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1976/09/13 - Economic Policy Board
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1976/09/13 - Economic Policy Board
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This file contains information pertaining to service industries and the multilateral trade negotiations.
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The original documents are located in Box 61, folder "1976/09/13 - Economic Policy Board"
of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 61 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
September 10, 1976
ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE
Proposed Agenda
Monday, September 13, 1976
Sugar Situation
Agriculture
2. Report of Task Force on Services and the
Commerce
Multilateral Trade Negotiations
Tuesday, September 14, 1976
Cannon
Public Service Employment Bill
Labor
2.
Report of Task Force on Productivity
CEA
Wednesday, September 15, 1976 EPB/ERC
1. Assumptions for the September Troika II
Troika II
Forecast
Q
2. Clean Air Act Amendments
Gorog
3. Dealers Day in Court
FEA
4. Drilling Statistics on Oil and Gas
FEA
(Tentative)
Thursday, September 16, 1976
1. Report of Task Forces to Improve Government MacAvoy
Regulation
2.
Report of Task Force on Small Business
SBA
Friday, September 17, 1976
No Executive Committee Meeting
THE SECRETARY OF COMMERCE
WASHINGTON, D.C. 20230
September 8, 1976
MEMORANDUM FOR MEMBERS OF THE ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE
SUBJECT: SERVICES AND THE MTN
On September 3, copies of "U.S. Service
Industries in World Markets: Toward Improved Policy
Development" were circulated to members of the EPB
Executive Committee. This report is based, in part,
on the work of the interagency Task Force on Services
and the Multi-lateral Trade Negotiations. It is to be
discussed at a forthcoming EPB Executive Committee
meeting.
The report is over 300 pages in length. For
convenience, attached are the report's introduction,
which summarizes its scope and conclusions, and a list
of its recommendations.
Following discussion at the EPB, comments on
the recommendations will be solicited.
ELR
Elliot L. Richardson
Attachments
INTRODUCTION
The Trade Act of 1974 included "services" for the first time
within the President's trade negotiating authority. This
inclusion was at the behest of service industry
representatives who stated their international problems had
not received adequate attention by the U.S. Government.
In February 1976 the Executive Committee of the Economic
Policy Board established an interagency Task Force on
Services and the Multilateral Trade Negotiations (MTN),
chaired by the Department of Commerce. The Task Force was
directed to:
Review international issues of significance to
U.S. service industries, describe what forums
exist for international cooperation on these
issues, and determine how adequate these forums
are;
Identify those problems faced by U.S. service
industries in international commerce that are not
adequately covered by current means of
international cooperation; and
Identify appropriate approaches to the solution of
these problems and the relationship of such
solutions to the Multilateral Trade Negotiations.
This report is based on the work of the Task Force. During
the course of review of the Task Force's analysis, it became
obvious that the scope of the effort had to be broadened
considerably beyond the MTN. Accordingly, the Task Force
analysis, along with all available relevant sources of
information and opinion, were incorporated in the
development of this report: formal and informal submissions
by representatives of industry and labor and of relevant
government agencies; academic research and private contract
research initiated expressly for this study.
In highly condensed form, the report's major conclusions
are:
2
Service sector participation in international
markets is large and growing -- and its
international problems have not received adequate
government attention.
Service sector participation in international
markets is predominantly associated with
investment rather than with trade. About 86
percent of estimated U.S. service sector sales
overseas result from investment in foreign
affiliates; exports account for only 14 percent.
(To a considerable extent this is inherent in the
characteristics of "services". Most, by their
nature, cannot feasibly be shipped.)
Service sector affiliate sales abroad are
estimated at about $43 billion for 1974 -- nearly
one-fifth of all U.S. non-petroleum affiliate
sales overseas.
Service industries face a variety of international
problems; most of which are investment-related.
Aside from a few industries with very complex
problems, service industry trade problems are
scattered and heterogeneous.
Five of 18 service industries examined now have
serious international problems:
air
transportation,
maritime
transportation,
insurance,
motion
pictures,
and
construction/engineering services. Problems for
other service industries presently are not, on the
whole, serious -- but may increase in significance
in the future.
Most service industries' investment problems, and
some of their trade problems, are similar in kind
to those of goods-producing industries. Only a
few service industries have complex trade or
trade/investment problems that are unique to the
particular industry sector.
Existing forums for international cooperation on
investment problems appear as adequate for service
3
industry investment problems as they are for
goods-related problems. While there is clearly a
need to improve the effectiveness of existing
forums, new investment forums are not needed.
While it is the case that service industry trade-
related problems have not been addressed in
previous trade negotiations, the wholesale
introduction of services into the MTN is to be
avoided. Substantively, it would not be wholly
appropriate; and practically, it would likely be
counterproductive.
A responsible and comprehensive approach toward
the better solution of the service sector's
international trade and investment problems would:
-- Introduce service industry trade problems
into the MTN in a highly selective manner
calculated both to maximize chances for
successful negotiations and to pave the way
for future negotiations, focusing on those
service industry non-tariff barriers (NTBs)
most similar to goods NTBs;
-- Continue to treat certain complex service
sectoral problems on a sectoral basis through
existing industry-specific forums, paying
increased attention to the insurance industry
-- which generally has been overlooked by the
government;
--
Treat generic investment-related services
problems within the existing investment
forums, but providing increased emphasis on
the problems of greatest concern to the
service industries;
-- Provide a focal point within the government
for addressing service industry international
problems and for improving the government's
contact with the service industries; and
-- Improve the longer-run ability of the
government to handle present and future
4
service industry trade and investment
problems by beginning to increase the
analytic, data-gathering, and policy
development resources focusing on services.
These conclusions are developed more fully in the body of
this report -- which is organized as follows:
Section I treats necessary definitional issues
and, for contextual and reference purposes,
summarizes the size and role of services in the
domestic economy.
Section II examines the participation of U.S.
service industries in world markets, presenting a
set of consistent estimates for both service
sector exports and the sales of U.S. service
sector affiliates abroad.
Section III identifies and categorizes foreign
trade and investment barriers and obstacles
affecting service sector industries.
Section IV discusses the availability and adequacy
of multilateral and bilateral forums for
addressing the general problems identified in
Section III.
Section V focuses particularly on the problems and
forums relevant to the five service industries
which have assessed their present international
problems as most serious.
Section VI develops specific recommendations
intended to comprise a responsible and
comprehensive approach to the improvement of
policy development with respect to the
international trade and investment problems of the
service industries. These recommendations pertain
to:
the Multilateral Trade Negotiations,
government/industry consultation, government
organization, investment problems, special
problems with regard to less developed countries,
selected sectoral problems, and data improvement.
5
In addition, two appendices accompany this report:
Appendix A contains detailed discussions of each
of 18 service industries examined in the course of
this study. Each discussion reviews the
industry's position in the U.S. and international
economies, and lists the international problems
cited by the industry. (These problems were cited
in response to a Federal Register notice seeking
such, and in response to specific consultations
arranged exclusively for this purpose by the
Department of Commerce.)
Appendix B discusses the sources of certain
international trade and investment data used in
the study, with particular emphasis on the
methodologies used to derive necessary estimates.
This appendix also includes caveats as to the
limitations of the estimates and the possible
degree of inaccuracy.
In several respects this report suggests that the
development of an international services economy is
proceeding considerably ahead of government's capacity to
appreciate and understand that economy -- and as a
consequence, ahead also of government's capacity to address
the services sector's emerging international policy
problems. Weaknesses in this report are evident; indeed,
they are often symptoms of the very problems the report
seeks to remedy. In this context it is worthy of note that
this report represents the first comprehensive effort to
examine the scope and problems of U.S. service sector
participation in world markets.
RECOMMENDATIONS: TOWARD IMPROVED POLICY DEVELOPMENT
This report finds that service industries do participate
to a significant degree in U.S. international commerce,
but that their participation is predominantly through
investment rather than trade. Service industries,
moreover, do face problems in conducting their international
business. For most service industries, these problems
are investment-related--and are similar in kind to those
faced by other industries. The problems of most service
industries are not serious as yet, although there is
reason for concern that they may become SO. Five of the
industries do face problems that are serious impediments
today. The forums and mechanisms available for addressing
service industry problems appear adequate, though they
are not utilized as well as they could be.
The report finds that there is a need for improved U.S.
Government policy-oriented action to address the service
industries' present and emergent international problems.
Some of the recommendations for action pertain to
international initiatives that should be taken by the
U.S. Government. Most of the recommendations, however,
pertain to improvement of the manner in which the
international activities and problems of the service
industries are considered within the U.S. Government--
which for too many years has been virtually oblivious
to the rising importance of service industries in the
international commerce of the United States.
The recommendations which follow are organized in relation
to several categories of concern: services and the MTN;
government/industry consultation; government organization;
services and investment; services and the LDCs' selected
sectoral initiatives; and services data.
SERVICES AND THE MTN
1. Service industry trade problems should be raised for
discussion in the MTN on a carefully-selected basis,
focusing on those problems most similar to the goods-
related NTBs already scheduled for discussion.
2
2. The wholesale introduction of service sector
negotiations for either services as a whole or
for individual service industries should be avoided
in the MTN.
3. The Special Trade Representative (STR) should be
requested to explore the feasibility of:
(a) introducing selected and specific trade-
related service industry problems into
discussions of codes pertaining to subsidies
and to government procurement practices;
(b) discussing a limited number of barriers
pertaining to services trade with selected
countries in the bilateral phase of the MTN;
and
(c) introducing service industries in the broader
context of GATT reform efforts.
4. As services have not previously been dealt with in
multilateral trade negotiations, realism should be
maintained and the generation of undue expectations
of success are to be avoided. A longer-term objective
in raising services in the MTN should be to put our
trading partners on notice that greater attention
will be paid to services in future negotiations.
5. Building upon information developed for this report,
a detailed inventory of specific service industry
trade barriers should be compiled to aid in evaluating
which of these barriers should be explicitly raised.
GOVERNMENT/INDUSTRY CONSULTATION
6. A service sector ISAC should not be created.
7. A "Service Industries Consultation Committee" should
be established under the auspices of the Department
of Commerce. This committee would be comprised of
industry and labor representatives of those service
sectors that participate most heavily in international
commerce, but should not focus on the transportation
industries that already possess good communications
channels with the government.
3
8. The Service Industries Consultation Committee
should provide advice and communication on the
broad spectrum of international business and
economic issues that affect the service industries,
including investment-related matters and
promotional questions. The committee should be
outside the ISAC structure, but its focus should be
restricted to international commerce--rather than
on matters generally relevant to domestic commerce.
9. Staff support for the committee should be provided
by the Commerce Department. A principal point of contact
and responsibility for the service sector should also
be identified in the Office of the Special Trade
Representative.
10. A joint Commerce/Labor study group should be formed,
with input from the International Trade Commission,
to examine the feasibility and ramifications
(including both the financial and legal aspects) of
extending the coverage of the trade adjustment
assistance provisions of the Trade Act to include
dislocations arising from imports of services. During
the course of its examination, the study group would be
expected to meet with and seek the advice of the
recommended Service Industries Consultation Committee.
11. The President's Export Council should be expanded to
include representation by service industries that
participate to a significant extent in export markets.
GOVERNMENT ORGANIZATION
12. A joint Commerce/State/Treasury committee should
be formed to focus attention on the international
trade and investment matters relevant to the
service industries. Other agencies, such as STR
and Labor, should participate as appropriate. The
Committee should have the general purpose of increasing
the awareness of service industries' problems throughout
the relevant parts of these agencies, and should also
serve as the focal point for the implementation of
specific courses of action that may be decided upon as
a result of this report and for the development of such
future policies and initiatives as may be indicated.
The committee should be established at least at the
Deputy Assistant Secretary level.
4
13. The joint committee should, as one of its first
actions, consider the means by which the OECD Committee
on Invisibles can be brought to focus more closely
on service industries than is now the case. Achievement
of this objective would be a valuable step toward
raising the awareness of service industries on the
part of other developed nations.
14. Agencies represented on the joint committee should
be encouraged to review resource allocations with a
view toward increasing the now under-represented
analytic and policy resources applied to services
trade and investment.
SERVICES AND INVESTMENT
15. The analyses in this study tended to indicate the mix
and priority of service industries' investment problems
differed from those of the extractive and manufacturing
industries, but the analyses were not conclusive. This
point should be discussed in the Service Industries
Consultation Committee. Its advice should be employed
by the joint committee recommended in (12) to determine
whether and how the government's process of assigning
priority to individual investment issues should be
modified.
16. The joint committee should also determine the means by
which specific investment problems of the service
industries can be more fully included in bilateral
investment discussions, particularly with LDCs.
17. The joint committee should further serve as the point
through which the State and Commerce Departments can
jointly develop an effective "early warning" system
for identifying specific service industry investment
obstacles as they may occur in the future. The Commerce
Department in particular should designate an analytic
and policy focal point for service industry investment
problems.
5
SERVICES AND THE LDCs
18. The creation of small and inefficient service
companies by LDCs can in many instances retard,
rather than advance, economic development by
consuming resources in a less than optimal manner.
Barriers to foreign service companies can also
retard technology and managerial know-how transfer.
A study of the economic behavior, contributions,
and costs of service industry investments in LDCs
should be initiated. Its results, both positive and
negative, should be provided to U.S. service industries,
developmental agencies, and appropriate LDCs.
19. The joint committee recommended in (12) should
investigate the means by which specific investment
problems of service industries can be more fully
included in bilateral investment discussions with
LDCs and in multilateral investment discussions--
particularly in UNCTAD.
SELECTED SECTORAL INITIATIVES
20. Given both the complexities of the maritime industry's
problems and the extensive attention already being
devoted to them, initiatives in this area--such as those
to deal with increasing bilateralism--sho be left to
the agencies and mechanisms in the government most
cognitive of the variety of issues present. It would
seem counterproductive either to add more agencies to this
process or to seek inclusion of the maritime industry
in the MTN.
21. The joint committee recommended in (12) should
develop a detailed proposal for upgrading the existing
OECD insurance mechanism into a forum that addresses
the fundamental disagreements that now exist regarding
liberalization of insurance in the developed countries.
22. The joint committee should also investigate the means by
which specific U.S. insurance industry complaints can
be discussed with particular LDCs in bilateral negotiations,
and should review strategies and approaches taken by the
United States with regard to insurance in UNCTAD.
6
23. The Department of Commerce should begin devoting
resources to the economic and policy analysis of
general and life insurance in the international
economy, broadening its present scope beyond
maritime insurance. Particular attention should
be given to the role that U.S. insurance companies
can play in assisting the development of the LDC
economies.
DATA AND INFORMATION
24. A working group on international services data should
be formed as part of the joint committee recommended
in (12). Membership should include the Bureau of
Economic Analysis and input from OMB's Statistical
Policy Division.
25. The Bureau of Economic Analysis should be requested to
prepare a presentation for this group of the means
by which service industry international data are
presently obtained, the ways in which presently
unpublished data can be made available more broadly,
and the ways in which the industry and geographic
coverage of the data can be improved within the
context of the President's forms-reduction program.
Particular attention should be devoted to the manner
in which services affiliates are to be handled in the
proposed new benchmark survey of U.S. direct investment
abroad.
26. The working group should discuss with industry
representatives, trade associations, and trade
publications the possibilities for improving data
and conducting special surveys.
27. The working group should formulate and present to the
joint committee recommended in (12) the specific steps
that can be taken to improve services trade and
investment data, along with recommendations for the
provision of the requisite resources.