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U.S. Foreign Trade in Services: Definition, Patterns and Policy Challenges

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Abstract:

The term "services" refers to a broad and widening range of economic activities such as accounting and legal services, banking, transportation, tourism, and telecommunications. Services are a significant sector of the U.S. economy, accounting for more than 50% of U.S. gross domestic product (GDP) and for nearly 80% of U.S. civilian employment.

Services have become an important element of U.S. foreign trade, consistently generating surpluses. The European Union is by far the most important U.S. trade partner in services, accounting for more than 50% of U.S. trade in services.

The increasing importance of services in domestic and global trade have placed them on the U.S. agenda for bilateral and regional trade agreements, and services trade occupies a prominent place on the agenda of the United States and the other 147 members of the World Trade Organization (WTO) in the Doha Development Agenda round of multilateral negotiations. Furthermore, disputes related to trade in services have arisen increasingly between the United States and the European Union, Japan, Canada, and other major trading partners.

The 109th Congress will have a number of trade agreements to consider, and services will be an important part of the deliberations. An overview of barriers, of the disputes in services trade and of the rapidly changing characteristics of the services sector, suggest that the negotiations and the agreements they produce will become increasingly complex. With the passage and enactment of the Bipartisan Trade Promotion Authority Act of 2002, these agreements are expected to be considered by Congress under "fast-track"procedures, with limited debate and no amendments, but with considerable executive branch consultation with Congress as the negotiations proceed.

The United States presses its trading partners to liberalize their services sector as much as possible, because U.S. services providers are very competitive in world markets. However, to accomplish its objectives, the United States is pressed by its partners to make concessions that might adversely affect "import-sensitive" industries in the United States. U.S. negotiators and, ultimately, the U.S. Congress will have to judge whether the agreements strike an appropriate balance for U.S. interests. This report will be updated as events warrant.