Highway XVI Revisited. Petros C. Mavroidis Edwin B. Parker prof. of law at Columbia Law School, NY, prof. at the Un. of Neuchâtel & CEPR

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1 Highway XVI Revisited Petros C. Mavroidis Edwin B. Parker prof. of law at Columbia Law School, NY, prof. at the Un. of Neuchâtel & CEPR

2 Summary Case law has interpreted the GATS as if regulating market access for domestic services/suppliers as well. This construction of the GATS should be discarded on both legal and economic grounds. The GATS is a negative integration contract, where policies are defined unilaterally, and, assuming (negative) external effects, they will be internalized through the various committed disciplines. This understanding of GATS imposes sequencing market access disciplines to national treatment (NT).

3 The relevant provisions Art. XVII GATS reflects the NT discipline Art. XVI GATS (a) prohibits, in principle, recourse to six types of measures; (b) in its introductory sentence, it leaves the impression that it deals with foreign services/suppliers The relationship between the two provisions is not clarified in GATS (absent a scheduling guideline in Art. XX.2 GATS) Case law has moved to clarify it

4 Two alternative interpretations If XVI concerns both domestic and foreign services / suppliers, then limiting access to say 5 banks might entail no liberalization at all (depending on clarity of the language used, number of incumbents) If XVI concerns only foreign services / suppliers, then limiting access to 5 banks is up for grabs by foreign suppliers only From a trade liberalization perspective, the consequences can be quite important Privileging one over the other interpretation affects the nature of the GATS as well

5 The case law solution In US Gambling ( 265), the Appellate Body (AB) upheld findings of the Panel which were predicated on a construction of XVI so as to concern not only foreign, but also domestic services / suppliers.

6 Why is AB wrong? Textual arguments (the wording of XVI; the wording of Art. XX.2 is no obstacle) Contextual arguments: the function of trade agreements. The GATS is not an instrument where access to a particular services market is jointly regulated by the trading partners (no positive integration); the maximum promise is NT, which pre-supposes unilateral definition of policies (conditions for market access to specific services markets) Access for domestic services / suppliers will be regulated in domestic statutes (Bar statutes, laws, constitution etc.)

7 A (negative) external effect of the AB approach The AB approach, by necessity, entails less trade liberalization (or even, no liberalization at all if the number of incumbents matches the contractual promise and the language is such that one cannot infer that the promise concerns new services / suppliers).

8 The suggested approach WTO Members will decide whether or not to accord NT to foreign services / suppliers (1) If yes, then Art. XVI GATS is irrelevant (2) If no, they will indicate what is the treatment they afford to foreign services / suppliers (unbound, or other) (3) If no, and assuming that the deviation from NT is ensured through a measure included in the list of Art. XVI GATS, they will so indicate in their market access list (4)

9 Some explanations (2) WTO Members can still, while respecting their NT commitment, ban completely the sale of a service (à la US Gambling); its obligation to notify the ban is reflected in Art. III GATS (3) Through unbound, the WTO Member incurs no obligation to specify the extent of deviation ex ante; through other, it does In general: XVI trades place with XVII, which becomes the dominant discipline. XVII is (for good reasons) incomplete; XVI reflects the list of major impediments encountered in practice (that, in principle, should be abolished)

10 Does the suggested approach neglect transparency? Art. III GATS provides for a general transparency obligation (and it is justiciable) Art. III.5 GATS provides for cross-notification of deficient notifications

11 Testing the approach Run a test with respect to any one of the six measures identified in Art. XVI GATS Take limitations on the number of service suppliers: Argentina limits the number of new banks to 5. If NT reads none, 5 foreign banks will enter the Argentine market, assuming they fulfil the regulatory conditions that Argentine banks must fulfil as well; if NT reads unbound, all foreign banks know is that market conditions for them are more onerous than for Argentine banks; if other, then we distinguish between two scenarios

12 Testing the approach II (a) the measure is one of those enlisted in Art. XVI GATS: the entry (extent of deviation from NT) will come under Art. XVI GATS (as per Art. XX.2 GATS) (b) the measure is not one of those enlisted in Art. XVI GATS: the entry will come under Art. XVII GATS Run examples with any other measure enlisted under Art. XVI GATS: the conclusion stays the same; there is no need for legislative amendment

13 To recapitulate No need to re-draft the GATS in order to advance the suggested approach The suggested approach is in line with the rationale for trade agreements, and with the nature (negative integration) of GATS More generally: GATS case law evidences a number of imperfections (EC Bananas III; Canada Autos; Mexico Telecoms all know of many serious deficiencies).

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