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Services and the Innovation Economy: The International Trade Dimension


Government calls on CSI. Needs to know market conditions, trade/investment ... When CSI was founded services role in the US and international economy was very ... – PowerPoint PPT presentation

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Title: Services and the Innovation Economy: The International Trade Dimension

Services and the Innovation Economy The
International Trade Dimension
  • Conference on Service Innovation in the
  • 21st Century
  • November 17-18, 2004
  • IBM Almaden Research Center
  • San Jose, California
  • By Robert Vastine
  • President, Coalition of Service Industries

What is CSI?
  • Private sector organization
  • Founded 1982
  • To bring services trade and investment into
    global legal framework
  • To educate about role of services in US economy
  • To lobby for services trade liberalization
  • Legislative and executive branches
  • Foreign governments
  • International organizations
  • To advance USG statistical programs
  • Entirely funded by its members

CSI Advisory Role to Government
  • Principal private sector advisor on services
    trade objectives
  • For negotiations in all forums
  • Government calls on CSI
  • Needs to know market conditions, trade/investment
  • Accepts that the goal of trade negotiations is to
    create market opportunities for service
  • But CSI more frequently initiates contacts
  • To ensure priorities being met
  • Mainly agree, but freely disagree with government
  • An informal relationship
  • Developed over time
  • Based on mutual respect and confidentiality

CSIs Global Networks
  • CSI has worked hard to build global alliances to
    advance goals
  • Financial Leaders Group
  • Unites financial services companies/associations
    in many countries
  • Coalition of Global Services Associations
  • CSI, European Services Forum, Japan Services
    Network, Hong Kong Coalition of Service
    Industries, Australia Services Roundtable,
    Colombia Coalition of Services, Singapore
    Coalition, Brazil Services Forum
  • Global Services Network
  • More than 600 businessmen, academics/others
  • Friends of Services
  • 6300 contacts

Critical Objective Better Statistics
  • When CSI was founded services role in the US and
    international economy was very poorly understood
  • by policy makers, politicians, and statisticians
  • STILL IS poorly understood
  • especially by politicians
  • the concept of the good job
  • In 1982 imperative to develop measures in order
    to understand services - STILL IS
  • Developing adequate measures slow but steady
  • BLS new Quarterly Service Survey
  • BEA refinement of measures of trade/investment
  • Recent Brookings book on services productivity

USG Makes Slow, Sure Progress Toward Adequate
  • New Census Bureau Quarterly Services Survey
    tracks information, communications, business
    services sectors
  • Released in September
  • Covers 15 of economy, or 1.6 trillion, of GDP!
  • Bureau of Economic Analysis (BEA) has improved
    trade data
  • Quarterly survey of services trade covers large
    and volatile categories
  • Improved estimates of banking and insurance
  • Improved estimates of travel and tourism
  • Estimates of distributive services of US
  • BEA has accelerated release of macroeconomic
    statistics including GDP by industry

Improved Measures of Services Productivity
  • Recent groundbreaking Brookings Institution work
  • Bulk of post-1995 acceleration of US productivity
    growth took place in services
  • Service productivity increased faster than
  • Information technology is a major driver
  • Authors Triplett and Bosworth credit improved
    services data as tool that enabled them to
    conduct this research
  • Underscores need for continued funding for USG
    statistical programs
  • Measurement problems are severe, as detailed by

Critical Objective Develop Statistical Capacity
in Other Countries
  • Accurate information underlies good policy
  • Accurate information necessary in a transparent,
    market driven economy
  • Better statistics help explain why we must press
    for free markets
  • For developing countries inability to see stake
    in global trade means these countries are
    reluctant to negotiate trade liberalization
  • Developing countries reluctance to liberalize
    restrains US most competitive, innovative sectors
  • NEED promote development of better services
    statistics globally
  • Through trade capacity building efforts

Critical Objective Services Jobs
  • Growth of US services employment is a long term
  • Over 88 million Americans have service jobs
  • More than 80 of the entire non-farm workforce
  • Average annual compensation 47,200
  • Hamburger flipper vs. knowledge workers

Services Jobs
  • Since 1987, service jobs have increased by over
    30 million, whereas goods producing jobs have
    decreased by almost 4 million

Growth in Services Employment (1987-2004)
  • Since 1987, Health, Education, Professional
    Business Services, Information, and Leisure
    Hospitality Services have had the highest growth

Services Sector Composition
  • In mid 2004, the services sector consisted of
  • (compensation as of 2002)

Compensation in Services Sector
  • Compensation for service jobs has increased by
    90 since 1987, to 47,200 in 2003
  • This is equal to the increase in compensation in
    goods producing jobs

US Leads in Services Trade
  • Services sales to foreigners demonstrate power of
    our innovation economy
  • US cross-border services trade was 51 billion in
    surplus in 2003
  • US strength derives from knowledge/technical
    leadership our knowledge edge, our creativity
    and innovation
  • Fostered by great institutions of learning and
    entrepreneurial business environment
  • Constant infusion of new talent and creativity
  • US exports consist largely of crossborder trade
    conducted electronically
  • And consumption of US services by foreigners who
  • To buy our education, health, legal and tourist
  • To enjoy the fruits of our highly innovative
  • US foreign affiliates sales of services were
    401 billion (in 2002)
  • affiliate sales have special significance for

Still Ahead the Boom Eraof Global Services
  • Services are on average 68 of global economy
  • Yet only 20 of total world trade of 9 trillion
  • Still dominated by goods
  • US must lead the drive to reduce services
  • Improving our competitive edge in services is in
    the national interest
  • In light of huge structural deficit on trade
    in goods
  • The real potential for growth of services trade
    lies ahead - a boom era as result of successful
    Doha Round?

Using Trade Negotiations toBreak Down Barriers
to US Knowledge Exports
  • US brought services into global trade system
  • GATS 1994
  • Framework of rules for liberal trade in services
  • Major element of the WTO
  • Few commitments
  • Doha Round is multilateral
  • 148 Members
  • Bilateral Free Trade Agreements (FTAs)
  • Singapore, Chile, and Morocco have been
  • Australia, Bahrain, CAFTA, and Dominican Republic
    have been completed, but not implemented
  • Andean countries, Panama, Southern African
    Customs Union (SACU) and Thailand are being
  • Regional efforts like Asia-Pacific Economic
    Cooperation (APEC) and Free Trade Area of the
    Americas (FTAA)

Critical Objective Expand Crossborder
  • Cross border trade includes electronic sales of
  • As opposed to provision through local affiliates,
    or movement of people
  • A major goal of Doha Round is to expand
    commitments to freedom of cross border trade
  • This is where outsourcing occurs
  • Mainly business and professional services
  • Open cross border trade gives fullest scope for
    electronic commerce
  • The US has a surplus in cross border trade of 51
  • US has surplus of 48 billion in business,
    professional and other private services
  • We are the worlds most competitive in-sourcer
    (or exporter) of these services
  • These tend to be our most innovative sectors

Critical Objective Transparency
  • Transparency is essential to democratic
    institutions, honest markets, and trade and
    investment in services
  • In the US regulatory transparency is thoroughly
  • Based on Administrative Procedures Act (APA)
  • Uniformly accepted by USG agencies
  • Few other governments apply

Transparency and Trade Negotiations
  • Transparency is a CSI/USG priority for trade
  • Strongly affects the business climate
  • Directly affects foreign investment flows
  • Essential to fight corruption
  • Goal is regulatory and licensing transparency
  • An overriding US objective in the WTO and Free
    Trade Agreements (FTAs)
  • Substantial progress made in FTAs
  • Renewing our effort in WTO

Elements of Transparent Regulatory Regimes
  • Major elements
  • Notice and comment
  • Requires publication of proposed regulations
  • Reasonable time for comment before implementation
  • Agencies prepared to receive and assess public
  • Licensing procedures
  • Applications for licenses should clearly state
    all requirements
  • System for answering inquiries about licensing
  • No discrimination among applicants
  • Denials based on factors previously identified
  • Applications should be processed promptly
  • Written statement of reasons if registration is
  • Reasonable opportunity to appeal and re-apply

Transparency Elements - Continued
  • Enforcement
  • Violators notified immediately
  • Must have opportunity to be heard, retain counsel
  • Burden of proof is on regulator
  • Administrative/Judicial Remedies
  • Complainants should be allowed to file for relief
  • Independent administrative or other tribunals
    should be available to hear cases
  • Judgments should be impartially applied
  • Independent Regulators
  • Not accountable to any provider

Critical Objective Temporary Entry
  • Movement of natural persons for temporary
    assignments is a key element of services trade
  • Restraints on entry drain US competitiveness and
    blunt our leading edge scientific and technical
  • Without the ability to move personnel to perform
    short term assignments, US businesses cannot
    fulfill obligations
  • Two problems
  • The law creating visa categories and requirements
  • The administration of these laws
  • Toughened and more restrictive after 9/11
  • 30 fewer visa applications
  • Primacy of security over competitiveness/trade
  • The flight of the creative class

Law New Visa Needed
  • Coalition of business groups determined need for
    new visa, requiring amendment of law
  • A new business visitor visa for temporary entry
    for short-term assignments
  • To be used for negotiations in Doha Round
  • Necessary because other countries will not
    liberalize services and goods markets unless the
    US responds to their wish to obtain entry
  • Necessary because no current visa mechanism
    allows temporary entry to do work

Administration Must Be Improved
  • Delays and administrative barriers to obtain US
    visas for assignments and training also create a
    trade impediment
  • US lost 30.7 billion in revenues and added costs
    over the last two years as a result of visa
  • Trading partners demanding faster approvals for
    travel by their citizens to the US
  • Delays also materially affect US tourism,
    education, and health services

Global Services Agenda
  • Reap benefits of liberalization
  • University of Michigan study
  • Global welfare gains of 1.7 trillion
  • Expand markets for US knowledge-based services
  • Achieve critical objectives
  • Better understanding of US and other services
    economies through better measurement/capacity
  • Necessary for critical analyses
  • Greater crossborder trade
  • Necessary for electronic commerce
  • Greater transparency in government regulation
  • Brings many benefits
  • Greater mobility of personnel
  • To fuel our innovative momentum
  • A core curriculum embracing these and other