BACK TO MAIN  |  ONLINE BOOKSTORE  |  HOW TO ORDER

GATS 2000 Negotiations

Options for Developing Countries

This working paper was written by Mina Mashayekhi, Chief, Systemic Issues Section, Division on International Trade In Goods and Services, and Commodities, UNCTAD. The views expressed are those of the author and do not necessarily reflect the views of UNCTAD


Introduction

1.  The aim of the services negotiations[1] in accordance with Article XIX.1 of GATS is to achieve progressively higher level of liberalisation of trade in services through the reduction or elimination of the adverse effects on trade in services of measures as a means of providing effective market access. The results of the negotiations should promote the interests of all participants on a mutually advantageous basis, and secure an overall balance of rights and obligations, and with due respect for national policy objectives and the level of development of individual members both overall and in individual sectors. Article XIX.2 provides that there should be appropriate flexibility for individual developing country Members for opening fewer sectors, liberalising fewer types of transactions, progressively extending market access in line with their development situation and, when making access to their markets available attaching to such access conditions aimed at achieving the objectives referred to in Article IV (Increasing Participation of Developing Countries).  

2.    A crucial step in setting the concrete agenda for negotiations on services is the establishment of negotiating guidelines and procedures. The rather general and vague mandate and guidelines during the Uruguay Round led to a number of difficulties.   Developing countries would need to participate actively in this process to determine clearly the process and content of the negotiations as well as the specific measures they require to ensure balanced outcome.  For the purposes of establishing the guidelines, Article XIX provides that the Council for Trade in Services should carry out an assessment of trade in services in overall terms and on a sectoral basis[2] with reference to the objectives of the GATS including those set out in Article IV.1.[3]  An assessment of trade in services and improved services statistics are preconditions to balanced and informed negotiations on market access.


 3. The guidelines could be formulated on the basis of the elements contained in the “road- map” for the first phase of mandated negotiations on services which were adopted on 26 May 2000. These elements include:  (i) the process of negotiations should preserve the existing structure and principles of the GATS,  (ii) the work on domestic regulation, subsidies and government procurement should be concluded prior to the conclusion of the negotiations,  (iii) negotiations on emergency safeguard mechanism under Article X are due to be concluded by 15 December 2000, and  (iv) proposals would be submitted by Members by the end of December 2000 which could address matters relating to negotiations under Article XIX.  The following themes could be included in the proposals: (i) modalities of negotiations, (ii) increasing participation of developing countries and in particular special priority for least developed country Members, (iii) modalities for the treatment of autonomous liberalisation, (iv) issues arising from the work carried out in the Council for Trade in Services and its subsidiary bodies, including technical review of existing provisions of the GATS in order to improve the clarity and legal consistency of the text[4].

4  The elements also provide that the preparation of negotiating guidelines and procedures should draw upon the ongoing trade assessment process and any conclusions members may reach during that process. The second phase of these negotiations would begin with a stocktaking exercise by the Special Session in March 2001, to consider progress made and how to move forward. The above elements cover wider issues than what is stipulated in Article XIX. The scope of the mandated negotiations in accordance with Article XIX.1 is limited to progressive liberalisation of market access. Since the Uruguay Round, however, service negotiators have been working on the built-in agenda of the GATS, which relates to completing its disciplines on subsidies, government procurement, emergency safeguard mechanism and domestic regulation. The adoption of the results of this work would be part of the outcome of the new round of negotiations. Reviews of other provisions of the GATS relating to MFN exemptions and Annex on Air Transport have also been initiated in year 2000, the result of which would also be included in the outcome of the round.   


5          To ensure that the new round of multilateral trade negotiations on services meets the objective of development of developing countries as set out in the Preamble, Articles IV and XIX of the GATS it would be important that the negotiations provides for the following: (i) preserve the existing architecture of the GATS; (ii) give priority attention to rectifying the imbalances inter alia in terms of lack of concrete market access benefits accruing to developing countries in mode of supply of movement of natural persons and sectors of interest to them; (iii) devise mechanisms to operationalize the supply capacity building provided for by Article IV e.g. through incentives granted by developed countries to their enterprises to invest in developing countries; (iv) ensure that  market opening by developing countries be determined solely by their national policy priorities given the role of services in development; (v) reaffirm the principle of gradualism and relative reciprocity/ flexibility for developing countries; and (vi) establish an emergency safeguard mechanism to allow developing countries’ services enterprises  time to adjust to increased imports of services; (vii) strengthen competition safeguards and pro-competitive rules (vii) allow space for policies required for developing competitive supply capacity and proper sequencing of liberalisation.

6  Achievement of these aims would require clear identification of national policy objectives in the negotiations and devising joint positions/coalitions amongst like-minded countries. Developing countries would also need to domestically initiate the process of selection of sectors/subsectors for progressive liberalisation based on the individual countries’ sectoral policies and laws and a thorough analysis of each sector and the impact of liberalisation of the particular activity on the domestic suppliers and the economy as a whole.  Specific sector/subsector/activity could be selected for early liberalisation which would contribute to:  (i) strengthening of the sector itself by introducing competition, efficiency and transfer of technology; (ii) its contribution to strengthening other goods and services sectors (producer services); (iii) expansion of exports of goods and services; (iv) infrastructure building (telecommunications, transport and financial services; (v) where no or limited service capacity exists and therefore FDI through opening of commercial presence with appropriate limitations and performance requirements could contribute to domestic capacity building (vi) sectors in which the country has achieved considerable capacity and competitiveness (vii) locking- in the process of domestic reform . This process needs to be accompanied with the identification of potential regulatory barriers in major trading partners which may prevent greater outsourcing or delocalization of  services of export interest to developing countries. 


7  As a result of the failure of the Seattle Ministerial Meeting to launch a new round of multilateral trade negotiations, the negotiations on services are taking place within the context of parallelism with other built-in-agenda negotiations, in particular the negotiations on agriculture. The progress in the built-in-agenda and the broader context of efforts to launch a new round would therefore impact the pace of negotiations on services and its outcome.

Assessment of trade in services

8  In accordance with Article XIX the Council for Trade in Services is undertaking an assessment of trade in services in overall terms and on a sectoral basis with reference to the objectives of the Agreements, including those set out in paragraph IV.1.  At Singapore Ministerial Conference, the Ministers endorsed an information exchange programme, as part of the requisite work to facilitate the negotiation of progressive liberalisation of services.   Some key issues of concern were identified during this exercise for example :  (i) need to improve classification and definition of particular sectors and activities, (ii) need for Article VI type measures and disciplines to ensure that such measures would not raise unnecessary barrier to trade, (iii) presence of important obstacles to movement of natural persons, including restrictions on obtaining work permits and visas, recognition of qualifications, compulsory membership in professional associations,  (iv) role of mutual recognition agreements (MRA), (v) non transparent and discriminatory taxation regimes, (vi) need for transfer of technology,  (vii) issues relating to electronic commerce, (viii) subsidies granted by developed countries and its impact on developing countries services sectors, (ix) relationship between services sectors and services and goods sector and the need to remove barriers in the complementary sectors, and  (x) need to further clarify the boundary between cross border mode 1 and consumption abroad mode 2.     Since 1999, the Council has carried out discussions on the assessment of trade in services. This exercise has not yet led to formal conclusions adopted by Council on Trade in Services in particular in respect to contribution of GATS to increasing participation of developing countries. To arrive at some qualitative assessment, developing country members would need to submit short assessment papers in relation to their individual country experiences as Japan has done.

Overview of information and statistics


9          An overview of information and statistics on services indicates the limitations of global data on trade in services, for the purposes of comparison; the important contribution of services to the growth and transformation of developing countries, and the key role of services in employment creation;  and deficit in trade in services and important supply constraints of developing countries.  Developing countries have made substantial commitments under GATS with respect to many service industries, often binding recently adopted legislation or pre-committing future policies without having had much experience in their implementation.  These countries have undertaken a higher share of full bindings in market access under the cross-border and commercial-presence modes of supply. In contrast, they have not received concessions of any meaningful economic value under  labour intensive services and the movement-of-natural persons mode of supply.  They also show that:

(a)        Balance-of-payments statistics relate mainly to the cross-border mode of supply;

(b)        Most developing countries have a deficit in trade in services, except in the areas of tourism and travel and worker remittances and have major supply constraints and do not satisfy the preconditions for building a competitive service sector;

(c)        For some developing countries, growth in imports of services is more important than growth in exports, as they depend to some extent on imports of professional and technical services; 

(d)        Since the adoption of GATS, developing countries’ share of world service exports has increased by approximately  6 per cent only, thanks to the export competitiveness of Asian developing countries;

(e)        Developed countries account for three-quarters of world exports of services and most of the top 20 exporters are from developed countries;

(f)         Infrastructural services particularly telecommunications, financial and   transport services make an important contribution to the competitiveness of goods and services exports;

(g)        The social dimension of services and the link between certain basic service sectors infrastructural services as well as health and education) and sustainable development and public welfare needs to be recognised;

(h)        Services also make a significant contribution to employment creation in developing countries;


(i)         For many developing countries, the exports of services is their only means of diversification, and the only way they can move away from excessive dependence on export of primary commodities;

(j)                  The GATS commitments provide a substantial foundation for future efforts to liberalise international trade in services, providing unprecedented  information on impediments;

(k)        There is no empirical evidence of to link any significant increase in FDI flows to developing countries with the conclusion of GATS;

(l)         There are niche opportunities for the expansion of trade in six sectors in which developing countries have an apparent or potential comparative advantage, particularly through the movement of natural persons.  These sectors are professional and business services (such as computer and office services), health services, tourism, construction, audio-visual services and transport.

(m)       The lack of commercially meaningful commitments (except on intra-corporate transferees) on labour intensive services and the movement of natural persons, which is essential for the supply of a service by developing countries, has been highlighted in all the sectoral papers produced by UNCTAD[5] and the WTO as well as in the discussions at the sessions of Council on Trade in Services. This lack of access creates a major imbalance in trade.

Critical Barriers to Market Access of Developing Countries

10        Service suppliers from developing countries face a number of barriers such as:

(a)        Prohibition of foreign access to service markets which are reserved for domestic suppliers: economic needs tests, nationality, residency or visa requirements can prohibit or limit the movement of natural persons;

(b)        Price-based measures: entry and exit taxes and visa fees for movement of natural

            persons; discriminatory airline landing fees and port taxes, licensing fees; tariffs on goods in which services are embodied or for goods that are necessary inputs in the production of services (e.g. films, television programmes computer software on disk, computers, telecommunications equipment and some advertising or promotional material) other taxation issues;

 

(c)        Subsidies granted in developed countries (e.g. for construction, communications, transport, health, or education), including for high-technology sectors, as well as horizontal subsidies and investment incentives that can have a trade-distortive impact on exports from developing countries.  While financial constraints generally place service suppliers from developing countries at a disadvantage, enterprises from developed countries enterprises benefit from financial support from their Governments: for example, trade flows in construction services are affected by heavy government subsidies to export enterprises, tied aid, external financing packages and so on;

(d)        Technical standards and licensing: in certain professional business services, the licensing and standard setting have been used to restrict entry into the industry. Mutual recognition agreements are particularly important in facilitating trade.  Non-participation in such agreements can result in effective exclusion from markets. Complex environmental and safety regulations, standardization and registration procedures all act as important deterrents to participation in the construction sector.  The problem is compounded in some countries when these procedures vary from one state or region to another; 

(e)        Discriminatory access to information channels and distribution networks: for example, suppliers of the telecommunications network may discriminate by excluding certain users, charging higher fees or imposing restrictions on attaching equipment. In the air transport sector, discrimination in the availability and cost of ancillary services may reduce the competitiveness of an airline; slot allocations and the prohibitive cost of owning a slot in major airports, as well as access to computer reservation systems (CRS) and global distribution system (GDS) could also be used to exclude potential service suppliers, as could limitations on advertising and marketing;

  

(f)         Lack of transparency in government measures (e.g. immigration legislation and procedures) and practices of mega firms are another major barrier to market access for developing countries;

(g)        The growing importance of financing in winning projects in export markets and the difficulties developing countries face in trying to tap international financial markets; and

(h)        Lack of access to government procurement orders e.g. in construction services.

(i)          Social security and wage parity related measures

Barriers to movement of natural persons

11        The measures affecting the presence of natural persons which need to be targeted in the new round of services negotiations both through negotiations on specific commitments and work on domestic regulation relate to (i) general immigration legislation (entry and stay requirements do not distinguish between temporary and permanent labour movement), (ii) labour market regulations governing the issuance of work permits including wage parity requirements, (iii) regulations defining foreigners ability to work in individual activities i.e.  recognition of qualifications, work experience and training as well as nationality and residency requirement, (iv) differential treatment in context of social security taxes and benefits and government subsidies which treat domestic and foreign service providers differently[6] . Transparency with respect to measures affecting the movement of natural persons and phasing out ENTs is critical for increasing the participation of developing countries in international trade. The movement of service providers could also be facilitated by the use of  "GATS visas" that would allow them to move in and out of markets for the purposes of business development and service delivery without time-consuming visa requirements or the need to have been invited.


12        To enhance the competitiveness of developing countries, it would be essential that the developed countries improve their commitments by including specific categories of natural persons without the requirement of economic needs test that is some minimum access commitments and for periods of stay longer than one year.  In cases where economic needs tests and other screening procedures are applied, efforts should be made to reduce the restrictive impact of such tests and ensure that they would not nullify the benefits of the GATS, in particular by undertaking the following (i) the criteria for such tests should be made transparent and specific and less discretionary through enquiry points and contact points and notification requirements, (ii) these criteria should be bound so that more stringent ones could not be introduced in future, (iii) rejections on the basis of such tests should be subject to review,(iv) reduce its scope by subjecting fewer categories of persons to ENT, and  (v) the need for such tests could be removed through the negotiation of a safeguard provision. (See also Pakistan proposal on movement of natural persons)

Framework for GATS Negotiations

 Proposals on the scope and modalities of negotiations


13        Prior to the Seattle Ministerial Meeting and since the launching of the new round of GATS negotiations a number of proposals have been put forth by developed and developing countries. Developed countries’ papers and proposals relate to assessment of trade in services, preparing for GATS 2000 negotiations, modalities of negotiations and the guidelines. These proposals have the following features: (i) do not focus on principles of gradualism and relative reciprocity/ flexibility for developing countries but propose needs assessment for technical assistance purposes and phased implementation/transition periods of liberalisation undertakings according to individual circumstances, (ii) see the benefits of GATS in terms of imports and attraction of FDI for developing countries, (iii) aim at initiating the round with standstill and binding of autonomous liberalisation /status quo and achieving further liberalisation through e.g. clusters, horizontal, sectoral or mode related  formulas, (iv) aim at comprehensiveness of commitments by reducing the current imbalance in commitments across countries and sectors, particularly in financial, telecommunications, express delivery services, distribution, construction, health, private education, energy environment and professional services.  This emphasis on imbalance gives undue focus on reciprocity, (v) aim at meaningful liberalisation with full bindings on market access and national treatment by mode that allow service consumers and suppliers freedom to choose commercially desirable ways of purchasing and selling services,  (vi) give primacy to regulatory disciplines to be developed under Article VI.4 to promote greater transparency in regulations and to address other identified trade-restricting aspects of regulations and pro-competitive principles to ensure effective access, (vii) envisage understandings on interpretation and implementation of certain GATS provisions some of which could change the architecture of GATS and go beyond the existing structure  by introducing notions of negative list approach.   Some of these systemic issues also expand the scope of negotiations from what is stipulated in Article XIX, (viii) support agreement on transparency in government procurement which would include services, (ix) emphasize commitments on commercial presence and cross border mode/electronic commerce in the context of the new round which includes proposals to extend the moratorium on duty on cyberspace, (x) do not refer to liberalisation of mode 4 as a priority (xi) propose removal of MFN exemptions latest by 2005 and to the extent not inconsistent with non-trade objectives.

14        From the point of view of the interests of developing countries[7] the main objectives of the round could be to:

•                     preserve the architecture of GATS intact

•                     achieve recognition of the imbalance in the results of specific commitments under GATS and the need for taking concrete measures to rectify this in favour of developing countries by liberalising access in sectors and modes of interest to them 

•                     clarify the existing commitments through establishing a mechanism to undertake a comprehensive country by country review/assessment of the schedule of commitments to identify patterns of bound commitments, the most important barriers/limitations/restrictions, to clarify the extent of market access and national treatment and to see whether commitments meet the obligations contained in GATS e.g. Article IV and Mode 4

•                     achieve symmetry between capital and labour to ensure efficiency and economic welfare benefits through revision of the Annex on Movement of Natural Persons , removal of ENT limitations on movement of natural persons and developing clear criteria for application of remaining ENTs, replacing nationality requirements with residency requirements     

•                     ensure full transparency in respect to  measures affecting supply of services including immigration legislation and labour market regime

•                     bind existing market access contained in national legislation

•                     ensure distinction between temporary and permanent movement of persons by specific provisions in immigration legislation which would provide for ‘GATS temporary visas’ with simplified and accelerated procedures for the grant of visas and eliminating the requirement for wage parity and social security payments in relation to short term movement which does not qualify for benefits under social security regimes . 


•                     operationalize Article IV and XIX through commercially meaningful commitments on movement of natural persons including binding national treatment  and capacity building measures including additional commitments by developed countries to provide incentives to their firms to invest in developing countries, providing preferential market access in government procurement for developing countries  focusing on sectors of actual potential interest to developing countries

•                     develop criteria in relation to MFN exemptions and removal of most MFN exemptions

•                     develop emergency safeguard mechanism to provide for structural adjustment, and to  increase pace of liberalisation and do away with ENT

•                     clarify some of the provisions of GATS e.g. distinction between modes, nomenclature

•                     strengthen provisions on business practices/anticompetitive behaviour 

•                     review the Air Transport Annex with the objective of increasing the participation of developing countries along the lines of the Reference Paper on Basic Telecommunications

•                     provide initiative on Article VI which would give primacy to public policy objectives, equity, distributional issues and which would extend application of accountancy disciplines to other professional services

•                     ensure removal of trade distortive subsidies of developed countries and provide for a notification requirement for subsidies of developed countries

•                     achieve liberalisation in sectors where such liberalisation can contribute to sustainable development

•                     ensure that results of the negotiations in all service related areas would be  completed in the same time frame to ensure balanced outcome.[8] 

Mechanisms to achieve progressive liberalisation

Global or Sectoral Negotiations

15        An important issue is whether negotiations would focus on selected sectors or all sectors in principle.  To obtain reciprocal benefits it would be in the interest of developing countries to ensure that all services sectors and modes would be potentially subject to negotiations, [9] otherwise the focus would be on sectors of interest to developed countries as post Uruguay Round negotiations have demonstrated. Although there seems to be a consensus that negotiations on services would cover all sectors, some proposals refer to “sectoral” or “cluster” negotiating modalities particularly for services which have intermediate function, which would imply priority attention being given to e.g. financial services, telecommunications services, energy services, environmental services.  Careful attention would need to be given to establishment of sectoral subsidiary bodies, which could result in greater attention being focussed on certain sectors.  It should be noted that the prerequisite to obtaining results in the new round would be identification of national interests by developing countries. Mechanisms to ensure Cupertino between Government, private sector and academia would be crucial in this respect.

Commitment to status quo

16        Proposals by some developed countries contain provisions on commitments to status quo and standstill [10] at the initial phase of the round.  It has been proposed that the starting point for requests in the negotiations should be current restrictions sector by sector.  Moreover, it has been pointed out by some developed countries that acceding countries, even at relatively low levels of development, have undertaken specific commitments guaranteeing open and non-discriminatory markets in a large number of sectors, in many cases beyond even what some developed countries provided in the Uruguay Round and this indicates the direction of the GATS 2000 round.   Commitment to status quo prior to the second phase of negotiations particularly in respect to mode 4 would be a positive contribution by developed countries in building confidence in GATS and would improve the imbalance in the commitments. It is clear from the Preamble, Article IV and Article XIX that binding of status quo can be seen as an objective to be achieved at the end of the negotiations if sufficient reciprocal concessions are obtained. Article XIX makes it clear that the starting point for the next round is the conclusion of the last round in that the binding of autonomous liberalisation would be a concession in the next round.

17        Moreover, commitments to status quo at the initial phase of the round changes the main features of GATS architecture by ignoring the principles of gradualism, and relative reciprocity and the need for developing countries to sequence their liberalisation of trade in services to allow them to develop the appropriate policy, regulatory and institutional framework. Status quo commitments at the initial phase of the round can not reasonably be expected from developing countries, particularly because of the lack of competitive capacity to supply and export. In many countries the appropriate policy and regulatory framework for developing supply and export capacity is not in place.  In many cases also no experience with recently adopted regulatory reform has been accumulated and social and economic costs of liberalization have not been properly analyzed and determined. It should be noted also that given that services play a key role in economic and social development their liberalisation could impact directly on national welfare. Liberalisation under GATS therefore can only reflect national policy priorities and can not go further than what the national regulatory/policy framework provide.

 

Modalities for negotiations

18        To ensure balanced results consideration would need to be given to what kind of mechanism or combination of mechanisms should be used for achieving the aim of progressive liberalisation e.g. request/offer, qualitative and quantitative formula approaches resulting in minimum access commitments  (sectoral/mode/multisectoral/horizontal), model schedules (e.g. as in maritime transport, telecommunication), precommitment to future liberalisation, zero for zero initiatives  etc. In principle the request/offer approach would result in a more gradual liberalisation.  The question is whether adopting formulas (as was done in the Understanding on Financial Services, Reference Paper on Basic Telecommunications) or clusters could be in the interest of developing countries and how to undertake an evaluation of the impact of such formula and cluster approaches proposed. The evaluation of the impact of a formula or cluster would require inter alia a comprehensive review of all schedules to identify prevailing pattern of bindings against the applied situation of market access and national treatment.


19        Formula approach/model sets of GATS commitments have been put forth to increase the pace of liberalisation including through removal of certain measures from schedules e.g. performance requirements, nationality or residency requirements, limitation on equity etc.  Formula or cluster approaches as well as model/ uniformization of schedules of commitments could mean in effect switching to a negative list approach implicitly. Developing countries would need to consider seriously the impact of such approaches before accepting their application to their commitments.  For example in the case of the Understanding on Financial Services the majority of developing countries decided to follow the GATS approach and not to apply the formula/negative list approach contained in the understanding.


 20.      Formula approach could have a liberalising impact on Mode 4 in a selected number of categories of natural persons. In sectors where considerable commitments have been made particularly in mode 3 such as tourism, financial services, professional and business services, telecommunications liberalisation of mode 4 could be taken as a priority. Pakistan’s proposal can be taken as a basis for development of a formula approach to mode 4. [11]  Some developed countries would be interested in putting forth a formula in relation to business visitors and intra-corporate transferees.    Removing certain restrictive measures across the board for all modes and sectors or particular modes and sectors e.g. economic needs test, equity limitations could be another approach or agreeing to reduce a certain percentage of limitations/restrictions on market access and national treatment.  Possibility of application of formulas to other sectors that are interrelated would also need to be considered e.g. entertainment services, construction services and associated professional business and technical services or corporate law, auditing and taxation, management consulting and corporate financial advisory services. Formula approach could also apply to government procurement and standstill commitments, that is a critical mass of members could provide for access to government procurement or agree to undertake standstill commitments. A negotiating formula could be proposed on entertainment services focusing in a holistic fashion on entry (issues relating to temporary labor mobility, visas) operation (taxation, subsidies) and duty free entry of tools of trade/ equipment.

  

21  Clusters have been used differently by different members.   Clusters have been proposed in relation to tourism, electronic commerce, energy services, environmental services, multimodal transport and tourism. Dominican Republic, El Salvador and Honduras have put forward a Draft Annex on Tourism with the objective of recognising the specificity of trade in tourism services, particularly its nature resulting from a cluster of diverse services sectors and its reliance on transport and distribution systems for effective access.   The proposed Annex does not contain specific provisions for liberalisation of tourism services.  It rather provides a wide definition of tourism services which covers accommodation services, food and beverage services, passenger transportation services, transport equipment rental, travel agency, tour operator and tourist guide services, cultural services, recreation and other entertainment services. The key feature of the Annex is its provision on competitive safeguards, which builds on the reference paper on telecommunications services. The objective of the safeguards is to adopt individually or jointly adequate measures to prevent anti-competitive practices. Such measures include competitive exclusion through the discriminatory use of information networks, ancillary services to air transport, predatory pricing or the allocation of scarce resources; abuse of dominance through exclusivity clauses, refusal to deal, tied sales, quantity restrictions, or vertical integration; and misleading or discriminatory use of information by juridical person in the tourism cluster.  There are also provisions on consumer safeguards and  for sustainable development of tourism. 


22        The discussions at the special session of the Council for Trade in Services have demonstrated considerable confusion as to whether clusters were intended for classification purposes or for negotiating reasons. Use of clusters could affect the legal certainty of existing commitments and complicate the simple and practical negotiating modalities of the GATS.  Proliferation of clusters could lead to fragmentation of the list of sectors and weaken the GATS structure. Some (e.g. European Communities) have used it as an illustrative list of interconnected services to be used by negotiators on a voluntary basis or as a  “memory tool” in their bilaterals on specific commitments.  Others (e.g. Australia) have used clusters as a mandatory tool, which could be in the form of model schedules, or coherent, pre-established and harmonised set of commitments. The first approach to clusters as a voluntary memory tool would be more in line with the positive list approach of the GATS and that negotiations should be driven by identification of individual interests by each member.  It would also take into account the fact that most developing countries have a deficit in trade in services and have not yet developed competitive services industry. Most developing countries have shown preference for discussing these matters in the context of definition and sectoral classifications work to revise the list of sectors (W/120) on services and not as negotiating modalities.

Increasing Participation of Developing Countries

23        The negotiations would need to aim at the effective achievement of the objectives of GATS Article IV and to reduce the current imbalance in commitments by focussing on the liberalisation of market access in sectors and modes of supply of export interest to developing countries. It should be noted developing countries have to identify their national interests, which would require a review of existing policy/ regulatory framework and establishment of an effective domestic consultative mechanism to help define national objectives which may need to be reflected in a policy/regulatory reform exercise. The identified national interests would be the basis of their negotiating strategy and requests.  


24        Mechanisms need to be developed to ensure the effectiveness of Article IV as well as obtaining authoritative interpretation of the provisions relating to developing countries including the Annex on Movement of Natural Persons. A monitoring and notification mechanism would need to be established to ensure implementation of Article IV obligation. Article IV provides that developed country Members shall undertake specific commitments to strengthen developing countries’ domestic services capacity and its efficiency and competitiveness inter alia through greater access to technology and improved access to distribution channels and information networks,[12] which would be particularly important to enable developing countries to take advantage of the opportunities provided by electronic commerce. Positive measures could be taken by developed countries to implement Article IV, for example through encouraging investment in services sectors in developing countries, transfer of technology and access to distribution channels and information networks by providing incentives such as fiscal advantages for enterprises which undertake investment and facilitate access to technology and distribution channels and information network in developing countries.

  

25        Moreover, few developing countries have used the possibility of including access conditions (some use joint venture, employment, training requirements) aimed at achieving the objectives of Article IV e.g. training of local employees, transfer of technology and export performance requirements etc.

26        Given that trade conditions for mode 4 are far more restrictive than for any other mode of supply a substantially higher level liberalisation would need to be achieved in this mode of supply. There should be a revision of the Annex on Movement of Natural Persons to ensure effective market access through mode 4. The Annex particularly its paragraphs 2 and 4 represents a major carve out from GATS Article IV obligations and therefore needs to be revisited and modified to ensure that movement of one factor of production labour is treated in the same manner as another factor capital. Matters relating to sovereignty as well as the welfare creating effects of liberalisation of all factors of production should be duly taken into account.

27        One approach could be to bind current market access granted in national legislation in respect of temporary movement of service suppliers in all categories.  Particular effort would be required to remove economic needs tests for specific categories of persons and criteria shall be developed for application of economic needs test to other categories of persons. Full transparency of immigration related measures and review of existing measures as was done during the financial services negotiations where members informed the negotiating group on the existing legislative framework and plans to modify the legislation would need to be achieved.

Modalities for the Treatment of Autonomous Liberalization Measures


28        GATS Article XIX.3 provides that the negotiating guidelines should establish modalities for the treatment of liberalization undertaken autonomously by Members since previous negotiations.  Recognition of autonomous liberalization in terms of receiving credit would provide countries with a strong incentive to unilaterally initiate liberalization and ensure that policy reforms are not postponed in anticipation of reciprocal trade concessions. It should be noted that developing countries did not receive reciprocal benefits for the commitments they made in financial and telecommunications services negotiations.  Moreover, after the conclusion of the telecommunications and financial services negotiations a few developing countries have submitted schedules of specific commitments on these sectors for which they could request credit. Many countries have undertaken regulatory reforms liberalizing trade in services since the Uruguay Round. Members have to consider two issues:  (i) whether credit can be given only once the autonomous liberalization has been bound or could credit also be envisaged for unbound liberalization since its benefits accrue to other members through the MFN provisions and (ii) how the value of an autonomous liberalization could be gauged through specific benchmarks.  An objective measurable methodology  would need to be developed based on measuring the sectoral autonomous liberalization (none, partial, full) against the value of exports  of particular countries as a  percentage of value of  international  trade in that sector.   

29        One proposal [13]on modalities for the treatment of autonomous liberalization provides for a bilateral approach that is the Member that has undertaken such liberalization should make the nature of the liberalization known to interested trading partners.  The liberalizing Member and any interested trading partner should discuss and seek agreement on their respective bindings relative to the autonomous liberalization including the issue of credit. Additionally, it is proposed to set agreed targets for multilateral liberalization against which the value of particular autonomous liberalization measures might be gauged. Developing countries have so far supported a multilateral approach to formulating modalities.    

Built- in- Agenda of the GATS

MFN Exemptions Review  

30        The unconditional MFN principle, which is the main pillar of the GATS, would ensure that the benefits of any agreement negotiated elsewhere on services would be granted to WTO Members. At the beginning of the Uruguay Round, developing countries opposed the idea of introducing "conditional MFN" into the Agreement. About 70 countries for some 380 measures have sought MFN exemptions.   The coverage, content and time frame for such measures are not clearly defined. The new round of negotiations should aim at removal or narrowing of the scope of these exemptions and developing criteria for maintenance of the remaining exemptions for a defined period e.g. an additional 5 years.   


31        It should be noted that during the negotiations, particularly on financial services the possibility of retaining MFN exemptions has been used as negotiating leverage to obtain additional concessions, rather than its original purpose of "grandfathering" existing preferential treatment or reciprocity requirements in domestic legislation. Moreover, it should be noted that GATS Article XVI.1 clearly provides that the MFN exemptions cannot be applied to commitments included in the Schedules.

32        There is a need to ensure that the MFN principle is not abused or weakened as it would weaken the benefits of a multilateralization of concessions and the multilateral trading system. In the negotiations on financial services the term "grandfathering" came to be used to apply to commitments not to roll back foreign ownership in specific firms, where these exceeded the bound limits.  Moreover, such "grandfathering" would seem to discriminate against new entrants to the market which would only enjoy the right to the access provided in the schedules, in favour of established suppliers, increasing the economic rents of the latter [14]. Grandfathering leads to exemptions still prevail and to determine the date of any further review.  The review is being conducted along sectoral lines.  So far exemptions relating to all sectors, business services, communication services, construction and engineering, distribution services, financial services, health, tourism, recreational and cultural services and transport services have been reviewed. The negotiation on elimination of MFN exemptions will take place during the round and within the framework of autonomous liberalization.  During the review a few countries mentioned that they had eliminated their MFN exemptions in particular sectors.

33        Issues which would require attention relate to the following:  (i) legal character of the list of exemptions, (ii) modalities of amendment to limit the scope of the exemption and elimination of MFN exemptions, (iii) clarification on whether the exemption are needed by domestic or by external considerations and whether the inconsistent measures have been established by an active legislation or by statutory administrative discretionary instrument, (iv) need to agree on a definite time limit (in principle 10 years in accordance with paragraph 6 of the Annex) on MFN exemptions as these are intended to be of a temporary nature, (v)consideration of some type of program for phasing out of MFN exemptions,  taking  into account the developmental aspects for developing countries,   and (vi)  need to clarify status of MFN exemptions which purported to grant less favorable treatments to certain members than what was scheduled in schedule of specific commitments on market access.

Domestic Regulation, Recognition and Transparency

34        Work is underway on Article VI.4 [15] disciplines taking into particular account the right of Members to regulate, and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives. Given asymmetries existing with respect to the degree of development of services regulations in different countries, the particular need of developing countries to exercise this right has been recognised in the preamble of the GATS. The focus of work in this area would need to be on discriminatory measures with protectionist intention and should not a priori expand beyond this concern to subject non-protectionist obstacles to disciplines.  Pursuit of public policy objectives, redistributional concerns, and equity need to be given primacy in this negotiation. Given sensitivities relating to social objectives of services regulations, trade negotiators alone would not be able to negotiate multilateral liberalisation and develop disciplines on domestic regulation in the area of services.   The involvement of regulators would be key to obtaining implementable and practical results. As in the Disciplines on Domestic Regulation in the Accountancy Sector and the Reference Paper on Basic Telecommunications work needs to be limited to definition of some general principles.

35        One of the main negotiating objectives of major trading partners is to ensure major progress under Article VI. Their proposals in relation to necessity test and concepts of proportionality could achieve the results of a negative list approach.   They have proposed adoption of least trade restrictive regulations based on a strict “necessity” test/proportionality and obligations on prior consultations. These principles touch upon issues relating to governance and the legitimacy and appropriateness of domestic regulation relating to trade in services which are beyond the provisions of Article VI: 4.  [16]  Criteria built only on notions of economic efficiency could have a negative impact on developing countries’ need for flexibility to undertake policy/ regulatory reform, meeting public policy objectives, or lead to harmonisation of policies based on developed countries’ policies. Some proposals also include obligations related to prior consultation. OECD review of regulatory practices demonstrates that few countries in the OECD have adopted such practices.  Therefore, it is premature to extend such an obligation to all countries. [17]  

36        The best way to deal with protectionist domestic regulation is perhaps through pursuing specific commitments on national treatment and dispute settlement, rather than development of detailed rules and disciplines on domestic regulation which would reduce the flexibility of developing countries. Horizontal approach to development of disciplines would be preferable to a sectoral approach, although some sector specific work may be required.[18]The work on Articles VI and VII could concentrate on achievement of fuller transparency of laws and regulations without increasing the administrative burden on developing countries, encouraging use of internationally harmonised standards, recognition of equivalence of foreign regulatory measures and conformity assessment results and generalising the application of Disciplines and Guidelines on MRA developed for accounting to other professional services. It would be preferable that such disciplines apply only to sectors subject to specific commitments as is clear from reading the subparagraphs of Article VI.  Most of the paragraphs refer to specific commitments (in paragraphs 1, 3, 5, and 6) only. Paragraph 5(a) provides ”In sectors in which a member has undertaken specific commitments, pending the entry into force of disciplines developed in these sectors pursuant to paragraph 4....”     

37        The establishment of a monitoring and co-ordination mechanism for ensuring effective access to mutual recognition agreements would also be important.[19] The accession clauses of these agreements need to be examined to ensure that there is indeed possibility of joining under the same conditions as the members of the MRA.  A more proactive approach needs to be taken by those members that have formed such agreements to ensure effective access of developing countries to mutual recognition agreements through inviting them to join such agreements and actively pursuing mutual acceptance of equivalence.   As an exception to MFN obligation, the MRAs could have trade distorting impact.  Agreement on cross-border handling of conformity assessment and of professional liability issues that currently constrict the distance delivery of services would also require attention.  Implementation of any Article VI disciplines would be very difficult to apply in relation to cross border trade. Moreover, developing countries need to give serious consideration to the administrative and institutional burdens any new disciplines in relation to domestic regulation would entail.  

GATS Rules

38        Negotiations on emergency safeguard mechanism (ESM) would need to be completed by 15 December 2000 or prior to the adoption of the results of the round of services negotiations. Provisions on ESM for services could be based on the Agreement on Safeguards. ESM would need to be applicable across sectors (the disciplines would be horizontal and not sector specific) and modes of supply, be time bound, subject to progressive liberalisation, and MFN based. Existence of an ESM will help persuade domestic constituencies and trading partners to accept greater liberalisation, in view of particular vulnerability of services sectors in developing countries which lack experience with liberalised market and are usually SMEs. Such a mechanism would also provide time for developing countries’ domestic industry to undergo adjustment.  ESM would be of particular importance in relation to impact of technological developments (e.g. Electronic Commerce) on domestic industry.

39  ASEAN countries have put forward a concept paper for ESM, which takes an approach, based on the WTO Safeguards Agreement.  Common understanding on the definition of the domestic industry and treatment of foreign owned enterprises is crucial to the acceptance of such a mechanism. One option would be to include the foreign suppliers with commercial presence within the definition of domestic industry.  This would protect existing foreign suppliers from being targeted by such measures.  Only new entrants would be affected by ESM. Another option would allow only national suppliers to invoke ESM based on the definition contained in GATS Article XXVIII.  Careful attention needs to be given to notions of acquired rights.  No multilateral treaty has recognised such rights. Special provisions would also be required to ensure that developing countries would not be targeted particularly in respect to mode of supply of natural persons.  Thresholds for non-application of ESM to developing countries exports would require careful attention as well as possibility to extend the period of application of an ESM by developing countries and exemption from the compensation obligations.[20]


40        Negotiations on subsidies would need to take into particular account the trade distorting impact of subsidies granted by developed countries on developing countries’ services exports.  National treatment would also apply to sectors, which have been committed, unless an entry has been made to specifically exclude application of national treatment. To assist developing countries in building competitive services sectors and meeting social objectives subsidies granted by them need to be excluded from application of national treatment. Technology related subsidies as well as investment incentives granted by developed countries could have major negative impact on developing countries’ competitiveness. Information on subsidies including that contained in WTO Trade Policy Reviews demonstrates that there is a concentration of subsidies in some services sectors e.g. air and maritime transport, tourism, financial services, audio-visual, software and information technology services, telecommunications, research and development, construction, education and health. Whereas developed countries generally provide direct cash grants, developing countries provide fiscal incentives, duty free inputs and free zones.

41        Policy issues which require consideration in developing subsidy disciplines relate to (i) definition of a subsidy, social objectives of subsidy and sectoral versus horizontal approach to disciplines, (ii) application of MFN and national treatment and mode specificity, (iii) consideration of concept of necessity and least trade restrictive measure (iv) flexibility for developing countries to use subsidies (v) timeframe for elimination of subsidies granted  by developed countries (vi) possible remedies including consideration of appropriateness of countervailing action. As a first step, a mandatory notification obligation needs to be provided for developed countries to systematically notify their subsidy programmes including programmes under regional integration schemes.  

 

42.       On government procurement, one approach could be to have disciplines limited to purely transparency-related provisions or to set out modalities for negotiating commitments in this area. Government procurement could be dealt with in services through additional commitments (Article XVIII) with preference mechanisms for local suppliers in cases of developing countries and preference given by developed countries to suppliers from developing countries particularly in relation to labour intensive services such as construction.     

Air Transport Review

43.       The Annex on Air Transport provides in its paragraph 5 that the Council for Trade in services should review periodically, and at least every five years, developments in the air transport sector and the operation of this Annex, with a view to considering the possible further application of the Agreement in this sector.  The review will take place in October 2000.  The review would need to identify areas that lend themselves to multilateral liberalization for example in relation to commercial presence increasingly national airline companies are privatized through possibility of foreign equity participation. The structure of the market has changed as a result of open sky agreements and alliances. Recent economic and regulatory developments relating to the structure of the market and the mode of operation of providers would need to be adequately reflected in the classification.   Moreover, efforts could be made to clarify the scope of services directly related to the exercise of traffic rights and to examine the commercial and regulatory effects of the ambiguity of the coverage of the annex for services providers in terms of commitments, MFN and other disciplines of the GATS.

Issues Arising from the Work of the Council for Trade in Services and its Subsidiary Bodies

 

Classification and Definitional Issues

44.       Nomenclature related issues would have to be given attention during the next round. The revised CPC list could be improved and supplemented by member’s own definition.  This could be more useful than the aggregated list contained in GNS/120.  The approach proposed on “Headnote” or cluster e.g. for environmental services would broaden the definition of the sector to include all the related subsectors such as professional, technical and scientific services.  The headnote approach could have negative list implications, as well as potentially treating certain subsectors differentially depending on their end-use.  This exercise would also entail classification of activities relating to EC and provision of clear definitions for such activities. Also issues have been raised in relation to definitions of financial services. Given the failure of negotiations on MAI at the OECD, attempt might be made to introduce some of its elements into the GATS, for example by expanding the definition of commercial presence from an enterprised based definition to an asset based one. This would have serious implications for developing countries.

 Modes of supply


45.       Definition of modes of supply has given rise to difficulties relating to overlap between modes of supply, particularly as a result of Internet and definition of likeness. Several approaches to modes 1 and 2 distinction have been discussed in this respect such as distinction on the basis of on whom the measure impinges, or on the basis of presence of supplier or consumer in the relevant market, whether there has been solicitation (mode 1, or solicitation has also been equated with commercial presence) or not (mode 2), or where the final consumption takes place. It seems that distinction on the basis of where the final consumption takes place would be a preferable approach. Mode 1 would cover cases where there is no physical movement of the consumer and supplier and final consumption takes place in the territory of the member making commitments, and Mode 2 would take place where there is physical movement of the consumer and final consumption takes place in the territory of the member supplying /exporting services. Issues of jurisdiction are also related to the modal distinctions.

46.       Other approaches refer to collapsing modes, making commitments in modes 1 and 2 identical, or including a fifth mode. Some support the approach that one should follow the most liberalizing approach in relation of coverage of the modes of electronic commerce which would mean that EC would relate to consumption abroad (mode 2) as very few countries have scheduled limitations/restrictions under mode 2.  During the Uruguay Round countries did not make commitments with EC intention.  It would be preferable to leave the modes as they are and countries could review their schedules to clarify commitments they have undertaken under each mode. There would be a need to address issues relating to jurisdiction and origin of a service.

47.       As to the issue of likeness of services and service suppliers, the problem relates to the possibility that a commitment on a particular service in one mode can be undermined by the absence of a commitment in another mode e.g. grant of subsidy or taxing, or by an interpretation of the relationship among modes that treats a given service as an unlike product by virtue of the fact that it is delivered via one mode rather than another mode. One view is that there is nothing in Article XVII that suggests that the mode of supply is the determining factor in defining the likeness.  If this interpretation were pursued then the effects of an intervention under one mode on the value of a commitment under another would need to be tackled.  Given the modal and positive list approach to services liberalization, however it would seem that like ness should be dealt with in a mode specific manner and not across modes.

 Market Access and National Treatment


48.       As to the issue of negative list /positive list approach to market access and national treatment, it seems that developed countries do not envisage a structural change of GATS architecture by proposing amendments to the Articles XVI and XVII of the GATS but they would go beyond the existing structure by pursuing the idea through and formula and cluster approaches, clarification/interpretation and work on domestic regulation.  Moreover, the MAI negotiations have clearly demonstrated that the negative list approach does not necessarily create a pro-liberalization dynamic.  The list of reservations and exclusions were quite important and far-reaching.[21]    

49.       Some confusion has resulted from the scheduling convention in Article XX.2 which provides that where restrictive measures fall within the scope of both market access and national treatment the measures should be inscribed in the market access column and it would be understood to provide a condition or qualification to Article XVII as well.  Therefore as there is no indication whether the measures scheduled under Article XVI are discriminatory or non-discriminatory the scope of national treatment commitments remain ill defined.  As a first step to solving this problem the schedules could be reviewed by members and if the scheduled market access measure relates to national treatment discriminatory measures this could be indicated. 

50.       Another problem identified by some members is that when national treatment is undertaken in a sector/subsector and not a full market access it is not clear whether any unscheduled improvements to market access would have to respect national treatment.  Various approaches have been set forth as follows: (i) national treatment would apply to all present and future market access commitments with respect to entry and post entry operations e.g. as in MAI (ii) national treatment applies to market access commitments (present and future foreign entrants) entered into at the time the national treatment commitment itself was made but not to subsequent entry beyond scheduled commitments. This would need clarification particularly in respect to mode 3.     


51.    Another area where further work is required is on economic needs tests (ENTs) which are mainly scheduled in modes 3 and 4 by 67 WTO members.  Because of their discriminatory nature, ENTs render market access unpredictable. ENTs have been scheduled both horizontally and sectorally.  Article XVI does not provide for a definition of ENT and most countries have not scheduled specific criteria for its application. [22] The acceding countries were pressured to delete their ENTs or include them with specific criteria.  Several approaches have been proposed to reduce the number of ENTs and rendering their  use more predictable e.g. development of emergency safeguard measures, increasing transparency in relation to the operation of ENT,  scheduling specific criteria , or development of agreed definition and multilateral set of criteria.  Although some members have not scheduled their ENTs, they do use such measures for limiting market access. For example the “convenience and needs of the community to be served” feature in various parts of United States banking law and in Canada incorporation of the subsidiary of a foreign bank is subject to its ability to demonstrate its potential to make a contribution to competitive banking.  [23]

 

 Competition-related Issues

52.       Relatively few large firms from developed countries and a number of small players dominate many markets for services. This tends to lead in most service sectors to a position where the larger operators face little effective competition because the size of the next tier of competitors is so small.  (For example, in tourism, 80 per cent of the market belongs to Thomson, Airtours, First Choice and Thomas Cook).  Developing countries service providers most of which are SMEs, face competition from large service multinationals with massive financial strength, access to the latest technology, worldwide networks and a sophisticated information technology infrastructure.

53.       This high degree of concentration is often a consequence of the enormous volume of capital and the complex networks of interdependent organizations needed to maintain technological advantage, to exploit several products simultaneously and to maintain economies of scale.  For example, in advertising, auditing and management consulting, relations with customers are established on a worldwide basis, making it difficult for enterprises from developing countries to gain access to world markets.


54.       The trend in mergers and acquisitions and strategic alliances has exacerbated this situation. UNCTAD’s studies on health, tourism, air transport and construction have highlighted the possible anti-competitive impact of these new business techniques. For example, vertical integration between tour operators and travel agents creates considerable market power that puts competitors at a disadvantage.

 

55.       A number of key competition issues also are raised by the manner in which distribution channels and information networks for several services are structured. For example, in tourism and air transport the strategic global alliances and global distribution systems have restricted competition and have served as major barriers to market entry by developing countries. There have been significant problems with display bias on CRS and GDS screens, the global branding of flights create consumer loyalty, and the tying-up of hub airports. [24]

56.       Network affiliation can provide firms from developing countries firms with an international reputation, the benefits of research and development, and the possibility of moving more rapidly towards higher value-added products, training and soft technology transfer.  It can also give their professional staff the opportunity to transfer to other markets. Firms can also join with like-minded firms from other developing countries to form global networks that compete with the established service multinationals in niche markets.  As the globalization of markets increases, it will become increasingly difficult for service firms to succeed without entering into some form of strategic alliance.  However, as strategic alliances may develop into de facto industry standard-setters or price-setters - and thus will share the potential to erect new entry and access barriers there is a need to pay particular attention to the design and development of national and international competition policies.


57.       In view of difficulties resulting from abuse of dominant position of major service suppliers Article IX would need to be strengthened to ensure control of abuse of dominant position through addressing specific private sector restrictive practices and establishing a notification requirement for restrictive business practices. Moreover, to tackle the abuse of dominant position of service suppliers from developed countries as well as the operators of distribution channel and information networks provision needs to be made to ensure effective access for developing countries suppliers to such facilities.  Pro-competitive principles[25] would need to be developed to control restrictive business practices and abuse of dominant position of service suppliers. An inventory of anticompetitive practices of service transnationals would also need to be drawn up. At the same time, specific provisions on anti-competitive behaviour could address the situation in certain sectors.  Proposals have been made to apply the Reference Paper on Basic Telecommunication[26] in an expanded more detailed form to other sectors such as tourism[27] or infrastructural services. The Reference Paper’s impact on market access and national treatment and development of national regulatory framework has not yet been fully analysed.  Its provisions could be relevant to other sectors, which represent essential facilities for delivery of other services. Its provisions on control of abuse of dominant position could be developed further to strengthen the provisions of Articles VIII (Monopolies and Exclusive Service Providers) and IX (Business Practices) on a generic basis.      

Electronic Commerce


58.       All services whether delivered electronically or otherwise are covered by the GATS and no modification in the existing framework of GATS is required to apply it to electronic

commerce.  The liberalisation of electronic commerce would need to be linked with effective market access for developing countries’ SMEs and the possibilities for them to develop local content as well access to ensure access to technology, distribution networks and information channels as provided for in Article IV of the GATS .The issue of access to latest technology as well as costing of internet access services are particularly important.  Ensuring technical and financial support through international financial institutions to fast-track improvements to the telecommunications and internet infrastructure in developing countries and strengthening of education/training in disciplines related to electronic commerce need to be taken up jointly with issues related to market access.  This liberalization would also require as a precondition competition policy related provisions. Implications of initiatives on distinction between modes 1 and 2, as well as technological neutrality and custom free cyberspace in relation to electronic commerce would require careful attention before countries take any commitments.  The impact of these initiatives could be free trade in EC/modes 1 and 2.  

59.       Technological neutrality has been used as an argument to expand the existing coverage of the electronic commerce related commitments.  The understanding reached in the context of basic telecommunications, which does not have a binding legal status, should not be confused with application of such a concept to GATS sectors and modes of supply in general.  This understanding provided that any basic telecom service listed in the schedules of commitments may be provided through any means of technology e.g. cable wireless, satellites unless otherwise noted in the sector column. This does not mean that the notion of technological neutrality and Internet access is automatically applicable in all sectors/modes without specific commitments in this respect.  It should also be noted that the Annex on Telecommunications provides that each member shall ensure that any service supplier of any member is accorded access to and use of public telecommunications transport networks and services on reasonable and non-discriminatory terms for supply of services scheduled. The proponents of technological neutrality believe that if commitments have been made on fax, voice and data these services could be delivered through the Internet even without express commitment in this respect.  In view of positive list approach to negotiations, a commitment to technological neutrality would need to be expressly included in schedules of commitments. Presently only 10 countries have made commitments on Internet access services.   Restrictions on means of delivery of a service could be scheduled horizontally or as a national treatment restriction.       

Conclusions

60. .   The negotiating guidelines and procedures for the new round would need to operationalize the balance achieved in the GATS framework and maintain the architecture of the GATS intact. The following would also need to be reflected in the guidelines:

•                     Imbalance in terms of benefits achieved by developed and developing countries, as the commitments do not reflect the interests of developing countries in terms of commercially meaningful sectoral and modal coverage.


•                     Full recognition of the need for flexibility as contained in Article XIX and other provisions of the GATS.

•                     Imbalance in negotiating leverage between developed and developing countries has made it difficult for developing countries to derive the expected benefits from the negotiations and provisions of Article IV and XIX.

•                     Major supply constraints preventing developing countries from benefiting from commitments.

61.       To rectify this there is need to undertake the following: (i) restore balance between the commitments in modes 3 and 4 and treat factors of production (capital and labour) in a symmetrical manner  (ii) ensure that services of export interest to developing countries e.g. tourism, transport, construction, professional and business services including computer services, health, education, audio-visual through in particular mode of supply of natural persons are included in the schedules of commitments of developed countries, (iii)  consider commitments made by developing countries in the post Uruguay Round negotiations on financial and basic telecommunications services as well as their autonomous liberalisation as a credit to the new round of negotiations, (iv) provide a mechanism including financial resources to ensure implementation of the obligations contained in Article IV relating to building domestic services capacity and its competitiveness,  access to technology and  distribution channels and information networks.

[Tables are not included here]

 



 



[1]The process of progressive liberalization is supposed to be advanced through bilateral, plurilateral or multilateral negotiations (Article XIX.4).

[2]The process of assessment was initiated in 1998 through a sectoral information exchange phase and was followed by the discussion of assessment in the Council for Trade in Services based on documents by WTO secretariat, UNCTAD secretariat  (see UNCTAD/ITCD/TSB/7) and submission by a few countries.

[3]Article IV.1 provides that the Increasing participation of developing country Members in world trade shall be facilitated through negotiated specific commitments by different Members.., relating to: (a) strengthening of their domestic services capacity and its efficiency and competitiveness,  inter alia through access to technology on a commercial basis; (b) the improvement of their access to distribution channels and information networks; and the liberalization of market access in sectors and modes of supply of export interest to them.

[4] The consideration of these issues would be without prejudice to any Member’s position on whether the issues submitted in the proposals are relevant to Article XIX negotiations. This text was included as a result of Mexico’s concern in relation to the elements expanding the scope of negotiations provided for under Article XIX.

[8]This would be to avoid early harvests proposed by some major trading partners in the sectors of interest only to developed countries or continuation of negotiations in sectors of interest to one group of countries only. The guidelines could also provide for a provision in this respect.

[9]This would mean that in principle all modes and sectors are subject to negotiations.  It does not mean that schedules of commitments resulting from the negotiations would necessarily be comprehensive.

[10] The United States has proposed that Members should not take any new measures affecting trade in services that would improve their negotiating position or be used as leverage through the conclusion of the negotiations

[11]A new approach to the negotiations on the movement of natural persons has been put forth by Pakistan which focuses on removal of economic needs test (ENT) along occupational lines, facilitating visa and work permit regimes and overcoming barriers created by qualifications and licensing regulations.  The ILO international Standard Classification of Occupation (ISCO) has established an internationally adopted classification of nine major groups i.e. Legislators, senior officials and managers; Professionals; Technicians and associate professionals, Clerks; Service workers and shop and market sales workers; Skilled agricultural and fishery workers; Craft and related trades workers; Plant and machine operators and assemblers; Elementary occupations.  The classification could be used for establishing a list of occupations relevant for the international trade in services, as the UNCPC has been used to establish a list of service sectors. The list defines major and sub-major group titles, which are further subdivided in the ISCO classification into the minor and unit group titles. Countries could agree on certain services sectors where the movement of the natural persons would be excluded from the general application of the ENT.  The horizontal commitments on mode 4 would be supplemented by the list of service sectors where the ENT would not be applied to the movement of natural persons supplying services in that particular sector.  The sector approach in establishing the ENT exemption list may seem too broad in some cases since commitments in mode 4 would apply to all natural persons in all profession supplying services in that sector.  The ENT exemption list could include professions or trades implying that it would not be applicable to the market access of the specific category of natural persons in all service sectors.  The ENT exemption list could be both occupation and sector specific, indicating that the ENT barrier does not apply for the selected profession in certain sectors.  In addition authorisation could be granted subject to a specific number of permits per annum. To the extent that the remaining sectors and occupations would remain subject to application of ENT, efforts should be made to reduce the scope for arbitrary and discriminatory practices, provide greater transparency and introduce more neutral economic criteria.  A reference paper could be drafted that would lay down the principles for application of ENTs.  The principles should address: (i) definition of the economic needs test;(ii) criteria for the introduction of the ENT, which could be quantitative and/or qualitative; (iii) procedures of the application of the ENT;(iv)  duration or review of the ENT application; (v) guidelines for  administration of the ENT; (vi) public availability of information; (vi) institutional provisions

       

[12]The aim is to translate the provisions in Article IV into more binding commitments. Specific provision could also be added along the lines that “To achieve such access specific additional commitments should be included in the Schedules of Specific Commitments of developed countries and incentives should be provided to firms and institutions for the purpose of encouraging transfer of technology and access to channels and networks”. Concrete capacity building measures to build services sectors of developing countries and benchmarks for imports could also be included as additional commitments. The effectiveness of the GATS contact points in providing relevant information to developing countries would require a review.

[13] See US paper on Framework of negotiations

[14]The text reads "Measures according differential treatment in regard to the expansion of existing operations, the establishment of a new commercial presence or the conduct of new activities, in a circumstance in which a member adopts or applies a measure that compels, or has the effect of compelling a person of the United States, on the basis of its nationality, to reduce its share of ownership in an insurance services provider operating in the Member's territory to a level below that prevailing on 12/12/97". For example in the insurance sector Philippines provides for grandfathering by including in its schedule "limitations in market access listed ...shall not apply to existing wholly or majority-owned authorized insurance/reinsurance companies as of the entry into force of this WTO Financial Services agreement." These limitations relate mainly to equity participation (limited to 51% in life and non-life and 40 percent in auxiliary services and reinsurance). Thailand in relation to Banking and other financial services (excluding insurance) commercial presence for foreign bank branches provides no limitation for existing foreign bank branches under present share holding structure.  Moreover under local incorporated banks it is provided that the Bank of Thailand may relax limits on maximum foreign equity participation and combined shareholding of an individual and related persons, subject to the terms and conditions announced by the Minister of Finance... such equity participation will be authorized for a period of up to 10 years with foreign shareholders who enter in this period being grandfathered thereafter with respect to the absolute amount of their equity holding."  The EC interpreted this MFN in the sense that the circumstances addressed did not cover cases of nationalisation of a sector or a subsector when the nationalisation applied in the same manner to all companies independently of their nationality.  The stance of Malaysia demonstrates that Governments are determined to defend the principle in GATS that their commitments do not extend beyond what they have included in their schedules and that certain national policy objectives override interests of existing ownership rights.

[15] Article VI.4 provides that ‘with a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, ...develop any necessary disciplines.  Such disciplines shall aim to ensure that such requirements are inter alia: (a) based on objective and transparent criteria, such as competence and the ability to supply the services; (b) not more burdensome than necessary to ensure the quality of the service; (c) in case of licensing procedures, not in themselves a restriction on the supply of the service.

[16] These proposals provide inter alia that measures implemented with a view to pursue any legitimate objective should not be allowed to be applied in an arbitrary manner or to become a disguised barrier to trade and should respect proportionality (EC), the main elements of a necessity test are: (i) application: the measure should not be more trade restrictive than necessary (ii) assessment: whether a measure is necessary to achieve a specified legitimate objective and the notion that members may reasonably be expected to employ a least trade restrictive measure to achieve the same policy objective (iii) determination: factors to assess the availability of alternative least trade restrictive measure (Canada) , a necessity test should go further that Article VI.4 and be in line with e.g. the SPS Agreement (Australia).

[17] See OECD documents TD/TC/WP(99)43/Final-Strengthening Regulatory Trasnparency: Insights for the GATS from the Regulatory Reform Country Reviews

[18]  Some views have been put forward on a Reference Paper for infrastructural services to ensure interconnection and access to essential facilities.

[19]This could be used as a precondition for negotiating further liberalization in the professional services sector.

[20] The United States has stated that the question of emergency safeguards should be considered in the context of the degree of flexibility that is likely to remain in other parts of the GATS, Including the schedules of commitments and the feasibility of applying safeguard measures in particular sectors.

[21]Another example is NAFTA where an agreement among 3 countries required hundreds of pages of reservations.

[22]See OECD documents TD/TC/WP(2000)11/Rev1 and UNCTAD/ITCD/TSB/8

[23]  See Ernst & Young, International Bank Accounting 3rd edition, volume 1 (London: Euromoney Publications, 1993), pp. 110 and 120 and Code of federal Regulations Banks and Banking, section 5.20© and Federal Deposit Insurance Act, section 1816, 12 United States Code Annotated-Banks and Banking Sections 1842© and 1843(c)(8). 

[24]The barriers to access have been identified in the paper entitled “ways of enhancing access to and use of information networks and distribution channels” (TD/B/CN.4/42).   

[25] Pro-competitive principles are directed both at regulatory practices of governments to ensure good governance and least trade restrictiveness and at private operators’ practices to prevent anti-competitive behavior and abuse of dominant position. 

[26] The Reference Paper was originally put forth by the United States and was adopted by countries without any real negotiation. Most of its provisions were already covered by the Annex on Basic Telecommunications and therefore this partly facilitated its adoption.  

[27]  A proposal on tourism services has been put forth by Dominican Republic, El Salvador and Honduras

 


BACK TO MAIN  |  ONLINE BOOKSTORE  |  HOW TO ORDER