The U.S. service sector accounted for 83 percent of gross domestic product and 85 percent of employment in the private sector in 2004, reports the U.S. International Trade Commission (ITC or Commission) in its publication Recent Trends in U.S. Services Trade, 2006 Annual Report.

U.S. service firms are preeminent in global services trade, according to the report, and experienced a 13 percent growth in sales of services abroad by foreign-based affiliates of U.S. firms in 2003.

The ITC, an independent, nonpartisan, factfinding federal agency, compiles the report annually (no report was published in 2005). The report presents a statistical overview of U.S. trade in services and provides analyses of five service industries, examining cross-border exports, imports, and trade balances; services provided to U.S. and foreign consumers by multinational firms' overseas affiliates; and the competitive conditions affecting the global market for these services. In 2006, the industry-specific chapters cover air transportation, banking and securities, education, insurance, and legal services. The report also presents a chapter on U.S. services trade with China and a special topic chapter that estimates tariff rate equivalents (TREs) for barriers to trade and investment in commercial banking services in 50 countries.

Following are highlights of the 2006 report:

• Cross-border services trade accounted for 22 percent of total U.S. cross-border trade volume in 2004. Services trade generated a $47.8 billion U.S. surplus in 2004, in contrast to a U.S. merchandise trade deficit of $665.4 billion. Although adverse effects of terrorist attacks in 2001 on trade in service industries such as insurance services and banking and securities services have subsided, heightened security measures and more rigorous visa requirements have changed trade trends in services such as passenger and freight transportation services and education services.

• Increasingly in recent years, the value of services transactions through affiliates abroad has exceeded the value transacted through cross-border trade, reflecting continuing, although uneven, services trade and investment liberalization that encourages the globalization of service firms. In 2003, sales by foreign-based affiliates of U.S. firms reached $477.5 billion, while U.S. cross-border exports in the same year totaled $291.5 billion.

• Overshadowed by a $161.9 billion merchandise trade deficit, services trade with China netted a $1.6 billion U.S. surplus in 2004, though it was smaller than in recent years owing to surging U.S. imports from China of freight transport services, port services, and passenger fares. Despite uneven liberalization across Chinese service industries and substantial remaining Chinese barriers to services trade and investment, the continued expansion of China's economy and demand for key infrastructure services in China will likely enhance opportunities for U.S. service firms seeking to participate in the Chinese services market.

• The report estimates baseline TREs for nontariff measures on selected commercial banking services across 50 developed and developing countries, identifying several EU member states as having the smallest TREs and several Latin American countries as having the largest. The estimation of benchmark TREs will provide a basis for assessing progress made through bilateral and multilateral trade agreements in liberalizing services trade regimes.