If I want to vacation in New Zealand, dividing my time between Auckland, Mount Cook and Rotorua, my travel agent has a simple way of making the entire booking: He or she calls a toll-free number to the New Zealand consulate in San Francisco. Clerks there not only will confirm an airline flight, but will book me on local sightseeing jaunts and reserve a rental car. It's quick and efficient, makes my travel agent happier to book trips to New Zealand, and bolsters that nation's tourism income. It is also, the State Department says, illegal.
The State Department and the New Zealand Embassy here in Washington are in a flap over what to do about that San Francisco reservation office. But the little skirmish presages what could be a much bigger battle, stemming from a major change in U.S. trade policy written into law last year. That change makes clear that trade in services will be subject to the same rules as trade in products. While that concept makes perfect sense -- the dollar impact on the balance of payments is exactly the same whether you buy a West German car or take your family to Oktoberfest -- no one knows how it will work in practice.
That's because we think about goods and services differently. The very word "import" implies that something has arrived on our shores. The money on the German vacation was spent in West Germany, so it is harder to think of it as an import of services, even though that is just what it amounts to. As Cord Hansen-Sturm, a member of the government affairs committee of the U.S. Tour Operators Association (USTOA), points out, "if Japan or Germany were selling Toyotas or BMWs through their consulates, there would be a great hue and cry." But, in fact, New Zealand has been taking reservations for years with little notice. The State Department stepped in only when New Zealand centralized local reservation programs in the San Francisco office. Some Eastern European and Third World countries offer similar reservation services at their consulates.
Although New Zealand and the U.S. government have yet to work out the details, it is likely that New Zealand will move the reservation operation, which takes in some $1.2 million a year, out of the consulate and into commercial office space nearby. In diplomacy, "nothing ever moves quickly," notes David Chapman, the New Zealand Consul General in Los Angeles who oversees the San Francisco office. But clearly a move to a private building would cure any violation of the Foreign Missions Act created by the current selling of tourism services.
But that doesn't solve the basic problem at all, the USTOA insists. As the U.S. for-profit businesses see it, they are being forced to compete with an operation subsidized by a foreign government. And the tourism group wants Washington to treat the New Zealand reservation service just like other foreign merchandise, which can be kept out of the country if it hurts domestic producers by taking advantage of a government subsidy. It does not seem likely that the State Department will press that far.
The U.S. industry wants Washington to lay out some definite policy on the matter, and, in fact, expected that a meeting last month of the interagency Tourism Policy Council would lead to such a statement. But with the New Zealand contretemps unresolved, the broader issue was put on the back burner. What the USTOA had hoped for was a declaration that "the untaxed representations of national tourist offices are welcome to generically promote their destinations, but may not engage in specific commercial activities such as the sale of hotel rooms or tours in competition with tax-paying foreign and domestic travel companies."
There's wide disagreement on just how much is at stake in the controversy. Government economists tend to figure that when Americans buy foreign travel packages here, about 85 cents of every dollar spent flows to an overseas business. But those pushing for a tougher line against government selling of travel servics say that the 15 cents kept at home can be doubled if travelers buy their tours from U.S. companies rather than foreign operations. That could produce a $1 billion improvement in the trade deficit, they say.
The industry hopes that argument can persuade the U.S. government to give more attention to the problem. Tour operators could force the issue by bringing formal charges under the Trade and Tariff Act that foreign tourist offices are using subsidies and other questionable devices to take unfair advantage of their U.S. commercial competitors. But no one seems ready to take that potentially explosive -- and expensive -- step just yet.
The first time the federal government grapples with how to define what is fair competition in services, it will be laying down the rules for a lot more than the vacation industry. Last year's law was supposed to improve the U.S. balance-of-payments position in such fields as banking, insurance, data communication, health care, education, advertising, accounting and construction -- not merely tourism. So when Washington decides just what the New Zealand government can and cannot do to help me get a room at the Four Canoes Inn in Rotorua, Citibank, Allstate, and Bechtel may be very interested in the answer.