WTO Trade in Services Professor dr. juris Ola Mestad Centre for European Law and Scandinavian Institute of Maritime Law International Economic Law Course Spring 2009

Character of GATS The GATS is basically a framework for negotiations Much more so that the GATT At the same time: A legal system Negotiating rounds in the WTO Including services Currently the Doha Round Negotiations broke down 29 July 2008

Importance of Trade in Services Services approximately 68 per cent of world GDP Only 20 per cent of global cross-border trade (Van den Bossche p 476) Why? Potential gains from liberalisation of trade in services two to four times those of liberalistion of trade in goods (Van den Bossche p 402) Is this possible to calculate? Are services more difficult to trade? Protectionism?

Some Main Rules of GATS Most-Favoured-Nation (Art. II) No discrimination between different foreign service providers Market access (Art. XVI) Right to provide services to or within a country National treatment (Art. XVII) No discrimination between foreign and national providers Domestic regulation (Art. VI) All general national measures shall be ”administered in a reasonable, objective and impartial manner”

The Difficulties in Expressing Opinions on GATS Law The wording of the agreement is vague and abstract, without claryfing additional agreements The agreement is very new with little clarification in case law GATT was agreed in 1947 and has much case law The US – Gambling case is central Services are much more complex phenomena than goods But much of the language in GATS has been drawn from GATT

Complex Areas of Application for GATS-rules A few types of services fully excluded Some transport services de facto excluded Next level: Minimum effect: coverage only by some general rules, e.g. on transparency (Art. III), and listed exemptions from the Most-Favoured-Nation clause Normal application: general rules and Most-Favoured-Nation treatment Stepping up: Sector and, eventually, qualified, application with respect to market access and national treatment (This can be varied in many ways) Last step: Full unconditional sector commitment

GATS and Different Sectors GATS covers international trade in services A broad services concept Trade in services include establishment of foreign service providers GATS covers practically all types of services Some annexes to GATS reduce the applicability

Sector Based Scheduling System Each country has its own schedule where it can list market access and national treatment obligations and exceptions The system is taken from the GATT goods system See e.g. China’s list, available on www.wto.org/english/tratop_e/serv_e/serv_commitments_e.htm E.g. 52 members have listed commitments in 11.A Maritime Transport Services Scheduling based on 4 modes of delivery of services From one member territory to another (cross border) In one member territory to service consumer of another member (consumption abroad) Supplier of one member with commercial presence in another territory Presence of service supplying natural person in territory of another member

The Four Modes of Supply, Art. I:2 2.       For the purposes of this Agreement, trade in services is defined as the supply of a service: (a)       from the territory of one Member into the territory of any other Member; [cross border] (b)       in the territory of one Member to the service consumer of any other Member; [consumption abroad] (c)        by a service supplier of one Member, through commercial presence in the territory of any other Member; [commercial prescence] (d)        by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member. [prescence of natural persons]

Which Modes Are Difficult? Importance in current trade Mode 1) and 3) 40 per cent of world trade each Mode 2) 20 per cent Mode 4) insignificant (Van den Bossche p 338) Strongest interference with national markets and organisation Mode 3 and 4?

The exception for some public services in GATS Art. I.3 GATS covers all international trade in services ”except services supplied in the exercise of governmental authority”, ref. Art I.3.b. which means: ”any service which is supplied neither on a commercial basis nor in competition with one or more service suppliers” This is a very narrow exception Probably mainly not important in most cases

Article II: Most-Favoured-Nation Treatment 1. With respect to any measure covered by this Agreement, 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. 2. A Member may maintain a measure inconsistent with paragraph 1 provided that such a measure is listed in, and meets the conditions of, the Annex on Article II Exemptions. …

Some Clarifying Definitions Article XXVIII (a) “measure” means any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form; (b) “supply of a service” includes the production, distribution, marketing, sale and delivery of a service;

Some Clarifying Definitions Article XXVIII Con’t (c) “measures by Members affecting trade in services” include measures in respect of (i) the purchase, payment or use of a service; (ii) the access to and use of, in connection with the supply of a service, services which are required by those Members to be offered to the public generally; (iii) the presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member; (d) “commercial presence” means any type of business or professional establishment, including through (i) the constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or a representative office, within the territory of a Member for the purpose of supplying a service;

Article XVI: Market Access 1.         With respect to market access through the modes of supply identified in Article I, each Member shall accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule. 2.         In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as: (a)        limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test; (b)        limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;

Article XVI: Market Access con’t (c)        limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test; (d)        limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test; (e)        measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service;  and (f)        limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment.

Article XVII: National Treatment 1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers. 2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers. 3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member.

Preparation for Next Week Read central parts of Appellate Body report: United States – Measures affecting the cross-border supply of gambling and betting services, 7 April 2005, WT/DS285/AB/R Read Markus Krajewski. “Public Services and Trade Liberalization. Mapping the Legal Framework”, 6 Journal of International Economic Law (2003) pp. 341-367