WTO Law Fernando Piérola General Agreement on Trade

WTO Law Fernando Piérola General Agreement on Trade in Services

MAIN DIFFERENCES BETWEEN THE GATT AND THE GATS GATT GATS Modes of supply Cross-border only Four modes, including supply through commercial presence Market access restrictions Not regulated Detailed rules on market access Permitted instrument of protection Schedules Renegotiation of schedule commitments Qualification of general obligations through schedule entries Contingency protection Customs duties only Any type of regulatory or fiscal measure Positive list of products Positive list of sectors May be decided unilaterally Subject to agreement or arbitration Not possible Possible Anti-dumping and countervailing measures possible No rules permitting anti-dumping or countervailing measures Safeguard action Subsidies Possible Not possible Subject to detailed rules No rules on subsidies © ACWL

THE BROAD SCOPE OF APPLICATION OF THE GATS Article I: 1 provides that "This Agreement applies to measures by Members affecting trade in services" • "measures by Members" means any measures taken by governments (central, regional or local) and non-governmental bodies (in the exercise of delegated powers from government) (Article I: 3(a)) • "services" is defined broadly to include "any service in any sector except services supplied in the exercise of governmental authority" (Article I: 3(b)) • • "trade in services" is defined according to 4 modes of supply listed in Article I: 2. "affecting" trade in services has been interpreted broadly: "The use of the term 'affecting' reflects the intention of the drafters to give broad reach to the GATS … the word 'affecting' … indicates a broad scope of application. " Appellate Body, EC – Bananas III, para. 220 © ACWL

THE FOUR MODES OF SUPPLY "Trade in services" is defined according to 4 modes of supply listed in Article I: 2: 1. Cross-border trade: From the territory of one Member into the territory of another Member. A lawyer in Member A sends an opinion by email to a client in Member B. 2. Consumption abroad: Consumption by the service consumer of a Member in the territory of another Member. Nationals of one Member consume services in another Member's territory as tourists, students, or patients. 3. Commercial presence: A service supplier of one Member provides services in another Member by way of commercial presence in the territory that other Member. Lawyers from Member A set up a branch office in Member B and provide legal services in the territory of Member B. 4. Movement of natural persons: A service-supplier of one Member provides services in the territory of another Member through the movement of natural persons. Lawyers from Member A travel to Member B to provide their services. Modes 1 and 3 each represent 40% of services trade; Mode 2 represents 20% of services trade and Mode 4 represents a negligible share of services trade. WTO, Market Access: Unfinished Business, Special Studies 6 (WTO, 2001) © ACWL

GENERAL OBLIGATIONS The Most-Favoured-Nation Obligation "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" (Article II: 1) • MFN applies to any measure that affects trade in services whether or not specific commitments have been made. • Other MFN-type obligations in the GATS include Article VII (recognition of professional qualifications, Article VIII (monopolies and exclusive service providers), Article XII (Balance of Payments measures), Article XXI (modification of schedules). © ACWL

GENERAL OBLIGATIONS (PART II) The Most-Favoured-Nation Obligation (cont’d) Members may maintain measures inconsistent with the MFN obligation provided that: a) The measures are listed in the Annex on Article II exceptions: These measures needed to be included at the time of the entry into force of the GATS and should "in principle" have not exceed 10 years (i. e. January 2005). Members have listed MFN exemptions mainly in transport (maritime), communications (audiovisual), financial and business services sectors. • © ACWL

GENERAL OBLIGATIONS (PART II) (CONT. ) Regulatory Barriers to Trade in Services Certain categories of (mostly quantitative) restrictions listed in Article XVI: 2 – these are considered “market access” issues © ACWL Unfair and arbitrary application of measures affecting trade in services (Article VI) Lack of Licensing and Qualification Requirements and Technical Transparency Standards (Article VI) (Articles III and IV: 2) Government procurement restrictions (Article XIII) Monopolies and exclusive service providers (Article VIII) Recognition of qualifications and diplomas (Article VII) Restrictions on international payment and transfers (Article XI and XII) Restrictive business practices (Article IX)

GENERAL OBLIGATIONS (PART II) (CONT. ) Domestic Regulation (Article VI) § Members shall administer measures affecting trade in services "in a reasonable, objective and impartial manner “ (Article VI: 1, in sectors where specific commitments have been scheduled) § Members shall maintain tribunals or procedures to provide for prompt review, and, where justified, appropriate remedies for administrative decisions affecting trade in services (Article VI: 2(a), for scheduled and unscheduled sectors) © ACWL

GENERAL OBLIGATIONS (PART II) (CONT. ) Domestic Regulation (Article VI) § Principles governing these disciplines are (Article VI: 4) § Disciplines should ensure that regulatory requirements are based on objective and transparent criteria (competence, ability) § Not more burdensome than necessary to ensure quality of the service § In the case of licensing procedures, not in themselves a restriction on the supply of a service (Article VI: 4) § Only concluded set of disciplines is for the accountancy sector (S/L/64) § Pending the negotiations of such disciplines: Article VI: 5 – where specific commitments exist, Members shall not apply these categories of measures in a way that nullifies or impairs such specific commitments © ACWL

COMMITMENTS (PART III) Unlike the general rules in Part II of the GATS, the rules in Part III of the GATS apply only to services sectors that Members have inscribed in their Schedules of specific commitments. Part III has three main provisions dealing with: © ACWL

SPECIFIC COMMITMENTS (PART III) 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. Specific commitments assumed under this Article shall not be construed to require any Member to compensate for any inherent competitive disadvantages which result from the foreign character of the relevant services or service suppliers. © ACWL

SPECIFIC COMMITMENTS (PART III) National Treatment - Article XVII § In EC – Bananas III, the Panel concluded that although the rules for allocating import licences apply on a formally identical basis (origin-neutral), in practice the measures favour EC service suppliers (Panel Report, para. 7. 366). § The concepts of "modification of conditions of competition" and "formally identical and different treatment" in Article XVII: 2 and 3 were drawn from long standing jurisprudence developed by GATT panels (e. g. Italy – Agricultural Machinery and US – Section 337). © ACWL

SPECIFIC COMMITMENTS (PART III) 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; (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. If a Member undertakes a market-access commitment in relation to the supply of a service through the mode of supply referred to in subparagraph 2(a) of Article I and if the cross-border movement of capital is an essential part of the service itself, that Member is thereby committed to allow such movement of capital. --------------------------------------------------------8 If a Member undertakes a market-access commitment in relation to the supply of a service through the mode of supply referred to in subparagraph 2(c) of Article I, it is thereby committed to allow related transfers of capital into its territory. 9 Subparagraph 2(c) does not cover measures of a Member which limit inputs for the supply of services.

SPECIFIC COMMITMENTS (PART III) Market Access (Article XVI) Scope of application § Market access obligations only apply to the extent that a Member has inscribed a commitment in its Schedule. § Members shall accord treatment no less favourable than that provided for under the terms, limitations and conditions stated in their Schedules § Article XVI(a) to (f) of the GATS contains an exhaustive list of 6 limitations and restrictions (Panel Report, US – Gambling, para. 6. 298). These measures must not be applied unless otherwise specified in a Member's Schedule. Question: Why was it necessary to include in the GATS a specific provision on market access in addition to provisions on national treatment and MFN? © ACWL

SPECIFIC COMMITMENTS (PART III) Market Access – Article XVI (cont. ): the exhaustive list of market access limitations and restrictions (a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive suppliers or an economic needs test. § Example: annually established quotas for medical practitioners. Question: would a "total prohibition" to provide a service fall under this paragraph? § US – Gambling, the Appellate Body ruled that a complete ban on remote-access gambling services falls under Article XVI(a) because it limits to zero the number of service suppliers (zero quota). © ACWL

SPECIFIC COMMITMENTS (PART III) Market Access – Article XVI (cont. ): the exhaustive list of market access limitations and restrictions (b) limitations on the total value of service transactions or assets (quotas, economic needs test). Example: limits on total monetary value of bank deposits. (c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units (quotas, economic needs test). Example: restrictions on broadcasting time available foreign films. © ACWL

SPECIFIC COMMITMENTS (PART III) Market Access – Article XVI (cont. ): the exhaustive list of market access limitations and restrictions (d) Limitations on the total number of natural persons that may be employed in a service sector or by a service supplier (quotas, economic needs test). Example: a limit on the total number taxi drivers. (e) Restrictions or requirements regarding the type of legal entity or joint venture. Example: architectural services in the form of commercial presence must be provided through a joint venture. Question: Why do countries require this type of limitation? (f) Limitations on the participation of foreign capital. Example: foreign equity must not exceed 49% in telecommunication © ACWL services.

SPECIFIC COMMITMENTS (PART III) Additional Commitments - Article XVII § Members may negotiate and schedule commitments not covered by Articles XVI (Market Access) or XVII (National Treatment). § Additional commitments may include those regarding qualifications, standards, licensing matters or subsidies. Such commitments shall be inscribed in a Member’s Schedule. § Example: One of the most common additional commitments is the Reference Paper on Basic Telecommunications, which aims at ensuring competition in the telecommunications sector. The reference paper includes, e. g. , the obligation to ensure that interconnection should be provided at cost-oriented rates. © ACWL The Panel Mexico – Telecommunication Services found that Mexico was in breach of its obligation to ensure that interconnection is provided at costoriented rates.