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February 26 2013 Issue

Tuesday, February 26, 2013
Sandler, Travis & Rosenberg Trade Report

Services Trade: The U.S. and the International Services Agreement Plurilateral

[Editor’s note: The following article originally appeared in E-finance & payments law & policy and is reprinted here with permission.]

The International Services Agreement plurilateral represents an opportunity for the U.S. to boost its services trade sector, the largest portion of the U.S. economy, and a successful deal resulting from World Trade Organization member talks in Geneva could indeed benefit the global economy as a whole. Mark Ludwikowski and Andy Olson of Sandler, Travis & Rosenberg discuss the U.S. role in what could be the biggest financial services trade deal in decades.

The 2013 New Year resolutions in Washington started with an ambitious announcement by the Obama administration of its intention to enter into the International Services Agreement plurilateral. In a letter to congressional leaders, the Office of the United States Trade Representative notified the Congress of the administration’s intent to formally enter into negotiations aimed at liberalizing international trade in services and supporting U.S. service exports and jobs. The ISA has the potential to be the most influential services trade deal in nearly two decades (since the conclusion of the 1994 General Agreement on Trade in Services in the Uruguay Round). This agreement will include a mechanism to allow other WTO members who are not participating in the ISA to join the agreement in the future (assuming they are willing to accept the rules established under the agreement.) Negotiations are set to begin in Geneva with a diverse group of key trading partners that represent nearly two-thirds of global trade, including Australia, Canada, Chile, Taiwan, Colombia, Costa Rica, the European Union, Hong Kong, Iceland, Israel, Japan, Korea, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, Switzerland and Turkey.

Services constitute the largest sector of the U.S. economy and claim by far the largest number of U.S. jobs. With respect to understanding and defining what is meant by services trade, global trade rules consider services to be just about everything not manufactured in a factory or grown in the ground. Services are what make agriculture and manufacturing possible. From financing a product’s launch to moving the final product to the consumer, every step along the way in the production process involves services. To give some concrete examples, services trade includes such sectors of the economy as financial services, insurance, express delivery, telecommunications, entertainment and media, retail and wholesale, professional services such as engineering, consulting, medical and legal professions, and education. Yet, services trade has never claimed the attention of policy makers in Washington, D.C., at the level of the more traditional sectors of agriculture and manufacturing. Further, services trade is unlike trade in manufactured or agricultural goods in that services are not charged tariffs. Instead, services trade negotiations focus on establishing rules that prevent arbitrary government behavior that may block market access to foreign service suppliers or treat these foreign suppliers unfairly compared to domestic suppliers.

The ISA is intended to reduce these global barriers to trade across the services sector and presents a valuable opportunity for companies in the financial services industry to contribute to the dialogue. The agreement would seek to consolidate gains made in numerous bilateral and regional service agreements that have been entered since the GATS. Although no deadline has been set for concluding the agreement, partner countries have committed to moving as quickly as possible and insiders note that the talks are permeated with an air of excitement and optimism not seen in Geneva WTO circles in years.

According to Deputy USTR Michael Punke, “the genesis of the ISA lies in our hard-nosed assessment that we simply will not be able to make real 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.”

The ISA partners acknowledge that the world has seen significant technological changes since the GATS and the trade rules need to catch up. For example, Internet usage and electronic financial transactions have increased dramatically since the Uruguay Round, bringing with them a multitude of new issues related to cross-border trade such as policies that affect data flows, storage, and market access for electronic payment services. Also, the GATS contains certain limitations that have since been addressed through new standards in many services agreements that have been notified to the WTO in the last 18 years. For instance, GATS commitments are undertaken according to a “positive list” approach for specified service activities only. Under a positive list approach, countries open their markets only in specified sectors, while a “negative list” approach assumes all sectors are open to competition except those specifically excluded.

The push for the ISA also dovetails with the Obama administration’s goals of doubling U.S. exports. According to a House Ways and Means Subcommittee on Trade hearing last September, despite a significant advance in business services, U.S. service firm participation lags significantly behind export participation in the manufacturing sector. A key reason behind this lag in export performance is the high barriers to services trade imposed by large, fast-growing emerging markets, including India, China and Brazil, where U.S. comparative advantage in services is most pronounced. These impediments do not come in the form of tariffs but rather domestic regulations, policies or industrial practices that make it difficult to provide business services in these countries. For example, in financial services, foreign suppliers of electronic payment processing and related services in China were limited to providing those services only for foreign currency transactions, which led to a dispute between the countries at the WTO.

ISA partner countries also recognize the tremendous business opportunities resulting from reducing barriers to services trade. Many fast-growing developing countries have significant infrastructure needs, including expenditures to replace or refurbish existing systems, and are expected to experience an infrastructure boom in the next two decades. This presents significant business opportunities for construction, engineering and financial service providers.

Financial services companies have the opportunity to shape the ISA negotiations and press for key industry objectives. The USTR is soliciting public comments on the proposed ISA and has scheduled a hearing for March 12 on the United States’ involvement in the negotiations. Comments and requests to participate in the hearing are due by Feb. 26.

The comments and oral testimony will be reviewed by the Trade Policy Staff Committee ,which consists of representatives from 20 government agencies. The TPSC has asked interested parties to address several relevant matters and in particular the following.

(a) economic costs and benefits to U.S. service suppliers and consumers of eliminating barriers to services traded either on a cross-border basis or through a foreign commercial presence

(b) existing barriers to trade in services that should be addressed

(c) areas where existing international rules governing services trade, such as those found in the GATS and U.S. free trade agreements, could be strengthened or enhanced

(d) relevant issues related to the supply of services through various modes of supply and technologies

The ISA presents a rare opportunity to establish a services trade framework for the digital age that will set the standard for services trade for a generation. A successful outcome in the ISA will provide a welcome boost to the U.S. and global economies. 

U.S. Eases the Way for Potential Japanese Participation in Trans-Pacific Trade Talks

A joint statement issued following a Feb. 22 meeting between President Obama and Japanese Prime Minister Shinzo Abe could make it easier for Japan to join 11 other countries currently negotiating the Trans-Pacific Partnership agreement. That possibility remains controversial both within and outside of Japan due to uncertainty about the level of trade liberalization Tokyo may or may not agree to as part of the TPP.

The joint statement said that “all goods would be subject to negotiation” should Japan participate in the negotiations but recognized that “both countries have bilateral trade sensitivities, such as certain agricultural products for Japan and certain manufactured products for the United States.” Given that “the final outcome will be determined during the negotiations,” the statement added, the U.S. is not requiring Japan to “make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations.” At the same time, the U.S. wants more progress on certain issues before agreeing to accept Japan into the talks, “including addressing outstanding concerns with respect to the automotive and insurance sectors, addressing other non-tariff measures, and completing work regarding meeting the high TPP standards.” 

FMC Proposes to Extend Regulatory Relief to Foreign Unlicensed NVOCCs

The Federal Maritime Commission is inviting public comments through April 29 on a proposed rule that Chairman Richard Lidinsky said would extend to foreign-based unlicensed non-vessel-operating common carriers “the regulatory relief provided more than two years ago to licensed NVOCCs.” Lidinsky also expressed hope that the FMC will undertake further review of its regulations governing ocean transportation intermediaries “to make them more effective while providing further relief from unnecessary regulations.”

The proposed rule would require foreign-based unlicensed NVOCCs to register with the FMC by submitting a registration on form FMC-65 that includes their legal name, trade name(s), principal address, contact information including name of a contact person, and name, address and contact person for a designated legal agent for service of process in the U.S. Registrations would be effective for three years and renewed for subsequent three-year periods upon the submission of an updated registration form. Registrations could be terminated or suspended for various infractions.

The Commission is also proposing to expand a current tariff rate publication exemption and allow foreign-based unlicensed NVOCCs to enter into negotiated rate arrangements in lieu of publishing a rate for cargo shipments in their tariffs. The FMC notes that previous concerns about making such a change focused on the lack of available information about these NVOCCs but that the proposed registration requirement detailed above is designed to obtain such information. As a result, the FMC now believes that extending NRAs to these NVOCCs will not result in substantial reduction in competition or be detrimental to commerce and in fact will encourage better and fair competition among NVOCCs generally. 

New Legislation: Port Security, Corporate Taxation, Defense Exports, Trade Policy

The following trade-related legislation has been introduced in the House and Senate in recent weeks. The texts of these bills are or will shortly be available on the Library of Congress Web site.

Port Security. H.R. 583 (introduced Feb. 6 by Rep. Filemon Vila, D-Texas; referred to the House committees on Homeland Security, Ways and Means, Agriculture, and Transportation and Infrastructure ) would direct the Department of Homeland Security to add at least 5,000 full-time U.S. Customs and Border Protection officers, 1,200 active duty agriculture specialists and 350 active duty border security support personnel for U.S. ports of entry. It would also authorize four years’ worth of appropriations for improvements to existing U.S. ports of entry.

Corporate Taxation. Sen. Bernie Sanders, I-Vt., said that S. 250 (introduced Feb. 7; referred to the Senate Finance Committee) and H.R. 694 (introduced Feb. 14; referred to the House Ways and Means Committee) would require corporations to pay U.S. taxes on their offshore profits as they are earned, which would “take away the tax incentives for corporations to move jobs offshore or to shift profits offshore because the U.S. would tax their profits no matter where they are generated.”

Defense Exports. H.R. 599 (introduced Feb. 8 by Rep. Raul Grijalva, D-Ariz.; referred to the House Foreign Affairs Committee) would prohibit the transfer of defense articles and defense services to the governments of foreign countries that are engaging in gross violations of internationally-recognized human rights.

Trade Policy. S. 355 (introduced Feb. 14 by Sen. Jeff Merkley, D-Ore.; referred to the Senate Finance Committee) would require the U.S. Trade Representative to notify the World Trade Organization if any WTO member fails during two consecutive years to disclose subsidies under the Agreement on Subsidies and Countervailing Measures.

H.R. 734 (introduced Feb. 14 by Rep. Steve Stivers, R-Ohio; referred to the House Ways and Means Committee) would increase duties on certain foreign goods imported into the U.S.

H.R. 790 (introduced Feb. 15 by Rep. Gary Peters, D-Mich.; referred to the House Financial Services Committee) would require the disclosure of the total number of a company's domestic and foreign employees. 

In the News: Burma Eliminates Import/Export Licenses, China Pork Imports, U.S. Beef Safety Rating

Burma allows license-free imports, exports

China seeks extra testing of U.S. pork for feed additive

World Organization for Animal Health Recommends United States' BSE Risk Status Be Upgraded

AD/CV Notices: Shrimp, Lined Paper Products

Agency: International Trade Administration.
Commodity: Frozen warmwater shrimp.
Country: China.
Nature of Notice: Preliminary reconsideration of changed circumstances review of antidumping duty order.
Details: Determination that Hilltop International is the successor-in-interest to Yelin Enterprise Co. Hong Kong is preliminarily reversed such that Hilltop should properly be considered part of the China-wide entity.

Agency: International Trade Administration.
Commodity: Lined paper products.
Country: India.
Nature of Notice: Rescission of administrative review of countervailing duty order for the period Jan. 1 through Dec. 31, 2011, with respect to Navneet Publications (India) Ltd. 

Treasury Dept. Further Eases Economic Restrictions on Burma

The Treasury Department’s Office of Foreign Assets Control issued Feb. 22 a general license to authorize additional U.S. economic activity in Burma. OFAC states that this action supports the July 2012 easing of U.S. economic sanctions on Burma that authorized new investment in Burma by U.S. persons and encouraged additional U.S. economic involvement in Burma.

General License No. 19 allows individuals, companies and financial institutions to conduct most transactions, including opening and maintaining accounts and conducting a range of other financial services, with four of Burma's major financial entities: Myanma Economic Bank, Myanma Investment and Commercial Bank, Asia Green Development Bank and Ayeyarwady Bank. The license does not, however:

- authorize, in connection with the provision of security services, the exportation or reexportation of financial services, directly or indirectly, to the Burmese Ministry of Defense, including the Office of Procurement; any state or non-state armed group; or any entity in which any of the foregoing own a 50% or greater interest;

- authorize any new investment, including in or with Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, or Myanma Investment and Commercial Bank; or

- authorize the importation of jadeite or rubies mined or extracted from Burma, or of articles of jewelry containing jadeite or rubies mined or extracted from Burma, or any other activity prohibited by Section 3 of the Tom Lantos Block Burmese JADE Act of 2008. 

Texas Foreign-Trade Zone Seeks to Reorganize

The Foreign-Trade Zones Board is accepting through April 29 comments on an application from the Port of Corpus Christi Authority, grantee of FTZ 122, for authority to reorganize this zone under the alternative site framework. The proposed service area under the ASF would be Nueces, San Patricio, Aransas, Jim Wells, Kleberg and Bee counties in Texas, within and adjacent to the Corpus Christi U.S. Customs and Border Protection port of entry. If this application is approved the grantee would be able to serve sites throughout the service area based on companies’ needs for FTZ designation. The application would have no impact on FTZ 122’s previously authorized subzones.

IPR Enforcement Actions on RFID Products, Laminated Packaging, Base Stations

New IPR Infringement Petition on RFID Products. The International Trade Commission received Feb. 22 on behalf of Neology Inc. a petition requesting that it institute a Section 337 investigation regarding certain radio frequency identification products and components thereof. The proposed respondents are located in the U.S.

Section 337 investigations primarily involve claims regarding intellectual property rights violations by imported goods, including the infringement of patents, trademarks and copyrights. Other forms of unfair competition involving imported products, such as misappropriation of trade secrets or trade dress and false advertising, may also be asserted. The primary remedy available in Section 337 investigations is an exclusion order that directs U.S. Customs and Border Protection to stop infringing imports from entering the U.S. In addition, the ITC may issue cease and desist orders against named importers and other persons engaged in unfair acts that violate Section 337, including selling infringing imported articles out of U.S. inventory.

Potential IPR Probe of Laminated Packaging Evaluated for Public Interest Issues. The International Trade Commission is requesting comments no later than March 6 on any public interest issues raised by a Section 337 intellectual property rights infringement complaint filed on behalf of Lamina Packaging Innovations LLC against certain products having laminated packaging, laminated packaging and components thereof. Comments should address whether the issuance of exclusion orders and/or cease and desist orders pursuant to this complaint would affect the public health and welfare in the U.S., competitive conditions in the U.S. economy, the production of like or directly competitive articles in the U.S., or U.S. consumers. In particular, the ITC is interested in comments that:

- explain how the articles potentially subject to the orders are used in the U.S.;

- identify any public health, safety or welfare concerns in the U.S. relating to the potential orders;

- identify like or directly competitive articles that the complainant, its licensees or third parties make in the U.S. that could replace the subject articles if they were to be excluded;

- indicate whether the complainant, the complainant’s licensees and/or third-party suppliers have the capacity to replace the volume of articles potentially subject to the requested orders within a commercially reasonable time; and

- explain how the requested orders would impact U.S. consumers.

New IPR Infringement Investigation of Base Stations. The International Trade Commission has instituted investigation 337-TA-871 to determine whether imports of certain wireless communications base stations and components thereof for use with next-generation wireless communication technologies such as 4G LTE are violating Section 337 of the 1930 Tariff Act by reason of patent infringement. Complainant Adaptix Inc. requests that after this investigation the ITC issue an exclusion order, which would direct U.S. Customs and Border Protection to prohibit the entry of the infringing products into the U.S., and cease and desist orders, which would require the named respondents to cease actions that violate Section 337, including selling infringing imported articles out of U.S. inventory. The respondents in this investigation are located in Sweden and the U.S. 

FTA Labor Provisions Committee to Meet March 19

The National Advisory Committee for Labor Provisions of U.S. Free Trade Agreements will hold an open meeting March 19 at the Department of Labor in Washington, D.C. Agenda items will include an update and discussion on the implementation of FTA labor provisions and a review and discussion of a subcommittee report on the research priorities of the DOL’s Bureau of International Labor Affairs.

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