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GATS

Structure and Main Elements

WTOTrade in Services Divisionhttp://www.wto.org

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WTO Fundamentals

Non-discrimination

Transparency of laws and regulations

Reasonable regulation

Progressiveliberalization

of trade

GATS

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Perceived FeaturesNOT “TRADABLE” AND NOT STORABLE

Simultaneity of production and consumptionRole of local establishment

STRONG GOVERNMENT INVOLVEMENT Monopolies, public service traditions, universal service obligationsInfrastructural importance (transport, telecom, banking,etc.)Role of non-economic objectives (social, cultural, safety)

INTANGIBLEQuality criteria for services providers rather than for products

NO TARIFFSAccess conditions determined by regulation, quotas etc.

SERVICES

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. . . but: Certain services - international transport and communication - have been traded for centuries

Services are supplied in conjunction with goods (finance, insurance, marketing, etc.)

Services have become tradable as a result of:

technical progress (e-banking, tele-medicine, distance learning)

government “downsizing”

market liberalization and regulatory reform

SERVICES

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Economic Importance

• Share in Production and Employment Between less than 30 to over 70 per cent,

depending on resource structure and level of development of an economy

• Share in Total World TradeSome 20 percent, on a BOP-basis (does not count the full value of trade through commercially present foreign suppliers)

SERVICES

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What is GATS? Common to all

Short text of Articles - the “Framework”

Annexes (including on Telecom)

Individual

Schedules of Commitments

MFN Exemptions (only at outset & if needed)

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Scope and definition - Part I

General obligations & disciplines - Part II

Specific commitments - Part III

Progressive Liberalization - Part IV

Institutional Provisions - Part V

Final provisions - Part VI

The Framework of ArticlesSTRUCTURE

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Universal Coverage Includes all services

except:– Services supplied in the

exercise of government authority.

– But only if these are not supplied on a commercial basis or in competition with other service suppliers

Covers all measures– including those of local and

regional governments and non-governmental bodies exercising delegated authority

Sectors: Business and professional Communications, all types Construction Distribution Education Environment Insurance and financial Health and social Tourism Recreation & cultural Transport, all types Other

Scope and Definition

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Trade = Modes of Supply Scope and Definition

Defined Examples

Cross border Service supplier not present in the territory where services are delivered

Delivery of any services via telephone, fax, Internet, or the post

Consumption abroad

Consumers purchase services outside their country of residence

Tourism, Repair of a ship in another country, Going to a hospital abroad for surgery

Commercial presence

Service supplying entities present in the territory to deliver services

Establishing a bank branch or subsidiary Any foreign direct investment

Presence of natural persons

Entry and temporary stay of individual persons to supply services

1. Consultant services, Professional or business travel 2. Also, foreign employees of a firm supplying services

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The different types

ObligationsApplying generally to all services, whether or not scheduled

Applicable only to services listed in schedules

Exceptions–Containing relevant disciplines to ensure that they are not abused

General Obligations & Disciplines

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Across the Board

Most Favoured Nation Treatment (no discrimination among Members or preferences to non Members)

Transparency (publication of measures) Domestic Regulation (mechanisms for appeal of

administrative decisions) Recognition (of licenses and certifications and licensing

and qualification criteria) Monopolies & exclusive providers (prevent actions

affecting MFN obligation) Business Practices (consultations on anti-competitive

practices of companies)

General Obligations & Disciplines

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Most-Favoured-Nation TreatmentMFN is critical - it is what makes the WTO truly multilateral

“… each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country” (Article II:1)

General Obligations & Disciplines

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Transparency

Applies to all services, whether or not listed in schedules

Make publicly available all measures affecting trade in servicesIncludes all relevant laws,

regulations, licensing procedures & criteria, technical requirements, etc.

General Obligations & Disciplines

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Applied to committed services

Transparency (notification of new or revised measures to WTO)

Domestic Regulation (requirements, criteria & standards to be objective, publicly known and not unnecessarily onerous, procedures not restrictive, implement measures impartially, promptly inform applicants for licenses or other authorizations)

Monopolies & exclusive providers (prevent actions adversely affecting commitments)

Payments & Transfers (no restrictions affecting commitments)

General Obligations & Disciplines

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Domestic regulation General Obligations & Disciplines

Reasonable, objective and impartial implementation of all measures related to committed services

Licensing procedures and criteria, technical standards and qualification requirements should be objective, transparent and not more burdensome than necessary Subject to ongoing negotiations to develop specific

disciplines

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Exceptions

Economic integration & labour market integration agreements

Restrictions on the balance of paymentsGeneral & security exceptionsFinancial services: prudential measures (Annex)

General Obligations & Disciplines

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Example: General Exceptions General Obligations & Disciplines

GATS permits measures

–to achieve policy objectives such as protection of public morals and the maintenance of public order

–to protect privacy of personal data, confidentiality of individual records, and to prevent fraud

The measures must not be more restrictive than necessary, applied in an arbitrary way, discriminate unjustifiably or be used as a disguised restriction

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To be negotiated

Disciplines on domestic regulation

Emergency Safeguard Measures

Government Procurement

Subsidies

General Obligations & Disciplines

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Listed in SchedulesDefined in GATS Part III (Arts. XVI, VXII & XVIII

Market AccessNational TreatmentAdditional Commitments

Listed in Schedules by service and modes of supply

Indicates each Member’s legally bound guarantee of specified minimum levels of access or national treatment

Schedules do not bind laws or regulations as such

Specific Commitments

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Format of Schedules

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

Additional commitments

8. SECTOR A. Subsector (CPC Number or other defining characteristics)

1) 2) 3) 4)

1) 2) 3) 4)

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

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The Schedules“Horizontal” Measures

•To avoid repetition, limitations applied to a number of sectors are listed at the front of the schedule. Like sector-specific entries, they are legally binding. Listed by column & mode

•Some may relate to only one mode of supply:Example: Overall limitations on foreign

investment, formation of corporate entity or land acquisition (market access/commercial presence)

•Others affect more than one mode of supply:Example: Tax measures contrary to national

treatment

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Using Modes of Supply

Market Access & National Treatment

Relevant measures to list

Cross border Measures affecting the treatment of the service -- supplier not physically present

Consumption abroad

Measures relating the the consumer’s ability to secure the service abroad

Commercial presence

Measures relating to the supplier’s ability to provide the service by means of a corporate presence, e.g. investment laws, company laws

Presence of natural persons

Measures related to the ability of individuals (rather than corporate persons) to do business within the country,e.g. rules on business travellers, work permits

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Measures a Member shall not maintain or adopt unless specified in its Schedule are:

a. limits on number of suppliers*b. limits on value of transactions or assets*c. limits on number of operations or the quantity of output*d. limits on number of persons that may be employed in a sector or by

a supplier*e. measures that restrict or require specific types of legal entity or

joint venture f . limits on the participation of foreign capital

*or an economic needs test having the same effect

Is considered a complete or “closed end” definition

Market Access ColumnDefinition: Article XVI

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Unless relevant limitations are specified in the schedule:

Each Member shall accord to services and services suppliers of any other Member treatment no less favorable than that it accords to its own like services and service suppliers

No discrimination in favour of national suppliers on a de jure or de facto basis

Applies to all discriminatory measures

This is considered an “open ended” definition

National Treatment ColumnDefinition: Article XVII

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Market Access & National TreatmentListing discriminatory measures

National Treatment

All other discriminatorymeasures belong inthis column

Market Access

Discriminatory and nondiscriminatory measuresfitting the Art. XVI definition of market access must be listed in this column

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Market Access & National Treatment Terminology used in entries

Term Definition of Entry

“None”Binding to apply no limitations (within the meaning

of Articles XVI and XVII). Also means “none other than those listed in the horizontal section”, if any, so need to specify if horizontal limits not applicable

“Unbound”

“Unbound*”

No commitment, no binding (usually entered for a particular mode of supply wherein other modes DO contain commitments) *Not technically feasible

Limitation(s) specified

Binding where the relevant limitation(s) is specified Is understood to mean “none, except” i.e. that ONLY said limitation(s) will be applied (in addition to relevant horizontal limits, if any)

“Unbound except …. “

Limits the scope of binding within a mode. Differs from limiting the type of services covered (which is noted in sector/sub-sector column) Limitations applied to the “bound” segment must also be listed

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Structure of SchedulesA Sample Commitment

Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

Sector orsubsector

Limitations onmarket access

Limitations onnational treatment

Additionalcommitments

8. HEALTHRELATED ANDSOCIALSERVICES

A. Hospital Services (CPC 9311)

1) Unbound

2) Unbound

3) Only throughincorporation with aforeign equity ceiling of51 per cent

4) Unbound except asindicated in thehorizontal section

1) Unbound

2) Unbound

3) None

4) Unbound except asindicated in thehorizontal section

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

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Additional Commitments ColumnWhat can be listed?

The definition of possible undertakings is open-ended They can be unique to a particular Member or Members

can agree to a common set of additional commitments The Telecom Reference Paper is the first example of

plurilatural negotiation of a common set of such undertakings

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General Obligations vs. SchedulesExample:Regulations not listed in Schedules

Requirements for obtaining a license The applicant must demonstrate an adequate financial base and the technical capability to supply the services subject to the license

Criteria relating to financial base• minimum capital requirement of £50,000• presentation of a business plan

Criteria relating to technical capacityAt least 2 staff must be certified engineers with 5 or more years of experience

Implication: A license can be denied if the applicant does not satisfy the criteria, even if commitments with no limitations are scheduled on that service

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Other scheduling techniques

• Telecom “technology neutral” approach

• Understanding on Financial Services

• Maritime transport

• Air transport

• Other: Check-list approach... Tourism? Energy?

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Types of Annexes On provisions

Article II (MFN Exemptions) Movement of Natural Persons

On sectors Air Transport Telecommunications Financial Services

On the extended negotiations Basic Telecommunications Second Annex on Financial Services Maritime Transport

GATS Annexes

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Annex on MFN Exemptions

Allows derogation from MFN obligation for sectors & measures specified in Member’s list

Often cover bilateral/ regional agreements or “reciprocity” requirements in national laws

Except for acceding countries, exemptions now possible only under waiver procedures of WTO

Intended to be a temporary… Review after 5 years. Ten year maximum duration, in principle.

GATS Annexes

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Annex on Movement of Natural Persons

GATS covers only temporary entry and stay in a Member's territory to supply services

GATS does not cover immigration policies or non-trade visa policies so these would NOT be addressed in schedules

Specific commitments relevant to GATS coverage are as negotiated in schedules under the relevant mode of supply

GATS Annexes

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Annex on Air Transport

Excludes all traffic (landing) rights and services related to traffic rights at present, so these are not to be committed in schedules

Agrees to coverage only of:Aircraft repair and maintenanceSelling and marketing servicesComputer reservation systems

GATS Annexes

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Annex on Telecom - obligations?

Applies to measures affecting access to and use of public basic telecom networks and services

General obligation to ensure that suppliers of scheduled services are guaranteed reasonable and non-discriminatory access to and use

Allows reasonable conditions on access and use, in order to meet specified public policy objectives

Permits developing countries to depart from the obligations by indicating such in the schedule of commitments

GATS Annexes

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Annex on Financial Services - scope ?

Excludes from the GATS definition of services: Activities of Central Banks or monetary authorities in

pursuit of monetary or exchange rate policies Activities under statutory systems of social security or

public pension funds or of other public entities using government financial resources

Excludes from GATS coverage any measures affecting the sector taken for prudential reasons

So obligations and commitments are normally not applicable to these activities or measures

GATS Annexes

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Increasing Participation of Developing Countries (Art. IV)

• General requirement:Increasing participation of developing countries in world trade through specific commitments that:

• strengthen services capacity and efficiency,• improve access to distribution channels,• liberalize markets of export interest

• Contact points to facilitate information access

• Special priority for least developed countries

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What has been

Achieved to date?

• GATS is considered a reliable and predictable framework for facilitating trade and foreign investment in services

• It has been widely perceived by developing countries as a positive development in the multilateral trade framework

• Many commitments have been overtaken by further reforms and liberalization in both developed and developing countries