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Karl Fessenden: Why International Services Trade Agreements Are Necessary

By Karl Fessenden October 23, 2012

Karl Fessenden of GE Power Generation Services, calls for agreements to liberalize international trade in energy services.

While the WTO dithers, it is increasingly clear that modern business needs an international agreement on services. This agreement would support the growth of high-skill jobs in the United States and other countries. It would also enhance the competitiveness of advanced manufacturing, as I recently said in testimony before the U.S. House of Representatives Trade subcommittee in September.

Services are a driver of job growth. Today, the services sector accounts for nearly 85 percent of non-agricultural U.S. employment. But we can’t rely on simply providing services inside the United States; an ‘export’ of a service takes place every time a U.S. business sells its time and expertise to customers abroad, or to foreign-based customers in the United States. In a global marketplace, services might encompass sending U.S. workers overseas to complete a task, or a U.S. business invoicing a customer abroad for a project completed and delivered over the Internet.

My GE business, Power Generation Services (PGS), provides electric utilities around the world with services to support GE’s gas and steam turbines, as well as other related equipment. I see the importance of services every day. For PGS, service support begins as soon as we install a turbine and lasts until it is retired, which could be as long as 30 years. Our services span from contractual maintenance and equipment repair to parts provisioning and remote monitoring & diagnostics. We have nearly 7,600 employees in over 100 countries – of which 4,100 are based in the US. We have more than 50 GE sites in 15 countries on 6 continents, and we have 9 joint ventures. Many of these people and operations are providing services ‘exports’.

Offering energy services supports the exports of US-made products. Gas turbines are GE’s—and the United States’—biggest clean energy export. Our ability to be a large manufacturer in the US is directly tied to the services we provide and is a key reason our customers purchase power generation equipment from us. Providing services for these turbines (and the related equipment) enables manufacturers, like GE, to maintain a repeat relationship with customers and long-term, post-sale revenue stream.

To continue to succeed, we need the operating certainty and market access that only comes through international agreements—especially given the rise in restrictions on services since 2008.

For example, numerous countries have measures, designed to foster local innovation and production, which require local sourcing or mandatory technology transfers from overseas companies operating on their soil. These are known as “forced local content” or “localization barriers to trade.” Though their objectives might be understandable, they tend to be expensive, result in inefficiencies and in fact dissuade local investment by manufacturers of advanced technologies.

Instead, governments can attract investment in local markets by putting in place policies and regulations that foster a dynamic, entrepreneurial business environment and create “win-win” opportunities for investors and local businesses alike. A services agreement would enable this by increasing market access.

The movement of people is another important issue for PGS. My business relies on its ability to send employees at a moment’s notice to locations around the world and to easily operate and service the equipment we export. However, many countries enact restrictions, such as onerous entry requirements and slow visa application and work permit processes, that impede us from deploying our technicians and delay the host nation from getting its power plants back on line. An agreement to facilitate and speed movement of highly-trained energy services personnel between countries would allow us to serve our customers more efficiently and effectively.

The old vision of trade simply doesn’t reflect modern business. An international agreement to address some of these issues has been stalled for six years at the WTO, but recently, a group of countries, including the United States, began discussing how to expand the WTO’s General Agreements on Trade in Services (known as GATS) next year. They need to address these points.

Today, trade happens through integrated global supply chains and includes life-cycle commitments to servicing, maintaining and operating the goods across international borders. Services today are “sourced” globally, and this allows for new opportunities for jobs. As we expand our business operations and enter more markets, we need to ensure that the system’s rules are sound and reflect modern business—so companies like mine can compete.

If you’re interested in learning more on this topic, check out Brad Jensen’s book on Global Trade in Services for an exhaustive study.

Karl Fessenden is Vice President of Power Generation Services at GE Power and Water.