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SJSU IES Russian Group 10/26/2011
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10/25/11
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Prepared for SJSU International & Extended Studies
IT group, Russian Federation October 26th, 2011
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
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Currently the service sector accounts for over eighty percent of the US economy and forty percent of the world economy according to the International Labor Organization. The growth in trade in services has become increasingly an important factor in the global economy. Countries which had enjoyed a trade surplus in manufactured goods (such as Taiwan, Korea, Japan, etc.) are now facing an increasing trade deficit in services with the US which had maintained a competitive position. In the case of China, the service sector is one area the US had kept a growing surplus in trade in contrast to a substantial deficit in other sectors. China had recognized the importance of its service sector and designated it for development in its current 2006-2011 Five Year Plan. This research will use US Department of Commerce and WTO data to create a profile of US trade in services. An attempt will be made to identify whether traditional methods employed in the manufactured goods and farm product sectors such as protectionist measures, subsidies to domestic producers, domestic standards, etc. are being employed by US and its trade partners as technical barriers to trade in services. We will draw examples from countries such as China and Korea and will also consider other countries (such as Singapore) and groups (such as APEC, Trans-Pacific Partnership, etc.) that have trade agreements with the US. We will consider how the current state of trade in services impacts on the growth of the US service sector economy domestically and globally and, in the long run, affects US’s competitive position.
Technical Barriers to Trade
Countries with Trade Deficit in Services with US
US Competitive Position and Policy
Service Sector in US Economy
APEC, TPP
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Panel: National Policies on Service Sector and Innovation
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Acting Deputy Assistant Secretary for Service
Industries
Thanks to Bob Vastine et al
J. Bradford Jensen (2011)
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42% 64 33 3 1.4 Germany
37% 26 11 63 2.1 Bangladesh
19% 20 10 70 1.6 Nigeria
45% 67 28 5 2.2 Japan
64% 69 21 10 2.4 Russia
61% 66 14 20 3.0 Brazil
34% 39 16 45 3.5 Indonesia
23% 76 23 1 5.1 U.S.
35% 23 17 60 14.4 India
142% 29 22 49 25.7 China
40yr Service Growth
S %
G %
A %
Labor %
Nation
World’s Large Labor Forces A = Agriculture, G = Goods, S = Service
2009 2009
The largest labor force migration in human history is underway, driven by global communications, business and technology growth, urbanization and
regional variations in labor and infrastructure costs and capabilities.
US shift to service jobs
(A) Agriculture: Value from harvesting nature
(G) Goods: Value from making products
(S) Service: Value from enhancing the
capabilities of people and their ability to interconnect and co-create value
Employment Change
Numeric change in wage-salary employment by industry sector, projected 2004-14 (Thousands)
Professional and business service 4566
Healthcare and social assistance 4303
CIA Handbook, International Labor Organization Note: Pakistan, Vietnam, and Mexico now larger LF than Germany
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Kwan 2011
Kwan 2011
In its 11th Five-Year Plan, China had targeted an increase of the service sector’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!
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• 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+
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Modes of Trade Some Examples
Cross Border Trade Software, Insurance, telediagnosis from country B into A
Consumption Abroad A’s residents obtain education or hospital treatment in B
Commercial 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
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Total 294,301 306,345 355,075 391,127 437,879 506,792 551,610
Growth 4% 16% 10% 12% 16% 9%
12 Total 233,071 252,368 293,228 315,545 356,138 377,222 407,295
Growth 8% 16% 8% 13% 6% 8%
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70,513 68,279 78,184
89,010 96,886
139,926
161,420
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2002 2003 2004 2005 2006 2007 2008
US
$Mill
ion
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14 -10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
2002 2003 2004 2005 2006 2007 2008
US
$ M
illio
n
Canada
Europe
Latin America & Other Western Hemisphere Africa
Middle East
Asia and Pacific
International Organizations & Unallocated
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15 Total Service Sector 86.3 86.6 88.2 89.9 91.6 93.1 93.1
93.1/116=80.25% Private Sector Jobs
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WTO Doha Round of Trade Talks with goals of
Reduce Trade Barriers Open Market Access….
“..fundamental disagreements between the developed nations and the major
developing countries…”
BIC nations…
R
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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.
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G20 and APEC meeting in November 2008 agreed on a “standstill” policy: • revive Doha talks • no imposition of new trade barriers • 12 months
Ineffective Global
Financial Crisis
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“The US Service Sector contracted for the 11th straight month, …”
“Global trade is expected to shrink 10% in 2009.”
• Less imports, less exports • less consumption, particularly for services (less disposable income) • stimulus of domestic markets (more protectionist measures)
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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…
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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., “golden door” program) ………
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• 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
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• Complacency – “We have a huge trade surplus…. We are doing fine…” • Other countries that are “top-down” will catch up or exceed US in their service sector abilities • No Intellectual Property protection on Service Concepts – no patents • Very little International Service Standards – potential for national and domestic standards development • Continued weak economy – shrinking of global trade • Loss of confidence in US services – e.g., financial services
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33.6
2.1
2.2
2.3
2.3
2.6
2.6
2.8
3.4
3.5
4.1
4.2
4.3
6.6
7.2
12.2
0 5 10 15 20 25 30 35 40
Other Members
Canada
Singapore
Korea, Republic of
Belgium
India
Netherlands
Ireland
Spain
Italy
France
China
Japan
United Kingdom
Germany
United States
%
Example of a “top down” approach
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0
10
20
30
40
50
60
70 19
75
1976
19
77
1978
19
79
1980
19
81
1982
19
83
1984
19
85
1986
19
87
1988
19
89
1990
19
91
1992
19
93
1994
19
95
1996
19
97
1998
19
99
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
Korean Economic Sectors (Based on % of Nominal GDP)
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.
The United States has a services trade surplus of $6.2 billion with Korea
in 2007 (latest data available).
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“Ranging from architecture to voice-mail telecommunications and to space transport, services are the largest and most dynamic component of both developed and developing country economies. Important in their own right, they also serve as crucial inputs into the production of most goods. Their inclusion in the Uruguay Round of trade negotiations led to the General Agreement on Trade in Services (GATS). Since January 2000, they have become the subject of multilateral trade negotiations.”
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Technical regulations and product standards may vary from country to country. Having many different regulations and standards makes life difficult for producers and exporters. If regulations are set arbitrarily, they could be used as an excuse for protectionism. The Agreement on Technical Barriers to Trade tries to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles.
Conformity Assessment Problems
and service
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US $ 3.7 Billion Trade surplus with China in
2007
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“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 so with 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?
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Completed Service
Standards
Research Directions
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June 30,2011
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• US cannot become complacent – real/potential trade barriers
• Learn from (non-protectionist) best practices in other countries
• Sustainability of Competitive Advantage requires Innovation
J. Bradford Jensen (2011)
Much more details Available in this new book
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Prepared for SJSU International & Extended Studies
IT group, Russian Federation October 26th, 2011