Trade Liberalization in Services: An Analysis of the Obstacles and the Opportunities for Trade Expansion by U.S. Law Firms

Article excerpt

This paper discusses the obstacles faced by U.S. law firms abroad and assesses the opportunities for trade expansion within the framework of recently revised rules to liberalize international trade in services. The regulatory obstacles include requirements for local presence and qualifications, the types of business formation and fee setting standards etc. while the country specific obstacles include competition from accounting firms, staffing, and operating in multi jurisdictional systems. Key features of the recent trade laws include the most- favored-nation principle, the transparency of regulations and dispute settlement procedures and the freedom for providers of services to use any mode of supply. U.S. firms face more competition in UK and France. The implementation of the new trade agreements together with the ongoing economic and financial liberalization policies abroad should improve the competitiveness of U.S. firms.

INTRODUCTION

The market oriented economic reforms in Eastern Europe, Asia, and Latin America over the past several years have resulted in the development and growth of emerging capital markets, a rapid increase in cross-border investments, the international movement of labor and a greater need for consulting services. This transformation of the growth, pattern and conduct of international business has generated a rapid growth in trade in professional services, including law, management consulting, accounting, insurance, telecommunications, and engineering. Besides the recent trade liberalizing agreements, there are three other factors that could contribute to further increase in trade in services. First, the growing demand for new services in the areas of intellectual property rights, telecommunications, international capital markets and consulting. Second, the increased participation of more countries (mainly from Eastern Europe and the former Soviet Republics) in the world trading system, and third, the requirement for legal and regulatory institutions in the emerging countries of Asia, Latin America, and Africa that are implementing rapid privatization programs. At a recent workshop on professional services, organized by the Organization for Economic Cooperation and Development (OECD, 1996), the participants identified many key obstacles to the internationalization of professional services. These included the lack of adequate access to local markets, restrictions concerning the establishment of firms, the recognition of the qualification of foreign professionals, and nationality requirements etc. These types of restrictions (non quantitative) are common in trade in services unlike quotas and tariffs which are more typical in trade in merchandise.

The recently revised rules in international trade agreements, for example, the General Agreement on Trade in Services (GATS) which resulted from the Uruguay Round (1986-93) of trade negotiations, have differentiated trade in goods from trade in services. The pre-Uruguay Rounds of the General Agreement on Tariffs and Trade (GATT) focused primarily on trade in goods; services were considered inputs (intangibles or invisibles). Also an important result of the Uruguay Round was the creation of the World Trade Organization (WTO), an institution for administering multilateral trade agreements, including services and intellectual property rights. Trebilcock and Howse (1995) discussed the provisions for the liberalization of trade in services under the Canada-USA Free Trade Agreement, the North American Free Trade Agreement (NAFTA), the World Trade Organization Council on Trade in Services, and the OECD Code on Invisibles. These agreements are discussed in another section of the paper. The economic impact of globalization has stimulated much research interest in the service industries. The growing economic importance of this sector to the U.S. economy warrants a comprehensive analysis since firms must implements a global strategy in light of growing international competition. …