It debuted to little fanfare, but it represents an opportunity to revolutionize global trade.
It’s called the Trading System Preservation Act, penned by Sens. Rob Portman (R-Ohio) and Chris Coons (D-Del.). The bill, introduced a mere four days after Russia invaded Ukraine, didn’t get much attention. But it’s a rare instance of bipartisan support in favor of growing trade. Here’s how it could be a serious game changer.
The bill authorizes the U.S. to “initiate negotiations” on mini trade deals under the auspices of the World Trade Organization (WTO). These deals are called “plurilaterals.” They consist of a subset of members who agree to deeper trade commitments with each other than what the WTO requires of all 164 countries. As the bill goes out of its way to explain, this means that the resulting benefits will not be shared on a “most favored nation” basis, but be reserved exclusively for those that are in on this coalition of the willing.
Plurilaterals aren’t new. In fact, the WTO is already busy on several of the sectors the bill prioritizes, including environmental goods and services. The bill cuts new cloth in targeting pharmaceuticals and medical countermeasures, and “any sector” in which there is “substantial interference” by a foreign government, notably through subsidies or state-owned enterprises. But the bill should be seen as license to be bold. To wit, the U.S. should push for a plurilateral on Mode 5 services.
The rub is that there’s no such thing as Mode 5 services. Or at least not yet. The term has been bandied about for years. It’s meant to refer to a service that’s bundled with a good. The key is that Mode 5 is neither fish nor fowl. It’s new, and it’s big.
Services are delivered via four modes: Mode 1 are provided across borders, like tele-medicine; Mode 2 involve a customer and supplier interacting in the latter’s country, as per tourism; Mode 3 are delivered by the supplier in the foreign market, as where a consulting firm sets up an office abroad; and Mode 4, the most politically sensitive, are supplied by “natural persons” of the exporting country in the customer’s market. What, then, are Mode 5 services?
The way to think about Mode 5 is that it includes a “service in a box.” Consider, for example, a robot that uses artificial intelligence (AI). Most of the value added derives from the AI, but because it’s built into a robot, and thus treated as a good, the AI is subjected to tariffs and other import measures. It’s not easy separating out the AI from the robot. Mode 5 intends to solve this problem.
The U.S. should advocate for an ambitious definition of Mode 5. The goal should be a plurilateral that does two things. First, it needs to eliminate tariffs on goods embedded with services, like the proposed Environmental Goods Agreement. Second, it needs to liberalize the gizmos that result from this bundling from the many limitations abroad on Modes 3 and 4, in particular, going beyond the proposed Trade in Services Agreement.
The Trading System Preservation Act observes that “new sectoral agreements” would “reinvigorate the multilateral trading system and advance [US] interests.” Yes, but the added benefit of a Mode 5 services plurilateral is that it could do this by (literally) redefining the frontier of the global economy.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.