Transcript Can competition and trade policy be reconciled?

Introduction to the General Agreement
on Trade in Services
David Hartridge
Hanoi, Vietnam
August 5-6, 2003
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General Agreement on Trade in
Services: Objectives

Expansion of services trade

Progressive liberalization through
successive rounds of negotiations

Transparency of rules and
regulations

Increasing participation of
developing countries
GATS Provides Policy Flexibility
GATS is commonly said to be the most developmentfriendly of WTO Agreements because of its great
flexibility:
 Freedom to decide the scope and pace of
liberalisation, through national schedules and
“bottom-up” scheduling
 Freedom to regulate services, and introduce new
regulations, to meet national policy objectives
Services Trade and Development:
General Expectations
“The gains from liberalizing services may
be
substantially greater than those from
liberalizing
trade in goods, because current levels of
protection are higher and because [there
would
be] spillover benefits from the required
movement
of capital and labour.” (World Bank, 2001).
Infrastructural services such as
Services Trade and Development
Figures

Services have been the fastest growing
segment of
world trade between 1980 and 2000, at
average
annual rates of over 9 per cent (vs. 8.2 per
cent for
goods trade).

The share of developing countries in world
services
exports increased from 20 to 26 per cent
(1990 –
Share of Services in Production
(GDP, 2000)
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100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Industry
Source: World Bank, World Development Report 2002
Agriculture
GATS: Comprehensive Scope
and Coverage

Measures Affecting Trade in Services at All
Government Levels

All Services Covered
(except governmental services and air traffic
rights)

Four Modes of Supply
• Cross-border supply (e.g. international
telephony)
• Consumption abroad (e.g. international
tourism)
The Economic Importance of
individual Modes?
The share of individual modes in world services
trade has been roughly estimated at:

40 per cent each for modes 1 and 3;

20 per cent for mode 2 (mainly tourism);
less than 2 per cent for mode 4.

Mode 3 trade, mostly combined with foreign
direct investment, has been the most dynamic
component in recent years.
GATS: Sectoral Coverage




Business Services
Communication
Construction

Health-Related Services

Financial Services

Tourism

Recreation, Culture & Sport

Transport

Other Services
Distribution

Education

Environmental
Governmental Services Excluded


Excluded from coverage are “services
provided in the exercise of governmental
authority” which, in turn, are defined as
services that are supplied “neither on a
commercial basis, nor in competition with one
or more service suppliers.” (Article I:3)
Typical examples:
Police, fire protection, monetary policy
operations, tax and customs administration,
universal health and education systems, etc.
General Provisions Applying to
All Services

Most-Favoured-Nation (MFN) Treatment (Art II):
Treat services from all trading partners equally – no
discrimination

Transparency (Art III): Publish relevant laws and
regulations

Domestic regulation (Art VI): Administer laws
reasonably, objectively and impartially

Monopolies (Art VIII): Do not allow abuse of
monopoly position
Special Rules (GATS Annexes)



Annex on Financial Services allows prudential
measures to protect investors, depositors etc. and
ensure integrity of banking system. Excludes from
GATS key operations of governments – e.g.
monetary, exchange rate, social security policy.
Annex on Telecommunications requires access to
and use of public telecoms networks by suppliers
of scheduled services on reasonable and nondiscriminatory terms and conditions.
Air Transport Annex excludes traffic rights and all
Most-Favoured-Nation (MFN)
Treatment
“… 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)


Exemptions may be negotiated during
Specific Commitments

The GATS requires each Member to submit a
Schedule of Specific Commitments that lists the
sectors in which it grants Market Access and
National Treatment.

There is huge variation in the coverage of
Members’ schedules. New Members usually
have
wide coverage (more liberal than many current
Members) due to accession negotiations.
Market Access Commitments

Article XVI forbids the following types of marketaccess limitations unless scheduled (no other
limitations are possible under this Article):






Number of suppliers
Value of service transactions
Number of operations or quantity of output
Number of natural persons
Type of legal entity
Foreign equity participation
National Treatment and
Additional Commitments

Article XVII - Obligation to treat foreign services
and service suppliers no less favourably than
your own like services and suppliers in
scheduled sectors.

Any kind of limitation in favour of nationals can
be maintained if it is listed in the schedule.

Article XVIII - Additional commitments go
beyond market access and national treatment –
e.g. the reference paper on telecommunications
Meaning of “Limitations”

Scheduling a service does not mean it must
be fully liberalized in all modes.
Commitments can be made in one, two,
three or four modes.

And commitments can be limited:



“unbound” = no commitment in that mode
“none” = no limitation (full commitment)
Specific limitations can be scheduled.
How to Prepare a Schedule: Two
Steps

STEP 1: Select sectors and sub-sectors for
inclusion


Relevant considerations [underlying objectives]: e.g.,
attract foreign investment [employment], foster
competition [efficiency], broaden product choice
[consumer welfare], etc.
STEP 2: Consider need for limitations or modal
exclusions

Relevant considerations [type of limitation]: e.g.,
How Schedules of Commitments
are Structured: India/Health
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or
subsector
Limitations on
market access
Limitations on
national treatment
1) Unbound
1) Unbound
2) Unbound
2) Unbound
3) Only through
incorporation with a
foreign equity ceiling of
51 per cent
3) None
4) Unbound except as
indicated in the
horizontal section
4) Unbound except as
indicated in the
horizontal section
8. HEALTH
RELATED AND
SOCIAL SERVICES
A. Hospital
Services
(CPC 9311)
Additional
commitments
Must Commitments Be
Respected at All Costs?
NO.
The GATS allows Members to
renegotiate
their commitments against
compensation
(Article XXI), override them for health
and
other public policy reasons (Article XIV)
or
Relationship Between Commitments
and Actual Market Conditions:

Commitments guarantee minimum levels
of market access and National Treatment.

Many Members in fact permit higher levels
of market access than those scheduled - but
must observe the MFN principle in doing so.

Commitments may be upgraded at any time
to reflect improved market-access
conditions.
Measures/Policies Not Affected
by Commitments

Non-discriminatory domestic regulation (standards,
licensing requirements, etc.)

Government procurement

Private commercial actions, which are beyond the
scope of GATS. There is no private recourse to
dispute settlement under the WTO.
Domestic Regulation
 Existing Obligation: In committed sectors, all
measures affecting trade must be administered in a
reasonable, objective and impartial manner (Article
VI:1).
 Negotiating Mandate: Further disciplines to
ensure that standards, licensing requirements, etc.
are:
 based on objective and transparent criteria;
 not more burdensome than necessary to ensure
quality; and
« Built-in Agenda » Negotiations
After the Uruguay Round

Domestic Regulation (Article VI:4)

Emergency Safeguard Measures (Article X)

Government Procurement (Article XIII)

Subsidies (Article X)

These negotiations are still under way
The New Services Round


Article XIX of GATS – Basic Mandate:

Successive rounds of negotiations, starting January 2000,
with a view to achieving a progressively higher level of
liberalization

Due respect for national policy objectives and levels of
development

Flexibility for developing countries to liberalize fewer
sectors and types of transactions
Article IV:1:

Facilitate increasing participation of developing countries
The Timetable

Submission of initial requests by
30 June 2002

Submission of initial offers by
31 March 2003

Conclusion not later than
1 January 2005
(Doha Ministerial Declaration)
Introduction to the General Agreement
on Trade in Services
David Hartridge
Hanoi, Vietnam
August 5-6, 2003
One law firm around the world One law firm around the world One law firm around the world One law firm around the world