U.S. International Trade Commission COMMISSIONERS Irving A. Williamson, Chairman Deanna Tanner Okun Daniel R. Pearson Shara L. Aranoff Dean A. Pinkert David S. Johanson Robert B. Koopman Director, Office of Operations Karen Laney Director, Office of Industries Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 U.S. International Trade Commission Washington, DC 20436 www.usitc.gov Recent Trends in U.S. Services Trade 2012 Annual Report Investigation No. 332-345 Publication 4338 July 2012 This report was prepared principally by Project Leader Isaac Wohl [email protected] Deputy Project Leader Tamar Khachaturian [email protected] Principal Authors Chapter 1 George Serletis [email protected] Cynthia Payne [email protected] Chapter 2 George Serletis [email protected] Chapter 3 Lisa Alejandro [email protected] Chapter 4 Jennifer Powell [email protected] Chapter 5 Joann Peterson [email protected] Chapter 6 Matthew Reisman [email protected] Chapter 7 Martha Lawless [email protected] Chapter 8 Eric Forden [email protected] Chapter 9 Isaac Wohl [email protected] Content Reviewers Laura Bloodgood and William Powers Editor Peg Hausman Special Assistance from Trina Chambers, Lynette Gabourel, and Monica Reed Under the direction of Richard W. Brown, Chief, Services Division [email protected] ABSTRACT Recent Trends in U.S. Services Trade: 2012 Annual Report focuses on exports and imports of infrastructure services, including banking, insurance, logistics, retail, securities, and telecommunications services. These services are essential inputs to firms in virtually every economic sector. The largest infrastructure service firms are located in developed countries and offer their services globally through cross-border trade and affiliate transactions. Economic growth in developing and emerging countries continues to create new opportunities for expansion and investment by infrastructure service firms, though many countries maintain regulations and policies that pose challenges for stakeholders in services trade. Infrastructure service industries have shown signs of recovery following the recent financial crisis and ensuing economic downturn. Employment in infrastructure services continued to decline slightly in 2010, but wages, productivity, and value added grew strongly. While the United States had a small cross-border trade deficit in infrastructure services, it maintained a large trade surplus in affiliate sales, which accounted for the majority of infrastructure services trade. i PREFACE This report is the 16th in a series of annual reports on recent trends in U.S. services trade that the U.S. International Trade Commission (the Commission or USITC) has published. The Commission also publishes an annual companion report on U.S. merchandise trade, titled Shifts in U.S. Merchandise Trade. 1 These annual reports are the product of a recurring investigation instituted by the Commission in 1993 under section 332(b) of the Tariff Act of 1930.2 The information contained in this report reflects the knowledge, industry contacts, and analytic skills that are used by the Commission in providing expert analyses of service industries in its statutory investigations and in apprising its customers of global industry trends, regional developments, and competitiveness issues. In recent years, the Commission has published several reports on the services sector in addition to the Recent Trends series, including Property and Casualty Insurance Services: Competitive Conditions in Foreign Markets.3 Services have also been addressed in ASEAN: Regional Trends in Economic Integration, Export Competitiveness, and Inbound Investment for Selected Industries4 and the Small and Medium-Sized Enterprises 5 series—three reports on small and medium-sized enterprises published in 2010. 1 The Commission will not publish this report in 2012. 2 On August 27, 1993, on its own motion and pursuant to section 332(b) of the Tariff Act of 1930 (19 U.S.C. 1332(b)), the USITC instituted investigation no. 332-345, Annual Reports on U.S. Trade Shifts in Selected Industries. On December 20, 1994, the Commission on its own motion expanded the scope of this report to include more detailed coverage of service industries. Under the expanded scope, the Commission publishes two annual reports, Shifts in U.S. Merchandise Trade and Recent Trends in U.S. Services Trade. Services trade is presented in a separate report in order to provide more comprehensive and timely coverage of the sector’s performance. The current report format was developed by the USITC in response to Congressional interest in establishing a systematic means of examining and reporting on the significance of major trade developments, by product, and with leading U.S. trading partners, in the services, agriculture, and manufacturing sectors. 3 USITC Publication 4068, March 2009. 4 USITC Publication 4176, August 2009. 5 USITC Publication 4125, January 2010; USITC Publication 4169, July 2010; and USITC Publication 4189, November 2010. iii CONTENTS Page Abstract ................................................................................................................................. i Preface .................................................................................................................................... iii Abbreviations and Acronyms ........................................................................ xi Executive Summary ................................................................................................. xiii Chapter 1: Introduction ...................................................................................... 1-1 Data and organization ............................................................................................................ 1-1 The U.S. services sector ......................................................................................................... 1-2 Global services trade .............................................................................................................. 1-2 U.S. trade in services .............................................................................................................. 1-4 Cross-border trade, 2010 ................................................................................................. 1-5 Cross-border trade, 2011 ................................................................................................. 1-8 Affiliate transactions ........................................................................................................ 1-9 Bibliography ........................................................................................................................... 1-12 Chapter 2: Infrastructure Services Overview ............................ 2-1 Services regulation and liberalization .................................................................................... 2-1 Gross domestic product (GDP), employment, labor productivity, and salaries ..................... 2-3 U.S. trade in infrastructure services ....................................................................................... 2-7 Bibliography ........................................................................................................................... 2-11 Chapter 3: Banking Services .......................................................................... 3-1 Summary ................................................................................................................................ 3-1 Introduction ............................................................................................................................ 3-1 Competitive conditions in the global banking services market .............................................. 3-2 Demand and supply factors .............................................................................................. 3-4 Trade trends ............................................................................................................................ 3-6 Cross-border trade ............................................................................................................ 3-6 Nontariff measures affecting trade ......................................................................................... 3-8 Outlook ................................................................................................................................... 3-9 Bibliography ........................................................................................................................... 3-10 v CONTENTS—Continued Page Chapter 4: Insurance Services .............................................................. 4-1 Summary .......................................................................................................................... 4-1 Introduction ..................................................................................................................... 4-1 Competitive conditions in the global insurance services market .................................... 4-2 Demand and supply factors ...................................................................................... 4-5 Trade trends ..................................................................................................................... 4-9 Cross-border trade ...................................................................................................