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GATS Structure and Main Elements WTO Trade in Services Division

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1 GATS Structure and Main Elements WTO Trade in Services Division

2 GATS WTO Fundamentals Transparency Non- of laws and discrimination
regulations Non- discrimination Non-discrimination: Most favoured nation and national treatment Transparency: Public availability of measures affecting trade Regulation: Reasonable, objective, impartial, transparent and not more burdensome than necessary Competition safeguards: Aimed at the realization of obligations & commitments Progressive liberalization of trade Reasonable regulation

Perceived Features NOT “TRADABLE” AND NOT STORABLE Simultaneity of production and consumption Role of local establishment STRONG GOVERNMENT INVOLVEMENT Monopolies, public service traditions, universal service obligations Infrastructural importance (transport, telecom, banking,etc.) Role of non-economic objectives (social, cultural, safety) INTANGIBLE Quality criteria for services providers rather than for products NO TARIFFS Access conditions determined by regulation, quotas etc.

4 SERVICES . . . but: Certain services - international transport and communication - have been traded for centuries Services are supplied in conjunction with goods (finance, insurance, marketing, etc.) Services have become tradable as a result of: technical progress (e-banking, tele-medicine, distance learning) government “downsizing” market liberalization and regulatory reform

5 Economic Importance SERVICES Share in Production and Employment
Between less than 30 to over 70 per cent, depending on resource structure and level of development of an economy Share in Total World Trade Some 20 percent, on a BOP-basis (does not count the full value of trade through commercially present foreign suppliers)

6 What is GATS? Individual Schedules of Commitments Common to all
Short text of Articles - the “Framework” Annexes (including on Telecom) Individual Schedules of Commitments MFN Exemptions (only at outset & if needed)

7 The Framework of Articles
STRUCTURE The Framework of Articles Scope and definition - Part I General obligations & disciplines - Part II Specific commitments - Part III Progressive Liberalization - Part IV Institutional Provisions - Part V Final provisions - Part VI

8 Universal Coverage Scope and Definition Includes all services except:
Services supplied in the exercise of government authority. But only if these are not supplied on a commercial basis or in competition with other service suppliers Covers all measures including those of local and regional governments and non-governmental bodies exercising delegated authority Sectors: Business and professional Communications, all types Construction Distribution Education Environment Insurance and financial Health and social Tourism Recreation & cultural Transport, all types Other

9 Trade = Modes of Supply Scope and Definition Defined Examples
Cross border Service supplier not present in the territory where services are delivered Delivery of any services via telephone, fax, Internet, or the post Consumption abroad Consumers purchase services outside their country of residence Tourism, Repair of a ship in another country, Going to a hospital abroad for surgery Commercial presence Service supplying entities present in the territory to deliver services Establishing a bank branch or subsidiary Any foreign direct investment Presence of natural persons Entry and temporary stay of individual persons to supply services 1. Consultant services, Professional or business travel 2. Also, foreign employees of a firm supplying services

10 The different types Obligations
General Obligations & Disciplines The different types Obligations Applying generally to all services, whether or not scheduled Applicable only to services listed in schedules Exceptions Containing relevant disciplines to ensure that they are not abused

11 Across the Board General Obligations & Disciplines
Most Favoured Nation Treatment (no discrimination among Members or preferences to non Members) Transparency (publication of measures) Domestic Regulation (mechanisms for appeal of administrative decisions) Recognition (of licenses and certifications and licensing and qualification criteria) Monopolies & exclusive providers (prevent actions affecting MFN obligation) Business Practices (consultations on anti-competitive practices of companies)

12 General Obligations & Disciplines
Most-Favoured-Nation Treatment MFN is critical - it is what makes the WTO truly multilateral “… 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)

13 General Obligations & Disciplines
Transparency Applies to all services, whether or not listed in schedules Make publicly available all measures affecting trade in services Includes all relevant laws, regulations, licensing procedures & criteria, technical requirements, etc.

14 Applied to committed services
General Obligations & Disciplines Applied to committed services Transparency (notification of new or revised measures to WTO) Domestic Regulation (requirements, criteria & standards to be objective, publicly known and not unnecessarily onerous, procedures not restrictive, implement measures impartially, promptly inform applicants for licenses or other authorizations) Monopolies & exclusive providers (prevent actions adversely affecting commitments) Payments & Transfers (no restrictions affecting commitments)

15 General Obligations & Disciplines
Domestic regulation Reasonable, objective and impartial implementation of all measures related to committed services Licensing procedures and criteria, technical standards and qualification requirements should be objective, transparent and not more burdensome than necessary Subject to ongoing negotiations to develop specific disciplines Lee, question… would the term technical standard include any regulation that indicates how a services should be provided in general. E.g. in terms of prices?

16 Exceptions General Obligations & Disciplines
Economic integration & labour market integration agreements Restrictions on the balance of payments General & security exceptions Financial services: prudential measures (Annex)

17 Example: General Exceptions
General Obligations & Disciplines Example: General Exceptions GATS permits measures to achieve policy objectives such as protection of public morals and the maintenance of public order to protect privacy of personal data, confidentiality of individual records, and to prevent fraud The measures must not be more restrictive than necessary, applied in an arbitrary way, discriminate unjustifiably or be used as a disguised restriction

18 To be negotiated General Obligations & Disciplines
Disciplines on domestic regulation Emergency Safeguard Measures Government Procurement Subsidies

19 Listed in Schedules Market Access National Treatment
Specific Commitments Listed in Schedules Defined in GATS Part III (Arts. XVI, VXII & XVIII Market Access National Treatment Additional Commitments Listed in Schedules by service and modes of supply Indicates each Member’s legally bound guarantee of specified minimum levels of access or national treatment Schedules do not bind laws or regulations as such

20 Format of Schedules Organized into columns that specify the extent of liberalization in listed sectors for each type of obligation and mode of supply.

21 “Horizontal” Measures
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

22 Market Access & National Treatment
Using Modes of Supply Relevant measures to list Cross border Measures affecting the treatment of the service -- supplier not physically present Consumption abroad Measures relating the the consumer’s ability to secure the service abroad Lee, as a way to identify the type of measure this slide is quite good. However, is it also a way to explain the distinction between modes 1 and 2? If so, is it still relevant or safe to use? I have in mind the discussion in e-commerce paper and reply by Members that applying the measures to the consumer only would identify Commercial presence Measures relating to the supplier’s ability to provide the service by means of a corporate presence, e.g. investment laws, company laws Presence of natural persons Measures related to the ability of individuals (rather than corporate persons) to do business within the country,e.g. rules on business travellers, work permits

23 Definition: Article XVI
Market Access Column Definition: Article XVI Measures a Member shall not maintain or adopt unless specified in its Schedule are: . limits on number of suppliers* . limits on value of transactions or assets* . limits on number of operations or the quantity of output* . limits on number of persons that may be employed in a sector or by a supplier* . measures that restrict or require specific types of legal entity or joint venture . limits on the participation of foreign capital *or an economic needs test having the same effect Is considered a complete or “closed end” definition

24 Definition: Article XVII
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 Do you make the point of De facto non-discrimination? And if so… Have you heard anything about de fecto MFN? I was told that the Banana report introduced something on this…

25 Listing discriminatory measures
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

26 Market Access & National Treatment
Terminology used in entries Term Definition of Entry “None” 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 “Unbound” “Unbound*” No commitment, no binding (usually entered for a particular mode of supply wherein other modes DO contain commitments) *Not technically feasible Lee, as a way to identify the type of measure this slide is quite good. However, is it also a way to explain the distinction between modes 1 and 2? If so, is it still relevant or safe to use? I have in mind the discussion in e-commerce paper and reply by Members that applying the measures to the consumer only would identify Limitation(s) specified 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) “Unbound except …. “ 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

27 Structure of Schedules A Sample Commitment
Schedules are organized into four columns that specify the extent of liberalization in listed sectors for each type of obligation and mode of supply.

28 Additional Commitments Column What can be listed?
The definition of possible undertakings is open-ended 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

29 Regulations not listed in Schedules
General Obligations vs. Schedules Example: Regulations not listed in Schedules Requirements for obtaining a license The applicant must demonstrate an adequate financial base and the technical capability to supply the services subject to the license Criteria relating to financial base minimum capital requirement of £50,000 presentation of a business plan Criteria relating to technical capacity At least 2 staff must be certified engineers with 5 or more years of experience Implication: A license can be denied if the applicant does not satisfy the criteria, even if commitments with no limitations are scheduled on that service

30 Other scheduling techniques
Telecom “technology neutral” approach Understanding on Financial Services Maritime transport Air transport Other: Check-list approach... Tourism? Energy?

31 Types of Annexes On provisions On sectors On the extended negotiations
GATS Annexes Types of Annexes On provisions Article II (MFN Exemptions) Movement of Natural Persons On sectors Air Transport Telecommunications Financial Services On the extended negotiations Basic Telecommunications Second Annex on Financial Services Maritime Transport

32 Annex on MFN Exemptions
GATS Annexes Annex on MFN Exemptions Allows derogation from MFN obligation for sectors & measures specified in Member’s list Often cover bilateral/ regional agreements or “reciprocity” requirements in national laws Except for acceding countries, exemptions now possible only under waiver procedures of WTO Intended to be a temporary… Review after 5 years. Ten year maximum duration, in principle.

33 Annex on Movement of Natural Persons
GATS Annexes Annex on Movement of Natural Persons GATS covers only temporary entry and stay in a Member's territory to supply services GATS does not cover immigration policies or non-trade visa policies so these would NOT be addressed in schedules Specific commitments relevant to GATS coverage are as negotiated in schedules under the relevant mode of supply

34 Annex on Air Transport GATS Annexes
Excludes all traffic (landing) rights and services related to traffic rights at present, so these are not to be committed in schedules Agrees to coverage only of: Aircraft repair and maintenance Selling and marketing services Computer reservation systems

35 Annex on Telecom - obligations?
GATS Annexes Annex on Telecom - obligations? Applies to measures affecting access to and use of public basic telecom networks and services General obligation to ensure that suppliers of scheduled services are guaranteed reasonable and non-discriminatory access to and use Allows reasonable conditions on access and use, in order to meet specified public policy objectives Permits developing countries to depart from the obligations by indicating such in the schedule of commitments

36 Annex on Financial Services - scope ?
GATS Annexes Annex on Financial Services - scope ? Excludes from the GATS definition of services: Activities of Central Banks or monetary authorities in pursuit of monetary or exchange rate policies Activities under statutory systems of social security or public pension funds or of other public entities using government financial resources Excludes from GATS coverage any measures affecting the sector taken for prudential reasons So obligations and commitments are normally not applicable to these activities or measures

37 Increasing Participation of Developing Countries (Art. IV)
General requirement: Increasing participation of developing countries in world trade through specific commitments that: strengthen services capacity and efficiency, improve access to distribution channels, liberalize markets of export interest Contact points to facilitate information access Special priority for least developed countries

38 What has been Achieved to date?
GATS is considered a reliable and predictable framework for facilitating trade and foreign investment in services It has been widely perceived by developing countries as a positive development in the multilateral trade framework Many commitments have been overtaken by further reforms and liberalization in both developed and developing countries

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