GATS AND ON-GOING SERVICES NEGOTIATIONS 1
Fundamentals of the GATS 2
Structure of WTO agreements Goods Services Int. property Dispute settlement Basic principles GATT GATS TRIPs DSU Other instruments Other goods agreements and annexes 8 annexes Market access Tariff schedules Schedules of specific commitments 3
What is GATS? Common to all Individual Short text of Articles - the Framework Sectoral and other Annexes Schedules of Commitments MFN Exemptions (only at outset & if needed) 4
GATS WTO Fundamentals Nondiscrimination Transparency of laws and regulations Progressive liberalization Reasonable regulation 5
Structure GATS flexibility... a traffic light approach SCH EDU LES STOP: Presumed trade barriers Prohibited Lack of transparency Discrimination among countries (MFN ) Progressively eliminate Discrimination against foreigners (National treatment) Quantitative restrictions SLOW: Potential trade barriers Technical standards Licensing criteria & procedures Qualification criteria & procedures Should be objective & not be more burdensome than necessary GO: Measures for broader policy objectives Exceptions for, e.g.: Health, safety Privacy Prevention of fraud Public morals and public order No exceptions for many other policies and measures, but disciplines are minimal 6
General Obligations & Disciplines in the GATS The different types Obligations Unconditional obligations: applying generally to all services, whether or not scheduled Conditional obligations: applicable only to services listed in schedules Exceptions Containing relevant disciplines to ensure that they are not abused 7
Unconditional General Obligations Most-Favoured-Nation Treatment (Art. II) 3 types of exemptions Transparency obligations (Art. III:1,4) Domestic regulation (Art. VI:2) Monopolies and Business practices (Art. VIII:1 and IX) 8
Conditional obligations: General obligations applying in committed sectors Transparency (Art. III:3) Domestic Regulation (Art. VI:1,3,5,6) Monopolies (Art. VIII:2) Payments and Transfers (Art. XI) 9
Scope and Definition (Art. I) MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS ALL SERVICES (except governmental services and air traffic rights) FOUR MODES OF SUPPLY Cross-border supply Consumption abroad Commercial presence Movement of natural persons 10
All government levels... The GATS applies to measures taken by : Central, regional or local governments and authorities; and Non-governmental bodies in the exercise of powers delegated by central, regional or local governments or authorities. 11
All services... In the GATS, services includes any service in any sector except services supplied in the exercise of governmental authority. The GATS does not define what a service is. 12
Services are classified in 12 sectors Business Communication incl. audiovisual Construction Distribution Education Environment Insurance and Banking Health and social Tourism Recreational, cultural and sporting Transport Others 13
The GATS does not apply to services provided in the exercise of governmental authority which, in turn, are defined as services that are supplied neither on a commercial basis, nor in competition with one or more service suppliers. (Article I:3(b) and (c)) 14
What are Governmental Services? Typical examples: Police, fire protection, monetary policy operations, tax and customs administration, but also basic (public) health and education services when fulfilling the criteria of Article I:3(c). 15
Definition of services trade MODE EXAMPLE (Health) Cross-border Trade Tele-diagnosis from Country B into Country A Consumption Abroad A's resident obtains hospital treatment in B Commercial Presence Hospital operator from B has subsidiary in A Movement of Natural Physician from B practices in A Persons 16
The 4 Modes of Supply Cross border supply - Mode 1 Service Supplier Service supplied into the territory of another Member Service Consumer Service Supplier supplies service from territory of one Member Service Consumer receives service in territory of any other Member 17
The 4 Modes of Supply Service supplied in territory of one Member to the service consumer of another Member Consumption abroad - Mode 2 Service Supplier Service Supplier supplies service in territory of one Member Service Consumer Service Consumer Service Consumer receives service in territory of supplier 18
The 4 Modes of Supply Commercial Presence - Mode 3 Service supplier establishes a commercial presence in the territory of another Member Any type of business or professional establishment Service Supplier Service Consumer Service supplied through commercial 19 presence
The 4 Modes of Supply Natural Persons - Mode 4 Service supplied through presence of natural persons of a Member in territory of another Member Service Consumer 20
Typology of Modes of Supply Mode Presence of supplier Form of Delivery Examples Cross border supply Consumption abroad Commercial presence Presence of natural persons No Yes From abroad into the territory of the Member Delivery outside the territory of the Member Through local establishment of legal entities Through physical presence of service supplier Telecommunications, mail, services incorporated in goods Movement of consumer or property abroad (e.g. tourism, ship repair) Corporations, joint ventures, representative offices, etc. Consultants, doctors, lawyers, interpreters, etc. (including employees) 21
Scheduling of commitments under the GATS 22
GATS and national schedules A Member s obligations are defined by GATS provisions and Its schedule of specific commitments 23
What s in a Schedule? The commitments listed Market access (Art. XVI) * National treatment (Art. XVII) * Additional commitments (Art. XVIII) * Listed by service and modes of supply Schedules do not bind laws - they bind a level of access (MA) or standard of treatment (NT) 24
How to prepare a schedule Choose sectors/sub-sectors to list Bottom up Considerations involved: Foreign investment priorities, desire to broaden economic base or fill gaps; desire to create employment or transfer know-how; enhance competition to reduce prices, improve efficiency, modernize or increase availability and quality of products, and requests made in negotiations Determine all restrictions that must be listed, if any, for each mode of supply Top down Review national law or regulations for existing limitations. Determine whether it is acceptable or intended to eliminate some of these (or the converse), whether it will be possible to eliminate some of these at a later date (phased in commitments), taking into account economic or political sensitivities in play and requests made in negotiations 25
The Ideal for commitments: Four C s Clarity Certainty Comparability Coherence 26
Structure of a schedule Schedules specify the extent of liberalization a Member guarantees in designated sectors which are based on the positive listing approach: Sector Limitations on Market Access ( four modes of supply) Limitations on National Treatment ( four modes of supply) Additional Commitments (Optional) 27
Market Access Column Definition: Article XVI Measures a Member shall not maintain or adopt unless specified in its Schedule are: a. limits on number of suppliers* b. limits on value of transactions or assets* c. limits on number of operations or the quantity of output* d. limits on number of persons that may be employed in a sector or by a supplier* e. measures that restrict or require specific types of legal entity or joint venture f. limits on the participation of foreign capital *or an economic needs test having the same effect Is considered a complete or closed end definition 28
Market Access Column Article XVI: Economic Needs Test The quantitative limit is not expressed as a specific number or amount. Instead, is determined by a market analysis (supply/demand) Can be performed by government authorities or it can be required of the license applicant Authorities may use the test to apply a quota that they adjust periodically or it can be determined on a case-by-case basis The main criteria help determine the level of 29 binding, so should be indicated in the schedule
Typical Market Access Limitations On the number of service suppliers; e.g. only a fixed N of bank licenses granted per year. On the value of transactions or assets; e.g. only a fixed amount of loans can be made to residents by foreign banks. On the number of operations or on the total quantity of service output; e.g. only a fixed N of bank branches or a fixed total amount of bank lending in local currency allowed. On the total number of natural persons that may be employed; e.g. only ten foreign personnel allowed for each establishment of a bank. Specific types of legal entity or joint venture; e.g. only incorporated subsidiaries of banks allowed. Limitations on the participation of foreign capital; e.g. only 51% of foreign capital allowed in banks. 30
National Treatment Column Definition: Article XVII Unless relevant limitations are specified in the schedule: Each Member shall accord to services and services suppliers of any other Member treatment no less favorable than that it accords to its own like services and service suppliers No discrimination in favour of national suppliers on a de jure or de facto basis Applies to all discriminatory measures This is considered an open ended definition 31
Typical National Treatment Limitations Requirement to invest certain amounts of assets in local currency. Restrictions on the acquisition of land by foreign financial institutions. Special subsidy or tax privilege granted to domestic institutions only. Special operational limits (e.g. limitations on the location of branches) applying only to branches or operations of foreign institutions. Nationality or residency requirements for the directors of financial institutions 32
Market Access & National Treatment Listing discriminatory measures National Treatment All other discriminatory measures belong in this column Market Access Discriminatory and nondiscriminatory measures fitting the Art. XVI definition of market access must be listed in this column 33
Market Access & National Treatment Terminology used in entries Term None Unbound Unbound* Limitation(s) specified Unbound except. Definition of Entry Binding to apply no limitations (within the meaning of Articles XVI and XVII). Also means none other than those listed in the horizontal section, if any, so need to specify if horizontal limits not applicable No commitment, no binding (usually entered for a particular mode of supply wherein other modes DO contain commitments) *Not technically feasible Binding where the relevant limitation(s) is specified Is understood to mean none, except i.e. that ONLY said limitation(s) will be applied (in addition to relevant horizontal limits, if any) Limits the scope of binding within a mode. Differs from limiting the type of services covered (which is noted in sector/sub-sector column) Limitations applied to the bound segment must also be listed 34
An Example... 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 Limitations on market access Limitations on national treatment Additional commitments A. Hospital Services (CPC 9311) 1) Unbound 2) Unbound 1) Unbound 2) Unbound 3) Only through incorporation with a foreign equity ceiling of 51 per cent 3) None 4) Unbound except as indicated in the horizontal section 4) Unbound except as indicated in the horizontal section 35
Relation of MA and NT to sector column Example: How does this work? Market access and national treatment obligations relate independently to the sector or sub-sector listed. So, unless otherwise specified, national treatment applies regardless of now the market access commitment is drafted Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons Sector or subsector Limitations on market access Limitations on national treatment Additional commitments A. Hospital Services (CPC 9311) 3) E.g. or or Only 5 foreign suppliers to be permitted Only through incorporation with a foreign equity ceiling of 51 per cent Unbound 3) E.g. None Does not mean No limitations only for suppliers covered under market access It means no limitations for all supplires in the market 36
Additional Commitments Column What can be listed? The definition of possible undertakings is openended They can be unique to a particular Member or Members can agree to a common set of additional commitments The Telecom Reference Paper is the first example of plurilatural negotiation of a common set of such undertakings 37
The Schedules Horizontal Measures To avoid repetition, limitations applied to a number of sectors are listed at the front of the schedule. Like sector-specific entries, they are legally binding. Listed by column & mode Some may relate to only one mode of supply: Example: Overall limitations on foreign investment, formation of corporate entity or land acquisition (market access/commercial presence) Others affect more than one mode of supply: Example: Tax measures contrary to national treatment 38
Why Make Commitments? 39
What do international trade negotiations offer? Deeper liberalization through reciprocal exchange of concessions Credibility through binding commitments Contribution to domestic policy coordination and co-operation 40
Complementary efforts Creating sound conditions for sector adjustment (legal, economic, institutional) Appropriate regulatory/institutional reforms to - ensure continued compliance with relevant policy objectives ( consumer protection, social and regional equity, etc.) and - supervise relevant markets Promoting international regulatory coordination ( compatible standards, recognition measures, etc.) 41
Harnessing international negotiations for development Domestic reform priorities must inform liberalizing commitments Market access priorities must shape negotiating proposals and requests Economic linkages (forward and backward) must be taken into account (a) Direct supply links contribution of general infrastructural services (telecom, transport, finance, etc.) role of economically related sectors (e.g. medical services and health insurance) (b) Broader synergy effects Example: "Thailand offers sun, sand, and surgery" (FT, 12.08.02) 42
Development-oriented access conditions Examples Training requirements; joint venture requirements(?); re-investment of profits; universal service obligations ( regional access, social equity); etc. Additional element of flexibility: pre-commitments on MA and NT 43
Phase-in-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 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 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 years. Will introduce revised commitments in 2006, conditional upon the passage and coming into force of new communication acts. 44
On-going services negotiations 45
Negotiations: core provisions Article XIX of GATS: Members shall enter into successive rounds of negotiations, beginning not later than five years from the date of entry into force of the WTO Agreement with a view to achieving a progressively higher level of liberalization Due respect for national policy objectives and levels of development Flexibility for developing countries to open fewer sectors and liberalize fewer types of transactions. Article IV:1: Facilitate increasing participation of developing country Members in world trade (access to technology and distribution channels, liberalization of sectors and modes of export interest) 46
Negotiating Guidelines (S/L/93) Objectives and Principles progressive liberalization; increasing participation of DCs; appropriate flexibility for individual DCs and special priority for LDCs; no change in the existing structure and principles of the GATS; due respect for national policy objectives and size of economies. Due considerations for SMEs. Scope no prior exclusion of sectors or modes; negotiation of (current) MFN exemptions 47
Negotiating Guidelines (S/L/93) Modalities and Procedures current schedules as starting-point; request/offer approach as main method; appropriate flexibility for individual developing countries; credit for autonomous liberalization; ongoing assessment of trade in services; additional subsidiary bodies may be established; time schedules to be developed by the Council as appropriate. 48
Main areas of negotiations Market access Specific commitments (Art. XIX) MFN exemptions (Annex on Art. II) Rules Domestic regulation (Art. VI:4) GATS Rules (Art. X. XIII and XV) 49
Outdated timeframe Initial requests shall be submitted by 30 June 02 a Initial offers by 31 March 03 a GATS Rules: Domestic Regulation, Procurement and Subsidies: prior to conclusion of negotiations on commitments; b Safeguards: entry into force not later than results of current round (subject to outcome of the ESM mandate). c Revised offers should be tabled by May 05 d a Doha Declaration b Negotiating Guidelines (March 2001) c CTS Decision of 17 March 2004 d Doha Work Programme (GC, 1 August 04) 50
Timelines set out in Hong Kong Declaration Outstanding initial offers shall be submitted as soon as possible Groups of Members presenting plurilateral requests to other Members should submit such requests by 28 February 2006 or as soon as possible thereafter A second round of revised offers shall be submitted by 31 July 2006 Final draft schedules of commitments shall be submitted by 31 October 2006 Mechanisms for the implementation of LDC modalities shall be completed by 31 July 2006 51
Hong Kong Declaration (WT/MIN(05)/DEC) New Facets: LDCs not expected to undertake new commitments Implementation of LDC Modalities Timelines (28 Feb / 31 July / 31 Oct) Negotiating objectives (Modes/MFN exemptions/scheduling principles) Members shall undertake plurilateral request-offer negotiations 52
Negotiating Objectives (I) Modes 1 to 3 (examples) No requirement of commercial presence (Mode 1) Commitments at existing levels of access (Modes 1 & 2) Removal or substantial reduction of ENTs (Modes 2 & 3) Enhanced levels of foreign equity, more types of legal entity (Mode 3) 53
Negotiating Objectives (II) Mode 4: Commitments on Contractual service suppliers & independent professionals, delinked from commercial presence Intracorporate Transferees & Business Visitors Removal or substantial reduction of ENTs Indication of duration of stay and possibility of renewal 54
Negotiating Objectives (III) MFN Exemptions Removal or substantial reduction of exemptions Clarification of remaining exemptions in terms of scope and duration 55
Negotiating Objectives (IV) Scheduling of Commitments Clarity, certainty, comparability and coherence ( 4Cs ) of commitments in line with Scheduling Guidelines Clarification of any remaining ENTs in concordance with Scheduling Guidelines 56
Negotiations After Hong Kong While the services negotiations were proceeding in line with the mandates and timelines set out in the Hong Kong Declaration, they were affected by the situation in other areas of negotiations. Divergent views exist among Members with regard to the role of services in the single undertaking of the DDA. 57
Market access negotiations 58
Approaches to MA negotiations Bilateral Request & Offer Plurilateral Reference Paper, Understanding, Model schedule, etc. Request & Offer Multilateral Formula? 59
Bilateral Request Offer Negotiations Circulation of requests Only to the relevant trading partners Without further procedural obligations (no notification or transparency requirements) Circulation of offers Envisaged improvements are inserted in current schedules and/or lists of MFN exemptions Circulation to all Members 60
To date, 71 initial offers and 30 revised offers have been received. *Counting 25 EC Members as one 61
Plurilateral Request-Offer Negotiations (I) 22 collective requests were submitted in accordance with paragraph 7 of Annex C of the Hong Kong Ministerial Declaration Three rounds of plurilateral meetings took place in 2006 and 2007 The fourth round of plurilateral meetings is scheduled for September 2007 62
Plurilateral Request-Offer Negotiations (II) Members assessment of the plurilateral negotiations was very positive: discussions were substantive, leading to a useful exchange of views; the plurilateral meetings not only helped clarify expectations and identify constraints, but also facilitated domestic consultations among ministries. The Chair of Special Session of the Services Council held a series of 'enchilada' consultations among ambassadors from delegations participating in the plurilateral request/offer negotiations 63
The negotiations on rules 64
The RULE-MAKING marathon Domestic Regulation (Art. VI.4) Emergency Safeguards (Art. X) Government Procurement (Art. XIII) Subsidies (Art. XV) 65
Domestic Regulation (Art. VI:4) MANDATE Develop any necessary disciplines to ensure that qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade. - Based on objective and transparent criteria - Not unnecessarily burdensome - Not in themselves a restriction on supply ( licensing procedures)
Historical Development Disciplines developed in the accountancy sector in 1998 as a test; WPPS was replaced by WPDR; WPDR is mandated to: Develop horizontal disciplines applicable to all services sectors Develop sectoral disciplines, in particular for professional services In accordance with the Hong Kong Declaration, Members shall develop disciplines on domestic regulation pursuant to the mandate under Article VI:4 of the GATS before the end of the current round of negotiations 67
Horizontal Issues for discussion in the past Necessity test policy objectives least trade restrictive measure reasonably available alternative means Transparency beyond Article III Equivalence Members to take account of requirements fulfilled in other countries International standards presumption in favour of regulation based on IS requirement to base regulation on IS 68
Illustrative List of Elements (I) Licensing requirements and procedures Transparency, requirements, procedures, documentation, review/appeal, timeframes and fees Qualification requirements and procedures Transparency, requirements, verification of qualifications and assessment of equivalency, examinations, procedures, documentation, review/appeal, timeframes, fees, mutual recognition agreements Technical standards Transparency, conformity assessment, use of international standards setting bodies 69
Illustrative List of Elements (II) Transparency (horizontal) Mechanism to respond to enquiries, publication, notice and comment, transparency of application procedures Objective scope and application Right to regulate, sector specific versus horizontal disciplines, application to specific commitments, non overlap with other GATS provisions Definitions Development considerations Compliance, Implementation, technical assistance and capacity building 70
Members Proposals Japan Draft Annex on Domestic Regulation EC Licensing Procedures Colombia Visa Procedures Mexico and Switzerland Technical Standards India and others Qualification Requirements and Procedures Brazil and others Elements for Draft Disciplines United States Transparency Australia Legal Services Chinese Taipei Telecommunications Chinese Taipei - Definitions 71
Disciplines on Domestic Regulation Possible Legal Form Annex to the GATS Scope of application (only where commitments are undertaken?) Uniformity of application Requires consensus Requires amendment of GATS Reference paper(s) Non-uniform application Does not require consensus Does not require amendment of GATS Other forms (e.g. additional commitments under Article XVIII) To be negotiated through request-offer 72
Progress in Negotiations on Domestic Regulation (I) Identify the elements to be included in the future text: Definitions; Objective scope and application; Transparency; licensing requirements and procedures; qualification requirements and procedures; technical standards; Development considerations 73
Progress in Negotiations on Domestic Regulation (II) Nearly 20 proposals submitted; Possible legal forms discussed (annex to the GATS or reference paper or other forms); Issues paper circulated by the Chair; Members converted their proposals into legal text; First draft proposed by the Chair; Negotiations based on the Chair s draft. 74
Emergency Safeguards (Art. X) MANDATE There shall be multilateral negotiations on the question of emergency safeguard measures based on the principle of non-discrimination. The results shall enter into effect on a date not later than three years from the date of entry into force of the WTO Agreement (Art. X:1).
Government Procurement (Art. XIII) MANDATE Art. XIII:1: Articles II, XVI and XVII shall not apply to laws, regulations or requirements governing the procurement by governmental agencies... Art. XIII:2: There shall be multilateral negotiations... under this Agreement with in two years from the date of entry into force of the WTO Agreement.
Subsidies (Art. XV) MANDATE... in certain circumstances, subsidies may have distortive effects of trade in services. Members shall enter into negotiations with a view to developing the necessary disciplines... - Recognize the role of subsidies in relation to development and the need for flexibility - Information exchange concerning all subsidies related to trade in services
Other issues in negotiations 78
Classification Should the Services Classification List be updated? If so, in which sectors? How to ensure the legal stability of existing commitments? 79
Assessment of trade in services Relevant Provisions: Article XIX:3:..the CTS shall carry out an assessment of trade in services in overall terms and on sectoral basis with reference to the objectives of the agreement including those set out in Art. IV. Negotiating Guidelines and Procedures: CTS shall continue to carry out an assessment of trade in services negotiations shall be adjusted in the light of the results of the assessment. 80
Modalities for the treatment of autonomous liberalization (TN/S/6) Article XIX:3 the guidelines and procedures for the negotiations shall "establish modalities for the treatment of liberalization undertaken autonomously by Members since previous negotiations ". Negotiating Guidelines and Procedures:... "based on multilaterally agreed criteria, account shall be taken and credit shall be given for autonomous liberalization undertaken since previous negotiations. Members shall endeavour to develop such criteria prior to the start of negotiation of specific commitments. 81
Modalities for the Special Treatment of Least Developed Countries (TN/S/13) Recognize the special economic situation of LDCs and the serious difficulty they face in the negotiations. Other Members shall exercise restraints in seeking commitments from LDCs. There shall be flexibility for LDCs for opening fewer sectors and liberalizing fewer types of transactions. Other Members shall give special priority to provide MA in sectors and modes of interest to LDCs. 82
Hong Kong Mandate: Implementation of the LDC Modalities Develop mechanisms fro according special priority to LDCs by 31 July 2006 Undertake commitments in sectors and modes of supply of interest to LDCs Identify LDCs development priorities Provide targeted technical assistance Develop a reporting mechanism 83
Negotiations on the Implementations of LDC Modalities Proposal by the LDC Group for a mechanism to grant special priority to LDC Members as a means to implement the LDC Modalities; Counter proposal by the Quad for a reporting mechanism; Main developing Members: common but differentiated responsibilities vis-à-vis LDCs. 84