Transcript GATS NEGOTIATIONS: STATE OF PLAY

Market Access Negotiations in GATS:
Moving Forward
by
Rupa Chanda
IIM, Bangalore
April 7, 2006
Hong Kong Ministerial Outcome and Services
• Low priority in negotiating agenda
• Hong Kong Ministerial Declaration-Annex C urges members to negotiate
towards achieving progressively higher level of liberalization
• Aims to intensify negotiations by expanding sectoral and modal coverage of
commitments and improving their quality
• Particular attention to be given to sectors and modes of export interest to
developing countries
• Appropriate flexibility for developing members
• LDCS are not expected to make commitments
• Attempt to strike a balance between flexibility in commitment process and
regulatory autonomy and improving market access
• Objective of improved commitments to:
– Bind in commitments at existing levels across sectors in modes 1 and 2
– Commit to greater levels of foreign equity participation and
remove/reduce use of ENT restrictions in mode 3
– New or improved commitments on contractual service suppliers,
independent professionals, others, delinked from commercial presence
in mode 4
– New or improved commitments for intracorporate transferees and
business visitors in mode 4
– Greater clarity in commitments
• In addition to multilateral negotiations, to pursue request offer approach on
vluntary plurilateral basis, results to be extended on MFN basis to all
– Plurilateral requests by Feb 28, 2006
– Second round of revised offers by 31 July, 2006
– Final draft schedules of commitments to be submitted by October 31,
2006
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Annex C of declaration also calls for rules negotiations
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Domestic Regulations
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Specific mandate for development of disciplines before end of round
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Call for intensification by developing texts
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Basis – proposals and illustrative list of elements on all aspects of
VI:4 (domestic regulation)
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GATS Rules
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ESM, Subsidies,Government Procurement
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Intensification of efforts in all three areas
Post Hong Kong Process – Plurilateral Negotiations
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Formation of plurilateral groups
Around 20 such groups, most of them have mixed membership
Approximately 30 members in most such groups
Deadline of 28th February or immediately thereafter met with submission of
collective requests in 15 sectors and on 2 cross cutting issues
 Following sectors and issues covered by plurilateral requests
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Air transport services
Architectural and engineering services
Audiovisual services
Computer and related services
Construction
Distribution
Education
Energy
Environmental
Financial
Legal
Logistics
Maritime transport
Postal and courier
Telecommunications
Cross border services (mode 1)
Movement of personnel (mode 4)
• Key features of sector-specific plurilateral requests
– Mainly involve developed countries, except in sectors like computer and
related services
– Participation by developing countries is limited
– Main focus is on market access through mode 3
• Substantial reduction or elimination of restrictions on:
– number of foreign service suppliers and firms
– type of legal entity
– Operational requirements
– foreign equity participation
– establishment or acquisition of existing companies in different
forms
– related nationality/residency requirements
• Remove economic needs tests
– Focus on mode 4 access in areas of limited significance for developing
countries
• Relating to commercial presence and for highly skilled, professional categories
• Limited to horizontal commitments and limitations
• Not much focus on deepening sectoral commitments
– Requests largely reflect the interests of a core group of developed countries
Examples of sectoral plurilateral requests
Telecommunication services
• Members involved:
– Australia, Canada, EC, Japan, Hong Kong China, Republic of Korea, Norway,
Singapore, Taiwan, USA
• Nature of request:
– Commercially meaningful coverage of subsectors, esp voice and data transmission
services and leased circuit services
– Mode 1- no national treatment limitations and no substantial market access
limitations
• No unbound entries
• no requirement to use networks of specific suppliers
• no requirement of commercial presence, no requirement for commercial arrangements
– Mode 2 – no market access or national treatment limitations
– Mode 3- no national treatment limitations and no substantial market access
limitations
• No limitations on establishment or number of service suppliers
• No economic needs tests
• No restrictions on types of legal entity allowed
• No limitations on nationality or residency
• Majority foreign capital participation and effective control to be allowed
– Mode 4
• Commit on categories of ICTs and BVs
• No additional limitations beyond horizontal limitations
• Not exclude telecom services from horizontal mode 4 commitments
– Commit to all provisions of reference paper
– Remove all MFN exemptions
Financial services
• Members involved
– Australia, Canada, EC, Hong Kong China, Japan, Korea, Norway, Taiwan,
USA
• Nature of requests
– Mode 1- expand coverage to include additional subsectors such as insurance,
advisory, and information and data processing type financial services
– Mode 2 – similar as in mode 1
– Mode 3
• undertake commitments encompassing rights to establish new and acquire existing
companies in form of wholly owned subsidiaries, joint ventures, branches
• Remove discrimination between domestic and foreign suppliers
• Remove limitations such as monopolies, numerical quotas, economic needs tests
– Transparency in development and application of rules and regulations, other
regulatory issues
– Nothing requested in mode 4
Construction services
• Members involved
– Australia, Canada, Taiwan, Japan, EC, Korea, Malaysia, Mexico, New Zealand,
Norway, Singapore, Turkey, USA
• Nature of requests
– Wider coverage of commitments across subsectors and in related areas of other
services
– Mode 2- full commitments
– Mode 3
• Eliminate foreign equity limitations
• Eliminate restriction on type of commercial presence and joint venture and joint
operation requirements
• Eliminate discriminatory registration requirement and licensing procedures
• Eliminate restrictions on types of projects undertake by foreign service suppliers,
including size of projects assessed by total project value
• Eliminate burdensome asset requirements
– Nothing requested in modes 1 and 4
Environmental services
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Members involved
– Australia, Canada, EC, Japan, Korea, Norway, Switzerland, Taiwan, US
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Nature of request
– Expand scope of commitments to cover all environmental services subsectors
and related activities ( but excludes water for human use)
– Mode 1 and 2- full commitments where possible
– Mode 3
• Remove barriers to commercial presence, such as foreign equity limitations,
joint operation requirements, restrictions or requirements on type of legal
entity
• Where award exclusive rights for supply of services at central or local level
to environmental service suppliers, also permit foreign service suppliers to
provide service
• Not cover non commercial government procured services
– Mode 4
• Ensure sectoral and horizontal commitments to cover service suppliers in
this sector, focus on those with specialized knowledge and skills
Computer and related services
• Members involved
– Australia, Canada, Chile, EC, Hong Kong China, India, Japan, Korea, Mexico,
New Zealand, Norway, Pakistan, Peru, Singapore, Taiwan, US
• Nature of request
– Modes 1-3
• Full market access and national treatment commitments for entire sector
– Mode 4
• Commitments on relevant categories of service suppliers as per Annex C
• Not exclude CRS services from horizontal mode 4 commitments
• No additional limitations beyond horizontal limitations
– Model schedule provided
• Focus on mode 4 limited to:
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horizontal commitments
not seeking deeper sectoral commitments
limited to particular categories only
limitations and discretionary scope can continue
Regulatory and autonomy issues
• Some collective requests raise difficult public policy issues
• Possible undermining of national autonomy in meeting public policy
objectives like
– universal service obligations
– public subsidies and funding of institutions
– right to discriminate between domestic and foreign suppliers in national
interest
Private education services
• Members involved
– Australia, Taiwan, Malaysia, US, New Zealand
• Nature of request
– Seek new or improved commitments in private higher and/or other education
– Not seek commitments in public education and asks countries to individually
define scope of commitments without necessarily defining what is public and
what is private
– Mode 1 and 2- no market access or national treatment limitations
– Mode 3
• No MA or NT limitations other than scheduling time bound limitation with
regard to foreign capital participation or shareholdings
– Mode 4
• Horizontal commitments that allows natural persons who are education
providers to enter
– Provides possible scheduling approach so that countries have flexibility
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But several questions raised by request
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Can developing countries comprehensively carve out of scope of commitments all
types of education services where policy sensitivities, even if not required to define
what is public and what is private?
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Request does not seem to recognize the need for national treatment limitations on
modes 1 and 3 to protect national interests
(a)
Request proposes that countries carve out of scope of private education
commitments any institutions with government equity/assistance
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But what other criteria would be relevant to carve out certain types of
education providers, even if private institutions?
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How comprehensively should public funding be defined- fee concessions,
R&D grants, scholarships,other subsidies?
(b)
Request says that if member chooses to make government funding available to
private education providers then should consider extending same treatment to
domestic and foreign private providers?
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Why should governments be asked to use scarce resources on foreign private
education providers?
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Can national treatment limitations be maintained adequately to give
preferences to domestic providers?
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Will government be able to exercise enough control over standards of
foreign education providers? Regulatory capacity issues
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Will government be able to prevent profiteering, ensure adequate
investment back in country’s educational infrastructure? Again,
regulatory enforcement and capacity issues even if adequate conditions
inscribed
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How can national interests be secured through only foreign equity
participation restrictions in mode 3- what other NT limitations may be
required?
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Issue of necessity test and whether a measure used as a limitation is least
burdensome way of meeting legitimate objective under GATS domestic
regulation discipline
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How to assess least burdensome measure?
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Who is to determine what is a legitimate objective?
Telecom services
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Request to adhere to all provisions in Telecom Reference Paper
Certain provisions could be problematic
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Focus on preventing anti-competitive practices
– Cross subsidization
Interconnection
– To be ensured at any technically feasible point in network and under nondiscriminatory terms and conditions, rates, similar quality, timely manner, costoriented rates that are transparent, reasonable
Universal service
– Gives members right to define kind of USO it wishes to maintain and states such
obligations not to be regarded as anti-competitive per se
– But requires administered in transparent, non-discriminatory, and competitively
neutral manner, not more burdensome than necessary for the kind of universal
service defined by member
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Ambiguity about what constitutes legitimate objective and measure deemed
appropriate for meeting that objective
What does “not more burdensome than necessary” in relation to a specified objective
mean?
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US-Mexico Telmex case reflects problems that can arise when members commit with one
interpretation but legal interpretation of what constitutes anti-competitive practices is different
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April 2004 WTO dispute panel ruled against Mexico in case filed by US
– Mexico’s laws and regulations charged as being anti-competitive and contravening Telecom
Reference Paper guidelines which Mexico had signed
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Panel ruled that Mexico had failed to ensure US basic telecom suppliers had equal access to and
use of public telecom networks and services
– Mexican supplier, Telmex had charged US supplier higher interconnection rates
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Mexico argued that rates charged on basis that were designed to include costs for rolling out
telecom infrastructure as a developing country
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Panel accepted US argument that rates charged should be based solely on specific services foreign
companies required and contribution to developing Mexico’s telecom infrastructure could not be
included in that rate
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Mexico argued for interpretation in line with S&D treatment provisions of GATS whereby
members recognized as needing measures to strengthen domestic service capacity and efficiency
and competitiveness
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But panel concluded that these provisions described types of commitments members should make
with respect to developing country members but do not provide interpretation of commitments
already made by developing country members
• Some cause for concern if schedule a sector where strong public service,
equity, and universal provision type dimensions:
– Ambiguous coverage of public services under GATS carve out clause
– Not clear what constitutes “commercial”, what constitutes noncompetitive co-existence of public and private providers, and likeness
of public and private services
• Some sovereignty may be lost in domestic regulation
• Once sector is scheduled, subject to conditions on domestic regulation
under GATS disciplines
– Requirements of transparency, objectivity, necessity, and legitimacy
of objectives to be met when using domestic regulation
Cross-cutting issues
• Two main issues are cross border supply and movement of personnel
• Request in cross border supply
– Involves several key developing countries
– Goes some way in obtaining full commitments in wider range of services and
emerging areas in future through improved classification under computer and
related services and other business services
– Calls specifically for removal of commercial presence, nationality/residency
requirements, and national treatment limitations
– Similar commitments requested in modes 1 and 2, with differences where
required
– While focus is on securing and binding in existing levels of market access and
removal of certain limitations with suggested list of sectors/sub sectors for
specific commitments, less ambitious than earlier mode 1 proposal for full
horizontal commitments with small negative list
Collective request in mode 4
• Focus on expanding coverage of commitments to include CSS and Independent
professionals
• Clarifies definitions of CSS and IP categories
• De-links mode 4 access from mode 3 presence
• Qualification commensurate to job requirement-based on diploma or university
degree or demonstrated experience for positions such as management of operations,
provision of services at level of complexity and specialty
– Limits scope for covering non formally qualified under CSS
• Duration of stay for 1 year or longer depending on contract, with provision for
renewal
• Removal of certain conditions like wage parity
• Removal of ENTs or at least greater transparency in their use
• Positive list approach to specify sectors to which IP and CSS categories applicable
– Engineering, technical analysis, medical and dental, computer and related,
tourist guide and some others for CSS
– Engineering, technical testing and analysis, accounting and bookkeeping,
management consulting and some others for IPs
• Transparency and non discrimination in administrative procedures
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While reflects concern for additional categories as in earlier mode 4 proposal, does
not specifically ask for SPV/any administratively different mechanism to distinguish
between temporary and permanent movement
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Request is likely to result in only incremental gains in mode 4
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Gains in mode 4 likely to be in the form of:
– Some improvement in transparency of mode 4 commitments & related
regulations
– Better classification and clarification of categories
– Relaxation/removal of some limitations like ENTs/LMTs, clarification of criteria
– Easier renewal/granting of visas for highly skilled
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Unlikely to realize substantive increase in market access or inclusion of wider range
of service categories and skill levels
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Unclear how discussions on regulatory issues will affect mode 4 discussions
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Likely that developing countries, esp. those in critical group, may have to concede
more in mode 3, expand scope of commitments for incremental gains in mode 4
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As majority of LDCs will be outside critical mass in plurilateral negotiations, their
interests in expanding scope of mode 4 will not be addressed at all
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To the extent LDCs join plurilateral groupings, will also need to trade off concessions
in mode 3 and other sectors like financial, telecom services for any operationalization
of special “priority for market access” in mode 4
Moving Forward the GATS Negotiations
• Analysis of collective requests and issues raised by post Hong Kong
negotiations suggests certain problems
– Participation is not broad based, dominated by certain developed countries
across most sectors
– Developing country interest seems limited to a few, probably reflecting
underlying concerns about level of ambition expected in offers, tradeoffs they
may be required to make, regulatory capacity and autonomy issues
– Ambition levels in mode 1 and especially mode 4 seem somewhat diluted
relative to earlier proposals in these modes
• Shifted to sector by sector approach for widening/securing market access in mode 1
• Shifted more to removal of limitations and transparency than market access
mechanisms that distinguish temporary from permanent movement and enhance
mode 4 access
• These problems also suggest possible ways forward
(1) Increased participation by developing countries
• Developing countries need to increase their participation in ongoing
negotiations
– Could consider requests in certain sectors where have market access interests
– Could consider offers where already liberalized and bind in existing level of
market access
• But several uncertainties remain
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– Will their participation lead to sectoral negotiations with more thrust by
developed countries in key sectors like telecom and financial services?
– Even if voluntary, once country receives a request, will it be obliged to join the
negotiations
– Will there be a move towards harmonizing regulatory obligations, especially
with regard to investment and competition policy in the interests of foreign
service suppliers?
– Once a baseline of commitment or regulatory framework has been agreed, will
that become a minimum norm expected from all member countries,
undermining flexibility in GATS commitment process?
– Would a requesting party be expected to make as deep a level of commitment
as it has requested in some other area/mode?
There needs to be clarity on what is expected and degree of flexibility that can be
retained by developing countries under plurilateral approach
• Three ways to increase participation by developing countries
(i) Assure developing countries that:
– regulatory autonomy will be retained
– regulatory deficiencies will be addressed and regulatory capacity
enhanced
– mechanisms for regulatory cooperation will be introduced
• Need to assist developing countries in identifying regulatory deficiencies
and remedying them before market opening commitments made
– Link commitments to regulatory reform, giving greater assurance to
developing countries that benefits of liberalization will not be
undermined by lack of regulatory capacity
• Negotiations must be supported by regulatory cooperation as developing
countries can then participate more meaningfully and use negotiations to
institute regulatory reforms
• Technical assistance in setting up regulatory bodies needs to be considered
(ii) Shift focus of offers towards non-discrimination
• One possibility is to focus more on removal of national treatment limitations
than on market access as differential treatment of foreign service providers
may not be required for attaining all public policy goals
– Relevant to developing country offers in mode 3 in some sectors where
discriminatory scope can be reduced without undermining regulatory autonomy
and where possible additional obligations can be assumed
– Relevant to developed country offers in mode 4 in sectors like legal,
accountancy, architectural, other professional services where discriminatory
conditions relating to nationality, licensing, registration not required given other
recognition and market access conditions already present
• Could consider using assurance of non-discrimination as a step towards
market access while retaining flexibility to inscribe quotas, foreign equity
caps, other non-discriminatory provisions under market access
commitments
(iii) Coalition building and drawing in players
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Large developing countries with more pro-active agenda in services need
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assure other developing countries that their regulatory autonomy and overall
GATS flexibility will not be undermined in order to draw in more players
show willingness to liberalize in other parts of the negotiations for effective
coalition building
have a more inclusive outlook in certain modes, like mode 4 to incorporate
wider range of interests among developing countries
need to involve more developing countries to shape domestic regulation
discussions to address common concerns
Developed countries will need to show willingness to negotiate in key
sectors and modes to draw in more developing countries
(2) Progress in mode 4
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Movement in mode 4 negotiations essential if more developing countries are to be
brought into the negotiations and their fears are to be allayed on flexibility issue
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Need to devise ways to liberalize market access for wider range of service suppliers,
including non-professional, semi and less skilled categories working
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Approach 1: Expand range of service suppliers under the classifications of ICTs and
CSS
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ICT:
– Expand beyond executives, managers, specialists by lowering and diversifying
functional/hierarchic criteria, relaxing conditions
• include employees who provide assistance/advice/service to foreign
client/receive business training regardless of status, without requirement of
period of prior employment
CSS:
– Relax minimum eligibility conditions to include non-professional, non-formally
qualified persons, experience/competence based qualifications
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Need to expand concept of contract under CSS
– Consider approved government bodies/government approved agencies which involved
in deploying and certifying credentials of non-professional, non-formally qualified
independent service providers as juridical entities
– Contract between overseas firm/individual and such juridical entities in home country
– Such home agencies responsible for monitoring and enforcement of contracts,
screening of qualifications of deployed workers in coordination with host country
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Key modification to include less skilled:
– Provide juridical affiliation in case of non formally qualified service suppliers rather
than directly between client and service supplier
– Notion of juridical entity expanded beyond enterprises to include government
agencies/approved agencies
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Need ways to assess qualifications and competence of less skilled as often international
benchmarks absent
– Where possible approval by appropriate trade/industry association/guild in home
and/or host country; or
– If such bodies missing, consider occupational certification and competence check by
concerned government/approved agency; or
– Allow employer in host country to judge skills and competence
• Alternative approach: Create new CSS subcategory to cover non-formally
qualified, non-professional service providers
– CSS-1: formal qualifications, minimum skill threshold
– CSS-2: non formal qualifications, based on demonstrated experience via
apprenticeships, vocational training, on-the job experience
– Contract between juridical entity that deploys/certifies competence of
CSS-2 providers and host country client
• Different entry and stay conditions for CSS-2 providers to address labour
market and trade union concerns in host countries
– Quantitative ceilings
– Minimum wages
– Shorter duration of stay (3-6 months)
– Possible safeguards via small negative list of sectors where CSS-2 not
applicable
• Where possible deeper sectoral commitments on CSS-2
• Need to support inclusion of additional categories with better classification
of categories, greater clarity and uniformity in definitions
– Agreement on common list of occupations and definitions
– Make use of ILO’s ISCO categories
– Commitments at finer, more disaggregated level
– Closer cooperation among professional bodies across countries required
for disaggregating categories, determining qualifying work and
educational criteria, and equivalence
– Closer cooperation between regulatory authorities in host and source
countries
– While expanding the CSS category not use skill levels as mean for
differentiation but occupational classification and definitions as means
for differentiation in terms and conditions
• There remain larger questions of feasibility
– Burden of enforcement and capacity
– Occupational certification capability in developing countries for non
formally qualified
• Key to progress in mode 4 is widening coverage but with greater
coordination between regulatory authorities in host and source countries and
sharing of responsibilities by source country
– Need to reassure immigration authorities that source countries will screen
service providers, accept and facilitate their return, prevent abuse of market
access, address security concerns
– Need to consider mechanisms for regulatory assistance to developing countries
• What conditions might source countries be required to fulfil to be granted
better market access? Can these conditions be included under GATS?
• Can there be flexibility in market access commitments in mode 4 to reflect
varying labour market conditions in host countries or set of criteria when
access could be reduced to address domestic concerns in host countries?
• Can one draw upon relevant elements of existing bilateral, seasonal, guest
worker arrangements to facilitate entry along with safeguards, with source
country responsibilities and flexibilities for host countries?
(3)
Improved offers by developing countries
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If some progress in mode 4 and mode 1 realized, developing countries
should be willing to improve their own offers in mode 3
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Eliminate barriers to foreign investment in sectors where already liberalized,
where benefits evident, some regulatory capacity developed, and where
reversal unlikely
Pre-commit where pre-conditions for liberalization can be met in reasonable
time
But maintain flexibility by not offering/giving more restrictive offers in
those areas where limited experience with liberalization, where public policy
objectives combined with regulatory capacity constraints, and not yet clear
about impact
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But also need to distinguish between those areas where liberalization is
desirable but prevented by vested interests versus those where regulatory
and other reforms required before liberalization
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Deeper commitments by developing countries will in part depend on
regulatory assistance and cooperation and in part on progress in mode 4
negotiations
Overall Assessment of State of Play
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Unclear how complementary approach and emerging state of play post Hong Kong
Ministerial will play out
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Pros:
- Prioritization of requests
- Better chances of trade offs between sectors/modes of interest to different
members
- More efficient use of limited resources
- Participation based on critical interests, as requesting or requested member
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Cons:
• Tradeoffs could become more difficult and concessions made may not be
commensurate to market access gains realized in key modes/sectors of interest
to developing countries
• More pressure possible on particular sectors
• LDCs may not be able to realize their main market access interest in mode 4
• Regulatory autonomy could be undermined
• May not be possible to strengthen regulatory capacity to extent required
• Lack of disciplines leaves the road open to disputes and creates uncertainty