Services are a significant element across the U.S. economy, at the national, state, and local levels. The term "services" refers to an expanding range of economic activities, such as audiovisual, construction, computer and related services, express delivery, telecommunications, e-commerce, financial, professional (such as accounting and legal services), retail and wholesaling, transportation, and tourism. Services not only function as end-use products but also facilitate the rest of the economy. For example, transportation services move intermediate products along global supply chains and final products to consumers; telecommunications services open e-commerce channels; and financial services provide credit for the manufacture and consumption of goods or the production of crops. Services account for a majority of the U.S. economy—78% of U.S. gross domestic product (GDP) and 82% of U.S. private sector full-time employment. Services have also become a significant component of U.S. international trade, accounting for $752.4 billion of U.S. exports in 2016. As such, it is an increasingly important component of U.S. trade policy and of global trade in general. Rapid advances in information technology and the related growth of global value chains are making an expanding range of services tradable across national borders. However, certain characteristics have limited the types and volume of services that can be traded; for example, a hair stylist must be physically near a client. Other service providers are no longer required to be in the same location as the customer, such as a graphic designer who can send a product (e.g., an electronic file of a design) to a client across the globe. A number of economists have argued that foreign government barriers prevent U.S. trade in services from expanding to its full potential. Under the Trump Administration, the United States may continue to engage in trade negotiations on multilateral, plurilateral, bilateral, and regional agreements with one goal being to lower these barriers. Congress has a significant role to play in negotiating and implementing trade-liberalizing agreements, including those on services. In fulfilling its responsibilities for regulation of commerce and oversight of U.S. trade policymaking and implementation, Congress monitors trade negotiations and the implementation of trade agreements. Congress establishes trade negotiating objectives and priorities, including through trade promotion authority (TPA) legislation and consultations with the Administration. More directly, Congress must pass legislation to implement a trade agreement requiring changes to U.S. law before it can enter into force in the United States. This report provides background information and analysis on U.S. international trade in services, including the types and volumes of traded services. It analyzes policy issues before the United States, especially relating to negotiating international disciplines on trade in services and the complexities in measuring trade in services. The report also examines emerging issues and current and potential trade agreements, including renegotiation of the North American Free Trade Agreement (NAFTA), the Trade in Services Agreement (TiSA), and the Transatlantic Trade and Investment Partnership (T-TIP). The basic characteristics of services are complex (especially compared to goods) due to their intangibility and their ability to be delivered via various formats, including electronically and direct provider-to-consumer contact. To address this complexity, members of the World Trade Organization (WTO) have adopted a system of classifying four modes of delivery for services to measure trade in services and to classify government measures that affect trade in services in international agreements (see Figure 1 ). U.S. international trade in services plays an important role in the overall U.S. economy and global trade. The wide range of existing and potential services, from e-commerce to engineering, is delivered through multiple modes that often complement, or integrate with, one another. Measurements of trade in services are captured in two types of data: cross-border trade includes services sold via Modes 1, 2, and 4, described above. The second set of data measures services sold by an affiliate , that is, the services a local affiliate of a foreign company sells to a consumer of the local economy (Mode 3). For cross-border trade, in 2016, services accounted for 34.1% of the $2,208 billion total in U.S. exports (of goods and services) and 18.6% of the $2,713 billion in total U.S. imports. Figure 2 shows that the United States has continually realized surpluses in services trade, which have partially offset large trade deficits in goods trade in the U.S. current account. Many services require direct contact between the supplier and consumer and, therefore, service providers often need to establish a presence in the country of the consumer through foreign direct investment (FDI). For example, providers of legal, accounting, and construction services usually prefer a direct presence because they need access to expert knowledge of the laws and regulations of the country in which they are doing business. They also require proximity to clients. Companies establish a commercial presence abroad (Mode 3) through a foreign affiliate. It is unclear how advances in information and communications technology will affect trade in services as virtual delivery via the Internet expands the range of services offered and also drives increased demand. In 2015 (the latest year for which published data are available), U.S. firms sold $1,463.5 billion in services to foreigners through their majority-owned foreign affiliates, and foreign firms sold $952.5 billion in services to U.S. residents through their majority-owned foreign affiliates located in the United States. The data for cross-border trade and for sales by majority-owned affiliates are not directly compatible due to differences in coverage and classification. Nevertheless, the data presented in Table 1 indicate that, in terms of magnitude, a large proportion of sales of services occurs through the commercial presence of companies in foreign markets rather than cross-border trade. Conventional trade data are not measured on a value-added basis and do not attribute any portion of the traded value of manufactured and agricultural products to services inputs, such as research and development, design, transportation costs, and finance. Instead, traditional data measure exports and imports of goods based on the value of the final product (e.g., medical device or t-shirt). Measuring trade flows based on value-added rather than final cost, the Organization for Economic Co-operation and Development (OECD) and the WTO estimated that in 2009, close to 50% of the value of U.S. exports of manufactured goods was attributable to services inputs. This finding suggests a larger role for services in international trade than is reflected in conventional trade data; it also suggests trade in services is likely to grow in importance with the growth of global value chains. An economist at Standard Chartered also argues that there are discrepancies in trade statistics, showing that by traditional measures services are 20% of global exports but, by his estimates of value-added, services account for 45%. The United States supplies services (both via cross-border trade and FDI) to many different regions of the world (see Figure 3 ). Europe accounted for the majority of U.S. total trade in services. The United Kingdom (UK) alone accounted for 9% of U.S. services exports and 10% of services imports in 2016. Apart from the UK, 28% of U.S. exports of services went elsewhere in Europe, while 32% of U.S. imports of services came from those countries. Canada accounted for 7% of U.S. services exports and 6% of U.S. services imports; China was 7% and 3%, respectively, while other Asian and Pacific countries accounted for 23% of U.S. exports and 24% of imports of services in 2016. Japan's consumption of U.S. services was similar to that of China, but Japan accounted for approximately double the amount of U.S. services imports. Europe's dominance in U.S. services trade is more apparent when taking into account services that are provided through multinational corporations (MNCs) and their affiliates. In 2015 (latest data available), 44% of services supplied by U.S. MNCs were to foreign persons located in European Union countries, 25% to foreign persons located in Asian countries, and 8% to foreign persons located in Canada (see Figure 4 ). In 2015, 56% of sales of services to U.S. persons by U.S. affiliates of foreign-owned MNCs were by MNCs based in European countries; 26% by MNCs based in Asia, Middle East, and Africa; and 10% by MNCs based in Canada. The U.S. Bureau of Economic Analysis divides services into nine categories: Maintenance and repair; Transport; Travel (for all purposes including tourism, education); Insurance; Financial; Charges for the use of intellectual property (IP) (e.g., patents, trademarks, franchise fees); Telecommunications, computer, and information; Other business services (e.g., research and development, accounting, engineering); and Government goods and services. In 2016, U.S. exports covered a diverse range of services (see Figure 5 ). Travel accounted for the largest percent of U.S. services exports at 27%. Royalties and fees generated from intellectual property as well as other business services contributed another 17% and 19%, respectively. Transportation and financial services were 11% and 13%, respectively, of U.S. services exports. Sales of services by MNCs via commercial presence (Mode 3) include a broader range of industries. In 2015 (latest data available), the value of services sold by U.S.-owned MNCs through their foreign affiliates was 16% and 7% from wholesale and retail trade services, respectively. Additionally, financial services accounted for 16%; sales of professional services, including computer systems management and design, architectural, engineering, and other professional services were 16%; information-related services were 17%; and "other industries" (a category that includes utilities, transportation, and other services) were 19%.