The FTA sets international precedent in service trade - Free Trade Agreement between United States and Canada

Business America, Jan 30, 1989 by Merriam Mashatt

The services sector is vital to the American economy, representing almost 70 percent of the gross national product and employing 74 percent of the labor force. Services also is a trading sector of growing importance. Services are often commingled with the production of goods. For example, design and engineering services are usually major components of large capital goods like mass transportation systems.

U.S.-Canada trade in services was $31 billion in 1987 (business services, $12.7 billion; net income on investments, $17.8 billion). This is big business and it is growing rapidly.

The U.S.-Canada Free Trade Agreement (FTA) is precedent setting in the area of international services trade. The United States and Canada have reached the first comprehensive international agreement to provide discipline over the conduct of services trade. A code of principles has been developed which includes national treatment, the right to sell across borders, the right of establishment, and transparency in regulations. The FTA benefits more than 150 U.S. services sectors, including: wholesale and retall services, agriculture, construction, and various professional and business services.

This article describes the code of principles and the special provisions for telecommunications-enhanced services, tourism, architects, and financial services.

General Principles

Unlike many other markets in the world, Canada already provides a relatively open market for services, as does the United States. Therefore, our goals in the FTA were to assure continuing bilateral market access, and to set a precedent for the ongoing Uruguay Round of multilateral trade negotiations.

National treatment assures that any new Canadian law or regulation must treat U.S. service providers no less favorably than Canadian providers. This will provide stability and predictability for American businesses in the Canadian market.

However, this does not mean that Canada and the United States must always give identical treatment. Differential treatment may occur between domestic and foreign service providers for prudential, fiduciary, consumer protection, or other valid reasons.

For example, with respect to insurance, new state or provincial deposit requirements which are higher for a foreign insurer than a domestic insurer would not necessarily be inconsistent with the FTA. However, any differences in treatment must not be disguised barriers to trade and must be justifiable.

The Agreement assures United States service providers of the right to sell across the border. This is important when it is more economical for a business to provide the service from the United States, rather than establish a commercial presence in Canada. This right is especially important for many high-technology services, such as credit reporting and airline reservation services, where the normal means of delivery is over telephone lines to all customers from one central computer installation.

Conversely, when a local presence is the preferred (or only) method to provide a service in Canada, the FTA guarantees the right of establishment. Service firms often require a local commercial presence because the service must be produced in whole or in part where it is consumed, as in retail or wholesale trade.

The United States and Canada have agreed to make publicly available (to make transparent) all laws and regulations relating to services trade so that persons and firms who may be affected will have an opportunity to make their views known. Such transparency will enable U.S. services providers to participate with Canadian firms in the Canadian regulating process. It is essential to know the rules of the game.

Under the Agreement, professional persons have the right to cross the border into Canada under streamlined documentation and procedural requirements. The FTA provides for four categories of travelers: business visitors, professionals, traders and investors, and intracompany transferees. These professionals will no longer face labor certification tests or other similar procedures which have the effects of delaying or denying entry. (See separate article on border-crossing procedures.)

Sector Specific Principles

Telecommunications-Network-Based Enhanced Services. The FTA does not change the right of either country to allow monopolies in basic telecommunications services. However, it recognizes that these services are essential for the marketing of many other services, like electronic mail. The FTA guarantees companies who need to use basic telephone services the right to connect to and use those services.

Also, the FTA prevents the companies which sell basic telephone services from unfairly competing with other companies which use those services. It ensures against cross-subsidization by large monopolies, to protect new, smaller telecommunications service providers.

All computer services, such as software and computer leasing and rental services, which do not necessarily use basic telephone services as their means of distribution to customers, are granted all of the rights noted above under General Principles.