International Competition in Services

Production of services now dominates economic activity in the United States and most other nations. It is thus natural to find increasing attention on the part of U.S. policymakers to international competition in service activities. Yielding to strong pressure from the United States, members of the General Agreement on Tariffs and Trade (GATT) agreed in September 1986 to include services in the new "Uruguay Round" of multilateral trade negotiations. But there remains widespread skepticism regarding the prospects for these negotiations. This paper surveys the main issues and evidence relating to U.S. international competition in services. It reviews the forces that have catapulted services to the top of the agenda for the new GATT round; the conceptual issues raised by international competition in services; the growing importance of services in U.S. production and in international transactions; the relationship of services growth to "deindustrialization" of the U.S. economy; the nature and motivation of barriers to international competition in services and their relationship to nontariff distortions of merchandise trade; and the choices awaiting U.S. officials in forthcoming bilateral and multilateral negotiations.