10/25/11                         Prepared for             SJSU International & Extended Studies                 IT group, ...
10/25/11                                                                               Service Sector in                  ...
10/25/11    Thanks to  Bob Vastine et al                                                                                  ...
10/25/11                                                                            Kwan	                                 ...
10/25/11                      •  78.3% of GDP ≈ $8.5 Trillion                      •  Export of $535 Billion              ...
10/25/11     Total	               	  	  	  	  294,301	  	   	  	  306,345	  	   	  	  	  	  355,075	  	   	  	  	  	  391,...
10/25/11                180,000                160,000                                                                    ...
10/25/11                                                            93.1/116=80.25%                                       ...
10/25/11WTO Doha Round of TradeTalks with goals of       Reduce Trade Barriers       Open Market Access….“..fundamental di...
10/25/11          G20 and APEC meeting in November 2008             agreed on a “standstill” policy:          •  revive Do...
10/25/11                                                          21	                                  Global Trade Alert:...
10/25/11  White House policy decisions + Trade Representative  Bottom Up pressure from Private Sector  Education about ...
10/25/11•  Complacency – “We have a huge trade surplus…. We are doing fine…”•  Other countries that are “top-down” will ca...
10/25/11         Korean	  Economic	  Sectors	  (Based	  on	  %	  of	  Nominal	  GDP)	  7060504030                         ...
10/25/1129	  30	                15
10/25/1131	  32	                16
10/25/11                                                                   33	  “Ranging from architecture to voice-mail t...
10/25/11                                           rvice                                     and seTechnical regulations a...
10/25/11        “2009 Joint Commission on Commerce and Trade (JCCT)        Input on Standards and Conformance Issues in Ch...
10/25/1139	  40	                20
10/25/11June 30,2011               41	             42	                               21
10/25/1143	  44	                22
10/25/1145	  46	                23
10/25/11•  US cannot become complacent – real/potential trade barriers•  Learn from (non-protectionist) best practices in ...
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Kwan US Trade in Services

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SJSU IES Russian Group 10/26/2011

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Kwan US Trade in Services

  1. 1. 10/25/11 Prepared for SJSU International & Extended Studies IT group, Russian Federation October 26th, 2011 1    Abstract & Motivation  Data Sources and Data Collection  Creating a Profile of US Trade in Services  US Trading CompPartners  Looking forward – are Trade Barriers just over the Horizon?  Implications for US Service Sector  Conclusion 1
  2. 2. 10/25/11 Service Sector in US EconomyCurrently the service sector accounts for over eighty percent of the US economy andforty percent of the world economy according to the International Labor Organization.The growth in trade in services has become increasingly an important factor in theglobal economy. Countries which had enjoyed a trade surplus in manufactured goods(such as Taiwan, Korea, Japan, Countries with facing an increasing trade deficit in etc.) are now Trade Deficit inservices with the US which had maintained a competitive position. In the case of Services with USChina, the service sector is one area the US had kept a growing surplus in trade incontrast to a substantial deficit in other sectors. China had recognized the importance ofits service sector and designated it for development in its current 2006-2011 Five YearPlan. This research will use US Department of Commerce and WTO data to create aprofile of US trade in services. An attempt will be made to identify whether traditionalmethods employed in the manufactured goods and farm product sectors Technical such asprotectionist measures, subsidies to domestic producers, domestic standards, etc. to Trade Barriers arebeing employed by US and its trade partners as technical barriers to trade in services. APEC, TPPWe will draw examples from countries such as China and Korea and will also considerother countries (such as Singapore) and groups (such as APEC, Trans-PacificPartnership, etc.) that have trade agreements with the US. We will consider how thecurrent state of trade in services impacts on the growth of the US service sector US Competitiveeconomy domestically and globally and, and the long run, affects US’s competitive Position in Policyposition. Panel: National Policies on Service Sector and Innovation 4   2
  3. 3. 10/25/11 Thanks to Bob Vastine et al Acting Deputy Assistant Secretary for Service Industries J. Bradford Jensen (2011) 5   US shift to service jobs World’s Large Labor Forces A = Agriculture, G = Goods, S = Service 2009 2009 Nation Labor A G S 40yr Service (A) Agriculture: % % % % Growth Value from harvesting nature China 25.7 49 22 29 142% India 14.4 60 17 23 35% (G) Goods: U.S. 5.1 1 23 76 23% Value from making products Indonesia 3.5 45 16 39 34% (S) Service: Brazil 3.0 20 14 66 61% Value from enhancing the capabilities of people and their ability Russia 2.4 10 21 69 64% to interconnect and co-create value Japan 2.2 5 28 67 45% Nigeria 1.6 70 10 20 19% Bangladesh 2.1 63 11 26 37% Germany 1.4 3 33 64 42% CIA Handbook, International Labor OrganizationNote: Pakistan, Vietnam, and Mexico now larger LF than Germany Employment Change Numeric change in wage-salary employment by industry sector, The largest labor force migration in projected 2004-14 human history is underway, driven by (Thousands) global communications, business and Professional and business service 4566 technology growth, urbanization and regional variations in labor and Healthcare and social assistance 4303 infrastructure costs and capabilities. 6   3
  4. 4. 10/25/11 Kwan   2011  In its 11th Five-Year Plan, China had targeted an increase of the servicesector’s output to 43.3% of GDP by 2010, up from 40.3% in 2005 In its 12th Five-Year Plan, China had targeted an increase of the service sector’s value-added output to 47.3% of GDP by 2015, up 4%. But don’t forget the WTO! Kwan   2011   4
  5. 5. 10/25/11 •  78.3% of GDP ≈ $8.5 Trillion •  Export of $535 Billion •  Import of $367 Billion •  Trade Surplus of $168 Billion •  Employs 93 million people •  Average annual pay $55,000+ 9  Modes of Trade Some ExamplesCross Border Trade Software, Insurance, telediagnosis from country B into AConsumption Abroad A’s residents obtain education or hospital treatment in BCommercial Presence Bank, telecommunications firm, hospital from B set up subsidiary in A.Movement of Natural Persons Engineers, doctors from B provide services in A Adapted from WTO definitions 10   5
  6. 6. 10/25/11 Total          294,301        306,345            355,075            391,127          437,879          506,792          551,610      Growth   4%   16%   10%   12%   16%   9%   11  Total          233,071        252,368            293,228            315,545          356,138          377,222          407,295     12    Growth   8%   16%   8%   13%   6%   8%   6
  7. 7. 10/25/11 180,000 160,000 161,420 140,000 139,926 120,000 100,000US $Million 96,886 89,010 80,000 78,184 70,513 68,279 60,000 40,000 20,000 - 2002 2003 2004 2005 2006 2007 2008 13   60,000 50,000 Canada 40,000 Europe Latin America & Other Western 30,000 Hemisphere US $ Million Africa 20,000 Middle East Asia and Pacific 10,000 International Organizations & Unallocated 0 2002 2003 2004 2005 2006 2007 2008 -10,000 14   7
  8. 8. 10/25/11 93.1/116=80.25% Private Sector JobsTotal Service Sector 86.3 86.6 88.2 89.9 91.6 93.1 93.1 15   16   8
  9. 9. 10/25/11WTO Doha Round of TradeTalks with goals of Reduce Trade Barriers Open Market Access….“..fundamental disagreements between the developed nations and the major developing countries…” BIC nations… R 17   With plurilateral agreements derailed, nations are now engaged in more (inefficient) negotiations for •  Bilateral agreements •  Regional agreements – e.g., NAFTA – to be renewed soon •  Sector/Sector Agreements – US has service sector agreements with Japan and EU •  Free Trade Agreements (FTA) – US has FTA (or pending) with Australia, Andean Countries, Bahrain, CAFTA, Chile, Colombia, FTAA, Korea, Israel, Jordan, Malaysia, Morocco, Oman, Panama, Peru, Singapore. 18   9
  10. 10. 10/25/11 G20 and APEC meeting in November 2008 agreed on a “standstill” policy: •  revive Doha talks •  no imposition of new trade barriers •  12 months Global Financial Ineffective Crisis 19  •  Less imports, less exports•  less consumption, particularly for services (less disposable income)•  stimulus of domestic markets (more protectionist measures) “The US Service Sector contracted for the 11th straight month, …” “Global trade is expected to shrink 10% in 2009.” 20   10
  11. 11. 10/25/11 21   Global Trade Alert: G20 members passed over 100 “blatantly discriminatory measures”. WTO reported 53 new measures this year.Everyone sinned a little, or a lot… 22   11
  12. 12. 10/25/11  White House policy decisions + Trade Representative  Bottom Up pressure from Private Sector  Education about Competitiveness  Trade Adjustment Assistance  Trade Promotion Authority (Expiring!)  Free Trade Agreements  Need Doha talks for plurilateral agreements (efficient)  Help Private Sector promote trade (e.g., “goldendoor” program)  ……… 23   •  Industry Trade Advisory Committees •  “doing a good job in promoting trade in services” •  “do not see any problems with trade barriers in services” “ I get points for promoting export of US manufactured products into China. But I do not get points for promoting export of US services……” Senior Official at US Embassy in Beijing 24   12
  13. 13. 10/25/11•  Complacency – “We have a huge trade surplus…. We are doing fine…”•  Other countries that are “top-down” will catch up or exceed US in theirservice sector abilities•  No Intellectual Property protection on Service Concepts – no patents•  Very little International Service Standards – potential for national anddomestic standards development•  Continued weak economy – shrinking of global trade•  Loss of confidence in US services – e.g., financial services 25   United States 12.2 Germany 7.2 United Kingdom 6.6 Japan 4.3 China 4.2 France 4.1 Italy 3.5 % Spain 3.4 Ireland 2.8 Netherlands 2.6 India 2.6 Belgium 2.3 Korea, Republic of 2.3 Example of a “top down” approach Singapore 2.2 Canada 2.1 Other Members 33.6 0 5 10 15 20 25 30 35 40 26   13
  14. 14. 10/25/11 Korean  Economic  Sectors  (Based  on  %  of  Nominal  GDP)  7060504030 The United States has a20 services trade surplus of $6.2 billion with Korea10 in 2007 (latest data available). 0 2000   2002   1976   1977   1979   1980   1983   1984   1986   1987   1988   1989   1990   1992   1993   1994   1996   2003   2004   2005   2006   2008   1995   1997   1998   1999   1982   1985   2001   2007   1991   1981   1978   1975   Services Goods Agriculture/Fishery From “The analysis of Korean industry structure change through I/O tables’ time series, 2003, Dong-Suk Kim, Korea Development Institute. Data from 2002-2008 are extrapolated. 27   28   14
  15. 15. 10/25/1129  30   15
  16. 16. 10/25/1131  32   16
  17. 17. 10/25/11 33  “Ranging from architecture to voice-mail telecommunications andto space transport, services are the largest and most dynamiccomponent of both developed and developing country economies.Important in their own right, they also serve as crucial inputs intothe production of most goods. Their inclusion in the UruguayRound of trade negotiations led to the General Agreement on Tradein Services (GATS). Since January 2000, they have become thesubject of multilateral trade negotiations.” 34   17
  18. 18. 10/25/11 rvice and seTechnical regulations and product standards may vary fromcountry to country. Having many different regulations andstandards makes life difficult for producers and exporters.If regulations are set arbitrarily, they could be used as anexcuse for protectionism. The Agreement on TechnicalBarriers to Trade tries to ensure that regulations, standards,testing and certification procedures do not createunnecessary obstacles. Conformity Assessment Problems 35   US $ 3.7 Billion Trade surplus with China in 2007 36   18
  19. 19. 10/25/11 “2009 Joint Commission on Commerce and Trade (JCCT) Input on Standards and Conformance Issues in China” cited the following concerns:•  Transparency – national “GB” standards are easily accessible but not sowith regulatory agencies, local/provincial, professional, decrees, etc.•  Uneven Enforcement – inadequate enforcement for local companies,tedious procedures put US companies at a competitive disadvantage, etc.•  Conformity Assessment Policies – only by designated Chinese bodies,does not recognize external certifications, etc.•  Revisions to “China Compulsory Certification” Program•  Foreign Participation on Chinese Technical Committees Will what happened to Manufactured Goods going to happen with Services? 37   Research Completed Directions Service Standards 38   19
  20. 20. 10/25/1139  40   20
  21. 21. 10/25/11June 30,2011 41   42   21
  22. 22. 10/25/1143  44   22
  23. 23. 10/25/1145  46   23
  24. 24. 10/25/11•  US cannot become complacent – real/potential trade barriers•  Learn from (non-protectionist) best practices in other countries•  Sustainability of Competitive Advantage requires Innovation Much more details Available in this new book J. Bradford Jensen (2011) Prepared for SJSU International & Extended Studies IT group, Russian Federation October 26th, 2011 48   24

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