SERVICES 2000 USTR FEDERAL REGISTER SUBMISSION COALITION OF SERVICE INDUSTRIES RESPONSE TO: FEDERAL REGISTER NOTICE OF AUGUST 19, 1998 [FR DOC. 98-22279] SOLICITATION OF PUBLIC COMMENT REGARDING U.S. PREPARATIONS FOR THE WORLD TRADE ORGANIZATION'S MINISTERIAL MEETING, FOURTH QUARTER 1999 INTRODUCTION The Coalition of Service Industries, in coordination with the Air Courier Conference of America, the Information Technology Association of America, the International Communications Association, and the United States Council for International Business is pleased to submit our recommendations to the United States Trade Representative (USTR) pursuant to the Federal Register Notice of August 19, 1998: Solicitation of Public Comment Regarding U.S. Preparations for the World Trade Organization's Ministerial Meeting, Fourth Quarter 1999. We appreciate the opportunity to provide these comments and look forward to continuing to consult with the USTR and all involved government agencies as we work toward launching and a successful conclusion of the negotiations. Organizations which assumed primary responsibility for the initial drafting of specific portions of this submission are as follows: I. General Issues Coalition of Service Industries II. Distribution National Retail Federation III. Express Delivery Air Courier Conference of America IV. Financial Services Coalition of Service Industries V. Health Care U.S. Council for International Business VI. Information Technology Information Technology Association of America VII. Professional and Business-Related Services Coalition of Service Industries VIII. Telecommunications International Communications Association IX. Travel and Tourism Coalition of Service Industries Other associations that have been involved in the process of reviewing and commenting on this submission include the Air Transportation Association of America, the American Hotel and Motel Association, The Council of Insurance Agents and Brokers, the American Bar Association, the American Consulting Engineers Council, the American Institute of Architects, the American Institute of Certified Public Accountants, the American Insurance Association, the Consumer Bankers Association, the Investment Company Institute, the American Council on Life Insurance, the National Society for Professional Engineers, and the Securities Industry Association. I. GENERAL ISSUES A. IMPORTANCE OF THE SERVICES 2000 ROUND Multilateral trade negotiations in services are complex and have had a short history. The global trading community is only at the beginning of a process of removing complex barriers to free trade in services through negotiation. The Services 2000 Round is, therefore, a critical element in maintaining and expanding world prosperity &endash; the first in which we can apply lessons learned about the structure of the GATS and the difficult specialized services negotiating process. In general, the overarching objective of the United States Government in the negotiations should be to both broaden and deepen the commitments made in the GATS. Contestable markets in every sector and in every WTO member is the ultimate goal. Trade liberalization through Services 2000 offers the main chance for a quantum leap in world prosperity. The new industrial revolution &endash; the information revolution or the "Third Wave" - has made innovation and efficiency in the production of services integral to economic growth. Services inputs are now a central factor in competitive success in manufacturing and agriculture. Telecommunications, transportation, finance, insurance, distribution and information services underpin all forms of international trade and all aspects of global economic activity. To maximize opportunities of Services 2000 it is essential that the format for the broader negotiations permits sufficient allocation of resources to the GATS negotiation and does not hamper reaching substantive agreements on services in a short time frame. We believe that the following factors should come to bear toward a successful new effort in services. • A sound basis for making substantial progress in services in the 2000 negotiations exists. Progress made in sectors such as telecommunications and financial services is due to the realization by developing economies that services are the basis for economic modernization. • The tumultuous financial and economic stresses of the past year will lead not to retrenchment, but instead will further progress toward liberalization. • Through several rounds of negotiations under the WTO, countries learned to negotiate within the complex GATS framework. B. STRUCTURAL AND NEGOTIATING ISSUES Since its conclusion in 1994 the GATS has drawn considerable criticism because of its complex structure which facilitates obfuscation, not liberalization. In this paper, we will not elaborate on the reasons for this. Instead, the primary issue for negotiators is whether in these negotiations the failings of the GATS architecture should be addressed. We believe the answer must be derived from the twin objectives of (1) obtaining maximum liberalization in (2) the shortest time. If improvements in the GATS structure can be made quickly and in a way that facilitates the liberalization process, then it is a worthwhile effort. Otherwise, trade liberalization should not be delayed by a concentration of resources on structural GATS reform. In our view, GATS reform is secondary to liberalization. Classification and Dynamic Definition of Services The existing classification of services used in the GATS is outdated and inadequate. It omits certain services and inappropriately categorizes others. It should be revised to reflect accurately the real structure of services industries in order to facilitate the removal of barriers to trade in those services. We make specific recommendations with regard to classification in the sectoral sections of this submission. However, we feel that another useful exercise would be to review the classification scheme across sectors so as to rationalize the entire structure to reduce overlap and redundancy where appropriate. This has not been undertaken as a part of this submission. Extending the Coverage of GATS Commitments Apart from the issues of GATS architectural reform is the need to broaden and deepen the substantive commitments to liberalization made within the GATS. The GATS lacks, for the most part, substantive commitments. The new negotiations must secure broader commitments to national treatment and market access in as many sectors as possible. Current scheduled exceptions are too broad, and must be honed so only the most sensitive issues are excluded. Innovative Negotiating Strategies We urge negotiators to explore options in developing generic or formulaic approaches to negotiating the liberalization of market access barriers, including negative list schedules, sectoral commitments, horizontal commitments of revised modes of supply, and other approaches which can move beyond the traditional "request-offer" format and speed the conclusion of agreements. C. REGULATORY REFORM In order to pursue meaningful services negotiations, WTO members will have to consider making adjustments to their regulatory regimes. "Regulatory reform" is a common set of principles that should be used as a guide or a test to regulations in individual sectors. Sometimes referred to as "pro-competitive" regulatory principles, they create a transparent framework of rules that permit markets to operate as freely as possible while providing necessary protections - for example in the case of the banking sector, ensuring safety and soundness. The "Reference Paper" negotiated as part of the WTO Agreement on Basic Telecommunications is a model that should guide the development of a framework for dealing with regulatory reforms in the Services 2000 Negotiations. The regulatory principles embodied in this paper have already had an important influence on reshaping national regulatory systems towards a more market-oriented approach. The key is effective implementation of those principles -- in their common, pro-competitive, open market interpretation and application. We must learn from experience. The Reference Paper, we are discovering, must be interpreted clearly and forcefully for dispute settlement to be effective in most instances. Similar initiatives in other sectors should attempt to include specific and targeted language where possible. Regulation should ensure that consumers (users) have access to quality, reasonably-priced services that are available from reliable producers. Government's role is to promote fair competition, protecting buyers from misleading, collusive, and other anti-competitive practices. Regulation should have four central attributes: • Adequacy: it should be sufficient to rectify serious market imperfections and thus protect the public. • Impartiality: governments should accord no one or no group of competitors, foreign or domestic, a more favorable position than accorded other competitors. • Least intrusive: governments should apply regulation in ways that efficiently opens that market and that least disrupt the smooth functioning of markets once opened. • Transparency: laws and regulations should be easily available to the public, and the processes for arriving at regulations should be open and accessible to the public for comment. There is a substantial basis of support in certain industry sectors for efforts to achieve "regulatory reform". Regulations are easily used to frustrate market access and national treatment commitments. Regulatory conflicts are often a major source of trade disputes. Countries should have an interest in regulatory reform because it is a key to reviving high growth rates. This area should be a major focus of the new negotiations, especially where incumbent producers have monopoly or residual market power as a result of their incumbency or historic position. D. ELECTRONIC COMMERCE International trade in services, particularly cross-border trade, is conducted to a large and increasing extent through electronic means. Computer technology has made many services tradable, which until recently were not. Electronic commerce and the Internet have thus added a new technological means of facilitating trade, adding digitized information flows to physical flows, much as ships increased trade over merely land-based movement of goods. The supply of services by electronic means can take place in any of the four modes set out in the GATS framework, just as the supply of services by physical means can. Accordingly, the supply of services by electronic technology is covered by the GATS in the same way as all other means of delivery. Countries' commitments in the GATS apply to transactions whether by digital, or traditional, forms of communication. We reject the idea that there is a class of services that can be labeled electronic commerce and thus be negotiated separately. There may be services products that result from wholly new technological applications or inventions that might be identified as electronic commerce, but these are more appropriately labeled "information technology services", or services within specific sectors. Barriers to these new forms of services can be negotiated by sector or in a separate information technology services sector. On the other hand, it is also necessary to recognize the relationship between electronic commerce and specific industry sectors. Electronic commerce as a means of delivery cannot reach its full potential without significant commitments in virtually every industry sector. The ability to provide services across borders is a necessary prerequisite for the robust development and growth of electronic commerce. If service provision across borders is not permitted, then the ability to deliver those services electronically will be constrained and fragmented in national markets. E. GOVERNMENT PROCUREMENT Governments spend billions of dollars on procurement of services. In many countries this procurement is conducted in closed processes that work against foreign suppliers. A two- pronged effort is now under way in the WTO. One prong of this effort is to achieve agreement on transparency measures so that all WTO members can commit themselves to transparent procedures without yet making new commitments to market access and national treatment. The other is to simplify the existing Agreement on Government Procurement which has 27 signatories, including the U.S., to increase its adoption by member countries. The core of this document would remain a commitment to permit foreign bidders to receive national treatment as they compete for government awards. We understand that government procurement is a sensitive subject and that commitments in this area may need to be phased over a period of time. However, we also feel it is an important area for progress to be made. The impact of governments being able to obtain services globally is quite substantial. The possibility is to dramatically improve the services which governments provide to their citizens, and to lower costs. This will have a beneficial effect on economies and society worldwide. We support the goal of the Quad to achieve a Transparency Agreement in 1999. In addition, we feel that there are a set of overall objectives for services which need to be achieved in this area. Whether these objectives can best be met through existing mechanisms or through the Services 2000 negotiations is of less consequence to us than the fact that they are actually achieved. Therefore, we believe that the objectives in this area should be the following: • Insure transparency. • Insure access to an independent appeals and dispute resolution process. • Insure full market access and national treatment. F. CONCLUSION The Services 2000 Negotiations, thus, are an important milestone. They offer the opportunity to move considerably beyond the status quo and to make progress in all service industry sectors. It is important not to be sidetracked by architectural and negotiating structure, rather all the effort should focus on achieving further liberalization of services and the inclusion of regulatory reform and government procurement. II. DISTRIBUTION SERVICES A. SECTOR STATUS The U.S. retail industry, represented by its trade association, the National Retail Federation (NRF), strongly supports negotiations at the World Trade Organization (WTO) to further liberalize trade in distribution services. A growing number of U.S. retailers recognize that there are many attractive business opportunities outside the United States. Many foreign countries have a growing middle class that increasingly demands the quality of service and broad selection of products that U.S. retailers can offer at competitive prices. At the same time, many of these countries have comparatively few retail outlets per capita. Retail opportunities abound even in mature markets where one increasingly sees the business signs of familiar U.S. stores in many downtown and suburban shopping areas. Notwithstanding the current global economic situation, many U.S. department, specialty, discount, and mass merchandise retail companies have opened stores abroad and are looking to expand their foreign operations to meet this growing consumer demand outside the United States. In the Uruguay Round General Agreement on Trade and Services (GATS), a number of countries agreed to include commitments in their GATS schedules to bind at least some part of trade in distribution services under the rules of the WTO. These countries include our largest trading partners &endash;- Canada, Mexico, the European Union, and Japan. Among the general categories included under distribution services: • 33 countries scheduled commitments on retail services. • 34 countries scheduled commitments on wholesale services. • 23 countries scheduled commitments on franchising. • 21 countries scheduled commitments on commercial agents. • 2 countries scheduled under "other" distribution services. In many instances, these scheduled concessions were rather modest and included broad exceptions. B. CLASSIFICATION The WTO Services Sectoral Classification List defines "distribution services" as encompassing retailing, wholesaling, franchising, and commission agents. This definition is, however, quite broad and somewhat vague. Therefore, negotiations at the WTO in this sector must take into consideration the entire network of activities that are necessary to support retail and other distribution services operations. For example, in the negotiations between the United States and China on China's accession to the WTO, the area of distribution services covers all activities that support retail and other distribution services operation, from the port of entry to the store, and ultimately to the customer &endash; e.g., customs clearance, storage and warehousing services; road, rail, water, and air transportation services; marketing; after-sales services and customer support; control of distribution networks and wholesale outlets; and protection of retail trademarks. It is necessary to recognize that barriers in any of these areas will disrupt the efficient operation of the distribution chain and, in order to support successful retail and other distribution services operations, barriers in all areas supporting distribution services operations must be addressed in some manner. C. BARRIERS In many countries, opportunities for U.S. retailers and other providers of distribution services to establish and maintain and commercial presence are limited by various laws, regulations, and policies. Some countries have protected their small stores from competition by limiting the size of retail establishments and placing arbitrary and onerous restrictions on where they may locate, price they may charge, and how they may promote products. Restrictions imposed by countries to protect so-called " cultural industries" have significantly hindered the establishment of retail operations by large U.S. booksellers. U.S. direct sellers and other retail companies have been severely hampered in establishing and/or expanding business operations in countries as a result of local sourcing requirements, and tight limitations over ownership and control of distribution systems. Restrictions on investment, limitations on foreign ownership, restrictions on opening hours, constraints on the typesducts that may be sold to protect local monopolies, lack of adequate protection for retail trademarks, and the non-transparent and arbitrary application of commercial laws and regulations are further examples of barriers facing U.S. retailers. In addition, some countries have undermined the value of commitments they have already scheduled at the WTO on distribution services by including broad exceptions permitting restrictions to be imposed under a vague "economic needs test." The reduction of such barriers to trade in distribution services warrants greater attention through specific sectoral negotiations at the WTO for several reasons. Since trade in distribution services includes wholesaling, retailing, and franchising, this sector represents the last link in the trade chain to the consumer and is, therefore, essential to a well-functioning free and open trading regime. Larger retail establishments are more likely to sell imported along with domestically-made products. Moreover, market access is only meaningful if goods can be effectively distributed at the retail level. D. NEGOTIATING OBJECTIVES The U.S. retail industry strongly urges U.S. negotiators to seek the elimination of foreign restrictions to trade in distribution services. Once negotiations are underway, the United States should focus generally on: • Obtaining commitments from as many countries as possible to bind the distribution services sector in their GATS schedules. • Limiting as much as possible the number of exceptions taken by countries in their schedule of commitments on distribution services. • Persuading countries to refrain from general, open-ended exceptions in their schedule of commitments on distribution services. • Broadening and deepening the commitments from countries that have already included distribution services in their GATS schedules. • Obtaining commitments that allow for full market access for distribution services under the principle of national treatment, rather than merely enshrining the current status quo. E. ECONOMIC IMPACT In order to achieve the goals listed above, U.S. negotiators should emphasize the economic and employment benefits that other countries would realize by opening up and liberalizing their distribution services sector. For example, the United States has no significant restrictions on the retail services. Nearly one in five American workers is employed in retail jobs that are well-paying and require a marketable set of skills. Moreover, the U.S. retail industry registered sales receipts in 1997 of more that $2.5 trillion and economic activity in the sector has a significant multiplier effect throughout the U.S. economy. Thus, the retail sector alone adds substantially to U.S. Gross Domestic Product (GDP), economic growth, higher employment, and lower inflation. In addition, the ability of the U.S. retailers to provide American consumers with a wide variety of reasonably-priced products is a substantial contributor to a high standard of living in the United States. U.S. negotiators should impress on their foreign counterparts that, as in the United States, an open and thriving retail industry and distribution services sector generally, will be an important factor in improving the standard of living of their citizens, expanding economic activity and growth, and developing a modern consumer society. Those benefits should not be taken lightly. When U.S. retailers establish commercial operations in a foreign country, those operations: • Provide much needed local investment. • Create jobs for many local people, not only in the retail establishment itself, but also in the warehouses, and transportation and advertising services that support those operations. • Allow local workers to develop business expertise and a better understanding about proper business practices in the services sector. • Provide local consumers with a better selection of goods at lower prices that will help improve the quality of their lives. • Make their country's retail sector and the economy as a whole more efficient. III. EXPRESS DELIVERY SERVICES A. SECTOR STATUS Express delivery service, as provided by companies such as DHL, Federal Express, TNT and United Parcel Service, is a relatively new and rapidly expanding industry, having evolved during the past two decades in response to the needs of global international commerce. The express transportation industry specializes in time-definite, reliable transportation services for documents, packages and freight. Express delivery has grown increasingly important to businesses needing to use time-sensitive, "just-in-time" manufacturing techniques and supply-chain logistics in order to remain internationally competitive. The express industry has revolutionized the way companies do business worldwide, enabling businesses to rely on predictable, expeditious delivery of supplies. Producers using supplies from overseas no longer need to maintain costly inventories, nor do business persons need to wait extended periods of time for important documents. In addition, consumers now have the option of receiving international shipments on an expedited basis. Increased reliance on express shipments has propelled the industry to average annual growth rates of 20 percent for the past two decades. The industry's explosive growth is reflected in the rapid expansion of air cargo shipments: the expedited movement of cargo by air now accounts for 37 percent of the value of world trade, a share which is expected to continue to increase. The express transportation industry is essential to the future growth of world trade and commerce, as more and more trade is centered on the type of high-value goods that are carried by our industry, such as electronics, computers and computer parts, software, optics, precision equipment, medicine, medical supplies, pharmaceuticals, aircraft and auto parts, avionics, fashions and high-value perishables. In addition, the industry encourages small and medium-sized businesses to grow by enabling them to participate in international trade. The express transportation sector, with its integrated services that provide door-to-door delivery, frees small businesses from the burdensome and costly tasks of arranging for the transportation of their goods through a myriad of unrelated and often non-communicating parties. Express delivery operators, represented through their trade association, the Air Courier Conference of America (ACCA), strongly support free and open trade and investment worldwide. Express operators provide integrated, door-to-door delivery service for documents and packages, and customers expect value-added services like time guarantees, electronic information, brokerage services and more. Express customers are not as concerned with how their documents or parcels are moved -- just that they arrive on time. This could be by plane, train, truck, van, automobile, motorcycle, or even gondola. Consequently, a broad spectrum of issues affects the express industry, and includes laws and regulations in the areas of intermodal transportation, air auxiliary services, distribution, warehousing, customs, postal, telecommunications, logistics, brokerage, insurance, and freight forwarding. For this reason, barriers to international trade in the express industry can involve trade restrictions and trade distorting measures in any of these pertinent service sectors. B. CLASSIFICATION Under the Uruguay Round's Services Sectoral Classification List, express delivery services are currently classified as "courier services" -- a communications service (CPC 7512), along with postal, telecommunications and audiovisual services. This classification fails to reflect the true nature of express delivery services, which provide for regular exchange of physical items over a network of locations and, as described above, incorporate transportation, communications and other services. Express delivery services should be reclassified to more accurately reflect the nature of express operations which, at a minimum: • Provide the business community and general public with regular (usually every business day), expedited and reliable collection, transport and delivery of physical objects across a network of geographic areas. • have management and communication systems that monitor and ensure end-to-end quality of service; and • Involve the operation of such offices, buildings, telecommunications facilities, computers, sorting equipment, automobiles, trucks, aircraft, and other vehicles as may be necessary to accomplish the basic function of express delivery. A reclassification of the industry would facilitate GATS 2000 negotiations that are meaningful to the industry. C. BARRIERS As described above, barriers in any of the numerous operational areas encompassed by express operators can hinder express delivery services. Among the most persistent problems faced by the industry are inconsistent customs clearance policies that add costs and delays to express services. These barriers include: • Restrictions on the value and weight of express shipments. • Delays, generally of at least one day and up to 96 hours, from lengthy customs clearance procedures. • Cargo handling restrictions that force express carriers to use local handling companies -- rather than our own employees -- to transport our express shipments from the baggage collection area to warehouses where they can clear local customs. • Arbitrary revaluation of declared value of shipments by customs. • Imposition of a variety of charges and fees for express shipments, including shipments that are transiting one country on their way to their ultimate destination. To eliminate these and other barriers, ACCA believes that the WTO should require all members to adopt and implement the express guidelines of the World Customs Organization. Because express operators provide integrated, door-to-door services, barriers to any element of transportation linked to these services pose a problem for the industry. Unfortunately, in markets worldwide ACCA members encounter a variety of transportation restrictions that limit &endash; and increase the cost of &endash; express service. For the express sector to achieve meaningful trade liberalization under the WTO, it must be accorded access to land, air and other transportation infrastructures in all markets. For Example, arbitrary operating restrictions on carriers to limit their market, such as types of equipment and vehicles that can be used, and weight or size of packages, must be prohibited. Firms also face anti-competitive practices in many markets, particularly with respect to postal operations. Because some of the industry's operations are postal-related (e.g., the delivery of documents and small packages), express operators are frequently affected by postal policies in foreign countries. In fact, throughout the world, countries exercise varying degrees of authority over the delivery of printed matter. Many countries have vested the national postal service with local monopolies over the pick-up and delivery of letters and documents. This often imposes unfair or unreasonable restrictions on international service, which limits the operations of international express service companies. While we are not advocating that U.S. policymakers seek the dissolution of national monopolies for domestic postal services, we do believe that the domestic monopoly claim should not be extended unfairly and unreasonably to encompass cross-border services. Unified, end-to-end administrative control makes rapid and reliable international express service possible. U.S. negotiators should seek WTO commitments that would: • Prohibit a foreign government from determining unilaterally the basic conditions of express service to and from the United States (market entry, price regulation, operating restrictions, and extraordinary or discriminatory taxation). • Ensure that a foreign postal monopoly does not have an outright prohibition against the provision of international service by U.S. express delivery providers. • Prohibit profits derived from services provided by national postal authorities from subsidizing services that compete with foreign companies. • Prohibit taxation of private sector companies from subsidizing a national postal administration's services. • Ensure that national postal administration's parcel and non-monopoly document services that compete directly with foreign companies would be subject to effective and impartial regulatory scrutiny to protect against illegitimate cross-subsidy. • Ensure that a postal administration's competitive services be subject to the same laws and regulations imposed on private companies. • Prohibit a foreign country from unilaterally selecting the U.S. express carriers that may service an international market with restricted entry. • Prohibit a tax on bilateral services that exceeds the net cost to a legitimate local monopoly carrier. • Prohibit discriminatory treatment of U.S. carriers. D. NEGOTIATING OBJECTIVES With respect to the WTO negotiating agenda, we urge that express delivery services be a focus of the GATS 2000 Negotiations. Specifically, we advocate the negotiation of pro-competitive regulatory principles for the express sector. These principles should be legally binding on all WTO members, just as is the case for the telecommunications pro-competitive regulatory principles agreed to during the previous GATS negotiations. ACCA has detailed a proposed set of pro-competitive regulatory principles in a separate submission to USTR. These principles would encompass liberalized customs, postal, air cargo and other policies. We look forward to working with USTR throughout the GATS 2000 process to liberalize treatment of express delivery services, thereby expediting the flow of goods globally. IV. FINANCIAL SERVICES A. BENEFITS Increasing competition in financial services markets through liberalization of restraints on foreign participation in financial services activities will enhance economic growth for all countries. Such liberalization will help provide developing countries with: (1) essential information and infrastructure to speed their modernization; (2) improved health, safety and retirement security for working people and; (3) the broadest range of products and services at the lowest cost for consumers. Additionally, it will help enhance investor confidence, and attract and retain private long-term direct investment. Liberalization promotes the development of modern, efficient, well-regulated financial markets. B. SECTOR STATUS WTO financial services negotiations provide an excellent opportunity to achieve meaningful liberalization on a global scale. By securing binding commitments by a significant number of countries of the right of foreign companies to establish and to own all or a majority share of their direct investments, the 1997 negotiations made important progress. Even though the 1997 agreement didn't include comprehensive agreements to reduce or eliminate investment barriers for foreign financial service providers, the agreement made major progress in a number of countries. Much remains to be done in the upcoming negotiations and the 1997 Agreement serves as a strong foundation to add truly liberalizing commitments. C. BARRIERS The financial services 2000 negotiations offer an extremely important opportunity to build on this base in a number of ways: • Further the scope of commitments by reducing the number of exceptions countries have written into their commitment schedules. • Expand rights of establishment and ownership. While progress has been made in securing bindings of existing practice in regard to establishment and full or majority ownership, these rights should be expanded and secured from more countries that made no such commitments. • Expand cross border trading rights. Little attention has been given to securing rights to sell financial services across borders in negotiations to date. WTO members should, where appropriate take into account the views and legitimate objectives of the regulators. • Modernize and reform regulatory structures that frustrate trade commitment and competition. Regulatory regimes can be used to block gains made in trade negotiations by imposing unnecessary restraints on foreign financial services suppliers, and thus favoring local suppliers. Such practices prevent realization of the goal of national treatment. They are inherently anti-competitive and inefficient. These "pro-competitive regulatory reforms" should be directed at establishing fair, competitive markets by focusing on solvency and transparency to provide the most effective protection of consumers and markets. • Achieve impartial administration of regulations. Article VI of the GATS, applying to Domestic Regulation, requires that "in sectors where specific commitments are undertaken, each Member shall ensure that all measures of general application affecting trade in services are administered in a reasonable, objective, and impartial manner." It further requires each member to set up tribunals or procedures which provide prompt review and remedies for administrative decisions affecting trade in services, and it establishes that members must provide impartial review of these procedures. These requirements for reasonable, objective and impartial administration of regulations should be amplified by the establishment of principles against which regulations should be tested. • Promote administrative and regulatory transparency. Clear and reliable information about a country's financial services laws and practices advances equitable trade and competition, reduces the possibility of manipulation, and is an essential component of a liberalizing agreement. Non-transparent regulations hamper foreign firms' ability to do business. Transparency requirements make countries more accountable for their actions and provide information needed to evaluate compliance with the agreement. • Reduce and remove obstacles to the free movement of people. The temporary posting of key business personnel should be facilitated by creating a system of easily obtainable and renewable visas, and by easing or removal of other restrictions. D. CLASSIFICATION Should include language necessary to provide for protection and applicability for pensions, long-term care, disability income and life insurance and reinsurance. E. NEGOTIATING OBJECTIVES • Foreign investors should have the right to establish through a wholly owned presence or other form of business ownership, and to operate competitively through established vehicles available to national companies. • Foreign investors should have the same access to domestic and international markets as domestic companies. They should be treated to regulatory and other purposes on the same basis as domestic companies. • Unnecessary restrictions on cross-border financial services businesses and consumption of services abroad should be removed, to encourage trade without requiring establishment. • Creating a system of easily obtained and renewable permits should facilitate the temporary posting of key business personnel. • Existing investments should be grandfathered by Member countries that did not commit to do so in the 1997 Agreement. • Countries wishing to accede to membership in the WTO should do so on the basis of commitments to substantial financial liberalization consistent with the 1997 Financial Services Agreement and the goals set forth above, resulting in commercially meaningful access. Countries should be permitted to participate in the negotiations in a way which encourages them to make such commitments. • Financial regulation principles leading to the development of sound, more competitive markets should be negotiated. Such regulation will foster risk management standards, transparency, product diversification and consumer choice important for public policy purposes. It will also enhance financial security for citizens, nations and the global financial system. • Transparent laws and regulations are necessary to liberalize financial services. Clear and reliable information about a country's financial services laws and practices promotes equitable trade and competition, and reduce the possibility of manipulation. • A notification waiting period for all new national and sub-national taxation of financial services should be established to provide industry and governments with a minimum of one year to factor changing taxation rates in technical, solvency and pricing decisions. • Nations should commit to lock in and improve pension policies that encourage private savings for retirement, in recognition of worldwide aging populations and related pressure on government social security systems. V. HEALTH CARE SERVICES A. SECTOR STATUS There appears to be little coverage of healthcare services in current agreements between countries; therefore, these comments reflect preliminary thought process around GATS negotiations for health care services. We intend to continue to gather information and talk with businesses that are working throughout the world in the health care services sector to bring additional clarity to the submission. There are several emerging global trends that could benefit U.S. health care service suppliers in overseas markets including the rapid growth in health care expenditures in a large number of countries. Rapidly expanding health care expenditures in many developed countries are due to an increase in their aged populations, the demographic segment that uses health care services most intensively. The entire spectrum of geriatric services, both community and institutionalization, for senior citizens should be explored. Increased health expenditures in rapidly developing economies are occurring as newly emerging middle classes demand the levels of health care previously enjoyed only in more developed economies, such as the U.S. and Western Europe. We believe we can make much progress in the negotiations to allow the opportunity for U.S. businesses to expand into foreign health care markets. In the U.S. competition has provided reductions in the cost of health care as well as increased quality in the care that is being provided. Some types of services are consulting and training for local pharmacy management; consulting and training for health care including treatment of abusive behaviors; telemedicine; development of treatment protocols to enhance healthcare quality; sharing expertise on appropriate treatment; and, management of overseas health care institutions. According to official statistics from the U.S. Department of Commerce, in 1996 U.S. receipts of health care services amounted to $872 million. This number was 2 percentage points less than the average annual export growth rate of nearly 6 percent for health care services during 1991-1995. U.S. cross-border imports of health care services amounted to an estimated $550 million in 1996. U.S. receipts and payments for health care services accounted for less than 1 percent of such cross-border trade in all service industries in l996. The U.S. cross-border trade surplus in health care services was $322 million in 1996. B. CLASSIFICATION Below are the health care entries from the WTO's Services Sectoral Classification List (W-120) with reference numbers to the UN's Central Product Classification (CPC) numbers. In current practice, many WTO members do not use the CPC references in their scheduled commitments; practices may vary per sector. While the W-120 and CPC classifications provide a reasonable start toward definition of the health care services that should be covered in this negotiation, we need flexibility. We do not want to be locked into only these specific existing classifications. For example, we need flexibility to include some services which may not be captured by these definitions. We also recognize that some of these services may be included as parts of goods negotiations or in the definitions of other service sectors. We will continue our work to provide negotiators with the most detailed and comprehensive description of the health care services we are now providing or which we will want to provide. WTO SERVICES SECTORAL CLASSIFICATION LIST (W-120) Sectors and Sub-Sectors 1. Business Services 2. A. Professional Services h. Medical and Dental Services 9312 i. Veterinary Services 932 j. Services provided by midwives, nurses, physiotherapists and para-medical personnel 93191 8. Health Related and Social Services A. Hospital Services 9311 B. Other Human Health Services 9319 C. BARRIERS Historically, health care services in many foreign countries have largely been the responsibility of the public sector. This public ownership of health care has made it difficult for U.S. private-sector health care providers to market in foreign countries. In addition, there are substantive differences in emerging markets vs. OECD countries. In most emerging markets there are few barriers to these services but barriers can be erected in the future as laws and regulations are enacted absent commitments in writing. Existing regulations are by and large not a problem in emerging markets. However, existing regulations do present serious barriers in OECD countries, including: • Restricting licensing of health care professionals. • Excessive privacy and confidentiality regulations. • Lack of transparency in the OECD countries' regulations. • Difficulty processing permits for work and for facilities. D. NEGOTIATING OBJECTIVES Three general objectives are to encourage more privatization, to promote pro-competitive regulatory reform, and to obtain liberalization. Specific objectives are: • Transparent licensing of health care professionals and facilities, which do not place unnecessary or discriminatory burdens on U.S. providers. • Obtain market access and national treatment commitments allowing provisions of all health care services cross border. • Allow majority foreign ownership of health care facilities. • Obtain a commitment for the cross-border provision and transfer of health care information. • Seek inclusion of health care in WTO government procurement disciplines. • Strengthen international co-operation to promote pro-competitive regulatory reform across countries. • Negotiate Mutual Recognition Agreements (MRAs) for licensing of professionals and cooperative agreements on regulation of facilities. • Develop principles to guide regulators so as to minimize unnecessary costs on trade and investment in the health care sector. • Simplify regulations and provide transparency for movement of personnel, both professionals and patients. VI. INFORMATION TECHNOLOGY SERVICES A. SECTOR STATUS The information services industry has a vital interest in the successful conclusion of the World Trade Organization (WTO) 2000 Services negotiations. Information technology, while a service industry itself, is critical to the success of the other services industries, which, in turn provide a substantial market for information services. As the services sector thrives, so will the information services sector. While substantive commitments by many countries in the area of value-added services (information services) are included in the General Agreement on Trade in Services (GATS), some commitments are weak, while others are non-existent. The 2000 negotiations provide an opportunity to broaden and deepen the current commitments. Recent international agreements affecting information technology services have opened related sectors, such as basic and enhanced telecommunications and offered protection and trade liberalization in other sectors (Trade-related Intellectual Property &endash; TRIPS, and the Information Technology Agreement &endash; ITA). GATS Annex on Telecommunications and the WTO Agreement on Basic Telecommunications Services The Enhanced Telecommunications Annex provides substantial commitments for information technology services and for access to telecommunications networks for the provision of such services. Examples of services covered under this Annex are electronic mail, on-line information and database retrieval, code and protocol conversion, data processing, and electronic data interchange. While a number of countries listed significant limitations with regard to foreign ownership and the required use of public networks, on the whole, the provision of information technology services is relatively open and burden-free. The 1997 WTO Agreement on Basic Telecommunications Services (GBT) and its reference paper on pro-competitive regulatory principles is an integral element of providing a liberalized environment for trade in information technology services. Under a very broad and essentially open-ended definition employed for the negotiations, basic telecommunications are considered any telecommunications transport networks or services and the schedules of commitments cover a wide variety of services fitting this definition. Some examples of basic telecommunications include: voice telephone services, packet-switched data transmission services; circuit-switched data transmission services, telex, telegraph, facsimile and private leased circuit services, analog/digital cellular/mobile telephone services, mobile data service, paging, personal communications services, satellite-based mobile services, fixed satellite services, VSAT services, gateway earthstation services, teleconferencing, video transport and trunked radio system services. Categories of service included: local, long distance, international, wire-based, radio based, resale, facilities-based, for public use, and for non-public use (closed user groups). The agreement, which opened trade in the $600 billion global basic telecommunications market, will promote competition in world telecommunications markets, spur innovation and competition-based pricing and speed the delivery of robust information products and services to consumers everywhere. Ultimately, we believe the agreement will expand the market not only for telecommunications, but for other information service providers as well. The GBT commitments are a key element in securing the infrastructure for trade in information services. Together with the agreement on enhanced telecommunications services, we believe many of the basic elements to secure access to infrastructure over which information technology services thrive, are subject to existing liberalization commitments. It is our understanding that the GATS Annex on Enhanced Telecommunications Services and the GBT cover the delivery of services electronically. We urge the USTR to enforce these existing commitments, expand commitments from those who made limited commitments, and seek new commitments from those who have not signed on to the GBT. Information Technology Agreement (ITA) Concluded in December 1996, the ITA provides for the elimination of customs duties and other charges on information technology products through equal annual tariff reductions and covers five main categories of IT products: computers, telecommunications products, semiconductors, semiconductor manufacturing equipment, software, and scientific instruments. The tariff reductions, which are scheduled to begin on July 1, 1997 and to conclude on January 1, 2000, are to be implemented by signatories on a most-favored-nation (MFN) basis. The ITA will open up global trade in a wide array of information technology products, valued at over $500 billion, and spur growth of the global information infrastructure. The USTR estimates that the ITA will provide a competitive boost of 1.8 million jobs in the U.S. The agreement will bring significant benefits to software and telecommunications companies. The agreement includes a broad definition of software products, which covers multimedia and interactive software and "Nuisance tariffs" on software (tariffs below 3%) will be eliminated as soon as July 1, 1997. The agreement also covers a wide array of telecommunications equipment and products, including fiber optic cable. The ITA, while a goods-based (rather than services-based) agreement, is essential to the liberalization of trade in information technology services, as it provides the means to deliver IT services. We urge the USTR to work with its trading partners in the WTO to expand commitments made in the ITA. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Adequate and effective protection and enforcement of intellectual property rights is a critical element in fostering the growth of IT globally. As electronic commerce continues to grow it will become increasingly important that commitments to protect intellectual property are enforced. In many countries, both developed and developing, civil and administrative procedures do not meet the enforcement standards set forth in Part III of the TRIPS agreement. As more and more software is being sold over the Internet, adequate and effective IPR enforcement becomes even more important. We recommend the USTR press other WTO members to meet the enforcement obligations outlined in Part III of the TRIPS Agreement. B. CLASSIFICATION Sector Classifications and Sub-Sectors (CPC Codes) The emerging convergence between telecommunications services, broadcasting, audiovisual services and information technology services has made clear distinctions between sector classifications increasingly difficult. For example, a barrier that restricts the number of foreign produced films from being broadcast or foreign publications from being distributed may affect both broadcasters who deliver films over the Internet as well as the Internet Service Provider who runs the network over which the films/publications are delivered. We strongly encourage the USTR to review these classifications in a dialogue with the various industry sectors involved. We also encourage the USTR to begin informal discussions on this topic with their trading partners. Expanded Information Technology Services Information technology has become so prevalent in the provision of many services that the services themselves are being considered information technology services. Call centers, for example, are so dependent on the underlying information technology that they are provided by many information technology providers as a routine service offering. Customer loyalty programs, order fulfillment functions, remote monitoring services, remote inventory services and remote maintenance and repair services are examples of such services. Some involve physical functions while others such as remote monitoring are performed entirely electronically. Current computer and related services section of the CPC (listed immediately below) is somewhat limited given the rapid advances in this dynamic sector. CPC Computer and Related Services: • Consultancy services related to the installation of computer hardware (841) • Software implementation services (842) • Data processing services (843) • Data base services (844) • Other (845 + 849) The USTR should expand the definition of information technology services. We recommend a number of services be included and the category be changed to information technology services. We recommend the USTR consider the classification revised CPC scheme below. Information Technology Services: • Consultancy services related to the installation of computer hardware • Software implementation services • Data processing services • Data base services • Management consulting • Services related to management consulting • Customer services • Other C. BARRIERS The private sector has been the driving force behind the rapid growth, innovation, and development of information technology services, the Internet and electronic commerce. Despite this rapid growth, a few barriers remain. Elimination of these barriers must be industry led and market driven. Consistent with the U.S. Administration's Framework for Global Electronic Commerce, we strongly recommend that the USTR continue to recognize the course of industry leadership and self-regulation Barriers also remain with regard to the current commitments of some countries. Restrictions on foreign ownership and requirements for local partners of varying descriptions hamper the ability to provide information technology services seamlessly. In addition, requirements to use public networks and restrictions on the use of leased lines also provide barriers to true global market access. Finally, national treatment is not a reality in every country. Practices in government procurement vary dramatically across the globe and offer considerable barriers to the provision of information technology services to governments. They range from many of the OECD nations which have, both on paper and in practice, highly organized and wholly transparent processes, to nations which conduct procurement entirely behind closed doors. Likewise, a number of nations have very open procurement markets while others are closed both to foreign firms and to those firms not in favor, regardless of capability. Finally, there is the same range of conduct regarding the ethics of procurement, with many "clean" systems and just as many in which bribery and corruption are the norm. The greatest barrier to the continued development of the information technology industry globally, however, is the lack of market access and national treatment in the industry sectors which information technology serves. If the financial services industry is not permitted to sell mutual funds across borders, then the capability of the information technology services industry to provide that service electronically is moot. For the information technology services industry to reach its full potential to deliver benefits to individuals as well as entire economies, the markets in every other industry sector must be opened and liberalized. D. NEGOTIATING OBJECTIVES We urge the USTR to set the following negotiating objectives: • Expand the coverage of existing agreements in information technology related and enabling areas such as the Enhanced Telecommunications Annex, the Basic Telecommunications Services Agreement, and the Information Technology Agreement. • Develop a consensual view of and acceptance of the modes of supply as applied to information technology services in the section above. • Expand the definition of information technology services. • Insure information technology services can be performed and delivered without establishment. • Achieve full market access and national treatment for information technology services and for services in a broad range of other sectors. • Seek commitments in government information technology services procurement for full market access, national treatment, transparency, access to independent appeals, and dispute resolution processes. A. PROFESSIONAL & BUSINESS-RELATED SERVICES B. SECTOR STATUS Professional and business-related services are those services for which the provider requires specialized, technical knowledge &endash; acquired through post-secondary education or equivalent training or experience &endash; which is adapted and applied to the specific needs of business clients. Many of these services are performed by licensed professionals for which the right to practice is controlled by the government and/or professional bodies. These licensed professions tend to be more regulated than commercial services because the license holders are authorized to practice restricted activities in return for which they are expected to assume public interest responsibilities. Examples include accountancy, architecture, engineering and law. Other business-related services share common characteristics with the professions, such as high levels of human and intellectual capital input and close interaction between the provider and the client, but generally are not highly regulated or controlled by licenses granted by government or professional bodies. Examples include management and business, including computer-related, consulting services. Thus, this discussion topic overlaps, with some extent, with the section on information technology services. [Please note that this section addresses the licensed professions most closely associated with services provided to businesses and, thus, does not cover medical doctors, dentists, nurses, pharmacists, beauticians, etc. The medical professions are covered in the "Health Services" section] Statistics on trade in services are notoriously poor, so it is difficult to know the volume of trade in professional and business-related services worldwide. In the U.S. balance-of-payments category of "business, professional and technical services," U.S. providers exported $17.6 billion in 1996 and $21.3 billion in 1997. Imports were valued at approximately one-quarter of these amounts. There is reason to believe, however, that these numbers substantially understate the level of international business in this sector, because they do not include data on earnings from foreign investments and foreign affiliates, especially with respect to "accounting" firms and information technology companies. Nor do they include fees generated by mobile service providers, such as lawyers, architects, engineers and consultants, who serve temporarily in foreign countries but are paid at home. Professional and business-related services received substantial coverage in the schedules of commitments under the General Agreement in Trade in Services (GATS). • More than 60 WTO member governments have made commitments in accountancy and related services, accounting for approximately 90 percent of the world market measured by gross revenues. Virtually all these commitments confirmed the status quo with respect to market access and national treatment. • More than 40 WTO member governments made commitments on architectural services, and just fewer than 30 made commitments on urban planning and landscape architectural services. • More than 50 WTO member governments made commitments on engineering services. • More than 40 WTO member governments have made commitments in one or more aspects of legal services. The commitments mostly cover advisory services on international and home country law. The commitments are mostly in the nature of a standstill and do not achieve the American bar's objectives on Foreign Legal Consultants or rules for examinations in foreign jurisdictions. • More than 60 WTO member governments also made commitments in computer-related services an management consultancy, also accounting for about 90 percent of the world market measured by gross revenues. Again, the commitments largely confirmed the status quo, which for the most part is relatively free of trade restriction and discriminatory regulation. It should also be noted that the WTO and the GATS have created an international legal umbrella over substantial work initiated by the professions themselves in the areas of mutual recognition and standards. Two examples follow: • The International Union of Architects (UIA) Professional Practice Commission has produced the "UIA Accord on Recommended International Standards of Professionalism in Architectural Practice." The American Institute of Architects and the Architectural Society of China serve as the Commissions' joint secretariat. The document was initially adopted by the UIA's 91 national member sections in July 1996. A revised and expanded edition, including recommended policy guidelines, will be presented for adoption at the XXI UIA Assembly in June 1999 in Beijing. A primary objective of this document is to allow member sections to more easily negotiate bilateral mutual recognition agreements (MRAs). • The American Institute of Certified Public Accountants (AICPA) strongly supports the work of the International Federation of Accountants and the International Accounting Standards Committee in developing a body of widely-accepted international accounting and auditing standards and international guidelines on ethics. In addition, the AICPA has joined with the National Association of State Boards of Accountancy to complete MRAs with the Canadian Institute of Chartered Accountants and the Institute of Chartered Accountants in Australia. Additional discussions are continuing with other professional bodies in Australia, England, Ireland, Mexico and Scotland. A. CLASSIFICATION The professional and business-related services covered by this paper are found in the following categories listed in the World Trade Organization's (WTO) "Services Sectoral Classification List." BUSINESS SERVICES Professional Services Legal services Accounting, auditing and bookkeeping services Taxation services Architectural services Engineering services Integrated engineering services Computer and Related Services Consultancy services related to the installation of computer hardware Software implementation services Other Business Services Management consulting services Services related to management consulting CSI recommends that the U.S. Trade Representative seek the inclusion of several additional classifications of professional and business-related services in the specific commitments made by member governments. These are: • Actuarial services. • Counseling in business transactions. • Participation in the governance of business organizations. • Mediation, arbitration and similar non-judicial dispute resolution services. • Public advocacy and lobbying. In the area of computer-related services, the "Information Technology" section of this paper makes a number of useful recommendations. A. BARRIERS International trade in professional and business-related services in conducted both by individuals who have met specified professional qualification requirements or have specialized business knowledge and by firms owned by and/or employing these individuals. Professional and business-related services are rendered in all four modes of delivery contemplated by the GATS. They may be provided across borders by professionals travelling to another country or communicating electronically with clients there. More typically, the services are provided by locally-established firms affiliated with others abroad through ownership, contract or cooperative agreement. And in some cases they are provided to foreign consumers visiting the provider's home jurisdiction. The impediments to trade in professional and business-related services stem from regulations intended to protect local providers from competition and, probably more importantly, from domestic regulations intended to protect defined national interests. Most professions are enveloped in national and/or sub-national systems of regulation, which were developed to respond to particular circumstances and political demands. These distinct systems have persisted even as the globalization of markets has accelerated and, thus, have given rise to trade and investment barriers. Impediments to Professional Firms • Restrictions on the movement of capital and investment, such as foreign equity limits, screening of investments and the application of economic needs tests, and reserving ownership to locally-qualified professionals. • Restrictions on making current payments, such as profit remittances and the payment of royalties and fees across borders. • Restrictions on the types of business structures permitted. • Numerical, geographic or other restrictions on the establishment of branch offices. • Requirements to employ only local people and professionals or the use of quotas to limit intra-firm transfers. • Inadequate protection on intellectual property, such as software, practice methodologies and training materials, as well as restriction on the use of international firm names. Impediments on Individual Professionals • Onerous professional qualification requirements, such as citizenship, permanent and/or prior residency, local university degrees, and excessively long experience requirements, and administering qualification examinations in languages other than the WTO working languages. • The use of different technical standards or standards of practice in each national and/or sub-national jurisdiction. • Difficulties in obtaining visas and work permits. Impediments Affecting both Firms and Individuals • The lack of transparency in the regulatory process, including the failure to make laws and regulations available, closed decision-making processes, the lack of opportunity to comment before rules are adopted, and the absence of appeal processes. • Local establishment requirements. • Rules either requiring or prohibiting relationship between foreign and local professionals or professional firms. • Customs duties on professional documents, project models, training materials, promotional publications, and software. • Scope-of-practice limitations that may prohibit the provision of selected or multiple services to clients. • The assignment of contract by government agencies, the mandatory rotation of providers, and "Buy National" policies. • Prohibitions on advertising professional services. • Reciprocity laws or regulatory requirements. D. BENEFITS OF LIBERALIZATION Professional and business-related services are part of the intellectual capital infrastructure essential to the operation of modern economies. For example: • Accounting and auditing services are critical to management control of enterprises and provide the assurance that underlies efficient capital markets. • Architectural and engineering services are essential to the creation of modern business structures and processes. • Legal services make possible effective relations between buyers and sellers and among business partners, as well as help to protect the investments and property of national of one country transferred to another. • Consulting services provide valuable management know-how, competitive insight, and advice on modernizing and reengineering business enterprises. Liberalization of trade and investment in this sector makes available to business users state-of-the-art inputs to their production processes. Moreover, the international operation of professional and business-related service providers are important conduits for transferring state-of-the-art technology and training, which has ripple effects throughout the host economies. And many professional services firms provide international networks by which host country services can be exported. F. NEGOTIATING OBJECTIVES • U.S. negotiators should press governments that have not made specific commitments on professional services to do so. The goal should be that all 132 WTO member governments apply the GATS rules to professional and business-related services. Some significant markets, such as India, Indonesia and the Philippines, are now missing. • U.S. negotiators should press other governments to remove as many of the "exceptions" in their scheduled commitments as possible. The aim should be full application of the market access and national treatment rules to professional services. • U.S. negotiators should champion "freedom of association" for U.S. and foreign professionals, seeking to eliminate requirements or prohibitions of professional associations in partnership or in other forms of "corporate" practice. • U.S. negotiators should work for an agreement on business mobility (temporary entry of business people), which would remove the visa requirements and red tape for qualified professionals entering another WTO member country for specific, temporary assignments. • U.S. negotiators should work for horizontal disciplines on domestic regulation of professional and business-related services under GATS Article VI that go beyond the disciplines developed for the accountancy sector. In particular, they should seek a meaningful "necessity test" under which onerous regulations could be challenged as "more burdensome than necessary, transparency rules that allow interested parties to comment in advance on proposed legislation, and pro-competitive regulatory structures. • U.S. negotiators should seek an extension of the principles of the Agreement on Technical Barriers to Trade to service industries and professions. • With respect specifically to legal services, U.S. negotiators should focus on two objectives: (1) adoption of the concept of "foreign legal consultants" whereby lawyers are permitted to practice their home country law (as well as third country and international law) in foreign jurisdictions; and (2) "model rules" on bar examinations that assure the exams are related the areas of law to be practices, follow transparent procedures, are based on information readily available (through training courses, etc.), and are administered in one of the working languages of the WTO. VIII. TELECOMMUNICATIONS A. SECTOR STATUS As the new millennium fast approaches, it has become obvious that telecommunications networks provide the underlying infrastructure and services upon which most of the world's information and commerce depend. It is safe to say that without a robust telecommunications infrastructure, the global economy as we know it today would simply not exist. Vice President Gore has recently recognized that not only is the telecommunications-enabled Global Information Infrastructure a vital underpinning of world trade, the GII has the capacity "to extend knowledge and prosperity to our most isolated inner cities, to the barrios, the favelas, the colonias and our most remote rural villages; to bring 21st Century learning and communication to places that don't even have phone service today; to share specialized medical technology where there are barely enough family doctors today; to strengthen democracy and freedom by putting it on-line, where it is so much harder for it to be suppressed or denied." Privatization and liberalization of the world's telecommunications markets will provide the most efficient and effective means of insuring the global telecommunications infrastructure's growth and enhancement. As experience in a number of countries now amply demonstrates, a liberalized market leads to significant increases in infrastructure development, more and better services, and lower prices for consumers. Moreover, a liberalized, modern telecommunications system should increase capital investment, thereby strengthening and facilitating growth of a nation's economy. It now appears that much of the world's commerce in the future will be transacted over the Internet's network of networks. A good deal of the communications will be of the multimedia variety which will require advanced, broadband telecommunications services. Without liberalized open telecommunications markets, there will not be sufficient incentives to upgrade what is rapidly becoming in many parts of the world an inadequate, outdated telecommunications infrastructure. WTO Agreement on Basic Telecommunications Services The 1997 WTO Agreement on Basic Telecommunications Services (GBT), with its accompanying Reference Paper, truly represents a watershed event not only for the telecommunications industry, but also for the entire world economy. Seventy countries participated and agreed to move in varying degrees toward full, technology-neutral, liberalization of their telecommunications sectors through market access, foreign investment and adoption of pro-competitive regulatory principles. The GBT was a landmark agreement in a number of ways. It was the first successful sectoral negotiation &endash;&endash; the agreement dealt only with telecommunications. Changes in agriculture import quotas, for instance, could not be traded for concessions in telecommunications, insuring that all benefits of the agreement accrue to telecommunications alone. In addition, a Reference Paper containing pro-competitive regulatory principles was developed and was incorporated into a majority of the countries' offers. This Reference Paper legally binds the countries into "how" they will implement many parts of the agreement. Thus, promulgation of regulations in accordance with the Reference Paper's principles must be considered an integral part of a country's implementation of the GBT. Under a very broad and essentially open-ended definition employed for the negotiations, basic telecommunications was considered any telecommunications transport network or services and the schedules of commitments cover a wide variety of services fitting this definition. Some examples of basic telecommunications include: voice telephone services, packet-switched data transmission services; circuit-switched data transmission services, telex, telegraph, facsimile and private leased circuit services, analog/digital cellular/mobile telephone services, mobile data service, paging, personal communications services, satellite-based mobile services, fixed satellite services, VSAT services, gateway earth station services, teleconferencing, video transport and trunked radio system services. Categories of service included: local, long distance, international, wire-based, radio based, resale, facilities-based, for public use, and for non-public use (closed user groups). As discussed below, some rethinking of these categories of facilities and services may be in order. In sum, the GBT and accompanying Reference Paper represents a tremendous first step toward the ultimate goal of a fully open, competitive telecommunications market worldwide. A good deal of work remains to be done, however. In addition, it is important that new negotiations do not provide for countries to re-evaluate or back away from existing commitments. New negotiations should build on existing commitments. B. CLASSIFICATION Sector Classifications and Sub-Sectors (CPC Codes): Clearly, telecommunications market developments of the past few years warrant a reexamination of the applicability of the Standard Classification System last revised in 1991. It may be appropriate for countries to agree to a standardized set of services that are independent of the particular technology used to provide those services. C. BARRIERS Although a monopoly telecommunications environment provided a fairly reliable, working telephone system which served the world well for almost 100 years, most of the rapid technological developments of the past two decades have resulted from the increasingly competitive marketplace in a number of countries. Experience has shown that the more open the market, in terms of free entry and exit and the number of competitors present, the more robust the competition and the better the result for consumers. Unfortunately, even in the wake of the GBT, most of the world's telecommunications markets still contain barriers that restrict access, curtail the scope of the playing field, or tilt it in a variety of ways. In accordance with their GBT commitments, many countries already have privatized their national telecommunications carriers, and others plan to do so in the near future. Privatization is an important step toward introducing competition into markets, but privatization by itself will not produce an open and fair competitive environment. Whether the incumbent carrier is controlled by the government or is privately held, new entrants cannot effectively compete in the market without full liberalization. In order for competition to flourish, the regulator must be completely independent of the dominant carrier and must actively implement and enforce pro-competitive principles such as those enumerated in the GBT Reference Paper. Barriers remain even under the current commitments of some countries. Restrictions on foreign ownership and requirements for local partners of varying descriptions hamper the ability to provide telecommunications services seamlessly in these countries or worldwide. In addition, requirements to use public networks and restrictions on the use of leased lines provide barriers to true global market access. Nor is national treatment a reality in every country. The licensing schemes of many countries pose another significant barrier to the market and to full and fair competition. Restrictions on the number of licenses awarded per geographic area, onerous qualifications for licensees, exorbitant fees, and lack of transparency in the bidding and award process must be eliminated. In many cases, the totality of these requirements effectively limits participation to a handful of large carriers and prevents smaller, perhaps more responsive or innovative carriers from participating. Variations on the same theme are regulations which favor facilities-based providers over resellers. Many countries that have otherwise committed to liberalize their telecommunications in the GBT have adopted policies designed to encourage infrastructure investment. For example, carriers may be required to implement a certain number of switches before they are permitted to interconnect with the incumbent. These sorts of requirements, while attempting to achieve an arguably laudable goal, act as a barrier by depriving consumers in these markets of a very valuable source of supply&emdash;resellers. As experience has shown in this country, resellers continue to play a vital role in the telecommunications marketplace. There are literally hundreds of these entities, with their numbers increasing every month. These companies are usually small by comparison with the giant facilities-based carriers, but they are able to stay ahead of their much larger competitors by constantly introducing new pricing arrangements, new services, and innovations for consumers. Another barrier to competition in many countries is the lack of number portability. Number portability is essential in order for competition to develop because it allows customers to keep their telephone numbers when changing carriers. Where no number portability exists, residential consumers in particular are much more reluctant to shift their business away from the incumbent, even when they are offered a significant price break. Even in the business market, the lack of portability acts as a major deterrent to competition. Businesses must incur significant expenses to reprint stationery and business cards and to inform customers, suppliers, and others that they have changed telephone numbers. For example, before portability was implemented in the domestic 800 service market, some competition did exist. However, soon after the introduction of portability, overall demand rose and prices dropped. D. NEGOTIATING OBJECTIVES We urge the USTR to set the following negotiating objectives: • Update the 1991 Standard Classification System to emphasize services rather than the technology employed to deliver the services. • Expand and deepen the commitments of countries that agreed to partial liberalization in the GBT to include full liberalization and adoption of the Reference Paper, by a date certain in the near future. • Schedule commitments to full liberalization and adoption of the Reference Paper, by a date certain in the near future, of countries that are WTO Members but have not made commitments under the GBT. • Seek commitments to full liberalization and adoption of the Reference Paper by countries wishing to accede to the WTO. IX. TRAVEL AND TOURISM A. BENEFITS OF LIBERALIZATION The travel and tourism industry is the word's largest industry, employing over 230 million people worldwide, and is expected to grow to almost 320 million by 2010. The travel and tourism industry is growing faster than world GDP growth. Its share of gross domestic product is expected to increase from about 11.6 percent in 1998 to 12.5 percent by 2010. The travel and tourism industry creates good jobs spanning the spectrum from entry level to executives. It is clearly a driver of economic growth in the world. Liberalization of the industry will lead to faster industry growth, which will not only spur direct growth in the industry, but growth in related industries such as manufacturing of transportation equipment, and building and related critical infrastructure development projects. Moreover, the travel and tourism industry represents sustainable and ecologically friendly development. B. SECTOR STATUS In general, the tourism and travel related services sector tends not to be heavily regulated and competition tends to be vigorous. There are, however, some significant exceptions to this broad generalization. C. CLASSIFICATION This sector includes hospitality, restaurants, travel agencies, tour operators, tourist guides services and other travel related services. The industry has developed since these classifications were drawn up, and the specific services covered under these broad categories need to undergo a thorough review and analysis to ensure that all services that should be covered are included. It should also be clarified that this sector includes travel reservation services and travel-related financial services, e.g. travelers checks and certain foreign exchange services, which are distinct from those covered under the banking, insurance and securities sector. (The tourism and travel related services sector does not include air or other transportation sectors, which are covered under the transport services sector.) D BARRIERS Two of the most prevalent types of barriers fall under the rubrics of competition and investment, which could be addressed either horizontally or on a sectoral basis. (Needless to say, this industry, like many others, has substantial investments in trademarks and intellectual property, and has an interest in the outcomes on these and other general business concerns.) Competition Many countries impose significant restrictions, often only against foreign firms or enforce them in ways that favor domestic firms, on marketing and promotional initiatives, including loyalty reward programs. Investment One hundred percent foreign ownership is often prohibited, and the form of doing business is commonly restricted or controlled. In addition, when operating through a franchise network, repatriation of profits, payment of royalties, and other similar issues frequently become problematic. Movement of Personnel A third horizontal issue is of particular concern to the industry, and that regards the freedom of movement for business personnel. The ability of travelers to move freely around the world is the lifeblood of the travel and tourism industry. The industry has an abiding interest in liberalizing the restrictions, not only on tourists and the industry's own management, but generally on businesses' ability to locate the proper personnel in the locations where they are most needed. The other barriers are not covered in the general issues, though some do affect other sectors, as follows: Privacy: Many companies in the travel industry maintain records regarding customers' travel preferences in order to serve particular needs better. Many countries are proposing, or have already enacted, onerous restrictions on the flow of this type of information. Many countries also require the disclosure of overseas spending by customers, thereby discouraging foreign travel by their citizens. Tourist Financial Services Many countries proscribe significant restrictions on the provision of financial services for travelers. Sale of travelers checks are often restricted to certain limited types of financial institutions, as are foreign currency exchange services even though they pose no risk to a country's financial system. Finally, access to local ATM networks is occasionally prohibited. Taxes on Overseas Spending Some countries penalize their citizens when they travel abroad by imposing taxes on overseas spending, often in ways that unfairly discriminate among payment products. One large South American country, for example, imposes a 2 percent transaction tax on credit and charge card spending abroad, but imposes no special taxes on cash purchases. As a large proportion of spending by international travelers is transacted through credit card payment systems, this tax discourages international travel and tourism. E. NEGOTIATING OBJECTIVES The U.S. objective should be the removal of as many of these barriers as possible. Unfortunately, it is too early in the process to identify firm industry-wide priorities.