Framework for the International Services Agreement

Gary Clyde Hufbauer (PIIE), J. Bradford Jensen (PIIE) and Sherry Stephenson (Organization of American States)
Policy Brief
12-10

Assisted by Julia Muir and Martin Vieiro

April 2012

Services trade continues to be the most dynamic part of world trade, and service sectors have long been the largest destination of foreign direct investment flows. Countries can reap huge potential gains through greater liberalization of services trade and investment, including increased job creation, greater economic efficiency, more variety, and lower costs of doing business. Despite these positive attributes, liberalization of services at the multilateral level has been stuck in the ill-fated Doha Development Round for over ten years now. Failure in the World Trade Organization (WTO) can cause long-term damage to the multilateral trading system because action on services liberalization will then inevitably become the exclusive province of regional trade agreements. The way forward within the WTO framework is through an International Services Agreement (ISA) in which self-selected WTO members voluntarily agree to new rules and market access commitments, but the agreement itself is open to all WTO members who are willing to accept its disciplines and commitments.

The authors consider the important questions of who will participate in an ISA and what the agreement itself might contain. It would be important to attract the largest and most successful emerging countries (Brazil, Russia, India, China, and South Africa), which account for a sizeable share of world services trade, but this will probably not happen at the outset, because the BRICS have so far opposed services liberalization. The authors attempt to quantify the gains participating countries would reap from varying degrees of liberalization. They suggest a large range of possible export gains to the United States. At the lower end, using a standard partial equilibrium model, an ISA might facilitate a jump in US service exports by $14 billion annually. At the upper end, extrapolating from the scale of business services trade within US territory, the United States might realize export gains of $300 billion annually.