Introduction to the GATS Hanoi, May 2005
What is the GATS? General Agreement on Trade in Services Relatively new agreement (Uruguay Round) Unfinished - some disciplines still under negotiation Comprehensive covers movement of capital, labor and consumers, as well as cross-border trade in services Wide in scope, but flexible in application Choose which sectors to open Choose nature and extent of market opening In absence specific market opening commitments, relatively few general disciplines apply Right and need - to regulate services recognized But regulatory capacity remains a challenge 2
Structure of presentation Scope and coverage Specific commitments General obligations Unfinished business The current negotiations Concluding thoughts 3
Scope and coverage 4
Scope and coverage Covers measures affecting trade in services Measures includes laws, regulations, rules procedures, decisions, administrative actions Affecting trade in services (may not directly regulate it, but can affect it all the same) Broad in scope 5
Scope and coverage All levels of government Includes sub-national level Members shall take such reasonable measures as may be available to them to ensure observance And non-governmental bodies exercizing delegated authority Purely commercial decisions with no government involvement are excluded 6
Scope and coverage All services EXCEPT Air traffic rights Services in the exercise of governmental authority No HS-equivalent for defining services Open-ended ended classification system developed by GATT Secretariat (W/120) Cross-references references UN Central Product Classification (Provisional CPC) for most services Voluntary, but most WTO Members have used 12 sectors and around 160 sub-sectors sectors 7
Scope and coverage: Business services Communication Construction Distribution Education Environmental services services Financial Health and social services Recreation and cultural services Tourism Transport Other 8
Scope and coverage: governmental services Services in the exercise of governmental authority (Article I.3) Services supplied neither on a commercial basis Nor in competition with one or more service suppliers What does this mean? Continuum private/public in many countries for key services; no easy distinction 9
Scope and coverage: governmental services Typical examples: Police, fire protection, monetary operations, customs services Plus other public services (health and education) where they meet the criteria.. 10
Commercial Scope and coverage: governmental services General understanding that refers to for-profit Elements of cost recovery may not be sufficient Competition Mere co-existence is not competition Cumulative both conditions must be met for a service to be excluded Also inter-related related No clear definition, but no interest any WTO Member in narrowing the scope Not an exceptions provision, therefore no requirement that it be interpreted narrowly 11
Scope and coverage: governmental services Why were not all public services simply excluded from the agreement? Difficulty in finding a definition which covers circumstances in all 148 WTO Members Could have emptied the agreement And denied those countries which are trading these services the opportunity to make commitments Picture changes over time (e.g., energy, telecoms) Came up with criteria to capture basic idea No jurisprudence yet And may not be for some time.. 12
Scope and coverage: governmental services Should we try to clarify the scope of the carve out? Under consideration BUT Risk that inadvertently narrow the exception Members can define the scope of their market opening commitments to reflect the particular situation in their country Few general obligations apply where commitments are not made Not ideal, but to date no major problems 13
Scope and coverage: 4 modes of supply MODE EXAMPLE (Health) 1.Cross-border Trade Tele-diagnosis from abroad into Country A 2.Consumption A's resident obtains hospital Abroad treatment abroad 3.Commercial Foreign hospital operator has Presence subsidiary in A 4.Presence of Natural Foreign doctor practices in A Persons 14
Specific Commitments 15
Specific commitments Bottom up only incur obligations in scheduled sectors and to extent no limitations are inscribed Very flexible agreement, countries can choose To make no commitment To open up only part of a sector or sub-sector sector To exclude a certain mode of supply To commit to less than existing access and conditions To place limits on market access To discriminate in favor of nationals i.e., to limit national treatment 16
Specific commitments Flexibility, cont d To commit to market opening at a future date (pre-commitments) To place limitations on a particular mode of supply for all sectors (horizontal commitment) To make additional commitments, e.g., on good regulatory practice Reference Paper on Basic Telecoms 17
Specific commitments: market access limitations Set out in agreement (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; can apply to foreigners and nationals or just foreigners 18
Specific commitments: national treatment Treatment no less favorable than that accorded to like national services or service suppliers Formally identical or formally different treatment Key test is the modification of conditions of competition in favor of national service suppliers Harder to determine E.g., language requirement does it alter the conditions of competition or is it an essential part of the required qualifications? Is it genuinely open to foreigners to meet? Need to look on a case by case basis, raising challenges in coordination across government Subsidies offered only to nationals must be scheduled 19
Specific commitments: schedules 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 Limitations on national treatment 1) Unbound 2) Unbound 3) None Additional commitments 4) Unbound except as indicated in the horizontal section 4) Unbound except as indicated in the horizontal section 20
LATIN AMERICA Argentina Grenada Venezuela AFRICA Côte d'ivoire Mauritius South Africa ASIA India Korea Pakistan Thailand Specific commitments: pre-commitments (Basic telecommunications) No restrictions as of 8 November 2000. Reserved for exclusive supply until 2006. No restrictions thereafter. No restrictions as of 27 November 2000. Monopoly until 2005, no restrictions thereafter. Monopoly until 2004, no restrictions thereafter. Monopoly until 31 December 2003: thereafter duopoly and authorities ties will consider the feasibility of more licences. Review the subject of opening up of national long-distance service in 1999, and international services in 2004. 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 n years. Will introduce revised commitments in 2006, conditional upon the passage and coming into force of new communication acts. 21
Specific commitments: special and differential treatment Flexible nature of agreement also reflected in nature of SDT Increasing participation of developing countries in world trade shall be facilitated through negotiated specific commitments relating to, inter alia,, liberalization of market access in sectors and modes of supply of interest to them (Article IV) Little evidence that this has been implemented 22
Specific commitments: country-pattern (January 2005) Countries Average number of commitments per Member Range (Lowest/highest number of sectors per schedule) Least developed economies Developing & transition economies 24 1-111 53 [105]* 1 149 [58-149]* Developed economies 106 87-117 Accessions since 1995** * Transition economies only Total number of sectors: ~160 103 37-149 23
160 140 120 100 80 60 40 20 0 Sector pattern (Developed/Developing Country Members, January 2005) Developed 24 31 Financial Business Tecommunications Construction Other transport Recreation Air transport Environmental Distribution Other communication Maritime transport Health Education Tourism
100 Specific commitments: modal pattern (Commitments on Market Access, per cent, July 2000)* 80 60 40 20 0 DVD DVG DVD DVG DVD DVG DVD DVG 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) The upper part of each bar represents partial commitments, the lower part full commitments. DVD = Developed countries DVG = Developing and transition economies 25
How binding are commitments? Guaranteed minimum treatment Can do more, but not less BUT GATS allows some departures Exceptions provisions (Article XIV) Necessary for the provision of life and health, public morals Necessary for security (Article XIVbis bis) But measures must not be an arbitrary of unjustified discrimination between countries where like conditions prevail or a disguised restriction on trade in services 26
How binding are commitments? Balance of payments (Article XII) Necessary, temporary, IMF advice Renegotiation of commitments (Article XXI) Compensation payable to affected Members Possible emergency safeguard Under negotiation 27
General Obligations 28
General obligations Unconditional (applies regardless of whether market opening commitments have been made for that sector) and conditional (only kick in where commitments have been made). Most favored nation (MFN): unconditional Unconditional and conditional Transparency Basic regulatory disciplines Basic competition disciplines Certain financial transactions: conditional 29
General obligations: MFN For all services covered by the agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favorable than that t it accords to like services and service suppliers of any other country c (Article II.1) Very valuable for smaller players. But some limits: One-off opportunity to claim exemptions Over 400 exemptions covering mostly transport and audiovisual services In principle 10 year limit Subject to negotiation Regional trade agreements and labor market integration agreements (Article V and Vbis) Substantially all discrimination and substantial sectoral coverage Recognition of qualifications (Article VII) Prudential measures in financial services (Annex) 30
General Obligations: transparency Make publicly available at national level all relevant measures of general application that pertain to or affect the operation of the agreement (Article III.1) Establish Enquiry Points (Article III.4) Member to Member Establish Contact Points (Article IV.2) Developing country service suppliers Annual notifications new or changes measures which significantly affect trade in services covered by commitments (Article III.3) 31
General Obligations: regulation Review of administrative decisions affecting trade in services (Article( VI.2) But not where inconsistent with constitutional structure or nature of legal system Reasonable, objective and impartial administration of all measures es affecting trade in services (Article VI.1) Timely decisions on authorizations to supply a service (Article VI.3) Standstill (Article VI.5) no new regulation (licensing and qualification requirements and procedures and technical standards) s) that Would be unnecessarily burdensome Could not have been reasonably expected and Would nullify or impair a commitment Article VI.4 negotiating mandate 32
General obligations: basic competition disciplines Consult on request on restrictive business practices (Article IX) Consult on subsidies (Article XV) Monopolies and exclusive service suppliers (Article VIII) can be maintained but must not Act in a manner inconsistent with specific commitments Abuse their monopoly position in competing in services outside scope of the monopoly Member must provide information on request in these instances 33
General obligations: financial transactions Payments and transfers (Article XI.1) No restrictions on international transfers and payments relating to specific commitments Capital transactions (Article XI.2) No restrictions inconsistent with specific commitments 34
Unfinished Business 35
Unfinished Business 4 areas left to be completed at end Uruguay Round Domestic regulation (Article VI.4) Subsidies (Article XV) Government procurement (Article XIII) Emergency safeguard (Article X) 36
Unfinished business: domestic regulation Negotiations to develop any necessary disciplines to ensure that measures related to licensing and qualification requirements and procedures and technical standards are: Based on transparent and objective criteria Not more burdensome than necessary In the case of licensing, not in themselves a restriction on the supply of a service Not all regulation - applies to measures which are neither MA nor NT and which are related to licensing and qualification requirements and procedures and technical standards Slow negotiations complex and sensitive Transparency or necessity? 37
Unfinished business: government procurement MFN and market opening provisions (Articles XVI and XVII) do not currently apply to government procurement Services purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of services for commercial sale Negotiations very slow Relationship to other WTO agreements? Relevant for public services discussion 38
Unfinished business: subsidies Recognizes that subsides may have distortive effects on trade in services Negotiations to develop necessary multilateral disciplines to avoid this Recognizes need for flexibility for developing countries given the role of subsidies in their development programs What is a subsidy? Few responses to survey What is trade distortive? What would disciplines do? Already covered by MFN and NT 39
Unfinished business: emergency safeguard Allows for the temporary suspension of commitments where import surge threatens to cause serious damage to domestic industry Exists for goods, why not services? Feasibility: How to measure an import surge (problems of stats)? How implement? How prevent e-trade? e Is mode 3 domestic industry? Identification of mode 4 suppliers? Schedule against commitments or general mechanism? 40
Desirability Unfinished business: emergency safeguard Given the existing flexibility in the GATS, including ENTs,, would this render commitments meaningless? Mode 3 could harm own nationals Potential to undermine any mode 4 gains BUT could encourage governments to make more ambitious commitments Developed countries largely oppose; developing countries views mixed 41
The Current Negotiations 42
Began: 1 January 2000 Negotiating Guidelines: 30 March 2001 Initial requests: 30 June 2002 Initial offers: 31 March 2003 Doha Work Program: 1 August 2004 Revised offers: May 2005 Negotiations on rules Domestic regulation, government procurement, subsidies prior to conclusion of commitments Emergency safeguard to enter into force not later than results of negotiations (subject to outcome on mandate) Time frame 43
Negotiating mandate Progressive liberalization Due respect for national policy objectives and level of development Appropriate flexibility for individual developing countries to make fewer commitments and open fewer sectors I line with their development situation Special priority for LDCs Special attention to export interests of DCs Consider the needs of small service suppliers of DCs 44
Negotiating mandate Commitment to respect existing structure and principles of the GATS (see modalities below) Current schedules as starting point for negotiations No sectors or modes excluded a priori (Re)negotiation MFN exemptions Credit for autonomous liberalization Based on assessment of trade in services Before completion negotiations, CTS shall conduct an evaluation of the results in terms of the objectives of Article IV 45
Modalities Several options: Bilateral (request and offer) Plurilateral Reference papers (e.g., on telecoms) Model schedules (e.g., for mode 4) Understandings (e.g., on financial services) Multilateral (formula) March 2001 Negotiating Guidelines agreed No change in existing structure and principles of the GATS Main negotiating method would be request and offer 46
Offers By January 2005, 47 offers Covering 71 Members Counting EU 25 individually Most developed Several developing (Latin America, Asia) Transition economies (e.g., Bulgaria, Poland) Requests circulated between the parties; no central information 47
Offers to date Take the form of tracked changes to existing schedules Both new commitments and improvements to existing commitments Highest number of offers by sector: Business services > 35 Financial services > 25 Horizontal commitments (includes mode 4) > 20 Telecoms,, tourism, maritime transport > 15 48
Sample Offer Source: WTO 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. Clinical Hospital Services (CPC 9311) C. Social services Limitations on market access 1) Unbound 2) Unbound 3) Only through incorporation with a foreign equity ceiling of 51 75 per cent Limitations on national treatment 1) Unbound 2) Unbound 3) Director must be a national None Additional commitments 4) Unbound except as indicated in the horizontal section 4) Unbound except as indicated in the horizontal section 49
State of play Despite ambitious requests, relatively few offers to date Around 50 non-ldc Members still to participate in negotiations Modest quality Progress on rules limited Much depends upon progress in lead up to WTO Ministerial in Hong Kong SAR in December 2005 50
Concluding Thoughts 51
Why do this? Much trade occurred in absence of GATS commitments and countries are likely to continue to liberalize unilaterally so what are the development gains from using the GATS negotiations? Credibility through locking in policy reform (including pre- commitments) Commitments should be informed by domestic reform priorities Also sends signal to foreign investors Deeper liberalization due to reciprocity Need to identify market access priorities and areas where win- wins are possible Regulatory cooperation Development of best practices, sound policy to strengthen regulatory environment 52
Why do this? Flexibility in GATS to accommodate specific policy concerns But identifying interests and translating them into commitments is a major challenge Still much to learn about what works best in services liberalization Gains from services liberalization also require sound complementary policies and strong regulatory capacity Use negotiations to start domestic debate, promote domestic reform and negotiate necessary technical or financial assistance from trading partners and international organizations, to undertake range r of necessary complementary policies. E.g., Enhancing developing country participation in international standard setting Promoting the development of regulatory capacity Assisting in development and financing of schemes to ensure access to essential services in the poorest areas 53
Thank you