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  • Room for Improvement When It Comes to Services Trade

    Photo credit: Fang Zhe/Xinhua/Sipa USA/Newscom

    The Obama Administration recently announced its intention to begin negotiations on an agreement to expand international trade in the services industry, such as the telecommunications, banking, and insurance sectors.

    According to a letter from U.S. Trade Representative Ron Kirk to Speaker of the House John Boehner (R–OH), the White House is scheduled to enter talks within 90 days. Notable participants include 27 members of the European Union, Canada, Japan, Korea, Mexico, Pakistan, and Turkey. Brazil, China, and India—who have historically not favored lower barriers to services trade—will not participate, although pressure for them to join could mount as discussions progress.

    In his letter to Congress, Ambassador Kirk noted the key role that the service industry plays in the U.S. economy:

    Every $1 billion in U. S. services exports supports an estimated 4,200 U.S. jobs in America. Service industries employ workers in every congressional district across the United States, and approximately three out of every four American workers nationwide.

    Although the U.S. maintains a trade surplus in services, and despite the fact that the United States is the largest services trader in the world, the export of tradable services lags far behind that of manufactured goods. According to Ambassador Kirk:

    [W]e need to surmount a range of barriers that lock out, constrain, or disrupt the international supply of services. An ambitious, high-standard international services agreement presents a tremendous opportunity to remove these impediments and boost U.S. economic growth and support additional jobs.

    One item the U.S. ought to put on the table in these negotiations is the arcane and self-destructive Merchant Marine Act of 1920. Better known as the Jones Act, this relic of post-World War I protectionism requires passengers and goods moving from one point in the country to another to travel on ships and planes owned, operated, and maintained by U.S. citizens or corporations and crewed by U.S. citizens or resident aliens.

    Once well-intentioned, the Jones Act now serves as an impediment to service providers seeking entry into the U.S. market. As Heritage’s Terry Miller and Jim Carafano argue, “American industries thrive when they’re exposed to the highest levels of competition. By any objective measure, the Jones Act is a failure and should be scuttled.”

    So far President Obama’s trade policy has been lots of talk but little action. Talking about reducing barriers to trade in services sounds good, but the challenge will be following up with action that strengthens the global economy.

    Posted in Economics [slideshow_deploy]

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