(The following text is the executive summary of a December 1995 report, "General Agreement on Trade in Services: Examination of Major Trading Partners' Schedules of Commitments," issued by the U.S. International Trade Commission.)

On January 4, 1995, the United States Trade Representative requested that the Commission examine the schedules of service commitments submitted by the European Union, Japan, Canada, and Mexico. In these schedules, signatories to the General Agreement on Trade in Services (GATS) specify the limitations that they maintain on international trade and investment in services. The GATS was negotiated during the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT), and is an integral component of the Agreement Establishing the World Trade Organization (WTO).

The Commission has been requested to examine the content of these schedules, explain the commitments in non-technical language, and identify the potential benefits and limitations of foreign commitments to U.S. service providers. The request letter specifies that the Commission should examine commitments pertaining to the following service industries:

• distribution services, defined as wholesaling, retailing, and franchising services;

• education services;

• communication services, defined as enhanced telecommunication services, courier services, and audiovisual services;

• health care services;

• professional services, defined as accounting, architectural, engineering, construction, advertising, and legal services;

• transportation services, defined as rail and trucking services; and

• travel and tourism services.

In addition, the request letter directs the Commission to examine cross-industry commitments regarding the temporary entry and stay of "natural persons." A natural person is an individual who is engaged in the production or sale of services in a foreign market, whether acting alone or on behalf of a corporation or other business entity.

Staff interviewed representatives of well over 100 companies and organizations in the course of conducting this study. The final assessment is primarily qualitative in nature, drawing on interviews and other primary sources.

Trade in Services and the GATS

The WTO estimates that global trade in services is valued at over $4 trillion annually. In 1993, cross-border service exports by U.S. firms measured nearly $141 billion, and cross-border service imports measured $99 billion, generating a surplus of over $41 billion. This surplus offset over 30 percent of the U.S. merchandise trade deficit in 1993.

Despite the considerable volume of trade in services, multilateral disciplines were not applied to service transactions until the GATS took effect on January 1, 1995. Trade in services previously had been addressed only in regional agreements (e.g., the North American Free-Trade Agreement (NAFTA)). The GATS is the first multilateral, legally enforceable agreement covering trade and investment in the service sector. The agreement generally binds signatories to provide foreign firms with market access and nondiscriminatory treatment subject to defined exemptions. The agreement is designed to reduce or eliminate regulatory measures that prevent services from being provided across borders or that discriminate against locally-established service firms with foreign ownership. It provides a legal framework for addressing barriers to trade and investment in services, includes specific commitments by WTO member countries to restrict their use of those barriers, and provides a forum for further negotiations to open service markets around the world. Follow-on negotiations will commence in four years.

Summary of Findings

• Overall, the GATS provides a substantial foundation for future efforts to liberalize international trade in services, providing unprecedented information on impediments to trade in signatory countries.

• Schedules submitted by the United States' major trading partners surpass those submitted by most other countries in terms of transparency; i.e., the degree to which they explain trade-impeding regulations clearly, precisely, and comprehensively. U.S. service providers, particularly small- and medium-sized firms with limited experience in foreign markets, likely will benefit from the transparency provided through the scheduling process.

• Schedules submitted by the United States' major trading partners do not always establish effective benchmarks; i.e., commitments that identify trade-impeding measures and, under the terms of the GATS, prevent these measures from becoming more restrictive in the future. Nevertheless, the United States' major trading partners have made substantive commitments with respect to many service industries (see below), and have agreed to observe a comprehensive list of trade-promoting disciplines. Consequently, there is greater certainty with respect to which services U.S. firms may provide to overseas clients, both now and in the future.

ASSESSMENT OF SCHEDULES BY INDUSTRY

Distribution Services

• The schedules of commitments suggest that among the subject trading partners, the European Union (EU) and Mexico are the most restrictive with respect to distribution services, and that Japan is the least restrictive. However, industry representatives indicate that they perceive Mexico and Japan as the most restrictive subject trading partners due to the administration of commercial regulations in Mexico and unwritten business practices in Japan. Although the NAFTA is intended to reduce Mexican barriers for U.S. service providers, industry representatives report that significant obstacles remain.

• Commitments scheduled by the subject trading partners do not fully serve the purposes of transparency and benchmarking. Furthermore, U.S. industry representatives in Mexico and Japan indicate that there remain substantial non-regulatory barriers created by administrative policy and industry practice.

• U.S. firms are concerned that Mexican regulations regarding import documentation, labeling requirements, and product standards are being applied in a manner that deliberately impedes market entry and efficiency.

Education Services

• Among the subject trading partners, Canada, Austria, Finland, Sweden, and Japan appear most restrictive. With the exception of Japan, all these countries have declined to address education services in their schedules; as a result, these countries retain the right to maintain or impose trade-impeding measures. Yet, Japan and Canada are currently two of the largest U.S.-export markets for education services, indicating that these countries have not imposed significant barriers to date. Further, U.S. service providers benefit from Canada's extensive commitments under the NAFTA. Mexico specifies relatively few restrictions under GATS and, like Canada, provides U.S. service providers with additional benefits under the NAFTA.

• Schedules submitted by Canada, Austria, Finland, Sweden, and Japan do not serve the purposes of regulatory transparency and benchmarking. Canada, Finland, and Sweden offer no information regarding trade restrictions. Japan and Austria, meanwhile, do not address the exchange of college and university students, which is estimated to account for over 90 percent of overall trade in education services.

Enhanced Telecommunication Services

• Subject trading partners generally impose few restrictions on foreign firms. Among these trading partners, Japan and Canada appear to impose the fewest restrictions, while Mexico lists the most extensive limitations. However, U.S. firms likely will not be affected adversely by Mexico's commitments under the GATS because they are subject to fewer restrictions under the NAFTA. Industry also has identified Mexico's underdeveloped telecommunication infrastructure as an impediment to providing enhanced telecommunication services.

• Commitments offered by the subject trading partners fully serve the purposes of regulatory transparency and benchmarking. Because enhanced telecommunication services are expected to serve as a conduit for the provision of other types of services in the future, the absence of significant trade barriers is highly beneficial.

• U.S. providers of enhanced services attach great importance to the ongoing negotiations on basic telecommunication services, scheduled to conclude in April 1996. These negotiations address issues such as interconnection, competition safeguards, regulatory oversight, and regulatory transparency with regard to basic telecommunication services, all of which significantly influence U.S. firms' competitive positions in foreign markets. Improvements in market access or national treatment as a result of these negotiations likely would benefit U.S. providers of enhanced services.

Courier Services

• Among the subject trading partners, only Canada and Mexico scheduled specific commitments pertaining to courier services. Canada represents the least restrictive market for foreign couriers.

• Schedules submitted by the European Union and Japan do not serve the purposes of regulatory transparency and benchmarking as they do not address courier services; as a result, these trading partners retain the right to maintain or impose measures that might limit market access and national treatment. Although this is potentially significant, U.S. couriers identify the European Union as their largest export market, suggesting that the European Union has exercised some restraint in implementing trade limitations.

• U.S. couriers generally support the GATS agreement, but there is concern regarding border clearance procedures and trucking and packaging restrictions in Mexico and Japan. U.S. couriers believe that some of these measures delay delivery and disadvantage them relative to foreign competitors.

Audiovisual Services

• Among the subject trading partners, Japan represents the least restrictive market. With few exceptions, Japan allows U.S. firms to provide audiovisual services in Japan through both cross-border supply and commercial presence. Mexico was the only other subject country to schedule industry-specific commitments in this sector. Other subject trading partners retain the right to maintain or impose measures that might limit market access and national treatment.

• The schedules submitted by the European Union and Canada, especially the former, do not serve the purposes of regulatory transparency and benchmarking. The European Union and Canada listed relatively broad exemptions to most-favored-nation (MFN) treatment. The stated intent of these measures is to promote regional identity, cultural values, and linguistic objectives. In some instances, the exact nature of the measures to be applied to foreign service providers is not specified.

• In spite of the MFN exemptions, restrictions on the provision of audiovisual services likely will be eroded over time. The commitments pertaining to enhanced telecommunications, together with the Annex on the Negotiations on Basic Telecommunications, permit the provision of audiovisual services over telecommunication networks and ubiquitous information networks. This, in combination with technological advances, global networking, and the deregulation of information networks, may ease restrictions on U.S. service suppliers.

• U.S. industry representatives have expressed disappointment with the approaches taken by trading partners listing MFN exemptions. U.S. providers of audiovisual services confront onerous restrictions in their largest export market, the European Union.

Health Care Services

• Although all subject trading partners place stringent restrictions on foreign health care providers, Japanese and Canadian limitations are perhaps most restrictive. Japan requires that hospitals and clinics be owned or managed by Japanese-licensed physicians, and prohibits the establishment of investor-owned hospitals that are operated for profit. Canada did not address health care services in its schedule, thereby retaining the right to maintain or impose measures that might limit market access and national treatment. NAFTA provisions do not provide for the preferential treatment of U.S. health care providers.

• The commitments scheduled by most subject trading partners generally do not serve the purposes of regulatory transparency and benchmarking. As noted above, Canada did not schedule any commitments on health care services and thus offers no benchmarks. Japan scheduled few commitments, leaving unspecified restrictions on many activities.

• Despite the restrictive measures found in the subject trading partners, U.S. industry representatives generally have expressed satisfaction regarding most foreign commitments. They believe that the commitments scheduled by the European Union, in particular, improve the transparency of technical rules and regulations.

Accounting Services

• Among the subject trading partners, the European Union represents the most restrictive market, and Canada and Mexico appear to be the least restrictive markets. Although there are few EU-wide restrictions, individual EU member states impose numerous limitations on foreign provision of accounting services.

• Commitments scheduled by the subject trading partners are among the best in terms of regulatory transparency and benchmarking. Commitments specific to accounting services were scheduled by each of the subject trading partners.

• While the accounting profession generally approves of the schedules submitted by the subject trading partners, industry representatives would like to reach agreements that provide for the mutual recognition of accounting credentials and the removal of exchange restrictions on capital transfers. A ministerial decision in the WTO established a working party to address these and other issues.

Architectural, Engineering, and Construction (AEC) Services

• Among the subject trading partners, the schedules of commitments suggest that Mexico has the most restrictive market, while Japan and Canada appear to have the least restrictive markets. In practice, however, industry representatives report that Japan's market for AEC services is most restrictive due to widespread informal barriers to trade in that country. Canada and Mexico, meanwhile, offer more favorable commitments for U.S. service providers under the NAFTA than under the GATS.

• Commitments scheduled by the subject trading partners do not fully serve the purposes of regulatory transparency and benchmarking. However, commitments made by certain trading partners appear to clarify some previously obscure government policies with respect to commercial presence and foreign equity participation.

• U.S. industry representatives have indicated that many informal barriers to trade in AEC services exist and were not addressed during the scheduling exercise. It is unclear to what degree such barriers will be affected by the outcome of the GATS.

Advertising Services

• Among the subject trading partners, Japan and the European Union appear to be the least restrictive markets, whereas Canada appears to be the most restrictive market. Canada did not address advertising services in its schedule, thereby retaining the right to maintain or impose measures that might limit market access and national treatment. For U.S. service providers, however, the NAFTA affords more favorable treatment than the GATS.

• With the exception of Canada, the subject trading partners appear to have scheduled commitments that fully serve the purposes of regulatory transparency and benchmarking. The European Union and Japan establish firm benchmarks regarding foreign provision of advertising services through commercial presences, identified as the most important mode of delivery in this industry.

Legal Services

• All subject trading partners appear to maintain significant restrictions on foreign provision of legal services. Among the subject trading partners, Canada is least restrictive, while Mexico and Japan appear to be most restrictive. Mexico did not schedule any GATS commitments pertaining to legal services, thereby retaining the right to maintain or impose measures that might limit market access and national treatment. However, in practice, U.S. firms have been able to establish a presence in Mexico's market as a result of reciprocity arrangements made by certain U.S. states under the NAFTA.

• With the exception of Mexico and certain EU member states, the subject trading partners appear to have scheduled commitments that serve the purposes of regulatory transparency and benchmarking. Countries within the European Union did not establish a common approach to scheduling legal services, making it difficult to discern which EU member states are most restrictive.

• U.S. industry representatives have expressed dissatisfaction with Japanese commitments. Japan is the largest single-country export market, yet barriers pertaining to foreign provision of legal services remain high. Legal service providers must practice for five years in the same jurisdiction to register with the Japanese Bar, and foreign firms are prohibited from employing or establishing a full partnership with "bengoshi", the only lawyers allowed to provide all legal services in Japan.

Transportation Services

• Most of the subject trading partners' commitments are somewhat restrictive, with those scheduled by Mexico, Japan, and certain EU member states appearing to be most restrictive. However, opportunities for U.S. suppliers in Mexico are expanding rapidly as a result of working group negotiations held under the auspices of the NAFTA.

• Commitments scheduled by the subject trading partners generally do not serve the purposes of regulatory transparency and benchmarking. With the exception of Canada, the subject trading partners scheduled few commitments regarding primary transportation services.

• U.S. industry representatives generally have expressed satisfaction with the commitments scheduled by major trading partners. They are particularly pleased that provisions negotiated under the NAFTA were maintained in the GATS.

Travel and Tourism Services

• Among the commitments scheduled by the subject trading partners, those by Mexico and Canada appear most restrictive, and those by Japan appear least restrictive. However, Canada and Mexico's markets remain relatively unrestrictive for U.S. service providers in practice because these countries' commitments under the NAFTA are less restrictive than those under the GATS. In the EU schedule, individual member states have listed numerous restrictions regarding commercial presence.

• Commitments scheduled by the subject trading partners serve the purposes of regulatory transparency and benchmarking for the most important mode of supplying travel and tourism services, consumption abroad. However, regulatory transparency and benchmarking were achieved to a lesser extent with respect to the other predominant mode of delivery, which is sales through foreign-based affiliates.

ASSESSMENT OF SCHEDULES BY TRADING PARTNER

Japan

• Japan appears to impose the fewest formal restrictions on foreign service providers. Japan's commitments regarding the temporary entry and stay of intra-corporate transferees and specialists are the least restrictive of any subject trading partner. In addition, Japan was the only subject trading partner that did not submit a list of MFN exemptions. However, discussions with industry representatives suggest that the national schedules did not address all Japanese barriers to trade in the subject service industries.
• Japan's cross-industry commitments do not address investment, real estate acquisition, and taxation. The lack of commitments for investment may affect U.S. firms' ability to establish commercial presences in Japan, and may result in the continuation of recent U.S. deficits recorded in affiliate transactions with Japan.

European Union

• Although EU-wide commitments generally appear to be among the least restrictive, measures imposed by individual member states appear to be among the most restrictive.

• EU provisions for the temporary entry and stay of most natural persons are not transparent. Authority in this area remains with the 15 member states. Although EU member states' current regimes are relatively unrestrictive with respect to foreign entry and stay, relevant measures are not bound in the absence of commitments and could therefore become more restrictive in the future. Some progress was made regarding the movement of professionals by the WTO Negotiating Group on the Movement of Natural Persons in July 1995.

• The European Union lists 28 MFN exemptions. Certain MFN exemptions are unusually broad in scope. Eight apply to all service industries, and some pertaining to audiovisual services identify neither the discriminatory measures to be applied nor the conditions creating the need to impose MFN exemptions.

Canada

• Although Canada-wide commitments generally do not appear to be restrictive, measures imposed by individual provinces may significantly impede foreign provision of services in Canada.

• Canadian provisions for the temporary entry and stay of natural persons are transparent and relatively unrestrictive.

• Canada's commitments under the NAFTA are less restrictive than those under the GATS, partially offsetting the adverse effect of certain GATS measures on U.S. service exporters.

Mexico

• Mexico's commitments are among the most restrictive of all those scheduled by the subject trading partners.

• Mexico's provisions for the temporary entry and stay of natural persons are among the most restrictive of those offered by major trading partners.

• As with Canada, Mexico's commitments under the NAFTA are less restrictive than those under the GATS, diminishing the adverse effect of certain restrictive measures on U.S. service exporters.