Basic Elements. GATS: Scope and coverage. What are services? GATS AND THE CURRENT SERVICES ROUND. GATS - Basic Features Washington, April 2004

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1 GATS AND THE CURRENT SERVICES ROUND - An Overview - Basic Elements Washington, April GATS: Scope and coverage MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS ALL SERVICES excluded: governmental services and measures affecting air traffic rights What are services? Business services Communication Construction Distribution Education Environmental S. Financial Services Health & Social S. Tourism Recreation & Culture Transport Other Services 3 4 1

2 Excluded: Governmental Services Not covered are services provided in the exercise of governmental authority, i.e. services that are supplied neither on a commercial basis, nor in competition (Article I:3) What are governmental services? Typical examples: Police, fire protection, monetary policy operations, customs administration, and any other public service (health, education, etc.) meeting the relevant criteria. 5 6 Definition of services trade: 4 modes of supply MODE Cross-border Trade Consumption Abroad Commercial Presence Presence of Natural Persons EXAMPLE (Health) Tele-diagnosis from abroad into Country A A's resident obtains hospital treatment abroad Foreign hospital operator has subsidiary in A Foreign doctor practices in A Scheduling of Specific Commitments 7 8 2

3 Bottom-up approach to services liberalization: Trade obligations are incurred only: in scheduled sectors; and to the extent that no limitations have been inscribed. Relevant parameters: Market Access National Treatment Six Types of Market Access Limitations (Article XVI:2) Number of service suppliers* Value of transactions or assets* Number of operations or quantity of output* Total number of natural persons* Type of legal entity or joint venture Foreign capital participation * Or requirement of economic needs test Open definition of National Treatment (Article XVII) (1) Treatment no less favourable than accorded to own like services and services suppliers. (2) either formally identical or formally different treatment (3) relevant benchmark: no modification of the conditions of competition in favour of own like services or service suppliers. How Schedules of Commitments are structured... Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons Sector or subsector 8. HEALTH RELATED AND SOCIAL SERVICES A. Hospital Services (CPC 9311) Limitations on market access 1) Unbound 2) Unbound 3) Only through incorporation with a foreign equity ceiling of 51 per cent 4) Unbound except as indicated in the horizontal section Limitations on national treatment 1) Unbound 2) Unbound 3) None 4) Unbound except as indicated in the horizontal section Additional commitments

4 Commitments are legally binding access guarantees Nevertheless, the GATS allows for departures in specified circumstances - protection of life & health, public morals, etc. - security concerns - Balance of Payments problems and renegotiation of commitments against compensation Please decide which of the following government measures would fall under: - Article XVI (market access, MA), - Article XVII (national treatment, NT), - both Articles (MA/NT), or - neither of them. [see Table] Government measure MA NT MA/ NT 1. Foreign construction firms may not have more than 10 contracts above US$1 million p.a. 2. Hotel services can only be supplied through joint ventures with local companies. 3. Maximum opening hours for stores from 9 a.m. to 7 p.m. 4. Licensing fee for restaurants: US$ Foreign banks cannot operate more than 1 branch per region of the country 6. Residency requirement for legal practitioners 7. Universal service obligation for voice telephone providers Neither/ Nor Current Patterns of Commitments

5 Country-pattern of commitments (May 2003) Countries Average number of commitments per Member Range (Lowest/highest number of sectors per schedule) Least developed economies Developing economies Developed economies* Accessions since 1995** * Western Europe, Canada, United States, Australia, N Zealand, Japan. ** Mainly transition economies. Total number of sectors: ~ Sector pattern of commitments (Developed/Developing Country Members, May 2003) Tourism Financial Business Communications Transport Construction Recreation Environment Distribution Health Education Developed Developing Modal pattern of commitments (Commitments on Market Access, per cent, July 2000)* General Obligations unconditional conditional DVD DVG DVD DVG DVD Mode 1 Mode 2 Mode 3 Mode 4 * Calculated on the basis of a sample of 37 sectors deemed representative for various services areas (See WTO Document S/C/W/99, 2 March 1999) DVG DVD DVG The upper part of each bar represents partial commitments, the lower part full commitments. DVD = Developed countries DVG = Developing and transition economies

6 The Cornerstone: MFN Treatment* each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country (Article II:1) * Except in the excluded services Permissible departures from MFN: Annex on Article II Exemptions Economic Integration (Article V) Recognition (Article VII) Elimination of regulation-related restrictions (licenses, certificates, etc.) Other - Labour Markets Integration Agreements (Article Vbis); - General and Security Exceptions (Art. XIV and XIVbis); - Prudential carve-out in financial services GATS & Transparency: General ( unconditional ) obligations: Publish measures of general application (Art. III:1) Establishment of Enquiry Points (Art. III:4) Establishment of Contact Points (Art. IV:2) Conditional obligation: Annual information requirement of new measures which significantly affect trade (Art. III:3) GATS & Domestic Regulation Reasonable, objective and impartial administration of measures (Art. VI:1) Standstill (Art. VI:5): No new regulation* that (i) would be unnecessarily burdensome, (ii) could not have been expected, and (iii) would nullify or impair a commitment. Other obligations (incl. legal review mechanism) Negotiations on necessary disciplines (Art. VI:4)* *Qualification requirements and procedures, licensing requirements, and technical standards

7 GATS & Competition: Disciplines on: Monopolies & Exclusive Suppliers (Art. VIII) Dominant Suppliers (Telecom Annex) Consultations: Business Practices (Art. IX) Subsidy-related problems (Art. XV) GATS & Financial Transactions: Payments and Transfers (Article XI:1) No restrictions on transactions relating to specific commitments Capital Transactions (Article XI:2) No restrictions inconsistent with specific commitments Main provisions (Art. IV & XIX) The New Services Round Objective of progressive liberalization with due respect for national policy objectives and the level of development of individual Members and appropriate flexibility for individual developing countries in line with their development situation

8 Timeframe Initial requests by 30 June 2002 Initial offers by 31 March 2003 Conclusion of all DDA Negotiations: no later than 1 January 2005 Related target dates for conclusion of negotiations on Domestic Regulation, Safeguards, Government Procurement, and Subsidies. 29 OFFERS received by early April 2004: 42 Schedules (covering 56 Members*) From developed countries (including Quad), several developing countries (in particular Latin America and Asia), transition economies (Bulgaria, Poland, Slovenia)... *Counting EC Members individually 30 The current state of WTO services negotiations Ambitious requests Disappointing initial offers (number and content) Stagnant rules negotiations What do international trade negotiations offer? In principle, three main benefits: Deeper liberalization through reciprocal exchange of concessions Credibility through binding commitments Regulatory cooperation Limited developing country participation

9 Harnessing international negotiations for development Domestic reform priorities must inform liberalizing commitments Market access priorities must shape negotiating proposals 33 Pre-commitments to enhance credibility (Basic telecommunications) LATIN AMERICA Argentina Grenada Venezuela AFRICA Côte d'ivoire Mauritius South Africa ASIA India Korea Pakistan Thailand No restrictions as of 8 November Reserved for exclusive supply until No restrictions thereafter. No restrictions as of 27 November Monopoly until 2005, no restrictions thereafter. Monopoly until 2004, no restrictions thereafter. Monopoly until 31 December 2003: thereafter duopoly and authorities will consider the feasibility of more licences. Review the subject of opening up of national long-distance service in 1999, and international services in Will raise foreign equity participation in facilities-based supplier. Proposes to divest 26% to a strategic investor who will have an exclusive licence for the operation of basic telephonic services for seven years. Will introduce revised commitments in 2006, conditional upon the passage and coming into force of new communication acts. 34 Inadequate Commitments in Mode 1 Audio Visual R&D Medical & dental Distribution services Financial data processing softw are Advertising Data Base Legal Accounting Architectural Computer hardw are consultancy Management consulting Data processing Softw are Implementation Online info & data base retrieval Mode 1 commitments in various services (as a percentage of total WTO Membership) 6% 13% 10 % 9% 3% 14 % 16% 16% 24% 21% 26% 25% 3% 29% 28% 28% 30% 9% 17 % 26% 3% 11% 19 % 9% 11% 26% 8% 10 % 12% 12 % 90% 83% 78% 73% 73% 67% 65% 65% 64% 64% 63% 62% 60% 59% 57% Full Partial None Complementary global efforts Devising sound policy Strengthening the regulatory environment Enhancing developing country participation in international standard setting Ensuring access to essential services in the poorest areas Tourism 38% 13 % 49%

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