AIG
Opening Trade in Services
By Maurice R . Greenberg and Lawrence A . Cunningham
Through the late 1970s , US officials did not believe that services were a particularly important part of the domestic economy . While the US Trade Act of 1974 had referenced international trade as including services , this aspect of trade remained a blind spot . This posed a huge cost to many global companies , such as American International Group ( AIG ). After all , trade in services offered substantial opportunities for economic growth that were not being harnessed . Maurice “ Hank ” Greenberg made it his mission , for AIG and the US , to correct this misunderstanding , a decades-long process that ultimately repaid mightily .
For purposes of international trade and US economic growth , rendering services is just as important and worthy of respect as selling goods . In fact , from the US perspective , the economic value of the service sector had been steadily rising and would grow even faster in the next decades . Yet many thought that expanding the scope of international trade agreements was infeasible at the time , due to other priorities being debated on longstanding issues of dispute among US trading partners .
At the time , international trade law still did not recognize services as part of the global trading regime . The General Agreement on Tariffs and Trade ( GATT ) did not encompass services . Though US policy supported open trade in services , the United States lacked the leverage usually available in trade disputes . It remained to convince world leaders to change these rules to open trade in services too , just as the global community had long preferred trade in goods to be open .
Maurice “ Hank ” Greenberg , former chairman and CEO of AIG .
Along with many American CEOs , James D . Robinson III of American Express , had grown frustrated over international trade in services in the late 1970s . Countries around the world blocked access to markets for charge cards and other financial products offered by American Express . Discrimination took many forms against different service sectors . While Japan strictly controlled financial firms operated by foreigners , other countries imposed duties on imported computer software that restricted the flow of financial information . Some countries gave subsidized loans to national shipping firms or imposed quotas on foreign movies . Subtler tactics forbade a foreign accounting firm from using its international name . Other tools were blatantly protectionist , like the punitive landing fees that some governments imposed on foreign air carriers .
In 1979 , as Robinson became exasperated with failed attempts to access foreign markets , American Express created a team to fight back . But Robinson discovered that no company , acting alone , could meet the challenge . After comparing notes about these problems , Greenberg and Robinson joined forces and organized other companies in their cause , which included Citibank in banking , Pan American World Airways in aviation and Peat Marwick Mitchell in accounting . In 1982 , this group became the Coalition of Service Industries ( CSI ).
The CSI ’ s mission was clear : equal treatment for services in international trade . That meant an even playing field , without discrimination between domestic and foreign companies , concerning establishing a business , accessing markets and offering new products . Throughout its history , the CSI called upon successive US Trade Representatives , all of whom understood the mission as in the national interest and worked avidly in support of it throughout the 1980s and 1990s .
In Washington , the CSI also won the support of many influential members of Congress from both parties and their staffs . Such support enabled the CSI to occupy a unique role on trade policy in Washington , as a member of an advisory committee on trade in services . The coalition used that role to urge global trade representatives to include trade in services on the GATT agenda . A breakthrough came quickly in 1982 , when William Brock , the US Trade Representative from 1980 to 1985 , persuaded his counterparts in vital countries to add it to the November 1982 GATT ministerial meeting in Geneva . This was the first formal international recognition of the subject as legitimate .
Why was it so hard to bring people worldwide to understand the importance of trade in services ? A principal reason was absence of statistics . Governments , including the US government , maintained substantial data on the volume of trade in goods . None , however , kept reliable track of trade in services . No one could verify its importance and few had the curiosity to ask . Among the first ambitions the CSI had was to persuade the US Bureau of Labor Statistics to measure trade in services .
The CSI reached that milestone in 1984 , when amendments to the US trade law mandated improved government data collection on trade in services . The figures stunned those outside the service industries . Trade in services , it turned out , was a central piston of the economy : by the 1980s , 70 % of the US GNP and jobs were attributed to the service sector ; international trade exceeded $ 1 trillion and onefourth of that was in services .
In addition to the lack of statistics , the intellectual underpinnings had not been formed . Classical economists , from Adam Smith on , dismissed service enterprises to be of secondary importance . These economists worked in a world when the
www . MoAF . org | Winter 2017 | FINANCIAL HISTORY 25