Transcript: CEO podcast - Peter Allgeier
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>>Bruce Gosper: And so we’re joined now by Peter Allgeier. Peter, after a long and distinguished career in international trade across – at my count – at least six continents, is president of the Coalition of Services Industry. The Coalition, of course, represents the interests of US services companies, 80 per cent of the workforce and three-quarters of the national economic output of the world’s largest and most dynamic economy. Good morning Peter.
>>Peter Allgeier: Good morning, Bruce. Thank you very much.
>>BG: Peter, the Coalition of Services industries traditionally each year hosts a global services congress; this year in October in Washington. You usually have a range of people, including, of course, often ministers or senior business people from Australia, in particular from the Australian Services Roundtable. So this year at your congress, what do you expect to be the key issues that will be talked about amongst the various participants?
>>PA: Well Bruce, you’re right. We do have the --- our services summit coming up at the end of October and we look forward to the typical participation by the Australian private sector, and hopefully by the government, and there are a number of things that we’ll be focusing on - three things really.
One is in an educational element and that is to convey the understanding of services as the central nervous system of the economy, that no matter what economic activity someone’s engaged in, whether it’s services itself or it’s manufacturing or it’s agriculture they’re dependent on a whole array of services to make the enterprise successful. And there’s been more and more work along these lines, to look at a manufacturing operation and say well what services does that manufacturer depend on. And typical services of course would be legal and financial and accounting services, but there would be design services, distribution services. I mean if you are, for example, a producer of farm equipment, typically part of the package when you sell the tractor is there’s maintenance after the sale, so that you provide service for that, or there’s education to show the consumer how to use the tractor and there’s a whole array of services in any manufacturing operation.
So we want to get across the idea of the integration of services businesses with other businesses. That’s the educational component.
Secondly we want to talk about key issues that are facing services enterprises at this point. The rules on international services were negotiated 20 years ago and if you just think about the advances in technology and particularly in the internet related technology, the way business is operated and the kind of businesses people can do internationally in services has changed dramatically and the rules have not kept up with that. So certainly we want to talk about some of those developments and things such as the reliance on cross-border dataflow, competition with state-owned or state-sponsored enterprises, localisation requirements that seem to be popping up, where countries are saying that if you’re going to provide a service you’ve got to have a physical presence in the country and yet the whole trend in services is to deliver more services across the internet. So that’s the sort of --- I’ll say substitute policy component of the summit.
And then the third is to talk about the issues that are in the negotiations taking place, the international negotiations taking place on services. So for example, obviously the trans-Pacific partnership where services and investment related issues are one of the areas being negotiated - both Australia in the US are in that negotiation of course. Then there is the negotiation going on in Geneva among basically 50 countries, members of the WTO and, again, Australia and the US not only were involved in that but really we’re the two countries that promoted that and this is basically to make up for the fact that the WTO has not been able to produce something on services. And then, of course, for the US we’re doing --- we’re just beginning a negotiation of a free trade area, including services, with the European Union.
So those are the three kind of broad areas that we’ll be addressing in the global services summit.
>>BG: Okay. You spoke there quite a bit about some of the key issues facing world trade in services. I wonder what’s the backdrop to that, in particular are we seeing more protectionism in trade that affects services since the global financial crisis and if that is the case, what form is that protectionism taking?
>>PA: Yeah, I mean of course in services it’s a bit harder to measure the trend in protectionism than it is when you’re measuring tariff levels for example. But there definitely is a trend toward, if I can say new kinds of protectionism to respond to the new kinds of services businesses and services that are being offered internationally. And again I come back to this phenomenon of cross-border data flows which are essential to any services business. I mean if you think about financial services – banks and insurance companies are constantly moving their data across borders; that if you’re an insurance company you are probably processing claims in a few central areas, you’re not processing them in every single country where you do business. If you are an express delivery company like FedEx or UPS, it’s all about tracking the packages. If the package is picked up in France and it’s flown to the United States to their central hub and then it’s combined with other packages that are going on to Japan, you’ve got to be tracking this with data going across borders. And any other... business you can name, they’re moving data in their own internal operations, but also with respect to their customers and with their vendors where they’re procuring goods and services. And what we’re seeing is more and more countries are looking at this and saying “Well we don’t like the idea that you’re moving data about...” let’s say “Korean insurance customers across the border to the United States to process their claims.” So you see that sort of thing happening and countries will say “Whoa, and your server is all over in the United States”. For example, if you take a credit card company, and I won’t name a credit card company but one of the credit card companies says that all of their operations are processed in one location, that that’s the most efficient way to do it. Now just so you know, they have a second backup location for security purposes but if they had to process all of their payments in each and every country where they were operating, it would basically break their business model.
So this I think is the overwhelmingly important issues in services and, as I said, many countries are saying “Well we want you doing it in our country. We want the server in our country.” So we’re seeing that kind of change and response to the new business model and we see new protection models.
>>BG: Well thank you. Well, of course as part of the outcome of the global financial crisis there’s a lot of uncertainty around about prospects for world growth. Some good news more recently from the northern hemisphere economies, including the US, but still this great deal of uncertainty about the world economy and how it’s faring. So I wonder if you’d tell us a little bit about the contribution that services make here. I notice that you’ve just released a study by Ed Gresser that talks about services and global recovery and in particular suggesting that cross-border services, exports and sales via investments are far below potential and is it the case that this is a significant issue for world growth and recovery?
>>PA: Yeah, I mean the... That’s a tough question. The services --- I don’t know that you’d say that they’re so much a leading sector of the economy in the sense that they are very... Some of them are independent and they grow as there is an economic recovery. Obviously things, you know, if you think about things like insurance or many of the financial services, you know, they respond to the rest of the economy.
In other areas, if I think about it... Well if you think about express delivery, for example, their business depends entirely on whether there’s a rebound in the economy, whether it’s consumers who are purchasing things on eBay or Amazon or something like that, or whether they are manufacturers who are shipping equipment overseas or even domestically. So a lot of the services are sort of followers of the general economic recovery and some of them are seeing a rebound here in the United States. But still, I mean for example there was a report the other day on the express delivery people and they still are not seeing the sort of rebound that they were looking for.
On the other hand, the services provide a way for entrepreneurial people to get in business in a way that they couldn’t in the past. I mean a lot of small businesses could never have thought of delivering services over the internet in the past and now they can. So, you know, that’s a source for growth, but it basically attracts the overall recovery.
>>BG: Mm. Mm. Some of the recent work done by the WTO and OECD on the value added component of trade has underlined that in fact services is the major part of world trade, outstripping goods, which is something I think that’s quite significant for trade policy at the moment. Is this sort of understanding of what is the nature of global trade and helping with the reform agenda, helping with discussions about trade liberalisation affecting services?
>>PA: Yeah, well first of all I think this is a very, very significant finding and basically what it is is the WTO and the OECD looked at international trade and broke it down to see what part is really manufacturing, what part is really agriculture and what part is really services. And by that what I mean is when you look at the normal trade statistics, if someone ships an automobile from one country to another, the entire value of that automobile is counted as a manufactured good. Where in reality a significant percentage of that automobile involves services – services that the automobile company themself may have incorporated, let’s say engineering services or design services or safety testing services, whatever. And a lot of the services are internal services that they have like accounting and so forth, and then also services that they contract for, like distribution services, for example, or the shipping services. So what the World Bank... ah, not the World Bank, the WTO and the OECD did is they used input/output tables and said if you look and see exactly what tasks are being done, that world trade in services, instead of being 23 per cent of world trade, actually services are 45 per cent at least for the rather large sample of countries and businesses that they looked at. So that is a very important finding and I think that that does help, to have people understand the role that services plays in a country’s competitiveness and in a company’s competitiveness.
So, for example, I mean if you do not have efficient services and information and communications technology you’re going to be at a big disadvantage in manufacturing and so you’ve really got to look at this as the integration of services with the other parts of the economy. And, you know, you hear for example here in the United States President Obama talking about bringing manufacturing jobs back to the United States. Well that’s not going to happen if our services businesses don’t have the efficiency necessary to make the manufacturing competitive. So this is a very important finding and, yes, I think it is, it’s helping people to understand the economy in a much more sophisticated way than in the past.
>>BG: So I presume that flows onto all export sectors in fact, not just manufacturing but for instance agriculture. If you... Whatever your comparative advantage in these areas, being competitive in the international markets will rely to a good extent on the competitiveness of your services sector.
>>PA: Yeah. No, it’s very much a case in agriculture, exactly, and this was recognised by our Farm Bureau here in the United States where they recently wrote a letter to the Administration pointing out the various services that they require.
>>BG: Oh so your Farm Bureau is engaging the Coalition of Services Industries as well?
>>PA: Yeah.
>>BG: Around the broader competitiveness agenda and how it affects their exports?
>>PA: That’s one of the elements, yeah.
>>BG: Yeah, yeah, very interesting development. Well, I thank you very much, Peter, for your time today. We certainly wish you well with the global conference. I’m sure there’ll be a strong Australian participation in that conference and we look forward to working with you on improving the competiveness of services sectors everywhere and open global markets.
>>PA: Well thank you very much, Bruce, and we very much appreciate the work that the Australian delegations do in the various negotiations that we share in Geneva and in the trans-Pacific partnership and wish you the best in your work at Austrade.
>>BG: Okay. Thanks very much Peter. Cheers.
>>PA: Okay, thank you Bruce.
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