operationalising the ldc waiver the ldc services waiver:

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OPERATIONALISING THE LDC WAIVER

THE LDC SERVICES WAIVER: CONTEXT, LEGAL BASIS, OPERATIONALISATION

An Introduction

Hannes Schloemann, Director, WTI Advisors

[email protected]

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Overview

• The Waiver: An LDC-Only Enabling Clause for Services• Scope: What does the Waiver Cover?• Market Access Preferences (“Small Window”) – Examples• Regulatory and Other Preferences (“Large Window”) –

Examples• Rules of Origin: Who is an LDC Provider?• What the Waiver is and is not About• What the Waiver Can and Cannot Achieve• How to Make it Work? Some Ideas• “Coda”: MFN Exemptions – an Interesting Proxy Explored

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The Waiver: An LDC-Only Enabling Clause for Services

• Recalled – before December 2011:– MFN applies (GATS Art. II)– No authorization for preferences for DCs/LDCs (no

Enabling Clause no GSP for services)• Dec 2011 Waiver now authorizes preferential

treatment…• …but does not oblige Members to grant preferences• Covers preferences only for LDC services/service

providers• But for all LDCs, not only WTO Members

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Scope: What does the Waiver Cover?

• Automatically covered: Market Access preferences “of the type referred to in GATS Art. XVI” (“Small Window”)

• Potentially covered: Other preferences (“Large Window”)– Regulatory preferences (e.g. easier procedures)– Preferential national treatment (e.g. subsidies,

support mechanisms)– Other preferences (e.g. tax exemptions)– But: Authorization from CTS required

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Market Access Preferences: Examples (“Small Window”)

• Allow midwifes, stone masons or fashion models from LDCs to provide services (mode 4) under LDC-only quota

• Waive for LDC providers the otherwise applicable ENT for restaurant or hotel licenses (possibly limited to subsets, e.g. specialty restaurants)

• Allow LDC contractors coming into the country as contractual service suppliers (mode 4) to use up to 25 qualified building professionals from LDCs, while suppliers from other countries can only bring in up to 10 own staff

• Allow LDC tour operators to maintain a local presence (mode 3) in the form of “rep offices” while others must establish full branches or subsidiaries

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Regulatory and Other Preferences: Examples (“Large Window”)

• Recognition of qualifications based on practical experience (e.g. X years of experience) for LDC professionals while requiring formal qualifications (diplomas etc.) for others

• Facilitated licensing procedures for LDC providers (e.g. possibility to submit papers in home language)

• Concessional application fees for LDC applicants for trucking licenses

• Facilitated vehicle registration for LDC providers• Lower capital requirements for banks from LDCs

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Regulatory and Other Preferences: Examples (“Large Window”) (cont’d)

• “LDC Helpdesk” for LDC service providers (assistance in meeting licensing, qualification requirements; standards)

• Import VAT exemption for services imported from LDCs• Facilitated/delayed payment of withholding tax for LDC

performers & IT professionals (mode 4)• Automatic coverage of state-sponsored health insurance in

developed country X for its tourists when travelling to LDC destinations (mode 2)

• Education grants for studies in LDC universities (mode 2)

Unrealistic? Look at Members’ MFN Exemption Lists & RTAs!

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No Preference without Rules of Origin:Who is an LDC Service Provider?

• The issue: Potential for abuse – “shell companies”• LDC interests are mixed:

– Liberal rules make life easy and incentivise investments– But also risk: diluted preferences, political backlash

• The Waiver rule (quite usable, reasonable balance):– LDC natural persons: (obviously) eligible– LDC juridical persons:

• If LDC-owned or controlled: eligible, no further Qs• If Non-LDC (Member) owned: eligible IF “substantive

business operations” in (any) LDC

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Avoiding Misunderstandings:What the Waiver is not about

• The waiver is not about donors and donees• The waiver is not about commitments• The waiver is not even (primarily) about preferences and

preference margins… …but rather improving effective market access for LDC services and service providers)

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Reflection 1: Who could, who should grant preferences?

• Recall: All Members are covered• Important: (Most) services preferences are not aid, and

preference grantors are not donors. Avoid dichotomy “LDCs–Donors” – intuitive but misleading!

• Preferences will often be most useful in the context of geographic proximity (incl. for Mode 1) and may be a supplementary tool for regional integration

• Even LDCs themselves may be interested and willing to grant preferences

Systemic Note 1: Selective market opening / regulatory relaxation can be an attractive trial/pilot for any Member!

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Reflection 2: Why This is Not (Primarily) About Margins

• Services are different, services trade barriers are different!

• Unlike tariff preferences, services preferences rarely create quantifiable “margins”– (some may, e.g. quotas for mode 4)

• Preferences (esp. LDC prefs) will often enable or facilitate effective market entry (first rungs of the ladder)

Systemic Note 2: Selective market opening / regulatory relaxation can be an attractive trial/pilot to test national flexibilities good for the system as a whole.

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Reflection 3: (Actual) Preferences v. (Only) Commitments

• Many PTA “preferences” only reduce the “water” between GATS commitments and the applied regime – what you get is still MFN treatment, just more secure

• The Waiver covers actual preferential treatment (“applied regime”) – when MFN is actually breached

• No need for the Waiver if a Member just wants to treat others better than promised in GATS commitments

• Applying the Waiver means more than concluding a PTA (more in unilateral applied reality, but less legal commitment)

Systemic Note 3: Services preference mean actual liberalization, unlike most commitments good exercise for the system as a whole.)

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Avoiding Misunderstandings:What the Waiver is about

• Actual trade facilitation for services re:– All sectors and subsectors – not just tourism &

transportation (although they matter)– All modes of supply – not just mode 4 (although it

matters)– All countries as current or potential importers of LDC

services – not just major developed countries (although they matter)

• Big steps are welcome, but incremental steps can make a difference as well – smart design is key

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Avoiding Misunderstandings:What (use of) the Waiver can and cannot do

• It cannot (directly) solve all issues and challenges that LDC service suppliers face when exporting – it can’t, e.g.– Boost supply-side capabilities– Solve business management issues– Provide capital or generate critical size– Solve regulatory issues at home

• BUT It can:– Eliminate or reduce regulatory/administrative challenges

LDC service exporters face in export markets Make no mistake: These matter BIG TIME

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How to Make it Work? Some Reflections

• What we need, in a nutshell:– Understand LDC interests

• Which services LDCs export/cound export• Which (market access/regulatory) obstacles they face• What preferences could help them

– Understand Feasibility• What can potential preference grantors do• What will they likely not do

– Generate political will & momentum– Secure results

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How to Make it Work? Some Reflections for LDCs & Friends

• Concretize interests & demands – Systematic approach – looking for barriers/challenges &

the meaningful preference(1) Identify actual and potential services exports(2) Identify relevant regulatory/administrative

challenges (barriers)(3) Design smart, targeted preferences - creativity &

fine-tuning is paramount!

( 16 country studies under way)

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How to Make it Work? Some Reflections for potential pref. granting Members (= All!)

• Identify and concretize potential preferences - check e.g.:– Any RTA-based preferences? Could some/all of them be

expanded to LDCs?– Any national preferences? Some/all expandable to LDCs?– Any admin/regulatory issues service providers have complained

about? Can some be relaxed on a selective (LDC-only) basis?– Any taxes/charges that could be reduced for LDC providers?– Any support system that can be expanded to cover LDC

services/providers?– Any other support that can be provided?

• Again: Creativity and fine-tuning is key

( 5 studies under way – more welcome)

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How to Make it Work? Cross-check: What role for the WTO?

• Recall: Waiver authorizes unilateral preferences – in principle the multilateral work is done

• But: Waiver keeps CTS in the loop– CTS receives notifications– CTS needs to sanction “Large Window “ Preferences

• More importantly at this stage:– There is a major role for the community in generating

actual outcomes (political process, de facto desire for harmony)

– The WTO is the community’s forum should serve as facilitator

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The LDC Services Waiver

Discussion

(What’s your favourite LDC preference? Send us a mail!)

[email protected]

In cooperation with:

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“Coda”: MFN Exemptions: An Interesting Proxy

• Listed MFN Exemptions (under GATS Article II:2)– reflect actual preferences (current or past)– provide insight into what Members (are ready to)

do– could possibly be extended to LDCs as one step

in the operationalization of the Waiver– could be taken as examples by other Members

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MFN Exemptions: Exploring Examples, Imagining Waiver Preferences

MFN Exemption Listed Possible Waiver Preference

Armenia grants operators of passenger road transport from certain countries exemptions from road taxes and operation charges on reciprocity basis

(Many other countries maintain similar privileges in road transport services, often specifically for neighbours.)

Grant similar privileges to LDC operators (on a non-reciprocal or reciprocal basis)

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MFN Exemptions: Exploring Examples, Imagining Waiver Preferences (cont’d)


Albania, the EU, Ukraine, Venezuela and many other Members grant national treatment or a similar status (treatment as locally produced movies) to audiovisual co-productions with certain countries under facilitated conditions.

Grant same treatment to co-productions with LDCs.

(While usually such treatment relies in addition on a corresponding reciprocal G2G agreement, it is conceivable to apply similar treatment on a unilateral preferential basis under the Waiver.)

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Cambodia maintains special administrative procedures for ships from neighbouring countries for both internal waterways and maritime transport.

Apply similar preferential procedures unilaterally to all LDC providers (ships).

Costa Rica grants membership in national professional service bodies to providers from other Members on the basis of reciprocity.

Grant access to membership in professional bodies to LDC service providers (without reciprocity).

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Spain (EU Member) grants exemptions from otherwise applicable distribution licenses for dubbed movies for children to films from members of the Council of Europe.

Apply same or similar exemption to LDC movie productions.

The UK (EU Member) waives the need for a work permit for citizens from Commonwealth Countries who have a UK-born grandparent.

Extend the same privilege to LDC citizens under the same conditions (a UK-born grandparent).

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Turkey grants foreign exchange guarantees to providers from certain countries in case their transfers of funds are temporarily halted by Turkish BoP measures.

Extend the same privileged guarantee to LDC providers.

Turkey grants recognition of accountancy service providers’ qualifications (and the resulting right to act as “financial advisor” in Turkey) to accountants from certain countries on the basis of reciprocity.

Grant same recognition to LDC accountants, without reciprocity, -on a blanket basis (unlikely)-or by applying facilitated recognition requirements / procedures (quite possible).

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Michigan, a state in the United States, permits corporate central credit unions to place deposits in banks chartered in Canada and the EU, but not elsewhere.

A privilege like this (which significantly improves the banks’ ability to provide mode 1 and mode 2 services to potent US depositors) could, in principle, be extended to banks in LDCs.

Not possible on a blanket basis? Deposits in LDCs could be allowed under certain thresholds.

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MFN Exemptions: Exploring Examples…Did you Notice?

(Almost) all of the above examples were regulatory preferences “Large Window” (the type requiring CTS approval)

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Peru grants higher quotas to artistes from Latin American countries (promoting Latin culture)

Special quotas for LDC artists and entertainers

The Philippines grant special visas and waives labour market test (ENT) for foreign “traders and investors” from certain countries (on the basis of reciprocal treaties)

Waive ENTs also for LDC providers (possibly certain categories, e.g. business visitors)

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Switzerland grants easier access (work permits) to distribution service providers from EFTA countries (flanking measure to support trade in goods)

Grant similar treatment to distribution service providers (mode 4) from LDCs

Venezuela has reserved market access for certain professional services to providers from certain countries on the basis of reciprocity

Extend market access to LDC providers on a non-reciprocal basis

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The LDC Services Waiver

Discussion

(What’s your favourite LDC preference? Send us a mail!)

[email protected]

In cooperation with:

operationalising the ldc waiver the ldc services waiver:

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