[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
BENEFITS OF EXPANDING U.S. SERVICES TRADE
THROUGH AN INTERNATIONAL SERVICES AGREEMENT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 20, 2012
__________
Serial No. 112-TR06
__________
Printed for the use of the Committee on Ways and Means
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80-457 WASHINGTON : 2013
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COMMITTEE ON WAYS AND MEANS
DAVE CAMP, Michigan, Chairman
WALLY HERGER, California SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas CHARLES B. RANGEL, New York
KEVIN BRADY, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
JIM GERLACH, Pennsylvania JOHN B. LARSON, Connecticut
TOM PRICE, Georgia EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida RON KIND, Wisconsin
ADRIAN SMITH, Nebraska BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois SHELLEY BERKLEY, Nevada
LYNN JENKINS, Kansas JOSEPH CROWLEY, New York
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York
Jennifer M. Safavian, Staff Director and General Counsel
Janice Mays, Minority Chief Cousel
______
SUBCOMMITTEE ON TRADE
KEVIN BRADY, Texas, Chairman
DAVID G. REICHERT, Washington JIM MCDERMOTT, Washington
WALLY HERGER, California RICHARD E. NEAL, Massachusetts
DEVIN NUNES, California LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida JOSEPH CROWLEY, New York
ADRIAN SMITH, Nebraska JOHN B. LARSON, Connecticut
AARON SCHOCK, Illinois
LYNN JENKINS, Kansas
C O N T E N T S
__________
Page
Advisory of September 20, 2012 announcing the hearing............ 2
WITNESSES
PANEL 1
Ambassador Michael Punke, Deputy United States Trade
Representative and Permanent Representative to the World Trade
Organization (WTO), Testimony.................................. 7
PANEL 2
Dr. J. Bradford Jensen, Professor of Economics and International
Business, McDonough School of Business, Georgetown University,
Testimony...................................................... 18
Mr. Thomas Klein, President, Sabre Holdings, Testimony........... 31
Mr. Karl Fessenden, Vice President, Power Generation Services, GE
Energy, Testimony.............................................. 40
Mr. Charles Lake, Chairman, Aflac Japan, Testimony............... 47
Mr. Daniel Brutto*, President, UPS International, Testimony...... 59
*Mr. Brutto will also testify on behalf of the Coalition of
Services Industries (CSI).
SUBMISSIONS FOR THE RECORD
Coalition of Services Industries 1............................... 74
Coalition of Services Industries 2............................... 78
U.S. Chamber of Commerce......................................... 97
BENEFITS OF EXPANDING U.S. SERVICES TRADE THROUGH AN INTERNATIONAL
SERVICES AGREEMENT
----------
THURSDAY, SEPTEMBER 20, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:30 p.m., in
room 1100, Longworth House Office Building, the Honorable Kevin
Brady (Chairman of the Subcommittee) presiding.
[The advisory of the hearing follows:]
HEARING ADVISORY
Brady Announces Hearing on the Benefits of Expanding U.S. Services
Trade Through an International Services Agreement
Thursday, September 13, 2012
Congressman Kevin Brady (R-TX), Chairman, Subcommittee on Trade of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on the benefits of expanding U.S. services trade
through an international services agreement. The hearing will take
place on Thursday, September 20, 2012, in 1100 Longworth House Office
Building, beginning at 2:00 P.M.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing. A list of invited
witnesses will follow.
BACKGROUND:
On July 5, 2012, the United States and a key group of other World
Trade Organization (WTO) Members announced plans to intensify ongoing
discussions in Geneva on an international services agreement to define
``the contours of an ambitious agreement on trade in services.'' Thus
far, twenty economies--both developed and developing--are
participating, representing a strong majority of global services trade:
Australia, Canada, Chile, Colombia, Costa Rica, the European Union,
Hong Kong, Israel, Japan, Korea, Mexico, New Zealand, Norway, Pakistan,
Peru, Singapore, Switzerland, Taiwan, Turkey, and the United States. In
their July 5 statement, the participating economies noted that the
initiative is meant ultimately to reinforce and strengthen the
multilateral trading system. Participants also stated that the
agreement should be comprehensive in sectoral scope, contain new and
enhanced rules that countries have developed since the WTO General
Agreement on Trade in Services entered into force in 1995, increase
market access commitments to be as close as possible to countries'
current practices, and produce new market access improvements.
An international services agreement could generate substantial
benefits for the U.S. and global economies. The services sector
accounts for the largest share of most economies, and the United States
exports more services than any other country--fourteen percent of
global services exports. According to a July 2012 report by the
independent U.S. International Trade Commission (ITC), U.S. cross-
border services exports totaled $518 billion in 2010, generating a $160
billion trade surplus--the world's largest. Services exports sold by
U.S. firms invested abroad totaled $1.1 trillion in 2009. Globally
competitive U.S. services firms have very significant market shares in
many services subsectors, including infrastructure services, movie and
television production, engineering, financial services, computing and
IT services, consulting, publishing, education, healthcare, retail,
tourism, telecommunications, logistics and distribution, agricultural
services, and professional services.
Services trade is a major source of well-paying U.S. jobs. The
services sector employs over 80 percent of Americans, according to the
ITC. One subset of services that is highly tradable--business services,
such as industrial design, accounting, and legal services--account for
approximately a quarter of U.S. private-sector jobs. These services are
also highly paid, very substantially exceeding average U.S. wages.
Services exports are growing, rising from approximately 8 percent
of U.S. exports in 2000 to over 12 percent in 2010. U.S. services
exports encounter substantial non-tariff barriers (NTBs) around the
world, however, which keep our services trade from reaching its full
potential. Traditional barriers to services exports include sectoral
prohibitions on foreign participation, foreign equity limitations,
discriminatory regulatory requirements, lack of transparency, and
nationality requirements for service providers. In addition, U.S.
services firms are encountering a new generation of 21st-century NTBs,
including restrictions on data flows, forced localization, and unfair
competition from state-owned enterprises. The degree of U.S. openness
to services is far greater than the average around the world. As a
result, an international services agreement may create disproportionate
opportunities for U.S. services exporters as the United States pushes
countries to approach U.S. levels of openness.
In announcing this hearing, Chairman Brady said, ``Expanding
services trade means creating good U.S. jobs. I am enthusiastic about
the work USTR is doing in Geneva to move toward launch of negotiations
on an international services agreement. A services agreement would
reduce barriers abroad for U.S. services providers and produce major
benefits and job growth here at home. By ensuring that benefits are
available only to those countries that commit themselves to the high
standards of the agreement, we can encourage participation by a wide
range of developed and developing countries. I am also optimistic that
a successful agreement will help reinforce the important role of the
WTO.''
FOCUS OF THE HEARING:
The focus of the hearing is on the benefits of expanding U.S.
services trade, including by negotiating an international services
agreement. The hearing will address the importance of services exports
as a source of well-paying U.S. jobs and economic growth. In addition,
the hearing will examine the current state of ongoing discussions
concerning an international services agreement and explore how best to
support a successful initiative.
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Note: All Committee advisories and news releases are available at
http://www.waysandmeans.house.gov/.
Chairman BRADY. Good afternoon. I want to welcome everyone,
extend a special welcome to Ambassador Michael Punke and our
private sector witnesses. Welcome, Ambassador.
Let me also recognize Bob Vastine, the longtime President
of The Coalition of Service Industries who stepped down
yesterday and Ambassador Peter Allgeiere, CSI's newly installed
President. These are two great leaders. Bob has had a long and
distinguished career in government and the private sector, and
we have all benefited so greatly from his tremendous expertise
and sound contributions. Thank you, Bob.
And as Co-chair of the Congressional Services Caucus, I
join CSI and its Members in expressing appreciation for Bob's
work and in wishing him well and in welcoming Peter, with whom
I look forward to working with in his new role.
I would also like to take a moment to acknowledge the
service of Viji Rangaswami, the Ways and Means Minority Chief
Trade Counsel, who will be leaving the Committee after over a
decade of service. She has made important contributions in her
work on free trade agreements, our preference programs, our
trade remedy laws, trade adjustment assistance, and China
policy. Viji, we will miss your enormous expertise, your spirit
of compromise and your good humor. I know that my colleagues
join me in wishing you the best of luck.
In this economy creating U.S. jobs must be job number one.
That is why we are here today to discuss U.S. services trade.
We have a major opportunity at hand. By negotiating an
International Services Agreement that lowers barriers to U.S.
service exports, we can rev up a great engine of American job
creation.
The service sector accounts for over three-quarters of
American jobs and economic growth. These are not the
stereotypical low wage, low skilled jobs that some would
scornfully call McJobs. Services jobs pay well. For example,
our businesses services sector, which includes engineering and
design, computing and data processing, consulting and other
services provided to business, these jobs pay nearly 20 percent
more on average than jobs in manufacturing, averaging nearly
$60,000 a year higher than the national average. With over a
half trillion dollars in services exports last year, America is
the world's most successful services exporter. In fact we
export more services than the two next largest service
exporting countries combined.
Because American service providers are such strong global
leaders across many services sub-sectors, the United States has
long generated a large trade surplus in services, which helps
offset our deficit in goods trade.
Our global competitiveness is not automatic, however.
American service providers must be able to maintain a global
presence to sell our services around the world. Their success
depends on having on the flexibility to move their data and
their know-how around the world. Yet U.S. service providers
continue to face major trade barriers. For example, countries
impose equity caps, restrict data and capital flows, dictate
the nationality of senior officials and impose discriminatory
licensing and regulatory requirements. But if we are able to
lower services trade barriers around the world, our American
services providers are well positioned to compete and win and
will generate major new U.S. employment.
These employment gains will come not just in the services
sector, but throughout the American economy. That is because
services trade facilitates all economic activity. E-Bay
recently did an interesting study that found its online auction
services have allowed a vast number of small businesses in the
United States to become exporters. The National Association of
Manufacturers and the Farm Bureau have produced two papers, and
without objection I enter them into the record, laying out the
many ways their members depend on U.S. services firms' global
operations to design, finance, market, transport and service
American agriculture and manufacturing exports.
The papers follow:
National Association of Manufacturers Paper
American Farm Bureau Federation Paper
Chairman BRADY. In short, we focus on services not instead
of manufacturing and agriculture but to the benefit of
manufacturing and agriculture. As a result, I am very
enthusiastic about the work that Ambassador Punke is doing in
Geneva on services trade policy. Thanks to his leadership, 19
WTO members, accounting for three-quarters of global services
trade, agreed in July to intensify discussions this fall about
an International Services Agreement.
This is an opportunity to extend to a much broader set of
country the higher standard services rules from our bilateral
trade agreements. By pursuing an ambitious agreement that
results in real trade gains for participants, we can generate
new momentum for trade liberalization and ultimately
reinvigorate WTO negotiations that create incentives for broad
Membership. The benefits of the agreement should be available
to all WTO members that are willing to commit to the
agreement's high standards.
An International Services Agreement holds great promise for
American workers and our economy, and I believe it would be met
with bipartisan enthusiasm in Congress.
And before yielding to the Ranking Member, without
objection the opening statement of all Members will be included
in the record.
At this time I yield to Mr. McDermott for his opening
statement.
Mr. MCDERMOTT. Thank you, Mr. Chairman. Before I read my
statement I would like to acknowledge Viji's leaving. As a
Member who represents a very trade dependent district with a
major port and a major exporter of the United States and a lot
of other large exporters operating out of my State, when you
become the ranking member on the Ways and Means Committee on
the Trade Subcommittee, you ought to know something, but I
admit I am a doctor and I don't know very much. But without the
assistance of Viji as a teacher, I would not be able to do this
job. And we will miss her, I will miss her, and the committee
will miss her. And I want her to know it and she didn't want
anybody to say anything publicly about her, but Viji, please
stand up. She always knew that the Member was the one who
should be out in front.
This hearing really is an opportunity to consider the
importance of trade and services and the prospects of
negotiating an International Services Agreement under the
auspices of World Trade Organization, but before we think about
the future prospects I would like to briefly recall where we
have been the last few years with the WTO Doha Round.
Doha was proceeding slowly to a dead end, yet some in the
international community were cheering us on, we are almost
there, we are almost there. I don't know how many times I have
heard people come in my office and say that. But fortunately
the USTR wasn't interested in proceeding on a path to a dead
end. Ambassador Punke, you deserve a great deal of credit for
helping steer the WTO members onto a more constructive path,
one that I think will strengthen the WTO as an institution in
the long run.
What is more, our stakeholders and our trading partners
appreciate your frank, but respectful and deliberative approach
to these challenges. Thank you for your work on these issues
and for testifying here before us today.
This new path is just beginning to take shape, but it looks
as if trade and services, a major and growing component of the
world's trade and area where the United States enjoys a trade
surplus, will be an important part of the path forward.
In my view, the International Services Agreement under the
auspices of WTO is an exciting opportunity. It appears to be
the best way to achieve two objectives that often compete with
one another in trade negotiations, ambition and inclusion. We
want an ambitious agreement, one that significantly opens new
markets for U.S. companies and workers. At the same time we
want to promote a more inclusive international trading system;
one that encourages the participation of all countries that are
willing to make ambitious commitments.
The WTO is the best place, it may be the only place for
such an agreement to be negotiated. To open new markets we will
need to tackle new barriers. Among other things, that means
ensuring state-owned enterprises compete on a level playing
field, that data flows are not subject to unjustifiable
restrictions, and that standards are not used to discriminate
against foreign suppliers.
I hope the United States and other interested WTO members
will lay the groundwork this fall for a successful negotiation.
In particular, I would be interested in getting a better
understanding of the position of our European partners in this
endeavor. At the end of the day I am confident that the EU will
recognize that a services agreement would benefit European
service suppliers just as much as American suppliers. I also
expect Brussels will recognize the systemic importance of
negotiating an ambitious new agreement under the auspices of
the WTO.
And I commend the chairman for having this hearing. Thank
you.
Chairman BRADY. Thank you, Mr. McDermott. And I am very
pleased to turn to our first witness, Ambassador Punke, who is
Deputy U.S. Trade Representative and Permanent U.S.
Representative to the World Trade Organization. Ambassador,
thank you for coming today and for the energy, creativity and
intelligence that you bring to the important work you are doing
in Geneva. We look forward to hearing from you, and you have 5
minutes.
STATEMENT OF AMBASSADOR MICHAEL PUNKE, DEPUTY UNITED STATES
TRADE REPRESENTATIVE AND PERMANENT REPRESENTATIVE TO THE WORLD
TRADE ORGANIZATION (WTO)
Ambassador PUNKE. Thank you, Mr. Chairman and Members of
the Committee. I very much appreciate the invitation to speak
before the Committee today. My focus will be on our efforts to
develop a new International Services Agreement, but I want to
take a moment to frame the efforts with a brief assessment of
the state of play in the World Trade Organization.
The WTO is clearly an institution at a crossroads. After
more than a decade of unsuccessful negotiations in the Doha
Round, the collective Membership finally acknowledged last
December that the round is at impasse. This situation has
resulted in a fair amount of doomsday predictions in Geneva.
But our view is that the WTO can't fix its problems without
first acknowledging them. What is more our successful effort to
turn the page on Doha is creating important new opportunities.
It has provided a useful reminder of non-Doha aspects of the
institution. It has also challenged us to learn from our
collective mistakes in the Doha negotiation and to craft more
constructive and productive pathways forward.
Already only 8 months after the eighth Ministerial
Conference there is a marked new energy in Geneva. Technical
negotiations on a multilateral trade facilitation agreement are
advancing. Discussions are underway to expand the product
coverage of the Information Technology Agreement, or ITA. These
efforts are examples of how we are pursuing the President's
goal of doubling U.S. exports and creating new jobs for
America's farmers, ranchers, workers, companies and
entrepreneurs.
And as we look to new pathways in Geneva our work this year
on services is particularly promising. Over the past several
months we have been working with a group of like minded WTO
members to explore new ways forward. This group with the
admittedly bad name of Really Good Friends of Services, or RGF,
first got together in the early years of Doha Round as a means
for those Members with a strong interest in services to
coordinate their efforts. A hallmark of the RGF is its
diversity. The group includes a mix of developed and developing
countries that substantially reflects a cross section of the
interest of the WTO as a whole. Above all the RGF discussion
has motivated by the conviction that opening up services
markets is a critical factor in supporting economic
development.
The genesis of the ISA, the International Services
Agreement, lies in our hard nosed assessment that we simply
will not be able to make progress on services trade
liberalization any time soon under existing WTO frameworks. The
positions of the major players are too firmly entrenched and
too closely tied to a web of other issues.
Meanwhile we hear the frustration from stakeholders who are
understandably fed up with a lack of progress. The world has
changed and our rules need to catch up. To take but one example
Internet usage is 500 times greater now than when the Doha
Round was launched in 2001, bringing with it a multitude of new
issues related to cross border trade, such as policies that
affect data flows and storage. Our stakeholders want us to get
to work in addressing these and a host of other issues.
Faced with a choice between doing nothing or trying
something different, we have begun to explore the feasibility
of using a new multiparty services trade agreement to lay the
pathway to further globalization services liberalization.
The most logical place for us to start was to look at the
more than 100 service agreements that have been notified to the
WTO in the 18 years since the General Agreement on Trade in
Services entered into effect, an exercise that we have
conducted over the past 8 months. Many of these agreements
achieve a much higher standard for market access and
incorporate new or improved rules to address real world
problems.
We believe it is time for forward thinking WTO members to
consolidate these improvements and lay the foundation for
extending them to the multilateral system. The first step in
achieving our vision is to bring the achievements of these
varied agreements under a single umbrella, the ISA. Like
existing U.S. FTAs, the agreement would encompass all service
sectors and modes of supply, and impose a high standard for
liberalization. The agreement would also provide a new platform
where we could work to build a stronger international consensus
on improved rules to address now issues.
The potential benefits are compelling. By moving to a
multiparty agreement that reaches across geographic lines, we
can create a steppingstone from the web of bilateral and
regional deals back toward the multilateral system. By
establishing high standards for market access we can influence
the norms of international trade. By developing new provisions
we can provide leadership to the global trading system.
In addition to these systemic benefits, the ISA also offers
the potential to strengthen our economic relationship with the
other participants. In just 6 months the RGF group has grown
from 16 Members to 20. The United States currently has FTAs
with only 10 of the 20 Members. The ISA therefore offers a
venues to work on deeper services integration with partners as
diverse as Japan, Taiwan, Israel, Pakistan and Turkey.
Progress to date has been extremely encouraging. Last
summer we reached agreement on a core set of objectives and
agreed to intensify our efforts this fall. Our next step is for
the group to develop more specific negotiating parameters so
that each participant can conduct domestic consultations
necessary in order to proceed.
As for timing we do not have a hard deadline but would like
to see things move forward as quickly as possible. We are
planning to have monthly meetings from September through
December. Throughout this process the administration will
continue to consult closely with Congress and stakeholders to
develop and refine U.S. objectives.
We very much appreciate this hearing as a part of that
process and look forward to the conversation today.
Chairman BRADY. Thank you, Ambassador.
[The prepared statement of Ambassador Punke follows:]
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[GRAPHIC] [TIFF OMITTED] T0457.002
[GRAPHIC] [TIFF OMITTED] T0457.003
Chairman BRADY. Members, as we move forward in this round,
with Mr. McDermott's permission, we are going to limit
questions to 3 minutes. Here is the schedule for our witnesses
and the audience. We have a classified briefing at 3 o'clock
regarding Libya, Egypt and other matters with Secretary
Clinton. We expect votes to occur at the end of that classified
hearing around 4 o'clock, 4:15. And so at 3 o'clock we will
recess until 5 minutes after the last vote in that series.
So Ambassador Punke, I'm very impressed with the large
group of important WTO members you are bringing to the table
for the ISA. It appears though several of the leading emerging
economies, China, India and Brazil for example, don't seem to
be interested in pursuing this agreement. Yet you look at some
of the more important emerging economies that are joining, such
as Turkey, Pakistan, Panama, Mexico, Costa Rica, Colombia, Peru
and Chile, because of how quickly those emerging economies have
moved forward, those are real promising markets in services.
And so if we reach agreement, we have the chance to produce we
think some real trade benefit.
And so our challenge is to achieve robust emerging market
participation. So the two questions, one I am interested in
your views in how we keep those countries interested and at the
table as you move through it. And second, my thought is that we
are going to be better able to achieve maximum participation to
the degree that benefits should be available to any WTO member
that agrees to meet the high standard and available only to
those members. And so I would like your remarks on that.
Ambassador PUNKE. Well, thanks for that. I think it is
important to emphasize that our preferred method of expanding
services liberalization was through the Doha Round and through
the broadest multilateral configuration possible. The fact of
the matter is that on an intensive basis for the first 2 years
that I was in my position in Geneva and long before that, we
had been trying to engage in that services conversation and
with emerging economies and it was not successful. They are not
ready to move right now on services trade. And so it was only
very reluctantly that we came to the conclusion that the only
decision that we faced was wait for them for some indeterminate
period of time or to move forward with a smaller group of like-
minded members. And obviously the choice that we have embraced
is to move forward with those who are ready to move forward
now.
I think what we are seeing is that that is a way of
creating momentum. And the worse thing I think that we could do
in Geneva is have a situation where we have completely ceased
to be able to conduct trade negotiations anymore. And so I
think the path that we are pursuing with the plurilateral
agreement with the ISA is an opportunity to show momentum and
then build outward from that.
The other aspect of your question, Congressman, concerning
how we extend these benefits, I think it has been the very
strongly held position of the United States that it is not
acceptable for major participants to free ride on concessions
made by others. And so we have been very clear from the
beginning that when it comes to major participants in the
global trading system that we can't envision an outcome in
which countries would have the benefit of concessions without
providing obligations themselves.
Chairman BRADY. I think that is where we hit the right
balance between ambition of higher standards but also maximum
participation. So thank you.
Mr. McDermott.
Mr. MCDERMOTT. Thank you, Mr. Chairman. As you are putting
this together, some WTO members want to do it, some don't.
Those who are sitting out, some of them think that this will
weaken WTO as an institution if you would have a subset of
people negotiating in this way, and the European Union in some
ways is a part of that or at least seems to be. I would like to
hear your feeling about the negotiation, what it does to the
whole WTO to have one set willing to negotiate and another set
sitting out sort of waiting for I don't know what, Godot I
suppose. So I really would like to hear your insider
perspective on those negotiations and what is going on that
they don't want to participate in the larger negotiation.
Ambassador PUNKE. Well, to take the Europe piece of your
question first, we have been engaging over the course of the
last several months and weeks in an ongoing conversation with
our European colleagues to figure out the best way to
accommodate our mutual interest and needs in this negotiation
and others. And the line that that conversation takes is not
always a straight line, in fact it seems to be always a jagged
line. But I do feel like in the last couple weeks in particular
that we have gotten closer to figuring out a pathway that both
of us can agree upon for moving in particular the ISA forward.
Congressman, we have our next meeting of the Really Good
Friends in the first week of October, and I am very hopeful at
this juncture that we will be in a position then to give more
clarity to what that path would be.
But I want to touch briefly on the broader question you
asked, which is how does the system accommodate at the same
time these multilateral discussions with discussions in other
configurations, for example plurilateral discussions. And you
would get the sense sometimes from listening to the recent
debate that this is the first time that there has ever been a
plurilateral in the history of the WTO. And in fact that is
decidedly not the case.
In fact, in December at the ministerial meeting on the
opening day the members of the WTO ballyhooed as one of their
great achievements a plurilateral agreement, which by the way
happens to not be extended on an MFN basis, and it is called
the GPA, the Government Procurement Agreement. And so we all
ballyhooed that result on day one of the ministerial meeting
last December and on the last day of the ministerial in
December people were gnashing their teeth about a possible
plurilateral kite called the International Services Agreement
that somehow is going to bring down the system.
We think that the system for a long time has been able to
accommodate plurilateral agreements, multilateral obligations.
Many of the countries that are most critical of the ISA for not
being multilateral discussions are some of the same countries
that are most active in pursuing bilateral agreements. And so
the fact of the matter I think is that there is a lot of
resilience in the system and the worst thing we can do in
Geneva, as I said before, is to have a situation where no
negotiations are taking place.
Mr. MCDERMOTT. Thank you.
Chairman BRADY. Mr. Reichert is recognized for 3 minutes.
Mr. REICHERT. Thank you, Mr. Chairman. Welcome and thank
you for your testimony, Ambassador. I am a member of the
President's Export Council and also the cochair of the
Congressional Services Caucus, and part--some of the
discussions that we have around this issue is how do we
emphasize the services sector as an enabler of economic
activity and a facilitator for trade of manufactured and
agricultural goods. And I think--I applaud you for being a
champion of this, because more and more people across the
country really need to become aware of the fact that the
services sector is truly a player when it comes to increasing
our trade and decreasing our trade deficit.
So my question is you have discussed in your testimony the
WTO agreement that focuses on the services, the General
Agreement on Trade and Services, GATS, and it was negotiated
over 16 years ago. Since that time economies have evolved and
in response we have developed important new liberalizing rules
for services. So for example, our trade agreement with Korea
takes steps to ensure that countries do not unnecessarily
restrict cross border data flows. Now we are seeking to further
develop those rules in TPP. Could you elaborate on the new
services trade rules that have been developed since GATS?
Ambassador PUNKE. I think that the first part of your
question is something that has really been driven home to me in
listening to conversations, for example this week as part of
the CSI's summit on services, and that is that not only are
services important to economies for the services that countries
export, including the services obviously that we export, but
having modern services available in your country is a
fundamental element of the basic infrastructure of being a
modern economy. And as you emphasized and as Chairman Brady
emphasized, having good services is a critical component for
conducting successful trade in manufactured goods and in
agricultural goods.
In a typical automobile factory, for example, 20 percent of
the jobs are services jobs, like design and advertising. A car
that rolls off of the assembly line in Detroit requires 10
million lines of computer programming to run the computer
systems on a typical car. So this line between services and
manufacturing and agriculture, as you point out, is one that
breaks down pretty quickly when you start to look at the real
world examples. Yet, as important as services are, and when you
think about how quickly technology changes, it is phenomenal
that we haven't in a multilateral setting updated our agreement
for 16 years.
I mentioned that if you go back to 2001 Internet usage was
500 times less than what it is today. If you go back to when
the GATS was signed in 1994 we didn't have an Internet and yet
that is our basic document for, our basic multilateral document
for establishing the rules on services trade.
The issue that you raised, data flows and data protection,
is one of the critical ones that I think many members of the
Really Goods Friends group are interested in developing new
disciplines to address. And I think that is a reflection of the
recognition in all of our countries that we need to update our
rules.
Mr. REICHERT. I appreciate it. Thank you, Mr. Chairman.
Chairman BRADY. Thank you. Mr. Herger is recognized.
Mr. HERGER. Ambassador Punke, I believe the Trans-Pacific
Partnership is an important vehicle for expanding U.S. services
trade. I am also enthusiastic about the ongoing high level
working group with the European Union which I hope will lead
among other things to important new services trade commitment
between our world leading services economies. Could you
describe the relationship among TPP, The EU initiative and an
International Services Agreement?
Ambassador PUNKE. Well, it is an important question and I
think all three of the four that you are talking about give us
different opportunities for promoting the same goal of
increasing our services trade. I think as a very general matter
that when you look at bilateral agreements versus regional or
plurilateral agreements versus multilateral agreements the
advantage that you have with a multilateral agreement is it
that you have the broadest coverage in terms of participants,
but oftentimes because of that broad participation you get
commitments that are not as deep. I think the other end of the
spectrum is a bilateral agreement, where you have a very narrow
number of participants, namely two, but you have the potential
for very deep commitments.
I think what the ISA gives us is potentially something in
between. And on the one hand we have a very significant number
of participants already. The 20 participants that have begun
this discussion comprised about 70 percent of global trade and
services already. And yet some of those participants in that
group, as I mentioned half of them, are countries that the
United States doesn't have Free Trade Agreements with. And many
of the important ones are not participants in something like
TPP. For example, we have Turkey and Israel that are
participating in the ISA discussion.
So I think the ISA gives us both an opportunity to
negotiate disciplines that might not be covered in other areas
and an opportunity to bring participants into the discussion
that we otherwise wouldn't be talking to. That is just the
significance of the group itself. Beyond that systemically I
think creating this platform already has drawn the interest of
five countries who have decided that they want to participate
in this formative stage. And I think there is even greater
potential if we can create this platform in a successful way to
attract others into what we hope will be an ambitious level of
obligation.
Mr. HERGER. Thank you.
Chairman BRADY. Mr. Smith is recognized.
Mr. SMITH. Thank you, Mr. Chairman, and thank you,
Ambassador, for coming here today. In early July in a press
release the WTO members participating in International Services
Agreement discussions said that they would undertake necessary
consultations or procedures prior to any negotiations.
Can you perhaps reflect or share your perspective on the
steps that USTR or the EU or other countries are taking with
respect to those consultations or procedures?
Ambassador PUNKE. Well, I will comment on ours. I think
that exercises like this hearing obviously are a critical part
of our ability to provide transparency to the discussions that
we are having. In the ISA we are obviously in a very early
stage where we haven't yet even agreed specifically on what the
architecture of the agreement will be, but we have made a very
large effort to reach out to members of your staff, you know,
going back even to last December I think when we were first
starting to talk about the potential of exploring with other
partners in Geneva the possibility of a new type of services
agreement. We have taken a lot of opportunities to discuss this
with various stakeholder groups, including this week for
example participants in the CSI summit.
I would anticipate, Congressman, that as this process and
the architecture becomes clearer that the formal and informal
consultation that we have with Congress and stakeholders will
intensify. For example, through mechanisms like public hearings
and Federal Register notices.
Mr. SMITH. Thank you, I yield back.
Chairman BRADY. Thank you. Mr. Neal.
Mr. NEAL. Thank you, Mr. Chairman. I apologize for being
late. As you know the full committee is on the floor currently
debating the TANF legislation.
Mr. Ambassador, some of the countries currently causing the
most difficulty for U.S. service suppliers are not
participating in these negotiations for a plurilateral services
agreement. Example, Brazil. Recently Brazil implemented very
restrictive reinsurance limitations requiring insurers to cede
more than 40 percent of gross written premium to local
reinsurers, not unlike China in restricting insurers from
ceding more than 20 percent of a single line of business to an
affiliate. What are the strategies afoot with your office to
encourage some of our market priority countries, such as
Brazil, to join these negotiations so that we can actually
allow American companies to fully compete and participate?
Ambassador PUNKE. Well, Brazil is a country right now where
I don't want to over promise, because frankly we have been
addressing this type of issue with Brazil for a long time in
the WTO context and we have been frustrated in that effort. One
of the things that was interesting in the discussion that we
listened to this week in CSI, at the Coalition of Services
Industries summit, was a discussion by a large number of
developing countries that see services as an important
component of their development strategy, specifically opening
up their services market as a component of their development
strategy. And we heard countries like Costa Rica and Mexico
talk about how important that that has been for them. They have
come to that conclusion through their own analysis and process.
Brazil seems not to have come to that conclusion yet. In many
instances China seems not to have come to that conclusion yet.
And that is at the end of the day I think the reason why we
haven't made more progress multilaterally on services, is
because major players like India, China and Brazil simply don't
see the universe that way yet.
That is frustrating, but at the same time I think what we
have decided is that we are not going to let that keep the rest
of us from pursuing liberalization, for example, through the
ISA. In the meantime I think we have to address the type of
issue that you are raising, reinsurance in Brazil for example
through bilateral opportunities.
Mr. NEAL. And foreign direct investment in China, that is a
compelling issue as well, the limitations that they placed on
competition. I think that is a considerable issue for this
committee. The advocacy that we often take is to open markets
everywhere only to discover some of the trade practices that
are embraced down the road really don't level the playing
field.
Ambassador PUNKE. Well, and China is an interesting example
and obviously is a very large focus of our efforts in Geneva
and across the board in terms of our trade policy. We have had
one small success with China recently in the services area,
specifically on the investment issue with third party auto
insurance. And as you know, Congressman, the Chinese opened up
that market last spring.
Mr. NEAL. Right.
Ambassador PUNKE. We have been watching very carefully how
the implementation of that obligation is taking place. Our
initial signs are that this is starting to create opportunities
for our insurance companies. The Chinese ultimately came to the
conclusion that it was in their interest to and helpful to them
to have that competition and to have our high quality services
providers in that market.
Obviously we need to be able to succeed ultimately to have
more countries come to that conclusion, which we see as being a
very obvious one, that services are a fundamental part of your
infrastructure.
Mr. NEAL. The 49 percent rule, as you know, is problematic
in terms of control.
Chairman BRADY. Thank you, Mr. Neal. Ambassador, clearly
there is bipartisan interest for this agreement. This is
important work, you are doing good work, and I appreciate and
encourage you to continue the consultations with both parties
as you go forward on this agreement. Thank you for making time
on your busy global schedule to be with us today.
As I mentioned, because of a classified briefing the
subcommittee stands in recess unless 5 minutes after the last
vote in the next series, which we expect will be somewhere
between 4:15 and 4:30.
[Recess.]
Chairman BRADY. Folks, with Mr. McDermott's permission,
with the vote schedule and all that continues to change today,
we want to be very respectful of your time. So we are going to
continue with our second panel of witnesses. We will break for
votes, come back for questioning. Again, we will try to move
through this as best we can. Thank you for your patience here.
I am very pleased to be able to introduce such an
impressive set of senior representatives from the private
sector. They represent a wide spectrum of services subsectors,
from education, the airline optimization, to energy services,
to insurance, to express delivery.
Dr. Brad Jensen is a Professor of Economics and
International Business at Georgetown University's McDonough
School of Business. He will testify about his groundbreaking
research on services trade, which the Peterson Institute
published to great acclaim last August. Dr. Jensen is also
prepared to discuss the increasingly dynamic education services
sector given his employment in that sector.
Mr. Tom Klein is President of Sabre Holdings, a leader in
providing software and consulting to optimize the efficiency of
the airline industry. Sabre's leadership in the travel services
sector, which is the largest U.S. services export, is further
reinforced by its ownership of Travelocity, the online travel
reservation site.
As Vice President of GE Energy, Mr. Karl Fessenden leads
General Electric's Power Generation Services business. And I
proudly represent the Eighth District of Texas, where energy
services are key to who we are. So I look forward to hearing
Mr. Fessenden's testimony.
Mr. Charles Lake is chairman of Aflac Japan. He is based in
Tokyo. So I believe he gets the prize for traveling the
farthest distance to be able to testify before us today.
Financial services, including Aflac's insurance business, are
one of the largest U.S. services exports. So I look forward to
hearing Mr. Lake's testimony.
And finally, Mr. Dan Brutto is President of UPS
International. He will speak to us about logistics services,
and specifically express delivery, which is probably the
quintessential example of a service that facilitates U.S.
trade.
Gentlemen, thank you for coming to speak with us today. I
ask that you limit your statements to no more than 5 minutes.
So let's start with Dr. Jensen.
STATEMENT OF DR. J. BRADFORD JENSEN, PROFESSOR OF ECONOMICS AND
INTERNATIONAL BUSINESS, MCDONOUGH SCHOOL OF BUSINESS,
GEORGETOWN UNIVERSITY
Mr. JENSEN. Chairman Brady, Members of the Committee, thank
you.
Chairman BRADY. If you could hit that microphone.
Mr. JENSEN. Chairman Brady and Members of the Committee,
thank you for the opportunity to testify regarding the
significant and often overlooked opportunity for growth through
exports of U.S. business services. I think we all recognize
that the service sector is large and diverse, I think too
diverse to be analytically tractable. So for my comments today,
I would like to focus on what I call business services, which
are the industries classified by the North American Industrial
Classification System, starting with five. This includes the
information sector, which includes importantly software, media
industries, telecommunications and Internet; the finance
sector, insurance, professional, scientific and technical
industries--think accountants, architects, engineers,
attorneys--and administrative support sector.
This might sound niche, but these sectors, what I call the
business service sector, accounts for 25 percent of employment
in the United States labor force. In contrast, the
manufacturing sector accounts for 10 percent of employment. So
the business service sector is two-and-a-half times the size of
the manufacturing sector in terms of employment.
In addition, these are good jobs. The wages in tradable
business in business services are 20 percent higher than the
wages in manufacturing. In addition, business services are
tradable. U.S. exports of services are growing rapidly, and now
account for 30 percent of U.S. exports. And business services
are an important source of this growth.
I would like to understand better what is going on.
Unfortunately----
Chairman BRADY. Dr. Jensen, if you would--either someone
has to get up when the alarm is ready to beep, or we are having
some technical difficulties. Can you punch your microphone off
and on again? That is not it. Does someone have a BlackBerry
close to the microphone? Let's try it again, Dr. Jensen. You
have a great testimony. I just want to make sure it works. Try
it again.
Mr. JENSEN. Thank you. Okay. So U.S. exports in services
are growing rapidly, now account for 30 percent of U.S.
exports. And business services, the kinds of things that I
classify as business services, are an important source of
growth. So I would like to understand better what is driving
this. Unfortunately, however, official statistics do not
provide anywhere near enough detail to examine trade in
services adequately. A big part of my research has been to
develop a methodology that allows us to identify, using the
geographic distribution of production of services within the
United States, allows me to identify at a very detailed level
what business services are traded within the United States, and
thus what are at least in principle tradable internationally.
What I can do is then add up at a very detailed level how
much employment there is in tradable business services. And
what we see is that there is a big chunk of employment in the
United States. Fourteen percent of the labor force is in
tradable business services. This is larger than the entire
manufacturing sector.
Beyond the size of the tradable business service sector,
what might be more surprising is how different the workers in
this sector are. Workers in tradable business services are
qualitatively different than either workers in manufacturing or
workers in nontradable business services. They have much higher
educational attainment and much higher earnings. Workers in the
tradable business service sector are twice as likely as workers
in either manufacturing or nontradable business services to
have a college degree and an advanced degree.
Business services are very skill-intensive. The skill
intensity of business services, combined with the fact that the
U.S. is still a relatively skill abundant place, means that the
U.S. has comparative advantage in these activities. The U.S.
consistently runs a trade surplus in business services. Yet in
spite of comparative advantage in services and globally
competitive service firms, as represented by the other
panelists, U.S. business service firm participation in
exporting lags the manufacturing sector. When we look at the
share of business service firms that export, it is much lower
than in the manufacturing sector. Only 5 percent in business
services compared to about 25 percent in manufacturing. If I
look at exports to sales ratios in tradable business services,
much lower than in manufacturing. We should be exporting more.
The reason is we are--certainly a key contributor to this
is, this data from the World Bank suggests, is that the large,
fast growing markets have relatively high barriers to services
trade. India, Indonesia, China, Brazil all have high
impediments to services trade. We need to kick the door down.
There is enormous opportunity here. And I think my time is up.
So thank you.
Chairman BRADY. Thank you, Dr. Jensen, very much.
[The prepared statement of Mr. Jensen follows:]
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Chairman BRADY. Mr. Klein.
STATEMENT OF THOMAS KLEIN, PRESIDENT, SABRE HOLDINGS
Mr. KLEIN. Yes. Mr. Chairman, Members of the Committee,
thank you for the opportunity today. Our team in South Lake,
Texas, is honored for this opportunity. Sabre Holdings is a
software and electronic services distribution company.
Chairman BRADY. Mr. Klein, can you make sure the microphone
is on?
Mr. KLEIN. Yes, sir. Our company is a software and
electronic distribution services company serving the global
travel industry. We employ about 10,000 people, 4,500 in the
United States, and do business in 135 countries around the
world. You may recognize Travelocity.com, our consumer brand.
Sabre helps airlines be more efficient. We make it easier for
travelers around the world to visit the United States, where
tourism and business travel dollars work to strengthen our
economy and count as exports.
Although we are a mid-sized company, we believe we can
compete with anyone in the world, and we focused intensely on
the international market. In our fastest growing business, our
software business, in 2001 just 12 percent of our revenues came
from international markets. But we invested heavily to build
out our global capabilities. It took time, it took money, and
we have seen great results. Today, we have 65 percent of our
revenues from those businesses coming from international
markets. That number will increase to about 75 percent over the
next 3 years.
We are meeting the global demand by creating many new high
paying jobs. Since the beginning of 2010, we have added over
1,400 positions globally, and more than 800 of these jobs in
the United States. The average American technology worker at
Sabre makes $87,000 per year.
Yet as innovative and world class as our software services
become, the international playing field is not always level. It
is often tilted. In those cases, we find it difficult, if not
impossible, to compete.
We all know that we need update our international legal
framework for services. The WTO General Agreement on Trade
Services is over 15 years old. In that time, we have seen the
travel industries change dramatically. We have also seen the
technology industry change dramatically. More than ever,
individuals are searching for and booking travel online. And
the biggest growth in consumer-driven travel is outside the
United States. Yet the trade rules haven't kept up. Governments
take advantage of this vacuum to create protective measures and
stymie competition.
An International Services Agreement is a strong step in the
right direction. And taken at its fullest potential, a high
standard agreement will lower barriers to important markets,
create much needed pressure on other countries that are not
participants in this discussion, like China, and will help
generate momentum toward liberalization more broadly at the
WTO.
Such an agreement has the potential to help our company in
a number of ways. One important benefit that a services
agreement may offer is increased transparency. The more
countries play by the same rules, and the more we know what
those rules are, the easier it is to do business and resolve
disputes when they arise. FTAs have traditionally included
strong transparency provisions, for example, requirements that
countries publish regulations in a clear and timely manner, and
consult with stakeholders. Replicating these successes on a
large scale would only benefit American companies, small and
large alike, doing business overseas.
One challenge for companies like ours is that countries
often deny operating licenses to foreign companies in order to
protect their own domestic enterprises. For example, China's
state-owned travel distribution monopoly, TravelSky, is the
only licensed provider of passenger reservation services and
airport departure and control systems in that country. Foreign
competitors, including Sabre, are fully shut out.
Another challenge in our industry is often called in the
technology industry the big data trend, how to store and search
and access huge amounts of data in a way that is timely and
useful for consumers. In a global environment, having control
over how that data is stored and distributed and used is
critically important to our business and our customers. An
agreement that ensures that data can flow freely across borders
would be a powerful tool for our business.
The value of trade agreements is proven by our own
experience in Chile. We have had tremendous success there,
including with LAN Airlines, which recently chose Sabre as its
airline reservation system and operation system provider. Our
presence in that country before the FTA was much smaller, with
a European competitor dominating the market. After the FTA was
signed, the Chilean Government put out an RFP requiring any
bidder to use our European competitor's automation services. We
brought that violation to the FTA, to the attention of the
Department of Commerce, and within 2 days our government
officials communicated the concerns to the Chilean officials,
who acknowledged the violation and fixed the RFP. It was
breathtaking how quickly things can happen when there is
clarity around what the regulations are.
What is more, we looked at the numbers, and we also saw a
significant increase in visitors to the United States from
Chile following the enactment of that FTA. That means more
travel and tourism dollars going to our local economies to
create jobs here at home.
Mr. Chairman, thank you for holding this hearing. As was
reported yesterday, the travel industry has been and continues
to be one of the strongest job creators in the current economy.
And our view is that a high standard International Services
Agreement would only help continue that trend.
I look forward to your questions.
Chairman BRADY. Thank you, Mr. Klein.
[The prepared statement of Mr. Klein follows:]
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Chairman BRADY. Mr. Fessenden.
STATEMENT OF KARL FESSENDEN, VICE PRESIDENT, POWER GENERATION
SERVICES, GE ENERGY
Mr. FESSENDEN. Chairman Brady, Ranking Member McDermott,
and distinguished Members of the Committee, thank you for the
opportunity to testify today on trade and energy services. Just
a moment of background on myself. I joined GE in 1996, and have
had leadership roles in the services side of both the aviation
business as well as the energy portfolio over the last several
years. Today, I will describe my Atlanta-based global
organization, Power Generation Services, known as PGS. I will
share how we provide services across the U.S., across
international borders through our commercial presence abroad. I
will also discuss the challenges and opportunities we face and
the ways the committee can help us overcome them. This subject
is key, because removing barriers to energy services creates
opportunities to grow the U.S. economy and to increase U.S.
jobs.
APEC's recent success capping tariffs on some 54
environmental goods shows we can still make progress on trade
liberalization. Similar efforts should be now undertaken on
services, particularly energy services. Energy services is
crucial to how GE helps our customers to provide clean,
efficient, and reliable power. PGS provides electric utilities
with services to support GE's gas and steam turbines, as well
as other related equipment. Service support begins as soon as
we install the plant at the inception of the power plant, and
lasts until it is retired, which could be as long as 30 years.
Our services span from contractual maintenance and equipment
repairs to part provisioning and monitoring and diagnostics. We
have nearly 7,600 employees in over 100 countries, of which
4,100 are based in the U.S., and we have more than 50 GE sites
in 15 countries on six continents, and are in nine joint
ventures.
GE's ability to be a large manufacturer in the U.S. is
directly tied to the services we provide, and is a key reason
our customers purchase power generation equipment from us.
These factors offer opportunities and challenges. Gas turbines
are GE's and our country's biggest clean energy export. We make
these turbines in Greenville, South Carolina, where we have
3,400 employees. We also make steam turbines in Schenectady,
New York, where we have 1,400 employees. Over 250 small to
medium-sized businesses in 24 States feed into our supply
chain. In the last 2 years, we have exported 100 percent of the
gas and steam turbines we manufactured in the U.S. Providing
services for these turbines is a long term repeat business that
keeps jobs in the U.S. Clearly, it is key that we are able to
service this equipment globally.
However, many countries enact restrictions that prevents or
delays us from providing these services. The two restrictions
that most limit my business are entry requirements and forced
local content requirements. My workforce includes 4,000
employees who spend most of their time at our customers' sites
making repairs and installing new parts. Today's environment
demands that we are able to rapidly deploy these highly
specialized energy services workers to sites in countries other
than their home country. However, entry requirements, such as
visa application and work permit processes by host nations,
impedes us from quickly deploying them and delays the host
nation from receiving the services they provide. The
consequences of not responding due to lengthy work permit
processes or customs delays are power outages and financial
losses.
Local investments can help develop stable, prosperous
economies by expanding long-term business opportunities. GE
knows firsthand the benefits of being a responsible local
business. We have seen how governments attract investments in
local markets by establishing dynamic and entrepreneurial
policies. However, in recent years numerous countries have
imposed forced local content measures which we believe are
inefficient and ineffective, and should be avoided. Their
widespread adoption may discourage foreign direct investment
and inhibit economic growth.
We believe strongly in the power of free trade and open
markets to strengthen the countries we trade with and invest
in, supporting jobs, competitiveness, better governance, and
strengthens the United States. In 2011, services accounted for
almost 30 percent of GE's total revenues. As services grows in
GE's portfolio, we rely on our ability to send an employee at a
moment's notice to locations around the world. We believe we
must establish multilateral agreements on liberalized trade and
energy services. We should push for incorporating meaningful
measurements and commitments in our FTAs. And we should develop
a model international agreement to facilitate movement of
highly trained energy services personnel between countries.
Thank you for the opportunity to speak today.
Chairman BRADY. Thank you, Mr. Fessenden.
[The prepared statement of Mr. Fessenden follows:]
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Chairman BRADY. Mr. Lake, because the voting clock is
quickly winding down, we are going to finish with your
testimony, recess until 5 minutes after the vote series, which
is just two or three, and then finish with Mr. Brutto. So Mr.
Lake, you are recognized.
STATEMENT OF CHARLES LAKE, CHAIRMAN, AFLAC JAPAN
Mr. LAKE. Thank you very much. Mr. Chairman and Members of
the Subcommittee, thank you for this opportunity to testify.
Aflac is a major employer in the United States, and a
leading exporter of service to Japan. Thanks to the strategic
leadership of our global CEO, Dan Amos, Aflac has been very
successful. In 2011, Aflac, which operates as a branch in
Japan, generated $18.4 billion in revenues there. It is the
number one life insurer in Japan in terms of policies in force.
As U.S. service companies export their products to the
world, it is critical that our government continues to
vigorously enforce existing trade agreements, especially in
light of the efforts to address new trade challenges. In
addition, the United States should lead efforts to craft a WTO-
plus International Services Agreement. Such an undertaking is a
critical complement to efforts already underway to develop new
global financial regulatory standards.
Allow me to explain. Following the global financial crisis,
efforts to strengthen the global economic and financial
regulatory architecture by creating new international rules and
standards are underway, being led by the G-20 and the Financial
Stability Board. We firmly support these efforts, and agree
that the global crisis requires global solutions. The work of
these entities must be underpinned by the international regime,
such as the WTO, which are fundamentally defined by the legal
authority in their Member governments granted through treaty or
through commitments to undertake domestic implementing
measures. These commitments contain clear legally binding
rights and responsibilities. By contrast, institutions such as
the G-20 or FSB have been established not through formal
treaties, but through the political commitments of their
respective leaders. Consequently, the scope of their activities
must be limited by the existing authority of their member
countries' executive branches.
However, in the rush to respond to challenges created by
the global financial crisis, sometimes institutions overstep
these limits. For example, in late 2011, International
Association of Insurance Supervisors, or IAIS, began a review
of how foreign branches are supervised around the world. From
the beginning, this IAIS effort appeared to be agenda driven,
with apparent bias against foreign branches, with this
workstream leading toward the establishment of principles that
would allow domestic regulators to force insurance companies to
convert their branches into locally incorporated subsidiaries.
This would be inconsistent with the legally binding commitments
made by the many IAIS Members to abide by the WTO General
Agreement on Trade and Services, or GATS. GATS prohibits any
government measure that restricts the form of legal entity
through which GATS Member provides services in another Member's
territory.
In Japan, we are starting to see troubling signs in
relation to this issue. According to a recently released policy
statement, FSA is forcing--appears to be forcing foreign
branches to convert to subsidiaries, which would be at odds
with Japan's GATS commitments.
Another major challenge facing U.S. companies is that posed
by state-owned enterprises, or SOEs, that compete with private
insurance companies. There are many state-owned life insurance
companies in Asia, including China Life Insurance, Life
Insurance Corp. of India, Korea Post Insurance, and Japan Post
Insurance.
These and other challenges facing the U.S. services
industry point to a huge need for a strong WTO-plus
International Services Agreement. For the ISA to have
relevance, it must address issues that confront us in the 21st
century, while building onto WTO's GATS. There is no question
that the G-20, FSB, and IAIS must continue their important work
to strengthen the global economic and financial regulatory
architecture. But given that these efforts can also lead to
dramatic changes in the competitive environment, due care must
be exercised to ensure that the process is not distorted to
achieve the protectionist goals of their respective Member
governments.
To this end, achieving a WTO-plus ISA can have a dramatic
impact in preventing protectionism and promoting fair and free
trade in services, while complementing the growing efforts of
entities like the G-20, FSB, and IAIS. This calls for strong
U.S. leadership. And to that end, in such efforts we stand
ready to support this Subcommittee, the executive branch, and
our State governments to craft a coherent integrated approach
that achieves a win-win outcome for the United States and our
trading partners around the world.
Thank you.
Chairman BRADY. Thank you, Mr. Lake.
[The prepared statement of Mr. Lake follows:]
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Chairman BRADY. The Committee stands in recess until 5
minutes after the last vote, which should be very soon. Thank
you.
[Recess.]
Chairman BRADY. The hearing is called back to order. Thank
you again for your patience, all of you. Mr. Brutto, you are
recognized.
STATEMENT OF DANIEL BRUTTO, PRESIDENT, UPS INTERNATIONAL, ON
BEHALF OF THE COALITION OF SERVICE INDUSTRIES
Mr. BRUTTO. Chairman Brady, members of the Trade
Subcommittee, on behalf of UPS and the Coalition of Service
Industries, thank you for the opportunity to address the
critical issue of removing obstacles to global trade in
services. As President of UPS International responsible for our
company's global expansion, I can think of no trade issue that
affects the U.S. economy more profoundly than the services
sector. The U.S. is the world's most successful services
exporter, so expanding service trade through an International
Services Agreement would greatly benefit the United States.
Services are the lifeblood of our economy and of global
commerce, the indispensable enabler of everything from trade in
agriculture and manufacturing to the development and sale of
high-tech products. If you want to make it, move it, buy it, or
sell it, you need services. Professional, financial, retail,
and of course delivery and logistics services to get products
to market. The beneficiaries of efficient, unrestricted express
delivery services are not just Fortune 500 manufacturers with
global supply chains that depend on fast-cycle logistics. There
are also millions of small and medium-sized enterprises trying
to ensure their products cost-effectively reach the shelves of
the global marketplace, or to the doorsteps of their customers
in Beijing and Berlin, as well as Beaumont and Berea.
At UPS, we have been working in a partnership with the U.S.
Commercial Service for the last 5 years to support U.S.
companies in exporting to countries around the world. In 2010,
we launched the Beyond One: New Export Markets initiative to
support efforts to expand the global reach of businesses that
currently export to only one country. This is an issue that
rises to the very top of our organization. Our Chairman and
chief executive officer, Scott Davis, serves on the President's
Export Council, and UPS has supported the national export
initiative since its inception in 2010.
The U.S. leads the world in services. This sector accounts
for more than three-quarters of our Nation's private sector
GDP, and over 83 percent of our private sector employment. That
is the good news. The problem is that we face significant
barriers from complex customs processes, limited market access,
to new areas like forced localization and unfair advantages
given to state-owned enterprises.
A recent study by GeorgetownUniversity international trade
economist and this panel's first witness, Brad Jensen, suggests
that removing these barriers would create three million more
jobs in the U.S. So how do we create these jobs? A range of
initiatives hold promise. Allow me to identify a few.
First, the U.S. can and should continue to support the
development of an international agreement on trade and
services. And we applaud the work of the previous panel's
witness, Ambassador Michael Punke, who is leading the ISA
effort in Geneva. Although the world has witnessed rapid cross-
border growth in services in trade and investment, the Doha
Round after a decade has made little progress in liberalizing
this sector on a multilateral global basis. That is why we need
the negotiation of an ISA. An ISA that is open to like-minded
WTO members will help achieve a high standard agreement that
provides nondiscriminatory market access, most favored nation,
and national treatment. Ultimately, such an agreement would
strengthen the WTO itself.
In addition to supporting international service agreements,
regional plurilateral agreement like the TPP offer an important
pathway to move the ball forward on services liberalization. We
are glad to see that Mexico and Canada are on track to join the
TPP, and we hope Japan will make the necessary commitments to
join in the near future. These three countries alone buy almost
25 percent of the U.S. service exports. Other regional trading
partners who share our liberalization should also have a way to
join. Overall, the current TPP Member countries' efforts to
include high standards services commitments will make this an
important agreement for trade and services.
Third, there are bilateral opportunities for advancing open
trade and services, including express delivery services. The
U.S.-European Union High-Level Working Group is an important
venue for that work. UPS is very supportive of the possible
launch of negotiations of a U.S.-EU Free Trade Agreement to
strengthen our strategic economic partnership across the
Atlantic. We see strengthening the U.S.-EU trade relationship
as a cornerstone of our own success.
In fact, our pending acquisition of Netherlands-based TNT
Express underscores our commitment to supporting the growth of
trans-Atlantic trade in helping the U.S. and European customers
better tap the global market. This acquisition, our largest in
our 105-year history, broadens UPS' global footprint. When you
take a strong European brand and you combine it with a great
American brand, the winners are the customers. And UPS is
especially excited about the possibilities what a combined
brand means to our customers here in the U.S. So a stronger
partnership in trade between the U.S. and EU in time will bring
tremendous benefits for both the U.S. and European exporters
alike.
In difficult economic times, it is all too easy to become
protectionist, but that policy never leads to economic growth
or job creation. We have seen a growing list of restrictions
being introduced abroad on trade services. We cannot afford to
ignore these if we seek robust economic growth. Especially at
this critical juncture in the global economic recovery, the
U.S. must continue to provide an open market for trade and
services on all fronts. An International Services Agreement
holds great promise for expanding U.S. services exports and
strengthening the WTO, as do each of the other initiatives I
have discussed. Now is the time to pursue these to further
stimulate U.S. growth and job creation. Thank you for the
opportunity to testify.
Chairman BRADY. Thank you, Mr. Brutto.
[The prepared statement of Mr. Brutto follows:]
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Chairman BRADY. We will start member questions of 3
minutes.
One of the key takeaways from the testimony is how
facilitating services exports helps our small and medium-sized
business exports and helps our manufacturing and agriculture
sectors as well. So this is all complementary. Mr. Brutto, real
quickly, do you have any metrics at UPS to show how when you
export more it helps facilitate small and medium-owned
businesses do the same?
Mr. BRUTTO. Yeah, absolutely. And I can tell you that our
most recent free trade agreements, our volume for small and
medium-sized businesses is up over 20 percent. So our trade to
South Korea with U.S. exports, our trade to Colombia, to
Panama, we have seen that growth. That gives our U.S. exporters
access to those markets. The major inhibitor, though, is the
complexity of duties and taxes and customs. The second is
access to capital and understanding the markets, and sometimes
a different currency. And three is the ability to sell the
products in those foreign markets. And certainly the U.S.
Commercial Service is working with us. It has helped many small
and medium-sized customers. In fact, we have educated well over
2,000 small and medium-sized customers so they can effectively
get into multiple markets.
Chairman BRADY. Right. And certainly Dr. Jensen's testimony
is that the upside potential on this is remarkable for us. Mr.
Fessenden, how does the export of GE's energy services help
drive demand for GE's manufacturing side?
Mr. FESSENDEN. Well, certainly as I spoke our services is a
revenue stream for 20 to 30 years after the initial
transaction. But that initial transaction, of course, and the
services are all based upon--or a lot of it is based upon our
manufacturing of parts and repairs that comes out of the United
States in support of our global business. So we are very tied
to continuing to grow the manufacturing sector through the
service support. It is very important.
Chairman BRADY. All right. Thank you, sir. Dr. Jensen, I
know it is always a challenge to measure services on trade
data. Government data is frankly not very good for services
trade. I fear we often make policy decisions with a fraction of
real time data. But to conclude, what have researchers found
about facilitating services exports as far as helping
manufacturing and ag become more competitive as well?
Mr. JENSEN. So the research is limited because the data
impediments are large.
Chairman BRADY. Yeah.
Mr. JENSEN. There has been work that the World Bank has
done that has looked at countries that have liberalized their
services sector and find that it does increase productivity in
the manufacturing sector. Work that I have been involved with
the OECD suggests that increased business service imports
increases exports' share of output, particularly in commodity-
type manufacturing products. So I think, you know, we think of
business services as facilitating manufacturing trade and also
increasing the value of manufacturing trade.
Chairman BRADY. Right. Thank you, Mr. Jensen. Mr.
McDermott.
Mr. MCDERMOTT. Thank you, Mr. Chairman. Mr. Klein, I
noticed when I was reading your testimony you were talking
about a provision in the Colombia implementation bill that
gives you some problems with Customs and the whole Customs
funding.
Could you explain a little bit more in depth what you are
talking about and why it makes a difference to Sabre? I don't
know what exactly your business model is, but I don't
understand how you and Customs get tangled up.
Mr. KLEIN. Sure. I think it really affects the travel
industry and the tourism industry into the U.S. And let me
explain. There were some numbers released yesterday that
suggest that the tourism to the United States drives about $153
billion of exports. That is up 8 percent in 2011 versus 2010.
Customs staffing and efficiency at the airports is a barrier to
people wanting to come to the United States. The expectation
across the travel industry, and our view is, that we should
have world class services in our airports, that we should do
the best job of anybody in the world of moving people and
welcoming guests into the country, in that there is significant
job creation and export benefit when we do. That problem is
about to get bigger. We had a long term, almost a 10-year loss
in tourism market share, global tourism market share in the
United States. We went from 17 percent of global tourism to
12.5 percent. And we are back on the upswing. Again, big growth
number last year. We are going to continue to grow. The budget
for the CBP is tight, and they are not going to be able to add
officers with this current budget. The view is they won't be
able to add officers at the rate they are going to need to to
deal with the growth in tourism. And over time, that will hurt
our ability to drive exports in the country.
So, look, it is--there is a bit of impact on our company. I
think this is a broader issue for the tourism industry and for
export and jobs growth in the United States because of the
impact of international tourism.
Mr. MCDERMOTT. How do you measure the amount that standing
in line impacts people's desire to come to the United States? I
now have the global entry thing, which I suspect all of you do
who are tooling around on the international scene. You walk
through, put your fingerprints down, and away you go. And I
watched those long lines at Seattle when I came back the last
time, and I wondered how you measure the impact of that. People
say I am not going to the United States because I have to stand
in line?
Mr. KLEIN. That is a very fair question, Congressman. I
think there is two things here. And I think from an industry
perspective, the view would be in the United States we should
be able to do this really well, and we should welcome guests
into the country. And people are coming here, they are spending
about $4,000 a day. And when they get here, it drives jobs. We
think the numbers are around for every 33 visitors we get,
there is a job creation, one job created for every 33 visitors.
To measure the exact impact is difficult. But the industry has
done research around barriers to wanting to visit the United
States. And one of them is perception of whether we want people
to come here, and whether we are welcoming them, and then what
the experience is when they get here, what the hassle factor is
in coming through Customs and Immigration. And it is a factor
in people's decisions when they have choice.
Mr. MCDERMOTT. Thank you.
Chairman BRADY. Thank you, Mr. McDermott. Mr. Reichert.
Mr. REICHERT. Thank you, Mr. Chairman. And thank you for
your testimony and your patience this afternoon. As I mentioned
earlier, I am on the President's Export Council, and the
cochair of the Goods Movement Caucus. And there is a challenge
in educating people on the need--well, on the benefit that
services provides and enables and facilitates trade of
manufacturing goods and agricultural goods. So I want to focus
a little bit on how services exports facilitate trade in other
U.S. sectors.
And so just to Mr. Klein real quick, you have explained how
services such as those offered by Sabre enhance the efficiency
of airlines, and how this both aids U.S. airlines exports and
facilitates tourism and travel to the United States. But how
could a services environment help a company like we have in
Washington State called Boeing?
Mr. KLEIN. Sure. Thank you, Congressman. I think there is a
couple ways. One, the optimization software that we sell to
airlines helps them either optimize revenues or reduce costs.
And healthier airlines are more likely to either refleet,
modernize their fleet, or hopefully in a best case scenario,
grow their fleet. I have a current example, a recent example at
Aerolineas in Argentina, where they frankly didn't have the
capability internally with their current systems to make some
of those long-term fleet planning decisions and to decide what
markets, what new markets might be profitable to fly into. We
installed a series of operations software there, we put
consultants on the ground to help them use it, and they now do
have a fleet plan that also led to a commercial decision to
join the Sky Team Alliance, which Delta is the big partner in
that alliance, which adds 4,000 destinations in Argentina for
Sky Team. It adds lots of options for Aerolineas coming north.
Aerolineas is primarily a Boeing fleet. They do have a small
aircraft fleet 190 or so Embraers who all have GE engines on
them. And they are going to be in the process now of
modernizing and also expanding their fleet in response to some
of the intelligence they have gotten out of the systems we have
provided. Those are just decisions they wouldn't have been able
to make without our tools or potentially some of our
competitors' tools.
Mr. REICHERT. I think it is important to note that I think
Mr. Fessenden said that 30 percent of your business is
services. So your employees understand it, and I think most of
the employees at the companies that you represent understand
that services is a key part of your business. How do we get
that message out to the rest of the country is my question. And
I don't have time for you to answer it. But I look forward to
visiting with you maybe in the future.
Thank you, Mr. Chairman.
Chairman BRADY. Thanks, Mr. Reichert.
Mr. HERGER.
Mr. HERGER. Thank you, Mr. Chairman. I appreciate hearing
the panel's experience on the role foreign direct investment
plays in allowing your companies to export around the world,
and how it impacts jobs in the United States. And in your
experience, have you found that making investments abroad has
helped or hurt your ability to create jobs here at home?
Mr. BRUTTO. I guess I will answer that. Simple. For UPS,
every 22 packages that we export out of the U.S. creates a
full-time U.S. job. So the simple math. The more we export out
of the U.S.--and by the way, we started our international
business essentially in 1975 in Canada, and in 1976 in Germany.
And we he have created literally thousands of U.S. jobs. And it
is simple. I am overseas all the time. That is where I spend
most of my time. I primarily work with companies to accept U.S.
packages, as well as send their packages to the U.S. market.
But a simple thing for us is 22 packages equals a full-time
job.
Mr. HERGER. Anyone else?
Mr. KLEIN. Yes, at our company, in our software business
most of our growth is international growth, ex-U.S. growth. On
a 20 percent growth rate, we will increase jobs by about 10
percent. Half of that 10 percent will be in the United States.
And as I said, those are $87,000 a year jobs on average. So it
is good job growth whenever we get points of growth outside the
U.S.
Mr. FESSENDEN. Congressman, I would just like to add that,
as I mentioned, 100 percent of our gas turbines and steam
turbines manufactured in Schenectady, New York, and Greenville,
South Carolina, and the 250 small and medium businesses that
support our supply chain in the U.S. all were exported. And
then we have 20 to 30 years of service revenue that will take
parts that are manufactured from that supply chain and export
them. So it is extremely important and supportive of U.S. jobs.
Mr. LAKE. If I may just jump in to make a comment on this
as well. As I mentioned, in Japan we are generating $18.4
billion in revenue. Of that, pretax operating earnings that
same year is $3.8 billion. Of that, 80 percent on average we
repatriate back to the United States, which are reinvested in
building our infrastructure here as well. So that is how we
generate jobs as a company, as Aflac agents, and so on.
Mr. HERGER. You know, I might mention something that you
are already aware of. What you have just said is not getting
out to the American people. You know, when they hear and are
aware of jobs going abroad, they assume we are losing American
jobs. So I don't know what it is collectively we need do as
businesses to get this message out, but it is imperative to be
able to allow us in the Congress--some of us are already with
you--but certainly in the Congress to be able to make sure that
we do this. Maybe a last very quick one. I am interested in
hearing from the panel about the types of nontariff barriers
you encounter that undermine your ability to export services.
Maybe specifically, Mr. Lake, would you start off with what
Aflac faces in Japan?
Mr. LAKE. I mentioned in my testimony two issues with
respect to inside the border measures that affect our business.
Certainly the state-owned enterprise issues that go beyond
banking, insurance, express delivery as well, and how in an
integrated way they create challenges for us. And I think that
the key to understanding that is it is not even foreign versus
domestic, it is private sector versus government-owned
entities. That Banking Association of Japan, Life Insurance
Association of Japan all very much want the same outcome, which
is level playing field. And so this is very different from the
kind of trade friction issues that we had 20, 30 years ago that
warrants a strategic approach. And it is, again, not only in
Japan, but it is in Korea and China. So those are the examples
that I would cite.
Mr. HERGER. A very important hearing, Mr. Chairman. Thank
you very much. But these are certainly issues that we as a
Congress need to really concentrate. And of course we are
talking with our allies, with our good friends, but yet we need
a level playing field. Certainly the American people are
demanding that. So thank you very much.
Chairman BRADY. No, thank you, Mr. Herger. Mr. McDermott is
recognized for a deeply probing question.
Mr. MCDERMOTT. I don't know if I can rise to that level.
Mr. Lake, I want to hear about Japan Post. I have been over
there and I have talked to them and talked to the Japanese
Members of the Diet about these whole issues. From your point
of view, explain to us what it is that makes it hard for you to
do business, a service business in Japan in competition with
the Japan Post.
Mr. LAKE. We as a company believe that we can compete with
anybody as long as the playing field is level. And from that
point of view, what are the advantages that Japan Post has that
we do not? Japan Post is allowed to operate a banking holding
company, insurance holding company in a way that we certainly
wouldn't. There are a number of measures that are applied to
Japan Post in a way that they are not applied to any other
private sector, not only Aflac. So at the end of the day, if
you go through all these measures that are applied, they are
gaining advantages that no private sector company has, which
gives them, with respect to capital, with respect to
regulation, with respect to operating throughout Japan, the
kind of advantages that no one has.
So it is not a question of ownership, but it is the
specific measures that are applied to help then gain the
competitive advantages that they have. That is part of the
reason why, as I mentioned earlier, that domestic companies
just last week as well as this week issued statements again
calling for level playing field, and not allowing expansion of
business because it is so huge, it is so difficult to compete
with those advantages that I just talked about. And I think, as
you know better than anybody else, this Committee has expressed
concerns the past 10 years. The executive branch has as well.
And I think we are coming to that point, in which they are
about to expand further, that warrants appropriate response of
this Committee as well as the United States Government, in our
view, to deal with those issues.
Mr. MCDERMOTT. Thank you.
Chairman BRADY. All right. Thank you, Mr. McDermott. I
think I speak for more than myself in saying this hearing has
been very helpful in helping us document what a great
opportunity you have at hand. By negotiating an International
Services Agreement, we can expand our services sales around the
world and rev up this great engine of U.S. job creation.
I want to thank each of the witnesses for their patience,
for their insight, and for your ongoing work in keeping America
globally competitive. I want to invite all of you to join me in
enthusiastically supporting the work the USTR is doing to move
forward with establishing an ISA.
Our record is open through October 4, 2012. I urge
interested parties to submit statements for the record. On
that, this hearing is adjourned.
[Whereupon, at 5:45 p.m., the Subcommittee was adjourned.]
[Submissions for the Record follow:]
Coalition of Services Industries 1
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