Colombia’s commitments on the presence of natural persons are unbound, although it may not
impose restrictions on the temporary entry of managers, legal representatives, and technical
experts that nullify the benefits conferred on foreign firms by its industry-specific
commitments. However, the Colombian schedule indicates that, in companies with more than
10 employees, foreign staff may constitute no more than 10 percent of production workers and
no more than 20 percent of administrative, managerial, and other non-production workers.

Despite Colombia’s seemingly restrictive commitments on enhanced telecommunication
services, the market reportedly has opened up in recent years. Private suppliers of value-added
telecommunication services were allowed to enter the market in 1992 and the government
reportedly plans to introduce competition in the domestic and international long distance
service markets by 1998.” In addition, Unisys has received a 3-year contract to supply voice
mail, facsimile, and other enhanced telecommunication services to residential and business
customers.”

2! The Andean group includes Bolivia, Colombia, Ecuador, Peru and Venezuela

2 “Colombia: Government Hopes Infrastructure Projects Will Attract MNCs,” Crossborder
Monitor, July 26, 1995.

* USDOC, “Colombia - Telecommunications Equipment and Services,” Market Research.
Reports, Oct. 19, 1995.

4-10


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4-6


These obligations are binding on all GATS signatories, although exceptions are permissible
subject to agreed rules. Important institutional provisions require countries to afford other
signatories consultations on any matter affecting the operation of the GATS. Such consultation
is to follow newly created Dispute Settlement Understanding procedures.'°

Schedules of Commitments

As noted earlier, national schedules specify commitments undertaken by signatories to provide
foreign firms with market access and national treatment, mostly on an industry-by-industry
basis.'! As such, they provide most of the detail of the final agreement. The schedules are
bifurcated in structure. One section describes regulatory measures as they are applied on an
industry-specific basis. The other section specifies cross-industry commitments, which are
broad conditions and restrictions applicable across all industries listed in the schedule.’

Industry-Specific Commitments

The industry-specific section of the schedules essentially consists of a matrix whereby market
access and national treatment limitations on each service industry'® are indicated and examined
in relation to one or more possible delivery channels or “modes of supply.” There are four
modes of supply:

1. Cross-border supply, wherein a service provider mails, electronically transmits,
or otherwise transports a service across a national border;

2. Consumption abroad, wherein a consumer, such as a tourist, patient, or student,
travels across national borders to consume a service;

3. Commercial presence, wherein a service supplier establishes a foreign-based
corporation, joint venture, partnership, or other establishment, to supply
services to foreign persons; and

© See USTR, Final Texts of the GATT Uruguay Round Agreements Including the Agreement
Establishing the World Trade Organization (Washington, DC: GPO, 1994), p. 353.

" The obligation to develop national schedules is found in part IV, article XX of the GATS. See
USTR, Final Texts of the GATT Uruguay Round Agreements, p. 299.

” Cross-industry commitments are referred to as “horizontal” commitments in the GATS text. To
simplify the discussion in this report, however, commitments that apply to all service sectors will be
referred to as cross-industry commitments.

* In preparing national schedules, countries were requested to organize and define service
industries as noted in the GATT Secretariat's Services Sectoral Classification List, which draws on
the United Nations’ Provisional Central Product Classification (CPC) System. Accordingly,
national schedules frequently make explicit references to the CPC numbers. A concordance of this
teport’s subject industries and their corresponding CPC classifications is provided in appendix D.

1-4


Brazil

Brazil scheduled market access and national treatment bindings for wholesale trade services
delivered through commercial presence, except for wholesaling of solid, liquid, and gaseous
fuels and related products. The country’s commitments on retail services provided through
commercial presence extend to food and nonfood retailing but do not include retailing of motor
vehicles, motorcycles, or related parts and accessories. With respect to the cross-border supply
of franchising services, Brazil’s schedule stipulates that franchise contracts must conform with
the Industrial Property Code to be eligible for royalty payments. National treatment limitations
on franchising services supplied on a cross-border basis, however, were left unbound, meaning
that current measures, if any, remain unstated and future measures may be imposed.

Brazil scheduled several noteworthy cross-industry limitations that may affect foreigners’
provision of distribution services. Subsidies for research and development, which could be
used to favor domestic firms, remain unbound for all modes of supply. Additionally, Brazilian
Jaw does not recognize a sole proprietorship or partnership as a juridical person, which means
that U.S. firms can only establish commercial presence in the form of a subsidiary or a joint
venture. Finally, Brazil’s cross-industry commitments pertaining to the movement of natural
persons preserves broad discretion with respect to permitting the temporary entry and stay of
specialized technicians, highly qualified professionals, managers, and directors.

Although Brazil’s schedule stipulates that foreign capital must be registered with the Central
Bank of Brazil as a condition for the remittance and transfer of funds abroad, capital
registration procedures have been simplified in recent years. Furthermore, an amendment to
Brazil’s constitution, ratified in 1995, eliminated the distinction between foreign and domestic
capital in order to facilitate further foreign investment.”

Peru

Peru’s schedule places no market access or national treatment limitations on commercial
presence for most wholesale services, although commitments are not extended to specialized
wholesaling services of wastes and scrap, and materials for recycling. With respect to retailing,
Peru’s commitments encompass food retailing services only, and are therefore less liberal than
the commitments of Argentina and Brazil. Peru’s schedule is also the most restrictive of the
three countries with regard to franchising services, because Peru left unbound both market
access and national treatment limitations for all modes of supply. Peru also scheduled cross-
industry limitations pertaining to foreign investment and temporary entry of staff that affect
the provision of distribution services through commercial presence and the presence of natural
persons. Among these are provisions limiting foreign workers to specified proportions of total
staff size and remuneration, subject to defined exceptions. However, Peru did specify
permissible lengths of stay for individuals employed by foreign service providers, who may

® Brazilian and U.S. Government officials, interviews by USITC staff, Brasilia, Brazil, Aug. 6 and
7, 1996. While the Brazilian Constitutional amendment is regarded as an important step,
implementation requires passage of an “ordinary law” by the Brazilian Congress, which may adopt,
modify or eliminate the Constitutional amendment previously ratified.

3-11


CHAPTER 4
Enhanced Telecommunication Services!

Introduction

Enhanced telecommunication services include a wide range of services that add “value” to
otherwise basic transmission of voice and data over telecommunication networks.” This study
examines enhanced telecommunication services, defined by the General Agreement on Tariffs
and Trade to include: electronic mail, voice mail, on-line information and data base retrieval,
electronic data interchange (EDI), enhanced/value-added facsimile services (including store and
forward, and store and retrieve), code and protocol conversion, on-line information and/or data
processing (including transaction processing), and other enhanced telecommunication services.

Nature of International Trade in Enhanced
Telecommunication Services

Enhanced telecommunication services are delivered to foreign consumers via telecommunication.
and computer networks that link globally dispersed communication centers, or nodes, with lines
leased from multiple telecommunication carriers. Enhanced telecommunication services are
provided both across borders and through foreign commercial presence. Enhanced service
providers primarily serve multinational businesses. Users may connect to an enhanced
telecommunication network to access services such as electronic mail or EDI through a number
of methods. Typically, the customer will dial directly from a personal computer into the
network using a local number provided by the enhanced telecommunication service provider.
However, when a local connection is not possible, users may access the network through direct
long-distance dialing, by using an Integrated Services Digital Network (ISDN)’ connection.
through the local telephone network, or through arrangements with the local telephone company
to connect to a public data network. The provision of such services is complex, and a single
message may cross multiple national borders. Leading global suppliers of enhanced
telecommunication services include INFONET, a carrier consortium; GE Information Services

' Among the individuals consulted by USITC staff in preparation of this report were those affiliated
with the following organizations: AT&T, Global One, MCI, Electronic Data Systems, and the Bureau
of Economic Analysis (BEA), U.S. Department of Commerce (USDOC).

? Enhanced telecommunication services are captured under the U.S. Standard Industrial
Classification (SIC) code 4822.

3 ISDN provides high capacity digital transmission of information using an internationally accepted
standard for voice, data, and signaling.


affiliated.* Because accounting firms feel it is important to establish a physical presence within
the foreign markets they are serving, either through wholly-owned branch affiliates or through
partnerships, the preferred mode of providing these services is through a commercial presence.

Cross-Border Transactions

Cross-border trade data pertaining to accounting services reflect all services delivered by mail
or through information networks, or by the temporary entry of an accountant to provide services
to foreign clients. U.S. cross-border exports of accounting, auditing, and bookkeeping services
totaled $142 million in 1994, and U.S. cross-border imports totaled $106 million, resulting in
a $36 million U.S. surplus (figure 7-1).° This cross-border trade surplus fell by 13 percent
annually, on average, from the $62 million surplus in 1990. During 1990-94, the average
annual growth in U.S. imports, measuring 17 percent, exceeded that of exports, measuring 5
percent. Trade volume was irregular, marked by periods of decline as well as growth.

Sales by Majority-Owned Affiliates

Foreign affiliates of U.S. accounting firms generated revenues (U.S. exports) totaling $5.3
billion in 1993 (figure 7-2). In comparison, U.S.-based affiliates of foreign accounting firms
generated sales (U.S. imports) of $1.6 billion. The resulting $3.7 billion U.S. surplus in affiliate
trade represented a 5-percent average annual decline in the surplus during 1990-93, as U.S.
exports grew considerably slower (2 percent on average) than U.S. imports (37 percent on
average).

European affiliates of U.S. accounting firms generate by far the greatest share of total sales by
foreign-based accounting affiliates. In 1993, European-based affiliates of U.S. firms captured
72 percent, surpassing affiliates in Canada, 8 percent, Japan, 6 percent, and Latin America,
including other countries of the Western Hemisphere such as Mexico, 4 percent (figure 7-3).

U.S. accounting firms’ affiliate sales in the Wester Hemisphere south of the United States grew
from approximately $134 million in 1991’ to $198 million in 1993, at an average annual rate
of 22 percent. Such growth exceeded the S-percent average annual increase for

“Ina partnership arrangement where the national firm is owned by the local partners and not by
the U.S. multinational, sales by the firm are not recorded in U.S. trade statistics as sales by U.S.
affiliates. As a result, available trade data may underestimate U.S. involvement overseas. Industry
representatives, interviews by USITC staff, Washington, DC, May 25, 1995.

> Data on cross-border transactions pertaining to accounting and related services are not available
on a regional basis.

*USDOC, BEA, Survey of Current Business, Sept. 1995, p. 76.

7 Data for U.S. exports of accounting and related services in 1990 pertaining to this region are
unavailable,

7-2


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12-8


CHAPTER 12
Travel and Tourism Services!

Introduction

For the purpose of this report, travel and tourism is defined as travel away from home, for 1
night to 1 year in duration. This chapter covers the services that business travelers and tourists
purchase, ranging from the direct supply of food and lodging to intermediary services provided
by travel agents, tour operators, and tourist guides.” It excludes air transportation services,
which are governed by various bilateral agreements.

Nature of International Trade in Travel and Tourism
Services

The most important mode of supply of international travel and tourism is consumption abroad,
because it accounts for the greatest volume of trade. Consumption abroad depends upon the
visitor’s ability to leave one’s country, complete the visit abroad, return home, and obtain the
means of payment for tourism services purchased abroad.*

Expenditures by foreign travelers who visit the United States are reported in balance of
payments data as U.S. cross-border exports. Conversely, expenditures by U.S. citizens visiting
other countries enter the U.S. balance of payments as cross-border imports. Although travel and
tourism services are traded mainly through cross-border channels, affiliate trade also takes place
when parent firms establish foreign affiliates that provide travel agency and other travel
services.

' Among the individuals consulted by USITC staff in preparation of this report were those affiliated
with the following organizations: American Hotel and Motel Association, American Society of Travel
Agents, HFA Hospitality, The Jefferson Group, Sabre Venezuela, United Airlines, U.S. Tour
Operators Association, and the International Trade Administration, U.S. Department of Commerce
(USDOC) and the Federation of Hotel, Restaurants, Bars, and Similar Establishment of Sao Paulo,
Brazil.

? For the purpose of this report, the travel and tourism sector consists of services purchased during
travel from travel and tourism related industries, which fall under several different U.S. Standard
Industrial Classification (SIC) codes. Lodging is captured by codes 701, 703, and 704; eating and
drinking establishments, by code 581; travel agencies, by code 4724; tour operators, by code 4725;
and tourist guides, within code 7999, amusement and recreation services, not elsewhere classified.

> “Tourism and the General Agreement on Trade in Services (GATS),” World Tourism
Organization, Madrid, Apr. 1994.


Exemptions From Most-Favored-Nation Treatment

GATS signatories are obligated to accord most-favored-nation (MFN) treatment to services and
service suppliers of other signatory countries. Under the MFN principle, a country generally
is required to accord terms and conditions of trade to any one trading partner that are “no less
favorable” than those accorded to any other trading partner. In certain instances, however,
South American countries listed MFN exemptions. These exemptions principally affect land
transportation and audiovisual services. With respect to land transportation, several countries
scheduled exemptions from MFN treatment to accommodate existing agreements that accord
preferential treatment to firms from neighboring countries. With respect to audiovisual services,
several countries reserved the right to accord preferential treatment to countries with which they
have coproduction agreements. In both cases, however, there are mitigating circumstances that
reduce the adverse effects of exemptions on U.S. firms. Specifically, for logistical reasons, U.S.
land transportation service firms have expressed only limited interest in providing their services
in countries that are not contiguous with the United States, and developments such as the
progressive liberalization of telecommunication services and the advent of new electronic media
such as the Internet will make it increasingly difficult for governments to restrict the provision
of audiovisual services.

Industry Viewpoint

While some U.S. industry representatives have noted specific sectoral concerns with respect to
market access and transparency issues, most have expressed satisfaction with the degree to
which South American countries are participating in the GATS. They also indicate that the
absence of country commitments on many industries does not necessarily reflect closed markets.
In fact, U.S. service providers generally report that competitive conditions are improving across
South America as a result of privatization and market liberalization programs.

Conclusion

Due to the widespread omission of commitments on subject service industries, the South
American schedules provide modest benchmarks and slight improvements in transparency. As
a result, the South American commitments offer little immediate benefit to U.S. service
providers. However, by presenting some information on impediments to trade in services when
little was available previously, and by establishing a framework for future negotiations, the
GATS provides a substantial foundation from which to achieve progressive liberalization. More
tangible benefits for U.S. service providers, in the form of binding commitments to full market
access and national treatment, may be achieved in future rounds of negotiations.

xiii


Figure 12-1

Cross-border trade in travel and tourism: U.S. exports, imports, and trade balance,

1990-94

Billion dollars
[1 Exports

Imports = —-— Balance

60

50

_—* rd
10 Y

1990 1991 1992 1993, 1994

Source: U.S. Department of Commerce, Bureau of Econornic Analysis, Survey of Current Business, Sept. 1982, Sept.
1984, and Sept. 1995.

Figure 12-2
Travel and tourism: U.S. cross-border exports, by principal markets, 1994

Venezuela

425%

Canada
10.4%

World = $60.4 billion South & Central America = $7.8 billion

* Principally includes the Middle East, Africa, and the Caribbean.
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

12-3


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4-5








CHAPTER 13
Annex

Methodology

In chapter 13, figures 13-1 and 13-2 summarize the extent to which South American countries
scheduled full and partial commitments. The following discussion first identifies the principal
difficulties encountered in quantifying these aspects of the national schedules and indicates how
these difficulties were resolved. Thereafter, the discussion further delineates the methodology
employed to derive the quantitative indicators found in these figures, and provides examples of
how the indicators were calculated. The annex concludes with a tabular presentation of the data
presented in figures 13-1 and 13-2.

Treatment of Miscellaneous Service Groupings

The service industries of interest to the United States Trade Representative correspond to 62
industries specified in the GATT Secretariat’s Services Sectoral Classification List (see annex
table 13-A-1). Staff reduced the number of industries to 55 by discarding 7 miscellaneous
groupings for which commitments scheduled by the subject trading partners were not
comparable. The seven discarded groupings appear as “other” services under distribution
services, education services, enhanced telecommunication services, audiovisual services, health
care services, transportation services, and travel and tourism services.'°

Hence, the figures 13-1 and 13-2 display shares calculated on the basis of 55 industries, or 440
possible schedule entries.'' This does not alter the relative standing of the subject trading
partners in figures 13-1 and 13-2, but it does result in slightly higher shares in both figures.

© The miscellaneous groupings were included in the GATT Secretariat’s list so that offers could
be broadened at the discretion of GATS signatories.

” For each of the 55 distinct service industries, trading partners could make 8 entries: 4 with
respect to market access (one for each mode of supply), and 4 with respect to national treatment.


countries.’? Florida, a shopping and tourism destination for wealthier South American tourists,
has attracted patients to its hospitals and other health care facilities for many years.'* The
Miami Heart Institute (MHD), part of the large Columbia/HCA Healthcare hospital network, has
begun participating in a number of cardiology conferences in Latin America for purposes of
establishing stronger networks between MHI physicians and Latin American physicians.'° In
the past two years, MHI has focused primarily on Colombia, Chile, and Ecuador, and has seen
measurable year-to-year growth in the number of referrals from those countries.

Sales by Majority-Owned Affiliates

Sales by foreign-based affiliates of U.S. majority-owned health care service companies
amounted to $381 million in 1993 (figure 6-3).'° This represented a 9-percent increase in such
exports from 1992. Much of the 1993 increase reflected rising U.S. affiliate exports to Japan,
Spain, and Singapore, which offset a decline in exports to the United Kingdom. Sales by U.S.-
based affiliates of foreign health care companies amounted to $1.4 billion in 1993, which
represented a 4-percent increase over the previous year.

Sales by foreign-based affiliates of U.S. health care companies were concentrated in the United
Kingdom, Switzerland, Japan, Spain, and Singapore during 1993, with the United Kingdom
accounting for $97 million, or 25 percent of such sales. U.S. affiliate sales to Canada were
negligible due to market restrictions imposed by that country's national health care system.
Official data on U.S. affiliate exports of health care services to Latin American and other
Western Hemisphere countries are not available for 1993.’ Even though such exports are
believed to be relatively low compared to total U.S. affiliate exports of health care services,
emerging growth in managed care in some South American countries has contributed to
improved prospects for U.S. companies. U.S. firms h ave gained significant experience in
managed care, which is much more prevalent in the United States than elsewhere in the world.’*

*S “Medicine without Borders," U.S./Latin Trade, Special Supplement, 1996, p. 10b.; and U.S.
health care industry representatives, Houston, TX, telephone interviews by USITC staff, May 20,
1996.

\ The Mayo Clinic, the world's largest group medicine practice, opened a major clinic in
Jacksonville, Fl. in 1986, in an effort to market its services to the growing Latin American market. In
Latin America, Mayo has promoted a tourism concept called the Seaside program, combining a
check-up at the clinic and vacation at a five-star resort just outside Jacksonville. If problems are
detected, more tests and exams are ordered. "Medicine without Borders," pp. 8-9b; and
representatives of Miami-based hospitals, telephone interviews by USITC staff, May 13, 1996.

'S "Medicine without Borders," p. 12b.

‘SUSDOC, BEA, Survey of Current Business, Sept. 1995, p. 104.

1 Thid.

*8U.S. and South American industry and government officials, telephone interviews by USITC
staff, May 13-16, 1996.

6-4


CHAPTER 2
Overview of International Trade in Services

Introduction

This chapter provides some context for the industry-specific discussions that follow in chapters
3 through 12. The chapter illustrates the relationship between the “modes of supply”
framework used in the General Agreement on Trade in Services (GATS), reviewed briefly in
chapter 1, and the framework used by data collection agencies to report on U.S. trade in
services.’ Thereafter, the chapter describes U.S. trade in services, and compares the trading
partners and industries examined in this USITC report.

Modes of Supply

Trade data pertaining to services are reported under two broad headings: cross-border
transactions and sales through affiliates located in foreign markets. Cross-border service
transactions appear explicitly in the current account of the balance of payments. By contrast,
transactions by affiliates are not explicitly listed in the balance of payments. Instead, the income
derived by the parent firm from sales by its foreign-based affiliates enters the balance of
payments as investment income.” With respect to affiliate transactions, this report covers
income from sales reported by only majority-owned affiliates.> Data regarding sales by
affiliates in which U.S. persons hold only minority interests are not available on an industry-
specific basis.

' This presentation is based substantively on official trade statistics prepared by the U.S.
Department of Commerce, Bureau of Economic Analysis (BEA). The methodological difficulties
inherent in collecting information on cross-border and affiliate trade in services are reflected in this
presentation. Namely, trade data in the detail required for this report are available only through 1993
for affiliate transactions, and only through 1994 for cross-border transactions. In addition, the
availability and comparability of information on certain industries vary according to the mode of
delivery and year, reflecting the reporting obligations of service providers, the suppression of
confidential data, and improvements in BEA’s estimation and reporting methodologies.

? The balance of payments records income from both majority-owned affiliates and non-majority-
owned affiliates,

* Majority-owned foreign affiliates of U.S. firms are defined as foreign affiliates for which the
combined direct and indirect ownership interest of all U.S. parents exceeds 50 percent. 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 percent. For reporting purposes, the
country in which the U.S.-based affiliate’s “ultimate beneficial holder” resides receives credit for
sales to U.S. persons. An ultimate beneficial holder of a U.S. affiliate is the entity, proceeding up the
affiliate’s ownership chain, that is not owned more than 50 percent by another entity.


Cross-Border Transactions

In 1994, U.S. exports of health care services totaled $794 million (figure 6-1).> U.S. cross-
border imports of health care services amounted to an estimated $500 million in 1994.° Such
imports represented a 4-percent increase from 1993, well below the 9-percent average annual
rate of increase of cross-border imports during 1990-93. As in the prior period, a significant
amount of the 1994 increase was due to a rise in the number of U.S. tourists obtaining treatment
from foreign health service providers while traveling abroad.’ South American health care
providers and institutions accounted for less than 5 percent of total U.S. cross-border imports
of health care services.*

The U.S. surplus in cross-border trade of health care services amounted to an estimated $294
million in 1994. This represented a 9-percent increase in the trade balance from 1993, and a
significant departure from the 2-percent average annual decline in the surplus during 1990-93.
Rapid export growth can be attributed, at least partially, to a rebound in health care markets
following several years of stringent cost-containment and budget uncertainty due to health care
reform proposals in the United States and in important foreign markets.

Canada and Europe were the largest markets for U.S. exports of health care services in 1994,
together accounting for an estimated 75 percent” of the total (figure 6-2). Latin American and
other Western Hemisphere nations, including Mexico, absorbed $56 million, or 7 percent’? of
total U.S. cross-border exports of health care services in that year. The South American trading
partners covered in this study accounted for an estimated $24 million, or 3 percent’ of total
US. cross-border exports of health care services. Colombia, Venezuela, Argentina, Brazil, and
Chile are the largest South American markets for U.S. health care service exports.

The superior facilities of U.S. hospitals and the acclaim of U.S. specialists have long attracted
upper-income patients from Latin American countries.'* Hospitals in major southern U.S. cities,
such as Houston, New Orleans, and Miami, have catered especially to well-to-do Latin
American patients. For example, the Houston Medical Center estimates it attracted over 15,000
international patients in 1994, many of them arriving from Mexico and other Latin American

> USDOC, BEA, Survey of Current Business, Sept. 1995, p. 76.

* USITC staff estimate, based on telephone interviews with U.S. industry representatives and BEA
officials, Dec. 12-15, 1995. BEA data not available.

7 Ibid.

*U\S., Argentinean, and Brazilian industry and government officials, telephone interviews by
USITC staff, May 7-10, 1996.

° USITC staff estimate.

*° Ibid.

" Tbid.

” Officials of several U.S.-based hospital chains estimated that 10 to 15 percent of the patients
treated in their hospitals located in Florida, Louisiana, and Texas were from Latin America. U.S.
industry officials, telephone interviews by USITC staff, Miami, Houston, and New Orleans, May 23-
25, 1996.

6-2


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12-12


CHAPTER 5
Courier Services!

Introduction

Courier services* are performed by numerous business operations engaged in the pickup and
expedited delivery of parcels, packages, letters, and other articles destined for domestic or
international locations. In the United States, courier services are provided by large integrated
companies, such as Federal Express Corp. (FEC), United Parcel Service (UPS), DHL
Worldwide Express (DHL), and by approximately 10,000 small independent messenger and
delivery operations. The large companies specialize in providing overnight courier services to
both domestic and international destinations, whereas the smaller companies generally provide
same-day local delivery within the United States.> Since the GATS does not address air
transportation services, this report focuses only on the land-based component of courier
services, which primarily involves the delivery of packages within a country market once they
have cleared the airport. The major U.S. courier service firms provide such land-based services
either directly or through affiliates in a number of foreign markets.

Nature of International Trade in Courier Services

Official data on U.S. trade in courier services are not available. Industry representatives
maintain, however, that the United States is a net exporter of such services.* These exported
services are provided to customers primarily through foreign-based affiliates of FEC, UPS,
DHL, and similar courier operations. In certain countries, however, these companies deliver
packages through contractual agreements with foreign-owned trucking operations. For example,

' Among the individuals consulted by the USITC staff in preparation of this report were those
affiliated with the following organizations: Federal Express Corp.; United Parcel Service; DHL
Worldwide Express; and Airbome Courier Conference of America.

? The U.S. SIC codes applicable to courier services are 4212, local trucking without storage
(which includes freight weighing 100 pounds or more); and 4215, courier services, except air (which
includes packages under 100 pounds).

* With respect to the large integrated companies, courier services include a number of activities
telated to various service sectors, such as customs brokerage, aviation, air cargo (including freight
forwarding), telecommunications, ground transportation, postal services (delivery services), ground
handling of aircraft and cargo, warehousing and distribution, and consulting and management
services. For the small companies courier services are generally limited to in-hand transport of
documents by a courier. Prehearing Brief of Federal Express Corp., submitted to the USITC,
investigation No. 332-367, July, 12, 1996, pp. 5-8.

* Industry representative, telephone interview by USITC staff, Jan. 27, 1995.


Since many of the South American countries may be considered developing countries,'* it should
be expected that these countries would schedule fewer commitments than larger U.S. trading
partners such as the European Union, Canada, and Japan. This proved to be the case, as, for
example, South American countries scheduled no commitments pertaining to education services
and audiovisual services, and only Bolivia scheduled commitments regarding health care
services. Table 1-1 shows which countries scheduled commitments of any kind for specific
industries by displaying an ‘X’ in the relevant cell.

Education, health care, audiovisual, and transportation services were omitted by most South
American countries for various reasons. First, these sectors often are controlled by the
government, and services supplied in the exercise of governmental authority lie outside the
GATS. Second, in some cases, these sectors are undergoing major regulatory change, which
made it infeasible for countries to schedule binding commitments. Third, negotiating dynamics
also played a role. Demandeur countries did not identify education and health care industries
as high priority areas. With respect to the exclusion of audiovisual services, negotiating
dynamics appear to be the primary factor. Larger trading partners such as France scheduled
broad MFN exemptions on audiovisual services that substantially weakened the value of EU
commitments. This left smaller countries with weak audiovisual industries with little incentive
to offer binding commitments in this industry.'°

Cross-Industry Commitments

As noted, cross-industry commitments span all service industries listed in a signatory’s
schedule.”” These commitments generally address investment, taxation, real estate transactions,
government subsidies, and the temporary entry and stay of natural persons. Consequently, they
almost always apply to two modes of supply: commercial presence and the presence of natural
persons. One of the principal complexities of the national schedules is that the industry-specific
commitments cannot be understood fully without reference to the cross-industry commitments.
For example, if an accounting firm wanted to establish a commercial presence in Brazil, it would
need to consider both the industry-specific limitations found under “accounting,” as well as the
cross-industry restrictions on investment. Table 1-2 summarizes the cross-industry
commitments scheduled by the South American countries, which are described in further detail
in appendix E.

+8 Tn the context of the GATS, countries that have claimed “developing” status generally are those
outside the Organization for Economic Cooperation and Development.

'S USITC staff interviews, Geneva, Switzerland, Apr. 24, 1996, Sao Paulo, Brazil, Aug. 6, 1996,
and Caracas, Venezuela, Aug. 13, 1996.

?° Although signatory countries were not obligated to schedule cross-industry commitments and no
guidelines were established for scheduling such commitments, many countries provided cross-

industry commitments to avoid excessive repetition in the industry-specific section of the national
schedules.

1-6


CHAPTER 3
Distribution Services!

Introduction

The distribution industry is comprised of four major services: commission agents’ services,
wholesale trade services, retail trade services, and franchising services.” Service providers
generally are distinguished as follows: commission agents sell products that are supplied and
typically owned by others to retailers, wholesalers, or other individuals; wholesalers take title
to products supplied by others and subsequently resell them to retailers;? retailers sell goods and
services mostly to individual consumers and households, although certain retailers also may sell
to businesses; and franchisors sell certain rights and privileges, such as the right to use a retail
business format or a trademark, in exchange for fees and royalties.

Nature of International Trade in Distribution Services

Trade in distribution services occurs both through sales by affiliates and cross-border sales. The
two largest components of distribution services trade are wholesale and retail services, which
are conducted predominantly through majority-owned, foreign-based affiliates. Consequently,
among the most significant nontariff barriers faced by U.S. wholesalers and retailers abroad are
barriers to the establishment of a commercial presence and limitations on their ability to staff
these establishments with nationals from the home country. Franchising trade is recorded on
a cross-border basis, as measured by the exchange of royalties and fees in return for the rights
to use business formats or trademarks. International franchising typically is not affected by
commercial presence barriers because foreign franchisees usually are citizens of the country in
which they own the franchise, making the establishment locally owned and operated.

' Among the individuals consulted by the United States International Trade Commission (USITC)
staff in preparation of this report were those affiliated with the following organizations: Avon
Products, Inc.; Home Depot; J.C. Penney; Liz Claiborne; Wal-Mart Stores; International Franchise
Association, International Mass Retail Association, Arthur Andersen and Company; Brownstein,
Zeidman and Lore; the Organization of American States, The American Chamber of Commerce, Sao
Paulo, Brazil; the Venezuela-American Chamber of Commerce, Caracas, Venezuela; and the Bureau
of Economic Analysis (BEA), U.S. Department of Commerce (USDOC).

? Commission agents’ services are not captured in the U.S. Standard Industrial Classification (SIC)
codes. Wholesale trade services are captured in SIC codes 50 and 51, retail trade services are
captured in SIC codes 52 through 59, and franchising services are captured in SIC code 6794.
Foreign schedules of commitments refer to international central product classification codes. A list of
these codes can be found in appendix D.

* In addition to selling, wholesalers often provide services such as maintenance of inventories,
extension of credit, and promotion of goods.


a subsidiary; limitations concerning the repatriation of capital and the remittance of profits; and
investment registration and approval requirements, which may include subjective economic
needs tests.*

As was customary among all GATS signatories, restrictions that apply to the presence of natural
persons are stated in relation to selected types of personnel, usually senior managers, executives,
and specialists. Measures affecting other types of employees remain unbound. Bolivia, Chile,
Peru, and Venezuela specify permissible durations of stay, which range from 1 to 3 years.
Argentina, Brazil, Colombia, and Uruguay decline to specify permissible lengths of stay. In
these instances, no binding is undertaken with respect to length of stay, but these countries may
not impose conditions that nullify the benefits accorded to foreign service providers by industry-
specific commitments.’ Regulatory bodies in these countries presumably exercise considerable
discretion in determining when the benefits of industry-specific commitments are nullified.
Hence, the approach taken by these four countries limits transparency. Paraguay’s schedule is
similarly non-transparent with respect to temporary entry and stay, as Paraguay scheduled no
commitments regarding the presence of natural persons.

Industry-Specific Commitments by South American Countries

GATS signatories were provided with many opportunities to establish benchmarks and enhance
transparency by scheduling industry-specific commitments. By scheduling a full commitment
with respect to one mode of supplying a particular service, countries could indicate that they
impose no restrictions on such trade, thereby establishing a benchmark and enhancing
transparency. By scheduling a partial commitment, which requires a country to specify the
nature of the restriction in place, a country could once again establish a benchmark and enhance
transparency. In scheduling a full or partial commitment, a country recognized that under the
terms of the GATS, it could reverse itself and introduce trade-impeding measures only if it were
willing to compensate aggrieved parties. By undertaking no commitment, countries could
decline to establish benchmarks and make no contribution to regulatory transparency. The
absence of a commitment leaves trade limitations unbound, allowing a country to retain
unspecified restrictions or impose unspecified restrictions without penalty.

Impediments to trade in services are usually manifest in regulations that restrict or deny foreign
service providers market access or national treatment. For this reason, national schedules
require each GATS signatory to indicate whether it is undertaking a full commitment, partial
commitment, or no commitment with respect to both market access and national treatment.
Further, because the GATS recognizes four modes of supplying services, signatories are
required to indicate the nature of their undertaking with respect to each mode of supply, yielding

‘Economic needs tests assess the impact of new market entrants on the indigenous industry. Such
assessments may result in a negative determination if market entry is considered likely to have a
detrimental effect on market structure, profitability, population density, geographic distribution, and.
job creation. However, thresholds for meeting these criteria are not specified and may be subject to
different interpretation on a case-by-case basis.

> GATT Secretariat, Scheduling of Initial Commitments in Trade in Services: Explanatory Note,
Nov. 30, 1993 (MTN.GNS/W/164/Add.1).

13-5


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4-7


Table 1-3

decisions define the scope of certain industries for the purposes of further negotiations, establish
the modalities of ongoing and future negotiations, establish future work programs, and set
timetables for concluding negotiations rolled over from the Uruguay Round.”*

Highlights of MFN exemptions, by country

Argentina | Bolivia | Brazil | Chile | Colombia | Paraguay Peru Uruguay Venezuela

All services ....

x x x

Audiovisual
services ....

Distribution
services ....

Land
transportation
services ....

Professional
services

Telecommuni-
cation
services .....

Source: Compiled by the staff of the U.S. International Trade Commission.

Methodological Approach

Since little information on the GATS is published, USITC staff were required to collect
information through primary sources. The Commission conducted a public hearing on July 18,
1996,”° and staff conducted extensive in-person and telephone interviews with, and made
telefax inquiries of, domestic and foreign service providers, principal service industry
associations, and U.S. and foreign regulatory authorities (appendix H).

?5 Negotiations on financial services, basic telecommunication services, and maritime transport
services were not concluded during the Uruguay Round, but provisions were made for them to
continue. Negotiations on financial services concluded in June 1995. With respect to these services,
the United States registered a broad MFN exemption that preserves the right to differentiate among
foreign service providers in terms of regulatory treatment. Acting on a reciprocal basis, U.S.
regulations will specify countries whose firms may establish a presence in the U.S. market, expand
current operations geographically, or provide new services. Negotiations regarding basic
telecommunication services, which were scheduled to conclude in April 1996, were extended further
until February 1997, after the United States and other WTO members indicated dissatisfaction with
the commitments offered by significant trading partners. Maritime transport services negotiations,
which were scheduled to conclude by June 1996, were postponed until 2000.

*® See appendix G for the calendar of witnesses.

1-9


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12-10




a

Py wish to express my mppreciaticn for the Commission's transmittal of the report. Gerieral -
‘Agreement on Trade in Services (GATS): Examination of Major Trading Parmers'* Schedules of
Commitments, received by my office on December 15,.1995. ‘The GATS is one of the major
accomplishments of the Uruguay Round, providing a framework that disciplines government
regulation of trade and investment in service industries and obligates signatory countries to
establish schedules of commitments.’ These'schedules indicate the extent to which signatory
coumtries accord market access and national treatment to foreign service providers on an
industry-by-industry basis. The Commission's study provides a clear, concise summary of the
commitments that our major trading parmers have included in their GATS schedules and the
benefits of these commitments to U.S. service providers. It will also provide useful input for
future trade-liberalizing service negotiations.

In this regard, additional assessments of foreign commitments pursuant to the GATS arc of
interest to my office. _A clarification of the schedules and an evaluation of the oppormniuies
afforded U.S. service providers by additional trading partners’ commitments would be of great..

_. value. I therefore request, pursuant to authority delegated by the President under section 332(g)
of the Tariff Act of 1930, that the U.S. International Trade Commission conduct a follow-on
investigation that (1) examines the content of schedules of commitments for the countries
specified below, explaining the commitments in non-technical language; and (2) clearly and
concisely identifies the potential benefits and limitations of such commitments. °

The Commission’s follow-on report should examine sector-specific and horizontal commitments
pertaining to the following services in Argentina, Bolivia, Brazil, Chile, Colombia, Paraguay,
Peru, Uruguay, and Venezuela:

distribution services (defined as wholesaling, retailing, and franchising services),
communication services (defined as enhanced telecommunication, audiovisual, and
courier services);

bealth care services;

Professional services (defined as accounting, advertising, and Icgal services);
architectural, engineering, and construction (AEC) services
~tand-based transport services (defined as rail and trucking services); and

A-2


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TI


Federal Register / Vol. 61, No. 95 /- Wednesday, May 15, 1996 / Notices

24510
jackground under section 332(g) of the Tariff Act of requested by the USTR on December 28.
» On March 14, 1996, a petition was 1930 (19 U.S.C. 1332(g)). 1994, also under section 332(R) ot the
filed with ‘the Commission and the FOR FURTHER INFORMATION: Information Tariff Act of 1930. Jn that reper.
ant of Commerce by Brush on service industries may be obtained Commission exam! ee by the
Wellman, Cleveland, OH, alleging that from Mr. Richard Brown. Office sof Eacannio ants sched Sey Canada,
an industry in the United States is Industries (202-205-3438) a ao eee co with respect

materially injured or threatened with
material injury by reason of LTFV
imports of beryllium metal and high-
beryllium alloys from Kazakhstan.
‘Accordingly. effective March 14, 1996,
the Commission instituted antidumping
investigation No. 731-TA-746
(Preliminary).

Notice of the institution of the
Commission's investigation and of a
public conference to be held in
Connection therewith was given by
posting copies of the notice in the Office
of the Secretary, U.S. International
Trade Commission, Washington, DC,
and by publishing the notice in the
Federal Register of March 26, 1996 (61
FR 13213). The conference was held in
Washington, DC, on April 3, 1996, and
all persons who requested the
opportunity were permitted to appear in
person or by counsel.

The Commission transmitted its
determination in this investigation to
the Secretary of Commerce on May 6,
1996. The views of the Commission are
contained in USITC Publication 2959
(May 1996), entitled “Beryllium Metal
and High-Beryllium Alloys from
Kazakhstan: Investigation No. 731-TA—
746 (Preliminary).”

By order of the Cammissian.

Issued: May 8, 1996.

Donna R. Koehnke,

Secretary.

IFR Doc. 96~-12183 Filed 5~14~96; 8:45 am}
BILUNG CODE T920-02-2

General Agreement on Trade in
‘Services: Examination of South
American Trading Partners’ Schedules
of Commitments

AGENCY: International Trade
Commission, Department of Commerce.
ACTION: Institution of investigation and
scheduling of public hearing.

EFFECTIVE DATE: May 6. 1996.

‘SUMMARY: Following receipt on April 9,
1996, of a request from the Office of the
United States Trade Representative
(USTR), the Commission instituted
Investigation No. 332-367, General
‘Agreement on Trade in Services:
Examination of South American Trading
Partners’ Schedules of Commitments,

‘metal and high-beryllium alloys thet are alleged to
be sold in the United Seca LTeY, eed

Christopher Melly, Office of Industries
(202-205-3461); economic aspects, from
Mr. William Donnelly, Office of
Economics (202-205-3223); and legal
as} from Mr. William Gearhart,
Office of the General Counsel (262~205-
3091). The media should contact Ms.
Margaret O'Laugilin, Office of Public
‘Affairs (202-205-1819). Hearing
impaired individuals are advised that
information on this matter can be
obtained by contacting the TDD
terminal on (202~205~1810).

Ba

As requested by the USTR in a letter
dated April 5, 1908, the Commission.
pursuant to section 332(g)

Act of 1930, has instituted a
investigation prepare a report
that (1) examines the content of foreign
schedules of commitments under the
General Agreement an Trade in Services
(GATS), explaining the commitments in
non-technical Janguage: and {2) seeks to
identify the potential ts and
limitations of foreign commitments.
Also as requested, the Commission will
focus on sector-specific commitments
scheduled by Argentina, Bolivia, Brazil,
Chile, Colombis is a Fergua y Fe ds rerpect
‘Uruguay, and Venezuel to
the following industries:

e distribution services (defined as
wholesaling, retailing, and franchising
services);

* education services;

* communication services (defined as
enhanced telecommunication, courier,
and audiovisual services);

© health care services;

professional services (defined as
accounting, advertising, and legal

transport services
(defined as rail and trucking services);

and

© travel and tourism.

In addition, the Commission will
examine horizontal commitments
relevant to the specified industries, such
as those regarding investment and
temporary entry and stay of foreign
workers. As requested by the USTR, the
Commission plans to deliver its report
to the USTR by December 13, 1996.

‘The investigation is a follow-on to
Commission Investigation No. 332-358,
General Agreement on Trade in
Services: Examination of Major Trading
Partners’ Schedules of Commitments,

B-2

to the
industries delineated above. The initial
report, USITC Publication 2940, was
published in December 1995. and is
available on the ITC Internet server
(httpy/www.usite.gov or ftp://
ftp.usitc.gov).
Public Hearing
A public hearing in connection with
the ihvestigation will be held at the U.S.
International Trade Commission
Building, 500 E Street SW, weiner
“DC, beginning at 8:30 a.m. on July 18,
1066, All persons sal hav he right to
. by counsel or in persan, to
sts to apy at the pul esring
Should be with the Secretary, U.S.
International Trade Commission, 500 E
Street SW, Washington, DC 20436, no
later than 5:15 p.m., July 5, 2996. Any
prebearing briefs (original and 14
copies) should be filed not iater than
5:15 p.m., July 5; 1996. The deadline for
filing post-hearing briefs or statements
is 5:15 p.m., August 1, 1996. In the
‘event that, as of the close of business on
July 5, 1996, no witnesses are scheduled
to appear at the hearing, the hearing will
be canceled. Any person interested in
attending the hearing as an observer or
non-participant may call the
to the Commission (202-205-1816)
July 5, 1996, to determine whether
hearing will be held.
Written Submissions
In lieu of or in addition to
participating in the hearing, interested
parties are invited to submit written
statements concerning the matters to be
addressed by the Commission in its
ieport on this investigation. Commercial
or financial information that a submitter
desires the Commission to treat as
confidential must be submitted on .
separate sheets of paper, each clearly
marked “Confidential Business
Information” at the top. All submissions
‘ing confidential treatment must
conform with the requirements of
section 201.6 of the Commission's Rules
of Practice and Procedure (19 CF.R.
201.8). All written submissions, except
for confidential business information,
will be made available in the Office of
eee Ey of the Commission for
in ion by intereste: Tobe
assured of ‘consideration by the
Commission, written statements relating
to the Commission's report should be
submitted to the Commission at the




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uspams UJIM SeljUNOS WO, Suap|Aold Bolles:
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(,uoquaauog ewry,)
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uonduiex3
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Nal Bunsty 40) uoseay, Jo uoleing papiemy saijuno5 ‘sainseay Jo uoyduoseg DIUM 0} SadIAIag uolBey/Aajun05

suojdwaxe (NW) UOleU-pasones-ysopy

F-4


expect the demand for enhanced telecommunications services to expand so long as economic
growth continues.

Recent trends in deregulation and privatization of telecommunication monopolies have made
the region more attractive to U.S. investors. Enhanced telecommunication services in
Argentina, Chile, and Venezuela are relatively open to competition and Brazil, Colombia, and
Peru have initiated reforms to dismantle government monopolies. The industry remains a
monopoly in Bolivia, Paraguay, and Uruguay, which are smaller and less strategic markets.””

Industry representatives also state that the penetration of telephone services in the region,
ranging from 16.2 lines per 100 people in Uruguay to 2.6 lines in Bolivia,” is low and may
constitute an obstacle to the growth of enhanced telecommunication services. But new wireless
communication technologies including cellular and personal communication systems (PCS) are
creating opportunities for U.S. service providers. Most industry representatives also express
satisfaction with the transparency of the regulatory systems. However, such transparency may
vary depending upon the service or the country. For example, in Brazil one major U.S. service
provider faced a delay of at least 4 months before it could begin operating due to unforeseen
difficulties complying with regulations.” Despite occasional difficulties U.S. service providers
report that they generally receive the same treatment as local companies.*°

Summary

Based on the national schedules, few of the subject trading partners appear to provide fully
open markets for enhanced telecommunication services. Argentina, Chile, Colombia, and Peru
are the only South American countries to address enhanced telecommunication services in their
schedules. Of these four, only Argentina commits to full market access and national treatment
for foreign providers of enhanced telecommunication services.

With respect to Argentina and, perhaps, Colombia, the national schedules have improved
transparency and established effective benchmarks, which ultimately could benefit U.S. firms.
However, the benefits conferred by commitments on enhanced telecommunication services are
contingent upon the negotiation of a basic telecommunication agreement in the WTO. An
agreement that liberalizes regulations pertaining to foreign investment and service provision
and establishes pro-competitive market environments could ultimately reduce leased line fees
and accounting rates and generally improve the terms and conditions of competition. The
successful conclusion of these negotiations may be augmented by market forces that are
bringing about liberalization in some of this report’s subject countries. As noted, the current
market environment in certain South American countries is much more open than may be
inferred from the national schedules.

> Industry representative, interview by USITC staff, Washington, DC, July 9 and 19, 1996.
* Kaitlin Quistrgard, “Dynamic telco duo,” Global Telephony, June 1996, p. 42.

® Industry representative, interview by USITC staff, Sao Paulo, Brazil, Aug. 8, 1996.

*° Industry representative, interview by USITC staff, Washington, DC, July 9, 1996.

4-12


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T8


Figure 10-1
Cross-border trade i

legal services: U.S. exports, imports, and trade balance, 1991-94

Billion dollars
[1] Exports YA imports

Balance

as

06

0.4

0.2

1991 1992 1993 1994

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

Figure 10-2
Legal services: U.S. cross-border exports, by principal markets, 1994

Europe
54.4%

Venezuela
18.4%

Chile
10.5%

World = $1.6 billion South & Central America = $38 million

"Principally includes the Middle East, Africa, and the Caribbean.
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

10-3


E-7

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SUON sjuaUBAL [EUOTEN SUON -uaUREAI] |EUOREN ‘UON sUaUeSIL |eUOHEN
UON :SSa90y JOMIEW BUON :ssaacy JEW BUN :ssaaay jaeW | ajeisg eeu
SUON 7UaURBAIL [EUOTEN SUON -JuaURead, |eUCHEN BUON :JUSUNEas] [EUOEN
SUON :ssa2ay JOHIeW ‘SUON :SSaD0y JaxJEW BUON :ssalay Jaye quawysanu| AenBrun,
BUON {uaURBD] |EUOHEN
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uj Jo) papiAoid aseo Jaujo Aue ul pur ‘Joes jUO9 a}e}g & YIM Sasudiejua
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sepepius)) SyluN xe} AAl JO WNUUNUI e daay OM sioysaAu! UBIBI04 -
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Jo sasudiejue aoves jeuoyeuNiNW U) Bupyom jauuosiad UBle104 -
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SUOSIdd JBINJBN JO aduasald agueseld [eI1aUsLIOD Aiddng 1epiog-ssojp, obayeo, Anunog
“Aiddns jo epow

,S}UaWUPWLUOD Auysnpu|-SSOlD,


Argentina

Argentina makes the best offer in legal services of any of the subject trading partners. It offers
market access and national treatment without limitation to foreign legal enterprises, and it
permits foreign attorneys to provide a full range of legal services, for both domestic and
international law. However, Argentina’s commitment concerning the presence of natural
persons permits it to exercise broad discretion regarding the entry of legal service providers.
Argentina declined to specify permissible lengths of stay for foreign service providers, thus
undertaking no binding commitment in this respect.’*

Chile

Chile guarantees foreign legal consultants both market access and national treatment should
they wish to establish a commercial presence to provide advice regarding public international
law and international commercial law.’ However, Chile did not offer legal service
commitments pertaining to either cross-border supply or consumption abroad. With respect
to the presence of natural persons, Chile permits the temporary entry and stay of senior and
specialized personnel, which may include legal services providers, for a period of two years.

Colombia

Colombia guarantees unlimited market access and national treatment for legal advisory
services delivered through cross-border supply and consumption abroad. However,
Colombia’s commitments permit foreign legal service firms to supply advice on foreign law
and international law only. Limitations on commercial presence and the presence of natural
persons are unbound.

Venezuela

Venezuela scheduled no commitments for either cross-border supply or commercial presence,
the two principal modes of supplying legal services. With respect to the presence of natural
persons, Venezuela appears to maintain broad discretion regarding the entry and stay of foreign
attorneys by declining to specify permissible lengths of stay for foreign business persons.
Venezuela also registers an MFN exemption that subjects foreign professionals to reciprocity
provisions when practicing in Venezuela.

"3 However, under the terms of the GATS, Argentina may not condition foreign service provider’s
entry in such a manner as to nullify the benefits conferred by its legal services commitments.

' The Chilean schedule is not clear as to whether the restriction applies only to public international
law. See WTO, Chile, Schedule of Specific Commitments, General Agreement on Trade in Services,
GATS/SC/18, Apr. 15, 1994, footnote 1, p. 5.

10-6


Cross-border service exports grew by an average annual rate of 12 percent during 1986-94,
increasing from $63 billion in 1986 to $151 billion in 1994 (figure 2-2). Increasing receipts
from tourism and passenger fares generally have led growth in cross-border service exports in
terms of value, reflecting an overall rise in the number of tourists visiting the United States.°
The professional service industries also recorded strong export growth, increasing by an average
annual rate of 16 percent between 1986 and 1994.

Cross-border service imports expanded less quickly than exports. During 1986-94, U.S. cross-
border service imports grew by an average annual rate of 8 percent, increasing from $60 billion
in 1986 to $110 billion in 1994 (figure 2-2). Payments for royalties and license fees and
payments for financial services cach grew by 18 percent per annum, leading import growth
during 1986-94. Imports of transportation services also increased, due in part to growth in
payments to foreign shippers as an expanding U.S. economy drove up merchandise import
volumes during 1992-94. Among this report’s subject industries, imports of professional
services grew most, principally because of rapidly increasing imports of advertising and legal
services,

Sales by Majority-Owned Affiliates

Many business, professional, and technical services are traded through affiliates, since these
types of services generally require continuous contact between service providers and customers.
In 1993, 45 percent of total U.S. service exports were accounted for by foreign affiliates of U.S.
firms, and 55 percent of total U.S. service imports were accounted for by U.S.-based affiliates
of foreign firms.’ The U.S. balance on affiliate transactions registered a surplus during 1987-
93, averaging almost $11 billion each year. However, this surplus declined to $3 billion in
1993, reflecting the effects of slower economic growth abroad on the sales revenues of foreign-
based affiliates of U.S. companies (figure 2-5).®

During 1987-93, sales by U.S.-owned affiliates in foreign markets (exports) grew by an average
annual rate of 12 percent, from $72 billion in 1987 to nearly $143 billion in 1993. Insurance
firms, distribution service providers, securities firms, and certain professional service firms,
such as computer and data processing firms, accounted for large shares of sales through U.S.-
owned affiliates (figure 2-6).

° This trend slowed somewhat in 1993 as recessions in foreign economies discouraged tourism in
the United States.

? Trade figures referenced in this discussion exclude transactions between a foreign affiliate and its
U.S. parent company, but include transactions among different affiliates of the parent. Data that
exclude all intra-corporate trade are not publicly available.

® Comparable data for U.S. trade in services through affiliates are available only for the time period
1987-93.

2-5


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pue s}yBu owes ety eaey ayediomed Aauy YolyM ul sasudiejUa PUR SIO}SeAU! UBIE/0j EY} SApIAOId 'JUSLYSAAU| UBJe/0.4 JO UOHOWOJd OU} UO M7 '7ZQ “ON Ba108Q enge|siBe7 ,

“UOISSIWIWWOD apes! [EUONEUJEzU| “Sf OU} Jo YeISs Buy Aq palidwod :eonog

sswop se suojeBligo

“iobayeo Jayyle uy jeUUOsJed 0} pled UOYEIBUNUAL [2}0} BU) Jo JUeoied QZ paaoxe you Aew
saefojdwia pue siayJom jenuew jog Bulpnjour ‘sseuBjes0} 0} pled uoleseuNLwed [2}0) @UL
“sleuoljeu UejenzeuUaA aq JsnW astdiajus Ue Jo |BULOSJad ay} Jo JUsoJed OG ISEA] WW
“sjeuojeu uRjanzeuan aq JsNW SuONOUNy Je||W!s Bulsiolaxa Uosiad Aue 40 Sios\uedns
‘syeuoule Jo sdiys jo sujeydeo ‘Jauuosied jo sjalyo ‘suoNesad JeLJSNPU! Jo SJa1YD -

sale SMe] aSeu ‘JUased yy “SUOdaoxe aos UjIM ‘sjuaUpUWe ainyny pue Me} JOqe)
yueuNo aly UJ UMOP ple] SUOOL}SA! 94} 0} JOa!gns aq ||IM S[euONeU UBjalo4 “aK aUO Jo Aes
lajqemaues payiwied ae oym ‘sisijeloads pure ‘saaynoaxe pue sieGeuew ‘jJe}5 eAHe.s|UIUpe

‘sales |BIOURULJ-UOU Jo SJa}jas Jo Aeys pue Aqua Aresoduiay ay) yJuued 0} Ajuo payIWWog » “BUON Bjanzauap,
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sqyeuag 94 Ayijinu jou Aew Ajua jo sua “uayUa Aew sysijeloads pue seaynoaxe ‘sieBeueyW + “aUON Aenbrun,
“BIEIS BU 0} panboe
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“suoljdaoxe aos YyM ‘}ouAed ‘U} JO WY OS UIUYIM Saounos AByaUs Jo Janj ‘Seounosal JajeM ‘pUE|POOM ‘pue| ‘SBUILU UMO
[e}0} By} Jo Jusouad QE paeoxa jou AeW UONeJeUNUWAd JI9y} pue ‘astdiajua ey} Aq pacojdwie you Aew ssauBlesoy yeu; sazeindys uoyNyySUOD [eoN!|Od S,1aq ‘Apadoud UA UOHOBUUOD U] +
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“yuaWPWWOS ON “JUALUP!WUWOD ON, AenBeseg
‘SuoSiad |PanjeN JO aoUaseld vaouasaid [EIN/eURUOD Aajunog,

Aiddns jo apow

syuawpWW0D Aujsnpul-ssoi9 jo syy61 46H

be aqeL

13-4


APPENDIX C
GLOSSARY OF TERMS



CONTENTS-Continued

Page
Chapter 11-Continued

Uruguay orien enn e eben enter enn neers 11-6
Industry opinion 11-6
11-8

Chapter 12. Travel and Tourism Services
Introduction 12-1
Nature of international trade in travel and tourism services . 12-1
Cross-border transactions .. 12-2
Sales by majority-owned affiliates 12-2
Examination of commitments on travel and tourism services an 12-5
Argentina 00... a 12-5
Bolivia . 12-13
Brazil . 12-13
Chile 12-14
12-14
12-14
12-15
12-15
Venezuela 12-16
Industry opinion .. 12-16
12-17
13-1
13-1
13-2
Cross-industry commitments by South American countries . 13-2
Industry-specific commitments by South American countries 13-5
MEN exemptions . 13-8
Conclusion 13-10

Chapter 13. Annex

Methodology
Treatment of miscellaneous service groupings .
Treatment of entries referencing cross-industry commitments

vii




Examination of Commitments on Travel and Tourism
Services

Trade in travel and tourism is generated mainly by tourists who cross borders and stay in hotels,
eat at restaurants, and take tours. As noted previously, an open regulatory regime for
consumption abroad is important with respect to facilitating travel overseas. The schedules of
Argentina, Chile, Paraguay, and Uruguay bind full market access and national treatment for
travel and tourism services consumed abroad. Several other countries scheduled restrictions on
consumption abroad on a single travel and tourism subsector, most frequently tourist guide
services. While South American trading partners impose virtually no restrictions on the
movement of tourists to destinations outside their borders, during the time when national
schedules were drafted some partners imposed foreign exchange controls, indicated on the
schedules as cross-industry commitments, that may have inhibited discretionary travel abroad.

To a lesser extent, firms establish a commercial presence in foreign countries to sell travel and
tourism services to foreigners. Restrictions on foreign investment, long prevalent in certain
South American countries until the early 1990s, have been largely eliminated, except in border
or coastal areas. Such investment restrictions along coasts or borders typically are included in
countries’ schedules as cross-industry measures and are established for reasons of national
sovereignty and defense rather than as limitations intended to inhibit foreign travel and tourism

firms specifically from establishing commercial presence.

Overall, the schedules of commitments on travel and tourism services submitted by Argentina,
Chile, and Uruguay appear to impose the fewest formal restrictions on foreign providers of
travel and tourism services (table 12-1). Paraguay’s schedule is partially restricted especially
with regard to travel agency and tour operator services. The following discussion focuses on
the cross-industry commitments’? and on the industry-specific commitments made with respect

to consumption abroad, commercial presence, and the presence of natural persons.

Argentina

Argentina scheduled few limitations on travel and tourism services, and therefore is considered
to have one of the most open regulatory regimes. Argentina did leave unspecified limitations
on the presence of natural persons unbound, maintaining broad discretion regarding the
temporary entry and stay of natural persons. Argentina’s only stipulation with respect to
commercial presence, contained in its cross-industry commitments, left unbound the acquisition

of land in frontier areas.

1° A detailed table of cross-industry commitments is presented in appendix E.

12-5


Bolivia

Bolivia scheduled full commitments to lodging, food and beverage, and travel agency and tour
operator services for consumption abroad and commercial presence, but left restrictions on
tourist guide services unbound for all modes of supply. Bolivia’s cross-industry commitments
state that foreign firms that engage in trade on a regular basis must establish subsidiaries.
Certain other subject countries, compared with Bolivia, provided for more diversified forms
of establishment. As to the presence of natural persons, Bolivia’s schedule specifies that
foreign managers, executives, and specialists may obtain 1- to 2-year residence permits, but
that such persons may constitute no more than 15 percent of an enterprise’s total personnel.
Measures affecting other types of employees remain unbound.

Brazil

Brazil’s schedule lists some of the most stringent restrictions on travel and tourism services.
The country did make full commitments on commercial presence with regard to market access
for lodging services and food services.'' However, Brazil left restrictions on travel agency
services and tourist guide services unbound for all modes of supply, as well as lodging services
and food services when delivered through consumption abroad. Brazil scheduled two national
treatment limitations with respect to commercial presence for lodging service and food service
firms. Brazilian firms operating in certain remote regions can receive tax credit incentives, and
Brazil extends other incentives only to firms with a majority of capital held by Brazilian
citizens or legal entities. Furthermore, cross-industry limitations appear to restrict foreigners’
ability to provide travel and tourism services in Brazil. Brazilian law does not recognize
partnerships and proprietorships, and precludes foreign service providers from organizing in
Brazil under these forms of establishment. Cross-industry requirements wherein companies
must justify the need to contract foreign professionals and technicians, subject to approval by
the Brazilian Ministry of Labor, may inhibit the movement of natural persons. Finally,
subsidies remain unbound for all modes of supply, suggesting that Brazil reserves the right to
support domestic industries through subsidies, which could constitute violations to national
treatment principles.

‘ Beverage services, however, were not included in Brazil’s scheduled commitments on travel and
tourism services.

12-13


CHAPTER 13
Summary

Introduction

The preceding chapters examine the schedules of commitments submitted to the World Trade
Organization (WTO) by nine South American countries under the General Agreement on Trade
in Services (GATS). The chapters explain the commitments made by these countries and
identify the benefits and limitations of the commitments with respect to U.S. service providers.
The discussions conclude with statements as to the relative restrictiveness of the subject trading
partners’ markets and the extent to which relevant commitments provide benchmarks’ and
improve regulatory transparency.”

This chapter provides a summary of the report’s contents and findings, beginning with an
overview of the nature and intent of the GATS framework and national schedules. Afterward,
this chapter highlights significant aspects of the South American schedules. Aspects of cross-
industry commitments, industry-specific commitments, and most-favored-nation (MFN)
exemptions are discussed separately.

GATS Overview

As noted in chapter 1, the GATS basically comprises a framework, national schedules of
commitments, annexes, and ministerial decisions. In the Uruguay Round, the Group
Negotiating on Services (GNS) first developed a framework of general disciplines and
obligations pertaining to trade in services, as signatories to the General Agreement on Tariffs
and Trade (GATT) had done some 50 years ago with respect to trade in goods. Parties to the
GATS designed the framework as a mechanism for challenging trade-impeding measures. Such
measures generally limit foreign firms’ market access or accord these firms treatment less
favorable than that accorded domestic firms. Signatories to the GATS believe that removal of
trade restrictions in an economic sector that generally accounts for more than 60 percent of

' Benchmarks comprise full and partial commitments. Full commitments are obligations to accord
foreign firms full market access and national treatment. Partial commitments are obligations to accord
foreign firms at least some degree of market access and/or national treatment subject to specified
limitations. Where GATS signatories have scheduled full and partial commitments, they may
introduce trade-impeding measures only if they are willing to compensate aggrieved parties. Where
trade impediments remain unbound, no benchmarks have been established, and signatories may
introduce trade-impeding measures without penalty.

? Transparency exists when the nature and extent of all trade-impeding measures are explained in
their entirety, with precision and clarity.


Limitations on the activities of distribution service firms have a variety of effects. Restrictions
on real estate and equity investment may limit the ability of foreign distribution service firms
to retain control over their foreign affiliates. State monopolies on the distribution of selected
products and exclusion from product or service areas that are considered to be of national
interest may adversely affect distribution service firms by limiting product mix. Finally,
restrictions on the temporary entry and stay of natural persons, such as nationality quotas,
residence requirements for boards of directors, and limits on the length of time foreign persons
are permitted to reside in the country, may restrict the ability of distribution firms to select and
manage staff.

Of the countries examined in this report, Argentina, Brazil, and Peru offered partial
commitments on distribution services.” The remaining six countries, Bolivia, Chile,
Colombia, Paraguay, Uruguay, and Venezuela, did not offer commitments on distribution
services. Those countries that did not address distribution services in their schedules have left
the entire industry unbound, meaning that current market access and national treatment
limitations may be in place currently or may be imposed in the future.

Argentina

In its commitments on distribution services, Argentina places no market access or national
treatment limitations on commercial presence for the retail and wholesale trade services
specified. With respect to delivery of wholesaling services through commercial presence,
Argentina’s schedule includes full commitments on wholesale trade of a vast range of food and
nonfood items but makes no reference to the inclusion of wholesale trade services of motor
vehicles, motorcycles, and parts and accessories of such goods. As a result, wholesale
distribution in these unaddressed areas remains unbound. With respect to retailing,
Argentina’s full commitment on commercial presence does extend to retailing services of
motor vehicles and motorcycles, and parts and accessories of such goods, as well as food and
nonfood retailing services. With respect to franchising, Argentina scheduled full commitments
for cross-border supply, consumption abroad, and commercial presence, although for all
practical purposes, commitments on cross-border supply are the most relevant due to the nature
of franchising trade. Argentina’s cross-industry commitments suggest that there may be some
limitations on the entry and stay of certain business persons, with restrictions on all other
natural persons remaining unbound.” However, while Argentina’s schedule identified
categories of executives, senior managers, and specialists with “advanced knowledge,” it did
not specify permissible lengths of stay for such personnel. As a result, Argentina retains broad
discretion regarding the entry of key individuals. Argentina’s cross-industry commitments on
the acquisition of real estate by foreign entities in border and coastal areas also may have some
relevance to distribution service providers.

*! However, none of the nine countries scheduled commitments on commission agents’ services, for

any mode of supply, rendering these services possibly subject to more restrictive regulatory regimes
in the future.

® Argentina, Brazil, and Peru maintain similar unbound limitations with regard to other types of
visitors.

3-10


APPENDIX H

LIST OF COMPANIES, ASSOCIATIONS, AND GOVERNMENT
AGENCIES INTERVIEWED BY COMMISSION STAFF

Service Industries

Accounting services

Arthur Andersen and Company
Coopers and Lybrand
Deloitte and Touche

Emst and Young International

International Federation of Accountants
KPMG Peat Marwick
Piernavieja, Perez, Porta, Cachafeiro and Associates, Venezuela

Advertising services
American Association of Advertising Agencies
BBDO Worldwide
International Advertising Association
J. Walter Thompson
McCann-Erickson Worldwide

Ogilvy and Mather

Pepsi-Cola Company

Procter and Gamble
Xerox Corporation

Architecture, Engineering, and Construction services
Accreditation Board for Engineering and Technology
American Consulting Engineers Council
American Institute of Architects
Bechtel, Venezuela
Dowell/Schlumberger, Brazil
National Council of Examiners for Engineering and Surveying
National Society of Professional Engineers
United States Council for International Engineering Practice

Courier services
Airborne Courier Conference of America
Courier Magazine
DHL Worldwide Corporation
Federal Express Corporation
Transvalcar, Venezuela
United Parcel Service

H-2


CONTENTS-Continued

Page
Chapter 8-Continued
Industry opinion 8-15
8-16
Chapter 9. Advertising Services
Introduction 20.0.0. nent ee n eee 9-1
Nature of international trade in advertising services .. . 9-1
Cross-border transactions ................. 9-2
Sales by majority-owned affiliates .. 9-2
Examination of commitments on advertising services . 9-5
Argentina 9-5
Brazil .. 9-8
Peru 9-8
Venezuela 9-9
Industry opinion 9-9
9-10
Chapter 10. Legal Services
Introduction 10-1
Nature of international trade in legal services . . 10-1
Examination of commitments on legal services . 10-4
Argentina 10-6
Chile 10-6
Colombia 10-6
Venezuela .. 10-6
Industry opinion 10-7
10-8
Chapter 11. Land Transportation Services
Introduction ©0000... t nee e tebe etree eee 11-1
Nature of international trade in land transportation services 11-1
Cross-border transactions 11-2
Sales by majority-owned affiliates .. 11-3
Examination of commitments on land transportation services 11-4
Brazil 11-4

vi


Figure 3-1
Cross-border trade in franchise fees: U.S. exports, imports, and trade balance,
1990-94

Million dollars

(1 Exports Imports © —+— Balance
|?
400
300
200
100
° a
1990 1991 1992 1993 1994

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1992,
Sept. 1993, and Sept. 1995.

Figure 3-2
Franchise fees: U.S. cross-border exports, by principal markets, 1994

Europe
41.4% Argentina

AslaPacifle
26.3%

World = $458 million South & Central America = $29 million

* Principally includes the Middle East, Africa, and the Caribbean.
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

3-4


Cross-border provision of legal services is also possible. Individuals, acting alone or in the
employ of U.S. law firms, may travel abroad occasionally to provide legal advice to clients.
U.S. lawyers also may provide many routine legal services across national borders, using
common telecommunication and telefacsimile devices.

Data for trade in legal services are only available on a cross-border basis.* In 1994, U.S.
exports of legal services totaled $1.6 billion (figure 10-1).5 On a regional basis during 1994,
Europe was the largest export market for U.S. legal services, accounting for 54 percent ($847
million) of such exports, followed by Asian and Pacific countries, accounting for 28 percent
($428 million) (figure 10-2). South and Central American nations account for approximately
$38 million, or 2.4 percent of total cross-border exports of legal services.° Within the region,
Argentina, Brazil, Venezuela and Chile are the largest individual markets for legal services
exports.

Both imports and exports of legal services have increased steadily since 1991, explained largely
by the growth in world trade and investment.’ As businesses expand abroad or into the United
States, they need legal advice of all kinds, in such areas as investment and securities law,
taxation, employment law, antitrust law, and intellectual property law. Imports of legal services,
growing at an average annual rate of 21 percent during 1991-94, have increased at a
significantly faster pace than exports, growing at an average annual rate of 6 percent. However,
the increase in the dollar value of exports has been greater than that of imports, resulting in a
growing surplus. In 1994, the U.S. trade surplus in legal services was approximately
$1.1 billion. The higher rate of export growth is largely explained by the relatively faster
growth of the U.S. economy in recent years compared to foreign economies, and the desire of
foreign attorneys to enter the U.S. market.

* There is a disagreement within the legal community as to the exact size of affiliate trade.
However, cross-border trade appears to be much larger. Peter D. Ehrenhaft, testimony before the
USITC, June 7, 1995; and USITC staff interview with industry executive, interview by USITC staff,
Washington, DC, Feb. 23, 1995.

> USDOC, BEA, Survey of Current Business, Sept. 1995, p. 102.

SUSITC staff estimates.

7In 1991, the BEA expanded its survey of legal services exports to capture previously unrecorded
data.

® USDOC, BEA, Survey of Current Business, Sept. 1995, p. 102.

10-2


4. Presence of natural persons, wherein an individual, functioning alone or in the
employ of a service provider, travels abroad to deliver a service.

For each mode of supply, countries may offer one of two types of commitments. A “full
commitment” creates the most liberal trading environment and is shown on the schedules by the
word “none.” This indicates that there are no industry-specific market access or national
treatment restrictions. A “partial commitment” is the second type of commitment shown in the
schedules. Partial commitments communicate the nature of currently existing restrictions on
market access or national treatment.. Both full and partial commitments are “binding” in the
sense that no further trade impediments may be introduced unless a country is willing to
compensate parties adversely affected by the new measure. In the absence of a full or partial
commitment, additional restrictions on market access and national treatment may be imposed
in the future. The absence of a commitment is indicated by the word “unbound” in the
appropriate cell of the matrix."

Members of the WTO recognized that developing countries might require a more gradual
approach to scheduling commitments and liberalizing service markets.'* To accommodate such
needs, the Uruguay Round Agreement includes measures designed to provide special treatment
for developing countries participating in the trade liberalization process. The Decision on
Measures in Favor of Least-Developed Countries permits such countries to “undertake
commitments and concessions to the extent consistent with their individual development,
financial and trade needs, or their administrative and institutional capabilities.”"° The GATS
includes a similar provision in Article IV (Increasing Participation of Developing Countries)
which states that, with respect to scheduling industry-specific commitments and providing for
progressive liberalization, “particular account shall be taken of the serious difficulty of the least-
developed countries in accepting negotiated specific commitments in view of their special
economic situation and their development, trade and financial needs.”"” In other words, the
GATS recognized that many developing countries would initially schedule few commitments,
and encouraged developed countries to offer assistance to less developed countries by according
them access to trade facilitating technology, distribution channels, and information networks.
Article IV also encourages developed countries to establish “contact points” to help firms in
developing countries gain market access by providing commercial and regulatory information.

‘* In certain instances, the term “unbound” coupled with an asterisk (i.e., Unbound*) is used to
identify modes of supply that are “technically infeasible” in an industry. Cross-border supply of many
construction services, for example, is technically infeasible.

'S For example, since Brazil records a deficit in services trade, it is concerned that easing market
access to services delivered on a cross-border basis may worsen its balance of payments.
Consequently, Brazil prefers to pursue a gradual process of liberalization that begins with services
delivered through a commercial presence, which usually involves some direct investment and the
creation of local employment opportunities. Brazil Foreign Ministry representative, interview by
USITC staff, Brasilia, Brazil, Aug. 6, 1996.

'S Final Texts of the GATT Uruguay Round Agreements Including the Agreement Establishing
the World Trade Organization, Apr. 1994, p. 385.

"Ibid, p. 288.

1-5




CONTENTS

Page
Preface ooo... o.oo c eee e cece cece eee e eens i
Executive Summary ....0000000....0000 cece xi
Chapter 1. Introduction
Purpose and scope 1-1
Overview of the General Agreement on Trade in Services . . 1-2
The GATS framework .... 1-3
Schedules of commitments . 1-4
Industry-specific commitments 1-4
Cross-industry commitments . . 1-6
Annexes and ministerial decisions 1-8
Methodological approach.............. 1-9
Obstacles inherent in examining the GATS 1-11
Organization of study .. 22.2.2. e rte e nee e teens 1-11
Chapter 2. Overview of International Trade in Services
Introduction 2-1
Modes of supply . . 2-1
Cross-border trade ... . 2-2
Sales by majority-owned affiliates ......... 2-5
USS. trade in services with South American countries 2-7
Cross-border services trade with South America . 2-8
Affiliate transactions with South America 2-9
Chapter 3. Distribution Services
Introduction 6... cee eee eee eee 3-1
Nature of international trade in distribution services . 3-1
Cross-border transactions 3-3
Sales by majority-owned affiliates 3-3

iii


government authorization is required for rail freight services. Authorization is discretionary,
and the number of new suppliers may be limited. For road transportation services, foreign
participation is limited to one-fifth of the voting shares of Brazilian companies engaged in this
activity. Brazil scheduled no limitations on providing pipeline transport and cargo handling
services (other freight services) through commercial presences.

With respect to all other land transportation services including road and rail, Brazil has left
restrictions unbound, allowing it to maintain or impose measures inconsistent with full market
access and national treatment. In addition, Brazil has retained broad discretion with respect
to permitting the entry and temporary stay of foreign business persons.

In addition to restrictions stated in the national schedule, Brazil listed a most-favored-nation
(MEN) exemption specific to transportation services. This MFN exemption applies to the
cross-border supply of land transport services, and indicates that, with respect to the
international transport of passengers and freight, Brazil extends national treatment only to
authorized suppliers of signatories to the International Land Transport Convention."

Uruguay

Uruguay made commitments on storage and warehouse services, scheduling no limitations on
market access or national treatment, except with respect to the presence of natural persons.
Uruguay declined to specify permissible lengths of stay for foreign business persons, thereby
retaining broad discretion pertaining to services supplied through the presence of natural
persons. With respect to all other transportation services, Uruguay left restrictions on all
modes of supply unbound, allowing it to maintain or impose measures inconsistent with full
market access and national treatment.

In addition to restrictions stated in the national schedule, Uruguay listed a MFN exemption
specific to transportation services. This MFN exemption, like Brazil’s, applies to the cross-
border supply of land transport services, and indicates that with respect to the international
transport of passengers and freight, Uruguay extends national treatment only to authorized
suppliers of signatories to the International Land Transport Convention.

Industry Opinion

US. firms and associations that provide land transport services have indicated that the existing
GATS commitments principally codify only a few of many existing restrictions in and a range
of approaches to regulations concerning safety and operations. Differing land transport.'?
Restrictions include limits on the use of both foreign and private capital, regulations between
countries can lead to delays, higher costs, and logistical problems. There is an acknowledged
need for a certain level of regulation in transportation, particularly with respect to
infrastructure, equipment technology, and training; however, improved commercial integration

"' Signatories include Argentina, Brazil, Bolivia, Chile, Paraguay, Peru, and Uruguay.
”? Industry representatives, interviews by USITC staff, Washington, DC, May 8, 1996.

11-6


Cross-Border Transactions

U.S. cross-border exports of advertising services increased by an average annual rate of 32
percent during 1990-94, growing from $130 million to $399 million (figure 9-1). Although
USS. cross-border imports rose at roughly the same rate as exports, the value of cross-border
imports surpassed exports every year and the deficit in cross-border trade increased from
$113 million in 1990 to $337 million in 1994. The growth in the cross-border deficit slowed
from a 39-percent average annual rate in 1990-93 to 10 percent in 1993-94. Most cross-border
trade in advertising services occurs with Europe, Canada, and the Asia and Pacific region. In
1994, countries in South and Central America, accounted for over 6.5 percent of total cross-

border exports of advertising services (figure 9-2), the largest markets being Brazil and
Argentina.>

Sales by Majority-Owned Affiliates

Sales by foreign-based affiliates of U.S. firms (U.S. exports) decreased by an average annual
rate of 4.2 percent during 1990-93 from $4.0 billion to $3.5 billion (figure 9-3).° Sales by U.S.-
based affiliates of foreign firms (U.S. imports) also slightly decreased from $2.7 billion in 1990
to $2.5 billion in 1993. The resulting annual trade surplus generated by affiliate transactions
of U.S. advertising agencies declined from a high of $1.3 billion in 1991 to $1 billion in 1993.
The South American trading partners addressed in this study accounted for less than 5 percent
of the total affiliate sales of advertising services in 1993 (figure 9-4). The trade data indicate
that, in marked contrast to the decline in total international sales, U.S. exports of advertising
services to countries in the Western Hemisphere excluding Canada increased by an average
annual rate of 22 percent during 1990-93. Sales by foreign-based affiliates of U.S. firms
predominantly occur in Argentina, Brazil, and Colombia.’ The increase in U.S. advertising
exports is principally the result of rapid economic growth, which spurred demand for consumer
products. However, increased taxes on imported goods discouraged advertising by
multinationals in some South American countries.*

“Ibid., p. 102.

* Representative of U.S. advertising industry, telephone interview by USITC staff, Apr. 24, 1996.

© USDOC, BEA, Survey of Current Business, Sept. 1993, p. 153; and Sept. 1995, p. 104.

7 Representative of U.S. advertising industry, telephone interview by USITC staff, Apr. 24, 1996.

® Claudia Penteado, “Emerging Markets: Will Brazil’s big boom backfire? Gov’t aims to slow
consumption,” Advertising Age International, May 15, 1995, p. i-12.

9-2


CHAPTER 6
Health Care Services!

Introduction

The health care services covered in this report include those performed by hospitals and
investor-owned hospital companies and chains; offices and clinics of medical doctors and other
health service professionals; nursing homes; home health care facilities; managed care
organizations;” medical and dental laboratories; kidney dialysis centers; and specialty outpatient
facilitics.*

Nature of International Trade in Health Care Services

Trade in this sector comprises both cross-border transactions and sales by affiliates located in
foreign markets. Cross-border exports largely consist of treatment of foreign persons in the
United States by U.S. hospitals, clinics, medical doctors, and other health care service
professionals. Cross-border imports comprise the treatment of U.S. citizens overseas by foreign
hospitals and doctors.’ Trade through affiliates includes health care services provided to foreign
persons by foreign-based affiliates of U.S. hospital companies, and services provided to U.S.
persons by U.S.-based affiliates of foreign hospital companies. The volume of U.S. affiliate
transactions appears to exceed the volume of cross-border transactions by a significant margin.

* Among the individuals consulted by USITC staff in preparation of this report were those affiliated
with the following organizations: Ochsner Clinic and Hospital (New Orleans); Houston Medical
Center, Methodist Hospital (Houston); Mayo Clinic, Johns Hopkins University Hospital; Miami Heart
Institute, Tenet Healthcare, Humana; Columbia/HCA Healthcare; American Hospital Association;
Federation of American Health Systems; the Health Care Financing Administration; and the Census
Bureau, the International Trade Administration, and the Bureau of Economic Analysis (BEA), U.S.
Department of Commerce (USDOC).

? Includes health maintenance organizations (HMOs) and similar organizations engaged in
providing medical or other health care services to members. However, health care services do not
include HMOs that limit services to the provision of insurance against hospitalization or medical
costs.

> These health care services are classified under the U.S. Standard Industrial Classification (SIC)
code 80.

* Cross-border health care service transactions therefore correspond to consumption abroad in the
General Agreement on Trade in Services (GATS) terminology.


APPENDIX H

LIST OF COMPANIES, ASSOCIATIONS,
AND GOVERNMENT AGENCIES
INTERVIEWED BY COMMISSION STAFF



Each industry discussion begins by defining the scope of the services covered, and identifying
the principal channels through which service providers deliver services to foreign consumers.”
To identify these channels, staff reviewed the best available statistical estimates of international
service transactions, published by the Bureau of Economic Analysis of the U.S. Department of
Commerce.”* Staff include a brief presentation about the nature and extent of trade in the
subject service industries in each discussion.

Thereafter, each discussion turns to an examination of the individual country schedules. An
overview summarizes pertinent industry-specific commitments, cross-industry commitments,
and MFN exemptions. The overview also references a table that summarizes the industry-
specific commitments listed by each country in its national schedule. Detailed discussions of
the individual country schedules follow. These discussions focus on the net effect of industry-
specific and cross-industry commitments.” Each discussion concludes with a summary that
identifies the principal benefits conferred, and limitations imposed, on U.S. service exporters
by the subject trading partners, The summary is qualitative, rather than quantitative in nature,
drawing on staff analysis and input provided by U.S. industry representatives. In some cases,
anecdotal information gathered from industry interviews has revealed impediments to trade that
are not apparent from an examination of the schedules. In other cases, industry representatives
have indicated that the trade environment is more open than some national schedules suggest.

In addition to the qualitative analysis of commitments discussed above, an overview of services
trade data appears in chapter 2, and a quantitative summary of the commitments is found in
chapter 13. Data for the quantitative summary are derived from the schedules of
commitments.*°

*7 With three exceptions, service industries identified in the request letter are discussed and
analyzed separately. The nature of the distribution industry and the commitments regarding
distribution services favored broad treatment of the industry, rather than discrete discussions of
retailing, wholesaling, and franchising services. Similarly, the nature of commitments regarding
architectural, engineering, and construction services favored simultaneous treatment of these services.
Also, the nature of commitments regarding land transportation services (i.e., rail and trucking)
favored broad treatment of the industry. Communication services and professional services, as
defined in the request letter, are separated into their component industries for the purpose of analysis.

*8 Among the member countries of the Organization for Economic Co-operation and Development
(OECD), only the United States compiles data on sales of services through foreign affiliates. As
discussed in chapter 2, this channel of delivery is a principal component of trade in services. See
OECD, Statistics Directorate, Services: Statistics on International Transactions, 1996, p. 8.

® Cross-industry commitments apply to all industries in a signatory’s schedule and must be
referenced when discussing certain industry-specific commitments. It is important to note that cross-
industry commitments do not apply to industries for which no industry-specific commitments were
scheduled or where unbound limitations are specified. Repeated references to cross-industry
commitments may result in some redundancy across chapters, but improve the discussion in terms of
clarity and comprehensiveness.

* For a complete discussion of the methodology used in chapter 13, see the annex to that chapter.

1-10


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12-9


CONTENTS-Continued

Page

Tables
1-1. Industry-specific commitments scheduled by South American countries, by industry sees 1-7
1-2. Highlights of cross-industry commitments, by country 1-7
1-3. Highlights of MFN exemptions, by country vee 1-9
3-1. Highlights of industry-specific restrictions on distribution services .................. 3-8
4-1. Highlights of industry-specific restrictions on enhanced telecommunication services : 4-5
5-1. Highlights of industry-specific restrictions on courier services ...... : 5-4
6-1. Highlights of industry-specific restrictions on health care services 6-8
7-1. Highlights of industry-specific restrictions on accounting services . . 7-6
8-1. Highlights of industry-specific restrictions on architectural, engineering, and

Construction Services... 6. eee tee ees 8-7
9-1. Highlights of industry-specific restrictions on advertising services .................. 9-6
10-1. Highlights of industry-specific restrictions on legal services ...............000-0 00 10-5
11-1. Highlights of industry-specific restrictions on land transportation services 11-5
12-1. Highlights of industry-specific restrictions on travel and tourism services 12-6
13-1. Highlights of cross-industry commitments ........0.0000 000. c cece ccc eee ees 13-3
13-2. Most-favored-nation (MFN) exemptions pertaining to subject industries . : 13-9
13-A-1. GATT services sectoral classification list... 2.0.2.0... 06. obec eee eee 13-A-2
13-A-2. The share of schedule entries binding full market access and national treatment ........ 13-A-7
13-A-3, The share of schedule entries binding full and partial market access and national

treatment 0... tenet eee 13-A-7


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b2b ageL

12-7


Concordance of industry classification

GATT Secretariat's Services Sectoral Classification List

United Nations’ Provisional Central Product Classification
System (CPC)

1, BUSINESS SERVICES
. Professional services

a) Legal services

b) Accounting, auditing, and bookkeeping services

d) Architectural services

e) Engineering services

f) Integrated engineering services

h) Medical and dental services
i) Veterinary services.

j) Services provided by midwives, nurses, physiotherapists
and para-medical personnel

Group 861: Legal services

Subclass 86119: Legal advisory and representation services in
judicial procedures concerning other fields of
law

Legal advisory and representation services in

statutory procedures of quasi-judicial tribunals,

boards, etc,

Legal documentation and certification services

Other legal advisory and information services

Class 8612:

Class 8613;
Class 8619:

Group 862: Accounting, auditing, and bookkeeping services
‘Subclass 86212: Accounting review services

Class 8671: Architectural services

Subclass 86711: Advisory and pre-design architectural
services

Architectural design services

Contract administration services

Combined architectural design and contract
administration services

Other architectural services

Subclass 86712:
Subclass 86713:
Subclass 86714:

Subclass 86719:

Class 8672: Engineering services

Subclass 86721: Advisory and consultative engineering
services

Engineering design services for the
construction of foundations and building
structures

Engineering design services for mechanical
and electrical installations for buildings
Engineering design services for the
construction of civil engineering works
Engineering design services for industrial
processes and production

Engineering design services, not elsewhere
classified

Other engineering services during the
construction and installation phase

Other engineering services

Subclass 86722:

Subclass 86723:
Subclass 86724:
Subclass 86725:
Subclass 86726:
Subclass 86727:

Subclass 86729:

Class 8673: Integrated engineering services

Subclass 86731: Integrated engineering services for
transportation infrastructure turnkey projects
Integrated engineering and project
management services for water supply and
‘sanitation works turnkey projects
Integrated engineering services for the
construction of manufacturing turnkey
projects

Integrated engineering services for other
turkey projects

Class 9312: Medical and dental services

Subclass 86732:

Subclass 86733:

Subclass 86739:

Group 932: Veterinary services

Subclass 93191: Deliveries and related services, nursing
services, physiotherapeutic and para-medical
services



Figure 2-1
Modes of supply for international delivery of services

-————— Services trade -———_,

Cross-border trade Sales through affi
Reported as exports and imports Reported as investment income
in the balance of payments in the balance of payments

Cross-border supply: The service crosses Commercial presence: The service

the border to the consumer, while the Supplier ‘supplier establishes a “commercial
remains in its home country. For example, presence” in a foreign market, through
architectural services may be provided in the which it provides services to foreign
form of design drawings sent via mail to a consumers. For example, an advertising
consumer in a foreign country. firm might establish a commercial office

overseas to better provide services to
foreign customers.

Consumption abroad: The consumer crosses

the border to consume the service. A tourist

visiting a foreign country or a student studying

in a foreign university are examples of

consumption abroad.

Presence of natural persons: The service
supplier crosses the border temporarily to provide
a service through the presence of a “natural
person.” For example, an accountant might travel
abroad to provide services to a client.

Source: Compiled by the staff of the U.S. International Trade Commission.

Figure 2-2
Cross-border service transactions: U.S. exports, imports, and trade balance, 1986-94"

Billion dollars
200

o Exports: Imports. Balance
178 oe

150

1254

100 -]

tr t t : i
1988 1987 1988 1989 1990 1991 1992 1993 1994

* Data on cross-border trade exclude public sector and intra-corporate transactions.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Bushess, Sept. 1995.

2-3


Treatment of Entries Referencing Cross-Industry
Commitments

Throughout the national schedules, many industry-specific commitments reference cross-
industry commitments.'* This occurs in almost all cases with respect to commitments
addressing the presence of natural persons, and occasionally with respect to commitments on
commercial presence. For instance, when identifying limitations that apply to the presence of
natural persons, trading partners routinely make the following entry: “unbound, except as
indicated in the cross-industry commitments.” Because this entry grants some degree of market
access and national treatment by allowing certain foreign service providers to enter markets
under conditions specified in the cross-industry commitments, these entries have been recorded
as partial commitments.’> They are less restrictive than “unbound” entries that provide no
exemptions.

Similarly, all subject trading partners have made use of an entry that reads “none, except as
indicated in the cross-industry commitments.” These entries have been recorded as full
commitments. Certain trading partners employed this language for the sake of transparency,
but the additional language is not necessary. Under the GATS scheduling methodology, cross-
industry commitments are applicable to all entries showing full or partial commitments.

Table 13-A-2

Table 13-A-2 expresses the number of full commitments as a share of the total entries made by
each trading partner. Composite shares reflect overall restrictiveness by trading partner (bottom
row) and by industry (right-hand column). The composite share of each South American trading
partner in table 13-A-2 is presented graphically along the vertical-axis in figure 13-1. The
composite share calculated on an industry-by-industry basis in table 13-A-2 is presented
graphically along the vertical axis in figure 13-2. The higher the share, the less restrictive the
market. Partial commitments are not reflected in the shares appearing in table 13-A-2 because
they vary too much in terms of restrictiveness.

For example, the first cell of table 13-A-2 reflects Argentina’s full commitments regarding
distribution services. For the purposes of this discussion, the distribution services industry
consists of four subsectors: commission agents’ services, wholesaling, retailing, and

” Cross-industry commitments are referred to as “horizontal” commitments in the schedules.

"8 Such partial commitments occur in approximately 25 percent of all industry specific schedule
entries, reflecting the fact that almost all countries chose to present measures relating to the presence
of natural persons as cross-industry commitments.

13-A-4


Concordance of industry classification--continued

GATT Secretariat's Services Sectoral Classification List

United Nations’ Provisional Central Product Classification
‘System (CPC)

3. CONSTRUCTION AND RELATED ENGINEERING
SERVICES

A. General construction work for buildings

B. General construction work for civil engineering

C.__ Installation and assembly work

D. Building completion/finishing work

E. Other

Group 512: Construction work for buildings

Subclass 5121: Construction work for one- and two-dwelling
buildings

Subclass 5122: Construction work for multi-dwelling buildings

Subclass 5124: Construction work for commercial buildings

Subclass 5127: Construction work for educational buildings

Subclass 5128: Construction work for health buildings

Group 513: Construction work for civil engineering

Class 5131: Construction work for highways (except elevated
highways), streets, roads, railways, and airfield
runways

Class 5135: Construction work for local pipelines and cables,
ancillary works

Group 514: Assembly and erection of prefabricated
constructions

Group 516: _ Installation work

Subclass 5161: Heating, ventilation, and air conditioning work

Subclass 5162: Water plumbing and drain laying work

Subclass 5163: Gas fitting construction work

Subclass 5164: Electrical work

Group 517: Building completion and finishing work

Group 511:

‘Group 515:

Group 518:

Pre-erection work at construction site
Special trade construction work

Renting services related to equipment for
construction or demolition of building or civil
engineering work, with operator

4. DISTRIBUTION SERVICES
A. Commission agents' services

B. Wholesale trade services

C. Retailing services

D. Franchising

Group 621: Commission agents’ services

Subclass 61111: Wholesale trade services of motor vehicles

Group 622: Wholesale trade services

Class 6222: Wholesale trade services of food, beverages,
and tobacco

Class 6111: Sales of motor vehicles

Subclass 61112: Retail sales of motor vehicles

Class 6113: Sales of parts and accessories of motor vehicles

Class 6121: Sales of motorcycles and snowmobiles and

related parts and accessories

Retail sales of motor fuel

Group 631: Food retailing services

Group 632: Non-food retailing services

Class 6329: Other specialized retail sales of non-food
products

Group 633: Repair services of personal and household goods

Group 613:

Class 8929: Other non-financial intangible assets

D-4



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8-8


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L-2b adel

12-6


CHAPTER 8

Architectural, Engineering, and Construction
Services’

Introduction

Architectural, engincering, and construction (AEC) services’ are three distinct, yet interrelated
service industries that perform work for private and public sector clients. Architectural firms
provide blueprint designs for buildings and public works, and may oversee construction
projects. Architectural services include preliminary site study, schematic design, design
development, final design, contract administration, and post construction services.

Engineering firms provide planning, design, construction, and management services for projects
such as civil engineering works and residential, commercial, industrial, and institutional
buildings. These firms also provide engineering design services for industrial processes and
production.? Integrated engineering includes consultancy and turnkey services. Turnkey
services may include the assignment and coordination of work performed by consultants,
contractors, and subcontractors from inception to completion of projects.

Construction services include pre-erection work, new construction and repair, and alteration,
restoration, and maintenance work on buildings or civil engineering works. Such services can
be carried out either by general contractors who complete all construction work for the owner
of the project, or by specialty subcontractors who perform discrete parts of the construction
work.

The United States is the leading foreign supplier of design and contracting services in the Latin
American market. In 1995, leading U.S. design firms accounted for 44 percent ($365.9 million)

‘ Among the individuals contacted by the USITC staff in preparation of this report were those
affiliated with the following organizations: the United States Council for International Engineering
Practice (representing the National Council of Examiners for Engineering and Surveying, the
Accreditation Board for Engineering and Technology, and the National Society of Professional
Engineers), the American Institute of Architects, and the American Consulting Engineers Council.

? Architectural and engineering services are included in the U.S. Standard Industry Classifications
(SIC) 8711 and 8712; construction services are included in SIC 1622 and 1623.

* Included in engineering services are the undertaking of preparatory technical feasibility studies
and project impact studies; preliminary plans, specifications, and cost estimates; final plans,
specifications, and cost estimates, and services during the construction phase. Engineering service
firms also may provide advisory and technical assistance to the client during construction to ensure
that construction work is in conformity with the final design.

* Data specific to integrated engineering services are not available, but rather are reflected in
aggregate data for the entire engineering profession. For the purposes of this discussion, therefore,
integrated engineering services will not be discussed discretely.


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E-5


EXECUTIVE SUMMARY

On April 9, 1996, the United States Trade Representative requested that the Commission
examine the schedules of commitments submitted by nine South American countries under the
General Agreement on Trade in Services (GATS). The subject countries are Argentina, Bolivia,
Brazil, Chile, Colombia, Paraguay, Peru, Uruguay, and Venezuela. The Commission was asked
to explain the commitments in nontechnical language as they relate to seven service industries,
and to identify potential benefits and limitations that may accrue to U.S. service providers. The
subject industries are as follows:

+ Distribution services, defined as wholesaling, retailing, and franchising services;

¢ Education services;

¢ Communication services, defined as enhanced telecommunication services, courier
services, and audiovisual services;

¢ Health care services;

* Professional services, defined as accounting, architectural, engineering,
construction, advertising, and legal services;

+ Land-based transportation services, defined as rail and trucking services; and

¢ — Travel and tourism services

Overview of South American Schedules

GATS signatories agreed that developing countries require a more gradual approach to services
trade liberalization, and therefore would initially schedule fewer commitments in the first round
of GATS negotiations. This proved to be the case with respect to the schedules submitted by
South American countries. For example, South American countries did not schedule any
commitments on audiovisual services or education services. This means that South American.
countries remain free to maintain or impose limits on market access and national treatment (i.¢.,
they remain free to deny foreign firms the same rights accorded to domestic firms).
Commitments on certain other industries, such as land transportation and health care services,
were scheduled by just one or two countries.

Among the industries that were addressed in the schedules, the commitments generally represent
standstill positions rather than liberalization, as was the norm for most GATS signatories during
the initial round of talks. Such commitments establish benchmarks and improve regulatory
transparency. As a result, U.S. service providers are better able to assess the regulatory
environment and gain some measure of assurance that trade restrictions will become no worse,
and may become less burdensome.

On the basis of foreign fieldwork and industry interviews, it appears that the actual market
environment in most South American countries is significantly more liberal than indicated by


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8-7


Concordance of industry classification--continued

GATT Secretariat's Services Sectoral Classification List

United Nations’ Provisional Central Product Classification
System (CPC)

5. EDUCATIONAL SERVICES

A. Primary education services

B. Secondary education services

C. Higher education services

D. Adult education services

E. Other education services

Group 921: Primary education services
Subclass 9211: Preschool education services
Subclass 9219: Other primary education services

Group 922; Secondary education services

Subclass 9221: General secondary education services

Subclass 9222: Higher secondary education services

Subclass 9223: Technical and vocational secondary education
services

Group 923: Higher education services

Subclass 9231: Post-secondary technical and vocational
educational services

Subclass 9239: Other higher education services

Group 924: Adult education services, not elsewhere classified

Group 929: Other education services

8. HEALTH RELATED AND SOCIAL SERVICES, excludes
those subsectors listed in section 1A(h-j), under Business
Professional Services. (see page G-2)

A. Hospital services
B. Other human health services, excludes CPC "93191:

Deliveries and related services, nursing services,
physiotherapeutic and para-medical services."

D. Other

Class 9311: Hospital services

Subclass 93123: Dental services

Class 9319: Other human health services

Subclass 93193: Residential health facilities services other than
hospital services

Subclass 93199: Other human health services, not elsewhere
classified

No corresponding CPC

9. TOURISM AND TRAVEL RELATED SERVICES

A. Hotels and restaurants, includes catering services

B, Travel agencies and tour operators services

C. Tourist guides services

D. Other

Group 641: Hotel and other lodging services

Class 6411: Hotel lodging services

Class 6412: Motel lodging services

Subclass 64192: Holiday center and holiday home services

Subclass 64193: Letting services of furnished accommodations

Subclass 64194: Youth hostel and mountain shelter services

Subclass 64195: Camping and caravanning site services

Group 642: Food serving services

Class 6421: Meal serving services with full restaurant service

Class 6422: Meal serving services in self-service facilities

Class 6423: Caterer services, providing meals to outside

Group 643: Beverage serving services for consumption on the
premises

Class 6431: Beverage serving services without entertainment

Class 6432: Beverage serving services with entertainment

Class 7471: Travel agency and tour operator services
Class 7472: Tourist guide services

No corresponding CPC



Cross-industry commitments on movement of personnel are rather onerous. Foreign
specialized technicians and highly qualified professionals may work under temporary contract
with Brazilian firms. The contract must be approved by the Ministry of Labor subject to the
foreign worker’s qualifications for the particular business and a justification from the hiring
firm explaining the need to contract with foreign professionals rather than those available in
Brazil. Like Argentina, Brazil declined to specify permissible lengths of stay for foreign
business persons, retaining broad discretion in regulating inbound flows of most foreign AEC
service providers.

In addition, executive personnel appointed to affiliates of foreign companies in Brazil are
subject to a number of conditions related to position verification and applicant qualifications.
Such appointments are conditional to the provision of new technology, an increase in
productivity, or a minimum investment in Brazil of $200,000, all of which affect foreign
suppliers’ ability to deliver AEC services. The criteria necessary to meet these conditions are
not specified in the Brazilian Schedule, however, and this lack of transparency may also hinder
the ability of U.S. AEC firms to conduct business optimally.

Despite these restrictions, U.S. firms are active in the Brazilian AEC services market.”°
Market conditions, however, are hampered by numerous and complicated regulations that
reportedly cause delays and increase operating costs.”°

Chile

Chile scheduled few commitments under GATS regarding the AEC services sector. For most
AEC sectors Chile reserves the right to maintain or impose limitations on market access and
national treatment. Chile’s commitments pertain only to narrow segments of the architectural’
and engineering” services sectors when provided through a commercial presence. Restrictions
on cross-border supply, consumption abroad, and the presence of natural persons remain
unbound. Significant sectors of the architectural and engineering industries were not addressed
in the Chilean Schedule. These sectors include contract administration services (CPC code
86713), advisory and consultative engineering services (CPC code 86721), and engineering
design services for civil engineering works (CPC code 86724), for example.””

Cross-industry commitments on commercial presence may restrict foreign firms’ operations
in these service areas, The commitments in the Chilean schedule apply to a commercial
presence that is executed through the Foreign Investment Statute and is financed by external

° Industry representative, interview by USITC staff, Sao Paulo, Brazil, Aug. 9, 1996.

°6 Industry representative, interview by USITC staff, Caracas, Venezuela, Aug. 12, 1996.

*” For architectural services, segments covered are advisory and pre-design architectural services
and architectural design services (CPC codes 86711 and 86712).

*8 For engineering services, segments covered are engineering design services for industrial
processes and production, and other specialty engineering services (CPC codes 86725 and 86726).

® See table 8-1 for a complete list of AEC services (and corresponding CPC codes) excluded from
coverage.

8-12


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E-4


Summary

An examination of the schedules of commitments offered by South American trading partners
suggests that most countries are relatively restrictive and few have made any significant
progress toward establishing benchmarks and improving transparency. Argentina represents
the primary exception because it scheduled full commitments to market access and national
treatment for three out of the four possible modes of supply. To a lesser extent, the partial
commitments scheduled by Brazil, Peru, and Venezuela enhance the transparency of their
regulatory systems and provide some level of benchmarking. Although Chile reportedly has
the most liberal market for advertising services among the subject countries, its failure to
schedule commitments leaves it with considerable discretion to impose limitations at a later
date.

9-10


monopolizing warehousing practices that result in inequitable service charges.’ In addition, the
enactment of pending legislation to regulate postal and courier services in Argentina will
establish a variety of burdensome requirements on capital, guarantees, personnel, vehicle fleets,
facilities, and communications.’° With regard to customs clearance, Argentina reportedly uses
different processing procedures for express shipments and traditional shipments of cargo, which
increases the time for the clearance of goods through customs. Argentina’s personnel and
property ownership restrictions, which reportedly are complex and onerous, also hamper the
effectiveness of U.S. businesses.'? With respect to other South American countries, U.S.
couriers are concerned that taxes and concession fees imposed by the postal services of
Colombia and Venezuela, coupled with ongoing confrontations with Brazil regarding postal and
customs regulations, limit their ability to compete fairly.'* According to an official of DHL,
Brazil (which is the largest market in South America for courier services) imposes a myriad of
customs requirements on shipments that are burdensome, time-consuming, and costly.'?
Difficulties with customs clearance procedures appear to be widespread throughout South
America, with adverse implications for U.S. couriers as well as U.S. providers of distribution
and transportation services.” Reportedly, conditions are improving as a result of government
initiatives. For example,Venezuela has established a new task force to improve customs
procedures and reduce corruption that is staffed by individuals who are highly professional, well
paid, and protected from being fired.”!

Examination of Commitments on Courier Services

As noted, U.S. land-based couriers provide services to consumers in South America through
affiliated operations usually located within the country being serviced. In some instances, these
affiliates service customers in adjacent countries through land-based cross border transactions.
Therefore, commitments regarding cross-border supply, commercial presence, and the presence
of natural persons have an important impact on trade of courier services. This portion of the
chapter focuses on these three modes of supply as they relate to the schedules submitted by
Argentina, Brazil, Uruguay, and Venezuela, which were the only South American trading
partners to schedule commitments on courier services. Highlights of industry-specific country
commitments addressing courier services and the relevant modes of supply are presented in
table 5-1.

'S Prehearing Brief of Federal Express Corp., submitted to the USITC, investigation No. 332-367,
July 12, 1996, pp 39-40.

© Tbid.

17 Tid.

8 Industry representatives, telephone interview by USITC staff, May 8, 1996.

Tid.

*° See chapter 3 and 11 for a discussion of how customs clearance problems affect distribution and
transportation services.

7! Industry representatives, interviews by USITC staff, Caracas, Venezuela, Aug. 13, 1996.

5-3


Figure 6-1

Health care services: U.S. cross-border exports, imports, and trade balance,
1990-94

0 Million dollars

(CO Exports Imports

Balance

800

700

500

400

300 j}—

100

1990 1991 1992 1993 1994

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995, and
USITC staff estimates.

Figure 6-2
Health care services: U.S. cross-border exports, by principal markets, 1994

Canada

Venezuela
220%

Colombia
25.0%

South & Central America

3.0%
other! oo
Argentina
20.0% cite
5.0%
Brazil
20.0%
World = $794 million South & Central America = $24 million

" Principally includes the Middle East, Africa, and the Caribbean

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995,
and USITC staff estimates,

6-3


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F-2


language, and (2) to identify the potential benefits and limitations that South American trading
partners have conferred or imposed on foreign service providers, emphasizing the effect on U.S.
firms. The USTR asked that the Commission focus on South American countries’ commitments
pertaining to the following service industries:*

* — distribution services, defined as wholesaling, retailing, and franchising services;

* — education services;

* communication services, defined as enhanced telecommunication services,
audiovisual services, and courier services;

+ health care services;

* professional services, defined as accounting, architectural, engineering, construction,
advertising, and legal services;

* land-based transportation services, defined as rail and trucking services; and

* — travel and tourism services.

The USTR request letter indicates that upon delivery of this report, the USTR may request
initiation of an additional follow-on report examining commitments scheduled by Australia,
Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, the Philippines, Singapore, and
Thailand.

Overview of the General Agreement on Trade in Services

As noted, the GATS is the first multilateral, legally enforceable agreement to establish
obligations and disciplines pertaining to international trade and investment in services.° It is an
integral part of the Uruguay Round Agreements that entered into force on January 1, 1995.’
Three elements constitute the text of the GATS: (1) a framework of rules for government
regulation of trade and investment in services; (2) a set of national schedules wherein each
country commits itself to apply the rules to specific industries, subject to defined exceptions;
and (3) a series of annexes and ministerial decisions that augment rules found in the framework
and provide for follow-up activities or additional negotiations (figure 1-1).

* For a complete list of service industries over which negotiations were held, sec the GATT
Secretariat’s Services Sectoral Classification List (MTN.GNS/W/120).

° Uruguay Round Agreements Act Statement of Administrative Action (SAA), published in H.
Doc, 103-316, 103rd Cong., 2nd Session, 1994. The SAA, which describes significant
administrative actions proposed to implement the Uruguay Round Agreements, was submitted to
Congress on September 27, 1994, in compliance with section 1103 of the Omnibus Trade and
Competitiveness Act of 1988, and accompanied the implementing bill for the Agreement Establishing
the World Trade Organization and the agreements annexed to that agreement (the Uruguay Round
Agreements).

7 The agreements provide for establishment of the World Trade Organization (WTO) and set forth
the scope and functions of the WTO. The GATS and various other agreements negotiated during the
Uruguay Round are set forth as annexes to the Agreement Establishing the World Trade Organization.

1-2


Figure 13-2
Shares of total possible schedule entries, by industry

‘Travel and tourism @

Fy © Courier services

Legal sentces @ @ Accounting services,

Enhanced telecommunication services @ @ Advertsing services

Full commitments

© Architecture, engineering, and constuction services
Distibution services:

_- Health and transportation services
0g — Autiovsval and education serces . . ;
° 10 2» 20 «0 20 6 %
percent
Partial and full commitments

Source: Compiled by the staff of the U.S. International Trade Commission.

MFN Exemptions

MEN exemptions describe existing regulatory measures that do not conform to the most-
favored-nation principle, in that they accord preferential treatment to selected countries. Such
measures principally affect land transportation and audiovisual services (table 13-2). With
respect to land transportation services, most of the subject countries participate in regional
agreements that accord preferential treatment to contiguous countries. For example, Colombia
accords preferential treatment to members of the Andean Road Freight System and Uruguay
accords preferential treatment to members of the International Land Transport Convention.
Since these agreements generally focus on land transport between South American countries,
an area in which U.S. transport companies have expressed little interest duc to geography, U.S.
land transport companies are not significantly affected by discriminatory treatment. Moreover,
in countries where land transport services are the subject of commitments, the effect of the MFN
exemptions is muted as U.S. firms would receive no less than the minimum levels of market
access and national treatment specified in the commitments.

With respect to audiovisual services, the MFN exemptions generally allow countries to accord
preferential treatment to countries with which they presently have, or may have in the future, co-
production agreements. The stated purpose of such agreements is to encourage the
development of the local industry and, perhaps, to minimize the cultural impact of foreign-
produced works. Regardless, the effect of such preferential agreements on U.S.


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8-9


Table 1-1

Industry-specific commitments scheduled by South American countries, by industry

Argentina

Bolivia

Brazil

Chile

Colombia

Paraguay

Peru

Uruguay

Venezuela

Distribution... . .

x

x

x

Education .......

Enhanced
telecomuni-
cation...

Audiovisual .....

Courier.........

Architectural,
engineering,
and construction

x |x |x |x

x |x |x [x

Transportation ...

Travel/Tourism . . .

Source: Compiled by the staff of the U.S. International Trade Commission.

Table 1-2

Highlights of cross-industry commitments, by country

Argentina

Bolivia

Brazil

Chile

Colombia

Paraguay

Uruguay

Venezuela

Investment ....

x

x

x

x

Real estate
acquisition ....

x

x

x

Subsidies .....

Temporary entry
and stay of
natural

Source: Compiled by the staff of the U.S. International Trade Commission.

1-7



those countries that did offer commitments, difficulties may remain in the form of variable
commercial regulations or unwritten business practices that could be used to impede the
activities of foreign distribution service firms. Despite these findings, industry representatives
indicate that the present regulatory climate in most countries is becoming increasingly
conducive to the participation of U.S. distribution service firms.


Sales by Majority-Owned Affiliates

Exports of AEC services by foreign-based affiliates of U.S. firms experienced steady growth
during 1990-93 (figure 8-3). Architectural and engineering sales through foreign affiliates
increased by an average annual rate of 7 percent, from nearly $4.9 billion in 1990 to $6.0 billion
in 1993.16 In 1993, the major regional market for sales by foreign affiliates of U.S. architectural
and engineering firms was Europe, which accounted for over 75 percent ($4.5 billion) of such
sales. South America accounted for less than 2 percent ($99 million) of architectural and
engineering sales.'’

Affiliate sales of construction services grew more gradually during 1990-93, by an average

annual rate of 3 percent. Sales of construction services measured $5.6 billion in 1990, and $6.1
billion in 1993."*

Figure 8-3
Architectural and engineering service transactions by majority-owned affiliates: U.S.
exports, imports, and trade balance, 1990-1993

Billion dollars

Ci experts A Imports

Balance
8
5
4
3
—
2 4
4
°
1990 1991 1982 1993

Note.--Because Import data for architectural and engineering services provided by construction firms are
suppressed In 1992, the trade balance Is likely overstated In that year.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, September fesues.
for 1993-95.

© BEA data pertaining to affiliate sales of architectural and engineering services also reflects sales
of surveying services.

'TUSDOC, BEA, Survey of Current Business, Sept. 1993, p. 153; and Sept. 1995, p. 104.

‘8 USDOC, BEA, U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and
Their Foreign Affiliates, July 1993, table IILF.3; and July 1995, table IILF.3. Figures for sales of
construction services reflect the value of goods and services, and therefore are not comparable to
affiliate sales of architectural and engineering services.

8-5


Imports through affiliates, or sales to U.S. nationals by U.S.-based affiliates of foreign firms,
expanded more rapidly than exports, growing by an average annual rate of 14 percent during
1987-93, from $63 billion in 1987 to $140 billion in 1993. Affiliates in the insurance industry
represented by far the largest source of imports (36 percent), reflecting the strong presence of
foreign-owned insurance companies in the U.S. market. Real estate firms accounted for the next
largest share of sales, 9 percent, followed closely by distribution service affiliates, with
8 percent of total sales.

U.S. Trade in Services with South American Countries

Services trade with South America represents a small portion of the total volume of U.S. trade
in services.’ In 1994, the volume of cross-border services trade with South America amounted
to less than 9 percent of total U.S. cross-border services trade (figure 2-7). By comparison,
cross-border services trade with Europe and Japan accounted for 35 percent and 14 percent of
total cross-border services trade, respectively. South American countries represent an even
smaller portion of affiliate trade in services. In 1993, the volume of affiliate trade with the
entire region of South and Central America, including Mexico and the Caribbean,’° accounted
for only 5 percent of total U.S. affiliate trade, as compared with Europe and Canada, which
accounted for 58 percent and 15 percent, respectively.

Figure 2-7
U.S. services trade volume, by region

Cross-border trade, 1994 Affiliate trade, 1993
furans rope

57.8%

‘South America’ ‘South America?
< 87% 4.8%
a \ fom
Mexico
6.3% ‘other Canada an
a “a tien
Total trade volume = $261 billion Total trade volume = $284 billion

"Includes Central America, but excludes Mexico.
? Includes Central America, Mexico, and the Caribbean region.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

° The volume of trade is the sum of U.S. exports and imports of services.
1° Data on affiliate transactions in services are available only on a highly aggregated level.

2-7


Composite shares for trading partners were derived similarly. In Argentina’s case, full and
partial commitments to all the subject industries totaled 192. Dividing this number by
Argentina’s 440 total possible entries results in a composite share of 44 percent.

Composite shares for the subject industries reflect a similar methodology. The nine subject
countries made 288 entries with respect to distribution services. Full commitments number 28
and partial commitments number 17, for a combined total of 45 full and partial commitments,
which is equivalent to 16 percent of the subject countries’ total entries pertaining to distribution
services.

13-A-6


and regulatory transparency will contribute to more efficient transportation systems.'*
Harmonization of operating standards has been cited as an important factor in liberalizing trade
in transportation, and industry representatives have suggested that the exchange of information
regarding operating requirements for transportation systems and services could contribute to
harmonization of such standards.'*

As observed in the discussion of distribution and courier services found in chapters 3 and 5,
difficulties with customs clearance procedures appear to be widespread throughout South
America, with adverse implications for U.S. providers of distribution, courier, and
transportation services. For example, U.S. service providers in Argentina are subject to
monopolistic warehousing practices that result in inequitable service charges.'* Argentina also
reportedly uses different customs clearance processing procedures for express shipments and
traditional shipments of cargo. Similarly, there are ongoing confrontations with Brazil
regarding postal and customs regulations, particularly with respect to Brazil’s imposition of
numerous customs requirements that are burdensome, time-consuming, and costly.'®

For the most part, there is little industry consensus on specific GATS commitments because
of their limited scope and disparate nature. Industry representatives indicate that restrictions
on commercial presence need to be addressed, particularly those that concern right-to-
establishment for road transport operations.'’ However, the land transport sector supports the
GATS and is pleased that negotiations recognized the critical role that land transport plays in
international trading relations.'* U.S. industry representatives believe that U.S. companies with
innovative distribution, communications, and technological expertise will benefit from
opportunities to establish businesses in Europe, Asia, and Latin America.’? Generally, land
transport liberalization by distant trading partners is likely to have limited impact on U.S.
cross-border trade in transportation services, because geographic proximity is an important
competitive advantage in many land transportation service sectors.”°

'3 Transportation Panel, Summary of Proceedings, Western Hemisphere Trade and Commerce
Forum, Denver, CO, July 1-2, 1995, found at Internet http://americas.fiu.edu/denver/moving txt.

‘ Harmonization of freight carriage regulations likely would include requirements for a uniform
bill of lading, uniform insurance documentation, port clearances, harmonization of customs and port
procedures, use of IMO standards, electronic data interchange, and uniform weights and standards for
trucks and containers. Ibid.

'S Prehearing Brief of Federal Express Corp., submitted to the USITC, investigation No. 332-367,
July 12, 1996, pp 39-40.

** Industry representatives, telephone interviews by USITC staff, May 8, 1996.

Tid.

'8 The main objective of the U.S. land transport industry in the GATS was to ensure that the
applicable provisions negotiated under the NAFTA were upheld in the multilateral negotiations.
Industry Sector Advisory Committee on Services for Trade Policy Matters (ISAC 13), Report on the
Uruguay Round Multilateral Trade Agreements, Jan. 15, 1994, pp. 21-22.

* Industry Sector Advisory Committee on Services for Trade Policy Matters, p. 22.

© Industry representatives, interviews by USITC staff, Washington, DC, Jan. 18, 1995.

11-7


Figure 1-1

Structure of the General Agreement on Trade in Services

GATS

Framework of Rules

Contains general obligations
conducive to intemational trade in
services, including:

* Most-Favored-Nation treatment

* Trai en ation of

* Increasit icipation of
develops Ecourtres

* Economic it tegration

* Domestic regulation

* Recognition

* Monopolies and exclusive
service suppliers

* Business practices

* Emergency safeguard measures

National Schedules
of Commitments

Submitted by each of 117
Signatory countries. The
schedules contain commitments
regarding restrictions and
limitations to market access and
national treatment. Schedules
typically comprise:
* Cross-industry commitments
* Industry-specific commitments
with respect to 4 modes of
supply:
-cross-border supply
-consumption abroad

Annexes and
Ministerial Decisions

Provide information regarding on-
going negotiations and rights to
temporary MFN exempfons,
including:

* Annex on MFN exemptions

* Annex on eed of natural
persons supplying services
under the Agreement

* Annex on financial services

* Second annex on financial
services

* Annex on negotiations on
maritime tt services

* Annex on telecommunications

-commercial presence
afeesence of natural persons.
+ MFN exemptions (optional)

* Payments and transfers

* Restrictions to safeguard the
balance of payments

* Government procurement

“ General exceptions

* Subsidies

* Annex on negotiations on basic
telecommurications

The GATS Framework

The framework calls on parties to observe 14 general obligations and disciplines that are
conducive to international trade in services. Key among these obligations are most-favored-
nation (MFN) treatment® (article II) and regulatory transparency (article III).° Other important
elements of the framework provide for international economic integration agreements such as
the North American Free-Trade Agreement (article V); “reasonable, objective, and impartial”
regulation (article VI); recognition of authorization, licensing, and certification standards and
procedures (article VII); and safeguards on monopolies (article VII) and subsidies (article XV).

® MEN status accords to one trading partner terms and conditions of trade that are no less favorable
than those accorded to any other trading partner. Countries were allowed to submit a list of
exemptions to the MFN obligation outlined in article II of the GATS. In other words, certain trading
partners could be accorded preferences over all other signatory countries. These “MFN exemptions”
are optional. For more information, see the section later in this chapter on “Annexes and Ministerial
Decisions.”

° Transparency exists when the nature and extent of all trade-impeding measures are explained in
their entirety, with precision and clarity. See appendix C for a glossary of terms.

1-3


Peru

The telecommunication services industry in Peru is a virtual monopoly of Telefonica del Peru.
However, the 1993 telecommunications law climinates all barriers to foreign investment.”*
Peru’s commitments on enhanced telecommunication services bear little resemblance to those
scheduled by other countries. Peru’s commitments predominantly pertain to narrowly defined
electronic message and information service, such as voice messaging; storage and retrieval of
data; facsimile, storage and retransmission of facsimiles; and data processing. In addition,
Peru scheduled commitments on certain other narrowly defined services that are not found in
the GATT Secretariat’s Services Sectoral Classification List, such as tele-alarm and advice
services. Peru did not schedule commitments on electronic data interchange, and code and
protocol conversion. Restrictions on these services are unbound.

For the services appearing in its list, Peru scheduled partial commitments with respect to cross-
border supply and commercial presence. The commitments restrict market access by confining
foreign firms to the provision of services over private networks exclusively, and only in regions
where the public telecommunication system cannot provide enhanced services. In addition, the
supply of these services may be suspended if operation of the private network is thought to
interfere with the public network. Foreign persons that supply enhanced telecommunication.
services must obtain authorization to construct a private network and must enroll in the
Register of Suppliers of Value-Added Services.

Peru maintains unbound restrictions on the supply of enhanced telecommunication services
through the presence of natural persons, but cross-industry commitments state that intra-
corporate transferees are allowed to stay in Peru for an initial period of 3 years and may extend
their stay by 3 years thereafter. However, such persons may not comprise more that 20 percent
of the total staff of foreign enterprises and their collective pay must not exceed 30 percent of
the total payroll.

Industry Opinion

U.S. firms express general satisfaction with the markets in most of the subject countries and
optimism about the prospects of providing enhanced telecommunication services. Industry
representatives indicate that the market for enhanced telecommunication services in the subject
countries is more open to foreign providers than the GATS schedules seem to suggest.”* For
example, industry representatives state that Chile offers one of the most open and competitive
markets in the region, whereas its commitments in the GATS are very restrictive. U.S. firms

4 USDOC, “Peru - Telecommunication Equipment,” Market Research Reports, Mar. 22, 1995
°5 Exceptions to these percentages are granted in specific unlikely cases.
26 Industry representative, interview by USITC staff, Washington, DC, July 9, 1996.

4-1


Examination of Commitments on Land Transportation

Services

As noted, land transportation services are provided to foreign consumers through cross-border
trade and sales by overseas affiliates. The types of trade barriers common in this industry vary
according to the type of transport service, although limitations to commercial presence, such as
investment barriers, nationality requirements, and establishment restrictions affect the ability
of most U.S. transportation service providers to enter foreign markets. In addition, land
transportation service providers are affected by the lack of standardization of operational rules
and regulations, which was not addressed under the General Agreement on Trade in Services
(GATS). Freight forwarders and customs brokers are subject to restrictive licensing
requirements, customs brokers often are subject to nationality restrictions, and cabotage (i.¢.,
domestic point-to-point service) is usually reserved for domestic providers.

Only Brazil and Uruguay scheduled commitments regarding land transportation services. The
scope of commitments scheduled is narrow, and the commitments address different subsectors
of the land transportation service industry in many instances. Limitations on foreign service
providers are most numerous with respect to cross-border supply, commercial presence, and
presence of natural persons (table 11-1). However, cross-industry commitments regarding
temporary entry and stay of natural persons sometimes soften restrictions placed on the
movement of persons.

The GATS commitments do not appear to reflect the existing regulatory climate in each country.
For example, foreign companies in Paraguay may establish a commercial presence so long as
they provide for local representation and abide by local operational regulations, but these
restrictions are not represented by GATS commitments.* Other countries are more open to land
transportation services than their schedules indicate. In actual practice, Venezuela does not
maintain restrictions on foreign participation in land transportation services provided through
a commercial presence.? However, Venezuela chose not to schedule any commitments in this
sector. Additionally, Brazil is implementing an ambitious privatization program that permits
and encourages foreign participation in road and rail transportation services and eventually may
include participation in airports and ports.'°

Brazil

Brazil made several transportation service commitments, but retained broad limitations on
market access for certain federally regulated transportation undertakings. In addition,

* Permanent Mission of Paraguay to the WTO, facsimile transmission, July 17, 1996.

° Venezuela Trade Ministry representative, USITC staff interview, Caracas, Venezuela, Aug. 13,
1996.

* Brazil Transportation Ministry and State of Sao Paulo Transportation Ministry representatives,
USITC staff interviews, Brasilia and Sao Paulo, Brazil, Aug. 7-8, 1996.

11-4


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9-6


Brazil

Brazil scheduled partial commitments for advertising services provided through cross-border
supply and commercial presence. Services provided via consumption abroad are unbound, as
are services provided through the movement of natural persons, with some exceptions for
senior managers and specialists. With respect to cross-border supply, Brazil offered
commitments only on market access, leaving limitations on national treatment unbound.
Brazil’s schedule notes that foreign participation in the production of advertising film is
restricted to one-third of footage, with larger participation subject to the use of local talent and
production houses.'! The schedule also lists a requirement that Portuguese must be used in
advertising films unless the content requires another language. All of these limitations on
cross-border market access also are applied to advertising services provided through a
commercial presence. Additional limitations placed on commercial presence include a 49
percent cap on foreign ownership of advertising firms established in the country, a requirement
that managerial control be held by Brazilian nationals, and a stipulation that foreign
professionals are subject to the Brazilian Code of Ethics of Advertising Professionals. Foreign
advertising firms wishing to establish a commercial presence in Brazil are also confronted with
a national treatment limitation whereby they must reside in Brazil for 3 years prior to obtaining
authorization to produce films.

As noted, with respect to the presence of natural persons, Brazil made cross-industry
commitments only on selected types of business visitors, specifically specialized technicians,
highly qualified professionals, managers and directors. The appointment of managers or
directors must be related to the provision of new technology, an increase in productivity, or a
minimum foreign investment of US$200,000 in Brazil by the foreign company. Managers and
directors of foreign affiliates in Brazil must be designated to fill a vacancy position with full
decision-making power. The firm also must demonstrate a link between the service provider
in Brazil and its headquarters abroad, and prove that the manager or director in Brazil is
performing his or her duties. Appointments of specialists or highly qualified professionals
must be approved by the Ministry of Labor, which evaluates the compatibility of their
qualifications with the industry of the employing company and the availability of such talent
in Brazil. Brazil’s cross-industry limitations also state that no less than two-thirds of all
employees must be Brazilian. Brazil declined to specify permissible lengths of stay for foreign
business persons, thereby reserving broad discretion in this respect.

Peru

The scope of Peru’s commitments on advertising services is limited to the sale or lease of
advertising space or time, and advertising planning, creation, and placement services. Other
advertising services are excluded, such as outdoor and aerial advertising, and services related
to the delivery of samples and other advertising materials. Peru’s commitments apply only to
advertising services provided through a commercial presence. Limitations on all other modes

"' The one-third of footage requirement reportedly exists, but is not actively enforced at present.
Brazil Foreign Ministry representative, interview by USITC staff, Brasilia, Brazil, Aug. 6, 1996.

9-8


CONTENTS-Continued

Chapter 3-Continued Page
Examination of commitments on distribution services 3-6
Argentina . . 3-10
Brazil... 3-11
Peru .. 3-11
Industry opinion . 3-12
3-13
Chapter 4. Enhanced Telecommunication Services
Introduction 2... etna 4-1
Nature of international trade in enhanced telecommunication services 4-1
Examination of commitments on enhanced telecommunication services 4-3
Argentina 4-9
4-9
4-10
bees 4-11
4-11
4-12
Chapter 5. Courier Services
Introduction 5-1
Nature of international trade in courier services . . 5-1
Examination of commitments on courier services 5-3
Argentina 5-5
Brazil .... 5-5
Urmguay 5-5
Venezuela 5-5
Industry opinion 5-6
5-6
Chapter 6. Health Care Services
Introduction 6-1
Nature of international trade in health care services .. . 6-1
Cross-border transactions 6-2



Cross-Border Transactions

Cross-border architectural, engineering, and construction exports increased at a 33-percent
average annual rate, from $867 million in 1990 to $2.7 billion in 1994 (figure 8-1).'? The rapid
increase in cross-border trade reflects significant growth in construction activity in the Asia-
Pacific region and may also be an indication of the increasing ability of AEC firms to operate
from home bases through advanced computer-aided design and telecommunication
capabilities.'* The United States runs a notable trade surplus in cross-border trade in AEC
services. The U.S. cross-border surplus has risen steadily from $697 million in 1990 to
$2.4 billion in 1994, an average annual increase of 36 percent.

The leading export region for U.S. AEC firms in 1994 was the Asia-Pacific area, with 52
percent of cross-border sales (figure 8-2). Secondary export markets included Europe, with 13
percent ($356 million) of sales, and South/Central America with 12 percent ($334 million).
Venezuela accounted for 53 percent ($176 million) of U.S. exports to South and Central
America, and nearly 7 percent of total U.S. cross-border sales in 1994.!5

3 U.S. Department of Commerce (USDOC), Bureau of Economic Analysis (BEA), “U.S.
International Sales and Purchases of Private Services,” Survey of Current Business, Sept. 1995, p.
102. Cross-border data for U.S. exports of construction services are reported on a net basis, meaning
that the data reflect "U.S. contractors' gross operating revenues from foreign projects less the sum of
(1) U.S. merchandise exports included in gross operating revenues (which are recorded in the
merchandise trade account of the balance of payments) and (2) foreign expenses, such as those for
local labor or locally procured materials and supplies." In sum, net receipts measures that part of
gross operating revenues retained by U.S. contractors. However, imports are only reported on a gross
basis. Therefore, the U.S. surplus in cross-border trade is understated.

TM The increasing use of the Internet and other electronic media as a method of cross-border supply
is noted in the prehearing brief of the United States Council for International Engineering Practice,
July 18, 1996, p. 7.

S USDOC, BEA, Survey of Current Business, Sept. 1995, p. 102.

8-3


Commission agents’ services may take place on both a cross-border and affiliate basis.
However, since commission agents typically are individuals or small businesses whose sales are
difficult to capture in national data surveys, trade data on commission agents’ services are
unavailable.

US. and foreign retail firms seeking to expand into South America often choose local partners
with ties to developed distribution networks and local suppliers. An important goal in such
overseas expansion is to introduce more affordable products demanded by South American
consumers. U.S. retail leader Wal-Mart opened its first stores in Brazil in 1995 through a
majority interest in a joint venture with a Brazilian retailer, Lojas Americanas. Wal-Mart
established an affiliate in Argentina in the same year, and plans to enter Chile in 1996.* Another
U.S. retailer, J.C. Penney, opened an affiliate recently in Chile, and additional U.S. firms are
reportedly considering direct investment in Argentina or Chile.* The U.S. firms’ affiliates would
face competition from well-established affiliates of European firms, principally Carrefour of
France and the Dutch-owned Makro. Meanwhile, local retailers are undergoing deep
retrenchment, as consolidations and closures reportedly affected more than 40,000 retail
businesses in Argentina alone in 1995.° In Brazil, the anticipation of price stability following
the adoption of a new currency, reductions in certain taxes, and reforms in investment regulation
contributed to an increase in foreign investment in that country’s retail sector, evidenced by
rapid expansion in the number of shopping malls and an increase in the size of supermarkets.’
In Colombia and Venezuela, other foreign countries’ retailers are establishing a market
presence, although U.S. retail firms have not opened affiliates in these markets. Dutch
hypermarket® chain Makro reportedly has planned rapid expansion in numerous locations, which
is likely to increase price competition and cause locally owned firms to accelerate modernization
of operations, where possible.’

Franchising operations in numerous South American markets are among the fastest growing
business sectors in recent years. South American consumers’ awareness of U.S. brands aids
US. franchisors’ expansion into Latin markets. Among the fastest growing franchise markets
is Argentina, where U.S. franchisors accounted for more than 50 percent of foreign franchisors
in 1995.'° In Brazil, local franchising systems are highly developed. However, U.S. franchisors
accounted for 85 percent of the foreign-owned franchises in 1993."" In Chile, franchising is in
the early development stages; however, the high performance and efficiency of many Chilean
firms have led foreign franchisors to grant regional licenses to Chilean franchisees. Some of

* 1996 Annual Report, Wal-Mart Stores, Inc., 1996.

> “After four years of bonanza, recession is beginning to bite,” Crossborder Monitor, June 21,
1995, The Economist Intelligence Unit.

* Ibid.

7 Industry representatives, interviews by USITC staff, Sao Paulo, Brazil, Aug. 8 and 9, 1996, and
“Country Profile - Brazil,” The Economist Intelligence Unit, Dec. 1, 1995.

® Hypermarkets include both food and beverage goods as sold in grocery stores, and merchandise
such as household furnishings, apparel, appliances, and toys as sold in department or specialty stores.

° “Colombian Retail: Going Dutch,” Business Latin America, Apr. 15, 1996, The Economist
Intelligence Unit.

%° “Franchising in Argentina,” USDOC, International Trade Administration (ITA), Market Research
Report, Jan. 16, 1996, National Trade Data Bank (NTDB).

" “Brazil - Franchising Services,” USDOC, ITA, market research report, Apr. 19, 1995, NIDB.

3-2


8 entries for each industry, 55 of which fall within the scope of this report. Thus, this report
examines 440 schedule entries made by each of the subject countries; i.e., undertakings with
respect to 2 distinct types of potential limitations (those that limit market access or national
treatment), for each of 4 modes of supply (cross-border supply, consumption abroad,
commercial presence, or presence of natural persons), in 55 industries (2x4x55=440).

To compare the extent to which countries have established benchmarks and improved
transparency, Commission staff summed each South American country’s full and partial
commitments, and those of the European Union, Japan, Canada, and Mexico, and expressed
them as a share of the 440 schedule entrics.° The resulting shares are depicted along the
horizontal axis in figure 13-1,’ where countries furthest from the origin - Canada and the
European Union - appear to have accomplished more in terms of establishing benchmarks and
enhancing transparency.’ Among South American countries, Argentina appears furthest from
the origin, undertaking full and partial commitments in 44 percent of its schedule entries.
Venezuela and Colombia trail Argentina in terms of benchmarking and transparency, both
entering full or partial commitments 20 percent of the time. Other South American countries
have undertaken commitments in 5 to 18 percent of their schedule entries, thereby comparing
less favorably in terms of benchmarking and transparency.

To indicate where GATS signatories are in terms of guaranteeing unrestricted trade in this
report’s subject industries, the share of schedule entries represented by full commitments is
depicted along the vertical axis of figure 13-1. Again, developed countries tend to compare
favorably, and Argentina leads other South American countries, undertaking full commitments
with 31 percent of its schedule entries.

° This quantitative analysis of the schedules draws upon work presented in Bernard Hoekman,
Tentative First Steps: An Assessment of the Uruguay Round Agreement on Services, paper
presented at The Uruguay Round and the Developing Economies Conference of the World Bank,
Washington, DC, Jan. 26-27, 1995. Further details pertaining to this quantitative analysis are
provided in the annex that immediately follows this chapter.

’ For the purposes of figures 13-1 and 13-2, all partial commitments have been given an equivalent
score in the interest of simplicity and clarity. Whereas all partial commitments establish similar,
unambiguous, and legally enforceable benchmarks, such commitments vary appreciably in the extent
to which they enhance transparency. Therefore, figures 13-1 and 13-2 indicate along the horizontal
axis the share of schedule entries that establish benchmarks and improve transparency, rather than the
share of entries that establish benchmarks and provide complete or similar degrees of transparency.

* For more information on the schedules submitted by the United States, the European Union,
Japan, Canada, and Mexico, see USITC, General Agreement on Trade in Services: Major Trading
Partners’ Schedules of Commitments, USITC publication 2940, 1995, and USITC, U.S. Trade Shifts
in Selected Industries: Services, USITC publication 2969, 1996.

13-6


Industry Opinion

Throughout much of the GATS negotiations, the industry reports that it focused principally
on the legal service offers tabled by the European Union and Japan. With the exception of a

very few individuals, the U.S. legal services industry evinced little interest in South American
GATS commitments.’

Relatively few American Bar Association (ABA) members, a few hundred at most, are
involved in affiliate sales of legal services. To establish offices abroad is expensive and is
largely confined to the largest U.S. legal firms. With the increased sophistication and ease of
telecommunications, the relative importance of cross-border trade may now be advancing over
affiliate trade.'® This does not mean that affiliate trade is considered less important by large
firms, but rather that the barriers to establishing a commercial presence are not sufficiently
high for U.S. firms to devote time and effort to remove them in smaller South American
markets. Also, competition is intense in many country markets. If a U.S. firm is already
established in such a market it may oppose attempts to ease the entry of other U.S. firms that
represent additional competition. Divergent views within its membership may help to explain
the relatively modest efforts of the American Bar Association in regard to the GATS
negotiations.'”

Additionally, as with most professional services, the qualification and licensing requirements
for providing legal services are influenced by the local professional associations. These
requirements include limiting the practice of domestic law to nationals, as in Chile, or
restricting the use of foreign names or trademarks in identifying the firm, as in Brazil.’* The
lack of harmonization of professional standards thus created a major obstacle to trade in legal
services. To address this problem within the United States, the ABA adopted a resolution in
1993 urging the States to adopt a Model Rule for the Licensing of Foreign Legal Consultants.
It is the view of the ABA that the Model Rule provides a balanced, fair, and appropriate basis
on which lawyers from one country may practice in another.'? The Model Rule, or an
equivalent, is now believed to be operative in several U.S. States and under consideration in
others. The ABA formally welcomes foreign lawyers to the United States and seeks the same
treatment for U.S. lawyers abroad. It underscores that its interest in “foreign legal consultant”
tules is driven less by the interest of U.S. lawyers to work in other countries and more by the
ability of their clients to engage the services of competent lawyers in any jurisdiction where the
clients’ business takes them,”°

'S Peter D. Ehrenhaft, testimony before the USITC, June 7, 1995. Also USITC staff telephone
conversations with former USTR trade negotiators, May 3, 1996.

*° Thid.

‘7 USTR official, interview by USITC staff, Washington, DC, May 10, 1996.

'8 Industry representative, USITC staff interview, Sao Paulo, Brazil, Aug. 8, 1996. Also, see
“Unfair Trade?”, The American Lawyer, Apr. 1994, pp. 53-56.

” Donald H. Rivkin and Peter D. Ehrenhaft, post-hearing letter from the ABA to the USITC, June
29, 1996, and also, see “Unfair Trade?”, The American Lawyer, Apr. 1994, pp. 53-56.

Ibid.

10-7


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L-8 19e1


Figure 3-3

Wholesale trade transactions by majority-owned affi
and trade balance, 1990-93

ites: U.S. exports, imports,

Billion dollars

(Exports YA Imports +=—— Balance
15
|
10
5
0)
1990 1991 1992 1993

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1992,
Sept. 1994, and Sept. 1995.
Figure 3-4

Wholesale trade exports: Sales by majority-owned at
principal markets, 1993

lates of U.S. firms, by

Latin America *
7.0%

Canada Japan
7.0% 55%

Total = $15.4 billion

* Includes Mexico and the Caribbean region.
? Includes Africa, the Middle East, and Asian and Pacific countries, except Japan.
‘Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Sept. 1995.

3-5