Further TNC Mobilization for Trade in Services

inputs from the private actors (Feketekuty 1988: 321). As a first step, in 1975 a White House Interagency Taskforce on Services and Multilateral Negotiations was initiated to examine the problems of service industries (Feketekuty 1988: 302). The Task Force prepared a report in December 1976 that recommended the insertion of service industries’ concerns to the Tokyo Round negotiations on a “carefully selected” basis (Feketekuty 1988: 303). Despite this effort, the U.S. could only secure the interjection of some language on services into three Tokyo Round codes as it had difficulty to convince trading partners to embark upon a broader initiative that would tackle domestic regulations as trade barriers.⁵¹

strategies to access markets and political strategies to leverage U.S. trade policy to achieve their economic goals. From the late 1970s on, a stronger and wider scale business coalition for trade in services emerged in the United States with the mobilisation of TNCs operating in various sectors around a collective purpose to promote a coherent trade policy for service industries and eventually to put the issue on the GATT agenda (Freeman 2000: 456). At the core of the business coalition was the finance industry after American Express joined forces with AIG and Citicorp in 1978.

American Express is a financial firm operating in a wide range of areas from banking to insurance. It was particularly competent in credit cards and travel-related business including travellers check (Yoffie and Bergenstein 1985: 129-130). Like other financial firms, the company encountered significant restrictions during the 1970s because of extensive regulations both in the United States and abroad (Yoffie and Bergenstein 1985: 130). Its non-bank status was an acutely crucial challenge in accessing developing country markets, which were generally dominated by a few local banks (Freeman 2001: 184). In this regard, the interests of the country encompassed the interests in terms of conventional sectoral descriptions of banking, insurance and securities (Freeman 2001: 184). Defining company’s economic interests in “financial services” terms would create substantial benefits especially to dismantle foreign barriers to its operations in different areas (Freeman 2001: 184). Thus, the company

adopted a proactive strategy to turn the company to an “integrated service company”

after the appointment of Jim Robinson as chairman and CEO of Amex in 1975 (Yoffie and Bergenstein 1985: 129). Robinson made the critical decision to create a broad business coalition including both financial and non-financial firms to pursue not only the “parochial interests” of Amex, i.e. opening financial markets, but also other firms’

interests by creating political pressure on the U.S. government (Yoffie and Bergenstein 1985: 130; Freeman 2001: 184). According to Robinson’s deputy Harry Freeman, this strategic decision to amalgamate a wide range of forces behind a common cause was the “single most important decision” that was influential in the success of the business coalition in putting services on the GATT’s agenda (Freeman 2001: 184). In line with this new perspective, the company launched an aggressive and high-profile government relations initiative by restructuring its Washington office and launched efforts to expand the core TNC coalition to other corporations in financial as well as non-financial service sectors (Yoffie and Bergenstein 1985: 130; Freeman 2001: 184).

Telecommunication firms were recruited to the services cause at an early stage.

Thanks to technological innovations and growth of markets in telecommunications during the 1970s, international competition escalated both for service and equipment providers in this sector (Cass and Haring 1998: 83-106). An important constraint to international trade in telecommunications stemmed from the monopolistic character

of the service markets as they were dominated by few companies usually owned by the states. The competitiveness of U.S. TNCs in the world markets increased as a result of measures by the Reagan administration towards deregulating the domestic market in 1984. These measures dismantled the American Telephone & Telegraph Company (AT&T), the historical dominator of the internal market (Wada and Asano 1997: 239). Furthermore, the 1984 deregulation also created a competitive environment both for service providers such as AT&T and telecommunications equipment suppliers including AT&T, IBM, and Motorola. While the competitiveness of American firms increased with lower prices and higher quality in services, these and other major telecommunication service providers, such as ITT and FDR Interactive, increased their pressure to the government for liberalization of foreign markets (Aggarwal 1992: 42). As the sector was brought under the purview of trade policy, sectoral leaders revised their offensive interests using trade terms. Thus major trade issues for the U.S. TNCs were crystallised as the access to especially EC and Asian markets including Japan and South Korea, restrictive government procurement procedures in these countries, and widespread governmental subsidies in these and other countries (Aggarwal 1992: 43). The immense pressure exerted by U.S. companies would result in governmental pressure on trading partners and lead to limited liberalization in telecommunication markets.⁵² While opening markets through the

For instance, Japan initiated a deregulation program in 1984. This paved the way for the

GATT became a priority for American telecom giants in the early 1980s, bilateral trade pressure was also institutionalized to have non-discriminatory access to targetted markets.⁵³ The liberalization in telecommunication markets became a significant issue also for TNCs operating in other sectors. For many firms communication costs constituted the majority of expenses after staffing expenses. Non-discriminatory access to telecommunications networks and payment systems were specifically essential for daily operations of finance firms such as Amex (Freeman 1986: 573; 2001:

184).

Construction and engineering was another leading American industry that joined the ranks of services campaigners. U.S. construction companies had heavily been engaged in international construction projects in the post-war period. However, their domination diminished in time because of growing competitiveness of other OECD countries as well as NICs such as South Korea (Bhagwati 1987: 210). An American advantage continued in engineering and design, yet developing countries such as

world’s largest privatization initiative in 1986. Japan began selling shares of the government-owned NTT, even though foreign firms would not be permitted to purchase its shares until 1992 (Wada and Asano 1997: 211-2).

53 Bilateral trade agreements negotiated with Japan during the 1980s covered issues such as Japanese government procurement practices in computers, satellites, and construction services, and telecommunications standards, regulations and licensing procedures in telecommunications equipment, international value-added telecommunications services, third-party radios and cellular phones (Janow 1998: 176-177 and 199).

India, Brazil, Taiwan, Lebanon and South Korea also managed to grow their market share and build up competitiveness owing to cheap labour and enhanced technology transfer (Bhagwati 1987: 210; OTA 1987: 119). One additional factor that escalated international competition in the early 1980s was the shrinking supply of reserves in OPEC countries because of the fall of oil prices and the Third World debt crisis, which decreased the amount of large scale construction projects in the Middle East and other oil-rich countries (OTA 1987: 119). As they were challenged in international markets, U.S. construction firms also faced competition at home owing to their disadvantage in financial resources vis-à-vis the heavily subsidized firms of Europe, Japan and some emerging economies (OTA 1987: 119). Hence, American companies such as Bechtel and Caterpillar Mr. and the U.S. International Engineering and Construction Industries Council would become vocal actors before and during the Uruguay Round to influence U.S. trade policy and strategies by raising their concerns about heavy government subsidization in many countries, restrictive regulations as to the establishment and location of activity as well as investment rules for the use of local content (Aggarwal 1992: 46). As will be examined in the next chapter, major developing countries would warm up to the idea of trade negotiations in the construction sector at an early stage in the Uruguay Round because they perceived a comparative advantage in their labour intensive business activities.

In sum, the business coalition was built up under the leadership of U.S. finance giants such as AIG, American Express, and Citicorp, and included other companies operating in telecommunications and data processing, construction, tourism, professional services, and film industry (Kelsey 2008: 78).⁵⁴ While these companies came together with a collective interest in opening markets through trade policies they were not part of a national constituency that would raise mutual concerns vis-à-vis policy-makers (Shelp 1986: 688). A significant step towards creating a single constituency and institutionalizing the coalition-building efforts was the creation of the Coalition of Service Industries in January 1982.⁵⁵ Chaired by Harry Freeman of Amex, this coalition came into existence after dedicated effort and leadership of other key individuals including the CEOs of American Express (Jim Robinson), AIG (Hank Greenberg), and Citicorp (John Reed) and deputies of these CEOs including Freeman, Joan Edelman Spero (American Express), and Ronald Shelp (AIG) (Freeman 2000: 456;

54 The U.S. film industry represented by the Motion Picture Association of America, including firms such as the Walt Disney Company and MTV, was particularly concerned about the protections within the EC market as it imported more than half of U.S. exports in the 1980s.

The market was largely controlled by national authorities and protected in countries such as France through limitations on foreign programs with concerns of cultural identity (Aggarwal 1992: 44). Another trade concern for the U.S. film industry was the lack of or poor protection of intellectual property rights in many developing countries. The sector became an active constituent of both services and the TRIPS campaign with a leading role of Fritz Attaway, energetic Vice President and General Counsel of the Motion Picture Association (Sell 2003: 49, 89).

55 Among the founders were Bechtel engineering and construction, Sea-Land Corporation shipping, Peat, Marwick, Mitchell & Company accountants, Merrill Lynch, Citicorp, N.A., ARA Services diversified management services company, Roebuck, and Beneficial Corporation financial services company (Sims and Rivers 1987: 13-4; Kelsey 2008: 78;

Economist 25 December 1982).

Zumwalt 1996: 3-5). Especially Ronald Shelp and Harry Freeman played a proactive role in crafting collective business strategies and in generating an action plan to make services a priority for U.S. trade policies especially for the insertion of the issue into the GATT agenda. Harry Freeman secured substantial financial backing from American Express and Jim Robinson to support the joint campaign not only in the United States but also in Brussels, Tokyo, and Geneva to build a Northern consensus to liberalise service markets through trade negotiations (Freeman 2000: 456).

Coalition-building included recruitments from within the U.S. bureaucracy. A key player in the services debate was Geza Feketekuty at USTR’s Office who spent enormous time and energies to activate U.S. trade machinery for service companies in cooperation with Ron Shelp and other campaigners. Before starting his career at USTR in 1974, Feketekuty had worked as an economist at the Council of Economic Advisers and Citicorp (Kelsey 2008: 80).⁵⁶ In the late 1970s, he was the most informed person on trade in services within USTR’s office and played an invaluable role in shaping U.S.

business and government strategies and educating American policy-makers.

56 Feketekuty was appointed Assistant USTR in 1978, Senior Assistant USTR in 1982, and from 1985 to 1990 Counsellor to USTR (Kelsey 2008: 80).