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US Services Trade by Multinationals
Dec 20, 2000

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  • Comment Board
  • Services trade through commercial presence is to have grown considerably in the last decade if one takes into account that almost 50% of world foreign direct investment inflows were services-related in 1998 according to UNCTAD data. This considerable change in the world economy results from technological and regulatory barriers that limit cross-border commerce of services. Even if the General Agreement in Trade in Services-GATS and new information technologies have fostered cross-border services trade in the last decade, some services providers still find exporting services extremely costly or even impossible, which forces them to open operations in the markets where their clientele are located. In addition, many of the fast growth services industries such as professional services, finance or communications are knowledge intensive businesses that can replicate successful ventures in foreign markets at a very low cost by taking advantage of the ‘public goods’ characteristic of knowledge that allows them to transfer these type of assets from the parent firms to affiliates efficiently. A firm providing business counsel can open operations in new markets and transfer its expertise to local employees without reducing the productivity in the parent firm. Not surprisingly, professional services explains close to 20% of sales of services by Affiliates of US corporations in foreign markets and has experienced outstanding growth during the last decade (Graph No. 2).


    Despite the costly and large number of mergers and acquisitions reported in the telecommunications industry in the past decade , these types of services only account for less than 5% of services sold by US multinationals in foreign markets despite growing fast since 1995. Financial services excluding bank affiliates explain 15% of sales in foreign markets. While motion pictures and wholesale and retail trade have experienced very little growth in the last decade, utilities in 1998 sold over 8% of services provided by US multinationals abroad, a significant increase after this industry accounted for less than 2% of US trade through commercial presence in1990. Fast growing sales followed the wave of acquisitions of foreign utilities after privatizations were adopted widely in Latin America and Australia and markets were deregulated in Europe.

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