GATS

The service sector has become increasingly important to industrialized countries, especially the United States. Services, while difficult to precisely define, include such things as transportation, insurance, education, and telecommunications. On a global scale, the growth of trade in services outpaced that of merchandise throughout the last decade, increasing from 17 percent of total trade in 1980 to 20 percent of the total in 1995. Global trade in services for 1995 amounted to approximately $1.2 trillion. For those concerned about U.S. budget deficits, it should be noted that Americans maintain a hefty surplus in the trade of services. In 1996, U.S. service exports totaled 221.2 billion (up 26 percent from 1992) while imports of services were only $143.1 billion, producing a surplus of nearly $80 billion. American exports of commercial services almost doubled those of the next leading country (France) in 1995. It is not surprising the United States was eager to gain a multilateral agreement on trade in services.(31) After lengthy discussions during the Uruguay Round, the General Agreement on Trade in Services (GATS) entered into force on January 1, 1995. However, negotiations in some areas have continued until the recent past and a new round of talks on the service sector is planned to begin before the year 2000. With such a dynamic and important economic sector, it is vital that timely decisions continue to be made. The WTO Council for Trade in Services was created to oversee the operation of the agreement and further its objectives as written in Article XXIV of the Agreement.(32) As the first ever multilateral agreement to provide legally enforceable rights to trade in services, the GATS nominally includes all internationally traded services. This comprehensive approach covers services traded from one country to another, consumers or firms making use of a service in another country, foreign companies creating subsidiaries or branches to provide services in another country and individuals traveling from their own country to supply services to another. One major principle of the agreement is the bestowal of MFN treatment. The idea is to give all countries equal treatment and thus lower the possibility of retaliatory action. While the premise of MFN is that countries should not discriminate between other members of the Agreement, the GATS temporarily permits countries to maintain prior preferential commitments. However, under the Agreement, no new preferential pacts can be arranged. Moreover, existing preferences will normally last no more than ten years.

The GATS also calls for national treatment, which provides that countries should treat foreigners the same as citizens with regards to the services industry. However, this only applies where a country has made specific commitments to provide foreigners access to its service market, making a rather weak provision. Other sections of the Agreement deal with such issues as transparency in regulations. Regulations are allowed, but countries must report new legislation to the Council for Trade in Services. According to Article III of the Agreement, only if a third country argues that the new regulations appear to unduly impede the implementation of the GATS will the new regulations be questioned.(33)

Other principles include the commitment to open markets, progressive liberalization, and a decrease in restrictions on international payments and transfers. Most of these principles currently offer loopholes, such as the allowance of designating only a portion of their service sector to the Agreement. Thus, the majority of services in all countries continue to violate the GATS Agreement, mostly because developing countries have made few commitments. High-income countries made commitments in 47.3 percent of their service sector as compared to 16.2 percent for developing countries. A more telling statistic shows that twenty-two of seventy-eight developing countries scheduled less than 3 percent of all services.(35) The GATS offers lofty goals, but in fact, members remain far from free trade in services. Rather than opening markets, the agreement acts more as a moratorium on creating preferential treatments and further closing national markets. It is difficult to quantitatively assess the effects of the GATS since the results depend on the content of the specific commitments made by countries. Even though the Agreement lacks "teeth," a single sector analysis may help to clarify the potential of the GATS. The U.S. telecommunications industry provides a useful case study for surmising the future impact of this Agreement on American industry. Though the Agreement on Basic Telecommunication Services did not take affect until January 1998, it is expected to significantly impact the U.S. market. Unlike other sections of the GATS, the United States was successful in gaining pledges from major foreign markets to open their telecommunications industries. In fact, the sixty-nine WTO members that made commitments in the telecommunications agreement accounted for over 91 percent ($550 billion) of telecom revenue.(6) In terms of market share, the GATS affects a generous portion of the global telecom industry. For example, the United States more than doubles the earnings from telecom in Japan, the second largest revenue earner.(34) The telecom agreement basically concerns market access, foreign investment, and regulatory principles in all telecommunications transport networks and services. The three major implications of this agreement include the increased opportunity for operators to integrate and control their international marketing and operations, improved dispute resolution procedures and enforcement mechanism, and reduced profitability for some telecom operators as accounting rate reforms accelerate. According to U.S. Trade Representative Charlene Barshefsky, only 17 percent of the world's top twenty telecom markets were open to U.S. companies before the agreement, whereas now American corporations have access to nearly all of them. The ambassador also believes the agreement will lead to 1 million new jobs in the next ten years, while the average cost of long distance calls will drop 80 percent in the next few years. The 80 percent figure would be especially helpful since, according to the 1996/97 MCI Global Communications Report, the world spent 60 billion minutes communicating between countries via public networks in 1995, up from 15 billion minutes in 1985. Eighty percent savings would make $60 billion (~$1.00/minute) in phone calls become $12 billion.(36) Since U.S. telecom corporations are already dominant in world markets, they are in the best position to expand into new areas of service. It appears that the telecom agreement provides a winning situation for U.S. industry and consumers. The flip side is that in developing countries, once access is opened, inefficient service providers will lose out to global industries, many of which are based in the United States.

Like many of the GATS commitments, the telecom agreement is not as simple as it seems. The complicated regulatory principles are difficult for newly liberalizing economies to understand. Even the U.S. Federal Communication Commission (FCC) continues to struggle in finding solutions to problems such as universal service obligations, anti-trust provisions, rate structures and technical interconnection between services. To deal with these issues, the FCC has adopted domestic policies that some feel violate the GATS' most favored nation and market access principles.(9) Deregulation and more open competition in the telecom sector are envisioned to improve efficiency through market-based principles. The WTO's recent Financial Services Agreement provides an example of ongoing GATS negotiations. In December 1997, seventy WTO members reached the multilateral agreement that will be annexed to the GATS and entered into force by March 1999. These commitments allow more access of foreign financial service suppliers in areas covering over 95 percent of financial services trade. Perhaps more importantly, few signatories submitted MFN exemptions when approving of the protocol annex.(37) While the GATS offers numerous loopholes to protect certain sectors of national economies, it does provide an agreement to limit the amount of new protective measures and partial service agreements. Until the GATS becomes more ambitious in rolling back current disparities, it appears reaching the goals of the GATS will be a slow process.

TRIPs
Intellectual property issues are of special interest to those countries, such as the United States, that are deeply involved in high-technology industries. Some examples of American industry that rely greatly on intellectual property rights (IPR) include computer-related fields, pharmaceutical and chemical manufacturers, and audiovisual industries. The common link between these industries is their heavy reliance on research and development (R&D) and their relatively low costs of production. A strong patent system and a copyright law covering domestic issues, but lacking authority and enforceability abroad, protect these U.S. industries. IPR-reliant companies argue that in order to continue innovating and improving their products, larger and larger amounts of R&D must be used. Without IPR, other companies will "steal" the development process from its originators, and massproduce these goods more cheaply while making a larger profit due to lower sunk costs in R&D. If industry innovators fail to profit from developments, they lose the incentive to spend large amounts on R&D and the industry stagnates.(38) High-technology trade is vital to the U.S. economy, where one in three manufactured exports are advanced technology items. The results appear promising; the United States gained a $27.2 billion surplus in high-tech trade in 1993. It is estimated, however, that a staggering amount of profit in these industries is lost each year due to counterfeiting. The International Anti-Counterfeiting Coalition has calculated that Americans lose about $200 billion each year, and the U.S. Customs Service estimated in 1993 that Americans lost 750,000 jobs from piracy. Clearly, Americans have a stake in ensuring their continued leadership in IPR industries.(38) The U.S.-led inclusion of Trade Related Intellectual Property Rights (TRIPs) at the Uruguay Round went into force on the first day of 1995. A WTO TRIPs Council (which will cooperate with the World

Intellectual Property Organization) was formed to oversee the implementation of the Agreement. TRIPs covers copyrights, trademarks, patents, and other areas including industrial design, geographical indication, integrated circuits and protection of trade services. The minimum standards set out by the TRIPs Agreement for copyright and related rights are those of the 1971 Berne Convention for the Protection of Literary and Artistic Workforce which protected a broad range of artists' and authors' rights. More importantly for the U.S. computer industry, computer software is treated as "literary work," thus stringent copyright protection is made available. The provision on trademarks guarantees that a registered trademark has the exclusive right to use this mark in all countries. Furthermore, patents now receive protection for twenty years from their date of file. The Agreement also regulates that countries must enforce TRIPs within their own boundaries and provides for technical assistance to those countries without appropriate enforcement mechanisms. (38)It is important to note that, like the GATS, this Agreement includes the major principles of MFN and national treatment, though exceptions are made for developing economies and prior commitments. MFN is really a moot point if national treatment is followed, since it is rare that a country would give more rights to foreigners than their own citizens. The objective of the Agreement is that, "The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations." The latter part of the statement refers to the developing countries' argument that they can not afford the high costs of authentic goods (especially pharmaceuticals) and thus believe the implementation of monopoly rents are overly harsh. The true difficulty in negotiating TRIPs was in compromising the need for innovation incentive in the developed world with the desire for cheaper, accessible goods in lesser-developed economies. In order to assess the potential results of the Agreement, the American pharmaceutical industry provides a clear case study. The U.S. pharmaceuticals industry had a large stake in procuring a fortuitous TRIPs Agreement.(39) On average, 5 percent of all drugs are counterfeit, and in developing countries the percentage can reach as high as 70 percent. In a study done by the U.S. International Trade Commission, it was found that the global piracy of pharmaceutical patents reduces annual R&D investment by American companies by $720-$900 million per year. A high amount of annual R&D ($15 billion in 1995) is spent each year in the industry. In order to recover some of the costs, American pharmaceutical companies need to maintain exclusive control of their product market. The TRIPs Agreement takes steps to ensure this is done. A twenty-year patent term, measured from the patent filing date, will be enforced for all pharmaceutical industries. However, since it takes on average ten to twelve years after a drug is discovered for it to be approved by the Food and Drug Administration, marketing time is rather short. Even developing countries (though they receive an additional ten years to comply with the agreement) will end up adhering to the terms of the Agreement, since Article 70.8 stipulates that they must honor the remaining approximate ten years before producing or marketing the new drug. However, no current protection is offered.

Importantly, the TRIPs Agreement offers different channels for enforcement. The United States can push implementation through either the TRIPs Council or other WTO dispute settlement procedures where countries can no longer negate findings against them. However, problems with TRIPs remain. For one, a large number of countries are not privy to the Agreement, and those who are may still find loopholes or at least turn a blind eye to their own counterfeiters since it is difficult to prosecute a company for providing cheap consumer goods. Nevertheless, like the GATS, TRIPs offers a framework for future negotiations and further implementation. Though it will be a slow process, the Agreement will become more of a norm than a regulation. These effects will be seen more readily as developing countries become regular members of the Agreement.

TRIMs
Focusing on trade in goods only, the 1995 TRIMs agreement recognizes that certain practices pertaining to investment can restrict and distort trade. The Agreement seeks to prevent such distortions by prohibiting TRIMs which contradict the GATT's principles of national treatment and prohibition of quantitative restrictions (Articles III and XI, respectively).(40) The Agreement forbids four types of TRIMs: "Local content rules," which require the investor to use a certain proportion of local materials in its production; "Trade-balancing rules," which limit the amount of imports an investor can use to the volume of exports that investor produces. In other words, these rules require the investor to use funds from its exports to pay for its imports; "Domestic sales," which obligate investors to reserve a proportion of their products for the domestic market; "Exchange restrictions," which limit foreign investors' access to foreign exchange. Under the Agreement, signatories must provide notification of all non-conforming TRIMs. Developed countries faced a two-year deadline to eliminate their TRIMs (until January 1, 1997), developing countries were allowed five years (until January 1, 2000), and LDCs had seven years (January 1, 2002). A special committee was established to monitor the implementation of the Agreement, and the Council for Trade in Goods must report on the Agreement's operation by January 1, 2000. The standardization of a format for notification highlighted 1995, the first year of the TRIMs Agreement. During that year, twenty-six members submitted notification under Article V, Section 1 of the Agreement. Argentina, Barbados, Colombia, Costa Rica, Cuba, Cyprus, the Dominican Republic, Egypt, Indonesia, India, Mexico, Malaysia, Pakistan, Peru, Philippines, Poland, Romania, South Africa, Thailand, Uruguay, and Venezuela acknowledged TRIMs that needed to be removed. Honduras, Mauritius, Slovenia, Switzerland, and Zambia claimed they had not enacted any TRIMs inconsistent with the Agreement.(40) The following calendar year saw the expansion of the TRIMs Agreement with Chile, Ecuador, and Nigeria notifying the TRIMs Committee of measures to be phased out. Meanwhile, Israel, Nicaragua, Saint Lucia, Singapore, and Trinidad and Tobago noted that they had no TRIMs contrary to the Agreement. Both the TRIMs Committee and the USTR reported that the Committee had served as a

useful forum for addressing concerns of members, gathering information, and raising questions about the recent introduction or modification of TRIMs by certain members, particularly in the automotive and agricultural sectors. The Committee also dealt with the issue of how the TRIMs Agreement's provisions relate to the Agreement on Subsidies and Countervailing Measures and the Agreement on Agriculture. Several procedural measures were adopted, regarding the notification process and the expanded circulation of WTO documents. Three main TRIMs-related disputes surfaced in 1996 prompting requests for consultation under the DSU. First was the banana case already discussed. Second was a similar request submitted by Japan and the United States in response to certain Brazilian measures affecting trade and investment in the automotive sector. Third, Japan, the EU, and the United States filed for consultations with Indonesia in regards to some of its practices in the automotive industry.(40) In 1997, Uganda notified the Committee of its relevant TRIMs, while Mali submitted that none of its TRIMs were contrary to the Agreement. The Committee planned to examine modifications to TRIMs about which it had been notified, as well as any new TRIMs whether declared or not. Further, the Committee intended to review developing countries' plans to phase out their TRIMs by January 1, 2000. One major dispute which arose involved a U.S. request for consultation with the Philippines regarding the latter's measures affecting trade in pork and poultry.

INFORMATION TECHNOLOGY
The Ministerial Declaration on Trade in Information Technology Products seeks to eliminate all customs and other duties of any kind on IT goods. Signed in Singapore on December 13, 1996, the Information Technology Agreement outlines a process of equal rate reductions of customs duties from 1997 through 2000. Products covered by the ITA totaled roughly $500 billion worth of global trade in 1995. In 1996, world trade in office machines and telecommunications equipment comprised about 12.2 percent of merchandise trade, or $626 billion. The ITA's signatories account for over 80 percent of world trade and include Australia, Canada, the European Community, Hong Kong, Iceland, Indonesia, Japan, Korea, Norway, Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, Singapore, Switzerland (on behalf of the Switzerland-Liechtenstein customs union), Turkey, and the United States.(40) As of 1997, the ITA represented the only global agreement on a sector in which participating governments have agreed to eliminate all duties on a uniform list of products. Although it does not cover consumer electronics, the Agreement does include six categories of product: computers and accompanying equipment, such as printers, scanners, monitors, hard drives, and power supplies, among others; telecommunications equipment, such as telephone sets, fax machines, modems, pagers, and more; semiconductors and integrated circuits, including chips and wafers; semiconductor manufacturing equipment;

computer software products such as diskettes and CD-ROMs; computer-based analytical and scientific instruments. Participants agreed to begin implementing the Declaration's provisions by April 1, 1997. In order to eliminate the potential for free-riders, two conditions for implementation were established. First, countries representing a combined 90 percent of world trade in IT products had to accept the agreement by the April 1st deadline. Second, participants would establish a satisfactory staging arrangement. The first condition was met when the USTR reported that ITA participants accounted for over 92 percent of world IT trade as of 26 March 1997. On that date, additional participants joined the agreement, including the Czech Republic, Costa Rica, Estonia, India, Israel, Macao, Malaysia, New Zealand, Romania, the Slovak Republic, and Thailand. (Poland, the Philippines, and El Salvador were later added as well.) Non-WTO members were expected to implement the measures autonomously and incorporate them into their market access schedule upon accession to the WTO. The ITA's second condition for implementation centered on staging rules to eliminate duties on the product list in four equal steps, or by 25 percent each. The first deadline was set for July 1, 1997, and the following three were January 1st of 1998, 1999, and 2000. In certain exceptional cases, several countries requested extensions for duty reductions on various products; No deadline extends beyond 2005. At the March 26, 1997 gathering, the signatories also established the Committee of Participants on the Expansion of Trade in Information Technology Products to oversee the Agreement's provisions and provide a forum for meetings and consultations. The Committee was charged with three main tasks: monitoring the ITA's implementation, handling other countries' requests to join, and discussing and approving expansion of product coverage. With regard to the first task, twenty-six participants submitted reports documenting the modification of their duties on IT products as of November 24, 1997. Of those, the Philippines, Poland, Switzerland and Turkey indicated that implementation would begin pending the completion of domestic procedural requirements. India and Israel, meanwhile, notified the Committee that these requirements had been completed. For several countries, the first rate reduction was not scheduled to take place until December 31, 1997, for Romania and Switzerland, or January 1, 1998, for the Czech Republic, Malaysia, Poland, the Slovak Republic, and Thailand. Finally, Estonia and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu are not currently WTO members and hence were not expected to submit reports on rate schedule modifications. Regarding its second task, the Committee will consider the possible participation of Latvia, Panama, and China. To fulfill its third task, the Committee will examine non-tariff measures related to IT and differing classifications of IT products. Participants have specifically expressed an interest in standards and import licensing, as well as addressing the concerns of small and medium-sized exporters. The Committee has surveyed the participants on implementing mandatory technical regulations, conformity assessment procedures, and standards. Participants' responses are expected to be returned to the WTO Secretariat by April 15, 1998.

References
(31)WTO. Annual Report. Geneva: World Trade Organization, 1996. (32)Bureau of Economic Analysis, Survey of Current Business. Washington, DC: United States Department of Commerce, October 1997, 98. (33)http://www.wto.org/wto/about/agmnts5.htm About the WTO. Updated February 2, 1997 (34)Hoekman, Bernard and Carlos A. Primo Braga. Protection and Trade in Services: A Survey. The World Bank, March 1997, 25-26. Manuscript prepared for the Open Economies Review. (35)Committee on TRIMs, Report (1995) of the Committee on Trade-Related Investment Measures, Rept. G/L/37, 21 November 1995. Also, United States Trade Representative (USTR), 1996 Trade Policy Agenda & 1995 Annual Report of the President of the United States on the Trade Agreements Program. (36)Committee on TRIMs, Report (1995) of the Committee on TRIMs. (37)Committee on TRIMs, Report (1996) of the Committee on TRIMs, G/L/133, 1 November 1996. (38)Report (1997) of the Committee of Participants. (39)Committee of Participants on the Expansion of Trade in information Technology Products, Survey, Rept. G/IT/4, 19 February 1998. (40)Information Technology, http://www.wto.org/wto/goods/infotech.htm.