Promoting Trade in Services as a Comprehensive Policy Formula

The business leaders launched an extensive communication campaign in 1979 to ensure the acknowledgement of the “trade status” of their activities by a wide range

of actors in the United States. To this aim, they adopted a strategy to communicate their activities, preferences and strategies through trade terminology. Ronald Shelp explains this in the following terms:

So we […] learned a new terminology—trade terminology. Soon, we were constantly repeating a new word—“services”—and arguing that insurance, credit card transactions, transportation (airlines, ships), banking transactions all fell into this category (Shelp with Ehrbar 2006: 127).

Part of this strategy was making terms such as “services,” “financial services,” and

“trade in services” widely established in daily use, especially in the media and among key policy-makers. Harry Freeman argues that the term “financial services” was coined by American Express in 1979 and became part of the trade lexicon in the coming two years as a result of an aggressive communication campaign (Freeman 2000: 457). A similar intellectual effort was energized to make “goods and services” an established pattern in defining international trade.⁵⁷

Secondly, the service campaigners formulated the liberalisation of trade in services as a public good that would not only respond to their corporate interests, but also solve a number of pressing problems. TNCs built their case vis-à-vis policy makers not only by arguing that services were a significant source of employment, crucial to the U.S.,

57 To this aim, Freeman claims to have written at least 1600 letters to newspapers to establish the phrase “goods and services” in the mainstream vernacular (Freeman 2000: 457).

world trade and the global economy but also by effectively highlighting that it was an area subject to regulatory restrictions which could be eliminated by trade instruments and negotiations (Drake and Nicolaidis 1992: 50). Business leaders in their public speeches, contacts with policy-makers and in their media appearances highlighted services as a major source of wealth and employment for the United States and other advanced economies. These actors consistently reiterated that services constituted

“from 60 percent to nearly 80 percent of gross domestic product and employment”

(Freeman 1996: 19). To illustrate, in a speech, Ronald Shelp contended that 80 percent of 29 million new jobs created between 1970 and the mid-1980s were in services (Shelp 1986: 687). Similarly, Jim Robinson underscored the fact that that 13 million of 14 million new jobs created for the American female work force in the 1970s were in the service industries (cited in the Economist 25 December 1982). A representation of the services as a crucial set of economic activities vital to American wealth and employment became the standard business case for services to date.⁵⁸

Thirdly, the campaigners underscored that the U.S. was a top service exporter and that it was competitive in sectors such as financial services and telecommunications.

The liberalisation of barriers to trade in services would not only increase exports and

58 The CSI’s mission statement starts with the following sentences “[t]he Coalition of Service Industries (CSI) represents the interests of the dynamic American service economy, which employs 80% of the workforce and generates 3/4 of national economic output.”

http://www.uscsi.org/about/ accessed on December 15, 2010.

ease the problem of trade deficits, but would also address the problem of asymmetry in the openness of U.S. market vis-à-vis external markets (Aggarwal 1992; Freeman 1987: 138; Shelp 1981: 157). In this regard, the services case was not only framed in a free trade discourse associated with the rising neoliberal understanding, but also in connection with the ability of the U.S. to respond to the decline of its hegemonic power and competitiveness (Cafruny 1989, 129). To deal with the “free-rider”

problem, the United States should have provided MFN based access to its service markets only if reciprocal opening were secured from regulated markets such as that of NICs (Freeman 1986: 575). Bringing services to the GATT would not only enable the United States to open external markets, but also address the systemic problems of the GATT regime. Considering the speedy growth of world trade in services⁵⁹, and its direct association with trade in goods,⁶⁰ it was essential to broaden the scope of the GATT to curb protectionism and to update the system to address the problems of the

“post-industrial revolution” (Shelp 1986: 688-9; Freeman 1986: 573). This narrative was in concurrence with the popular debate about the beginning of the “post-industrial”

era with the decline of the old manufacturing base and the rise of service sector which

59 As per Freeman, the world trade in services was growing twice as fast of manufacturing trade as it increased from $85 billion in the early 1970s to an amount of $620 billion in the mid-1980s (Freeman 1986: 573).

60 It was argued that trade in services in banking, insurance, accounting, travel, transportation etc. was intertwined with trade in goods as an “indispensable adjunct of every traded product” (Freeman 1986: 573; Arkell 1992: 24).

captured the largest share in domestic production in the U.S. and other industrialised countries (Mundo 1999: 290).

The case of services -framed in trade terminology and presented along with the interests of the United States and the world trading system- was promoted through a proactive education campaign targeting key business leaders, policy-makers and the media. A significant channel to disseminate the business case for the GATT was in the advisory business bodies, which were created in the 1970s to inform U.S. trade policies. After its establishment, Jim Robinson of American Express would chair the Services Policy Advisory Committee (SPAC) on the advice of Harry Freeman (Kelsey 2008: 78). Similarly, USTR Bob Strauss appointed Hank Greenberg of AIG to the presidential ACTN (Feketekuty 1988: 304; Kelsey 2008: 77). On the other hand, Ronald Shelp would head the Industry Sector Advisory Committee on Services in addition to his chairmanship of the services committee in the U.S. Chamber of Commerce (Feketekuty 1988: 308; Kelsey 2008: 78). Intensive contacts with government officials through these bodies and regular lobbying activities would create a loose business-government coalition for trade in services in the United States that would expand in the early 1980s.⁶¹

61 Harry Freeman was succeeded by Joan E. Spero at Amex, who also worked actively for the services campaign and CSI. Spero was appointed as Undersecretary for Economic, Business, and Agricultural Affairs under the State Department by President Clinton in 1993.

The campaigners also engaged in conferences, interviews and articles in newspapers to establish the new pattern of thinking and to disseminate their case within civil society. Beginning in 1979, Jim Robinson as well as other campaigners gave numerous speeches in meetings they attended with academics, trade officials, members of Congress and other politicians (Yoffie and Bergenstein 1985: 131). They succeeded in drawing the attention of newspapers and the media. In March 1979, TPRC co-hosted a two-day conference with the Financial Times to discuss the multilateral trade framework for services liberalisation (Kelsey 2008: 79). Yoffie and Bergenstein (1985:

131) contend that, top American Express executives engaged in the trade in services campaign were quoted on an almost weekly basis in 1982 in widely read publications such as The Economist, Fortune, and The New York Times (Yoffie and Bergenstein 1985:

131). The issue would attract further attention as the Reagan administration embraced the case and started pushing the GATT agenda from 1982 on. “Drama” was created with the rise of resistance from India, Brazil and some other developing countries to the new issues before the launch of the Uruguay Round, which not only kept the issue in the news, but also stimulated additional requests for information from journalists (Feketekuty 1988: 311). By the mid-1980s the services issue became a well-discussed public topic in the United States media. In 1984, the Fortune magazine for the first time

published a list of top 500 companies for the services sector, as the counterpart of Fortune 500 list of manufacturing companies (Zumwalt 1996, 5).

With the motive of producing a legitimate academic basis for their case, U.S. business executives also heavily engaged in the production of new knowledge and analysis on services through sponsoring research and studies, and supporting and participating in conferences. Starting from the late 1970s U.S. and UK business leaders sponsored formal and informal meetings and conferences that gathered likeminded people from around the Atlantic and the world to educate policy leadership and extend the coalition for a GATT on services to experts, academics, journalists and government officials in other countries (Feketekuty; Shelp 2010, interviews). In the academic discussion and exchange of views, Hugh Corbet and the Trade Policy Research Centre (TPRC) played an active role especially through organising conferences, seminars and private meetings in different locations such as Ditchley Park (Oxford, UK), Wiston House (south of London), and the Rockefeller property in Bellagio (Northern Italy) (Feketekuty 1988: 310; Kelsey 2008: 79). The World Economy journal published by TPRC helped establishing the concept of trade in services in the academy (Feketekuty 1988:

310). While some business leaders wrote in this journal to contribute to the debate, Ronald Shelp of AIG also wrote a book titled “Beyond Industrialisation, Ascendancy of the Global Services Economy” in 1981 examining the ways to apply GATT norms to

services liberalisation. On the other hand, several research institutes and think tanks in the U.S. and Europe joined the policy debate with conferences and panels they held and new publications they generated.⁶² In 1983, the International Association for the Study of Insurance Economics initiated a Programme for Research on the Service Economy (PROGRES) in Geneva to provide a venue for debate on trade in services and regulations (Kelsey 2008: 79).

Active business engagement in the academic debate and production would have two significant consequences. The first consequence was the expansion of the core group of researchers, professionals and experts studying services as an expansive policy network or epistemic community. According to Dahan et al. (2006: 1573), policy networks are “self-organizing forms that coordinate a growing number of public (decision-makers) and private (interest groups) actors for the purpose of formulating and implementing public policies” and are “increasingly formed and accessed by”

TNCs. In fact, the transnational policy network for services that would expand

62 Among others these included U.S. based organisations such as U.S. Council for International Business, Council of Foreign Relations, National Foreign Trade Council, Committee for Economic Development, the Conference Board, Center for Strategic and International Studies, American Enterprise Institute, German Marshall Fund of the United States, and non-U.S. institutes and think tanks such as the Trade Policy Research Centre (London), the UK Liberalisation of Trade in Services Committee (LOTIS), Centre for the Study of International Negotiations (Geneva), Centre for Transnational Corporations (New York), Atwater Institute (Montreal), Promethee (Paris), and International Chamber of Commerce (Paris) (Feketekuty 1988: 311; 2010, interview; Wesselius 2002).

through the 1980s took the form of an epistemic community which is a particular form of policy network, “a network of professionals with recognised expertise and competence in a particular domain and an authoritative claim to policy-relevant knowledge within that domain or issue area” (Drake and Nicolaidis 1992; Dahan et al 2006: 1579; Haas 1992: 3). Drake and Nicolaidis (1992: 50) contend that the core Anglo-American nucleus of the services epistemic community were experts inspired by classical liberal thinking believing in the potential across-the-board applicability of trade norms and principles to service liberalisation (Drake and Nicolaidis 1992: 50).⁶³ According to Kelsey (2008: 77), the new research helped “construct a new legitimising discourse that depoliticised the services issue and translated [..] it into an abstract conceptual framework and technicist language that was capable of becoming law.”

To recapitulate, as envisaged by the business action plan, the tradability of services and the belief in the applicability of GATT norms to liberalize service markets became ideas shared by a broader group of people from around the world. This would eventually contribute to the change of “intersubjective meanings” within the trade

63 Drake and Nicolaidis (1992; 39) note that the services epistemic community consisted of a two-tiered membership whose first tier was composed of the business, government and international agency representatives who worked for institutions with direct interest in policy options produced by the community. The campaigners initially in the U.S., from the late 1970s on also in Europe and Japan, were supported by the second tier of membership which contained academics, industry specialists, journalists and lawyers who were interested in trade in services purely from an intellectual perspective.

regime from a goods mental framework to a goods and services framework.

Nevertheless, a transformation of the GATT regime would eventually come through only after fully convincing U.S. policy-makers, activating American trade bodies, and ensuring a consensus among OECD governments.