Schedules of Services Commitments Achim Seiler, Trade Consultant and Capacity Building Specialist EU-Project: Trade and Private Sector Development (TPSD) TPSD is implemented by in cooperation with and

Table of Contents I Objectives Scope Structure Modes of Supply Sectors The Scheduling of Commitments Sample Schedule Basic Principles Underlying Specific Commitments Market Access National Treatment Typical Market Access and National Treatment Barriers Horizontal Limitations imposed by Developing Countries “Niche Opportunities” for Export of Services of Developing Countries

Table of Contents II Examples of Critical Intersectoral Linkages by Sector Modification of Schedules Commitments by Country Group Role and Responsibilities of Member Countries Market Access Limitation of Member countries (Examples) National Treatment Restrictions of Member Countries (Examples) Resources used Annex: Comprehensive list of National Treatment restrictions of Members

Objectives “...multilateral framework of principles and rules for trade in services with a view to the expansion of such trade under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners and the development of developing countries” (Preamble)

Scope This Agreement applies to measures by Members affecting trade in services (Art. 1.1.) “measures by Members means measures taken by (i) central, regional of local governments and authorities; and (ii) non-governmental bodies in the exercise of powers delegated by central, regional or local governments or authorities (Art. 1.3.) “measure” means any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form (Art. 28.a)

Structure GATS consist of: a framework text containing rules and principles applicable to measures affecting the trade in services the annexes to the Agreement pertaining to specific sectors (complementing the text) specific commitments listed in the national schedules of member countries

Modes of supply From the territory of one Member into the territory of any other Member (mode 1) In the territory of one member to the service consumer of any other Member (mode 2) By a service supplier of one Member, through commercial presence in the territory of any other Member (mode 3) By a service supplier of one member, through presence of natural persons of a Member in the territory of any other member (mode 4)

Sectors I Business (including professional and computer) services Communication services Construction and engineering services Distribution services Educational services Environmental services Financial (insurance and banking) services

Sectors II Health Services Tourism and travel services Recreational, cultural and sporting services Transport services Other services

The Scheduling of Commitments First: “positive list” approach: Members assume obligations only with a view to the (sub)-sectors listed Second: “negative list” approach: once a specific services (sub)-sector has been listed, it is assumed that no trade barriers exist unless stated in the schedule

The Scheduling of Commitments Horizontal commitments, applying across all services sectors by mode of supply Sectoral commitments, with specific limitations listed by services sectors and mode of supply

The Scheduling of Commitments “none” : no limitations inconsistent with the relevant market access and national treatment provisions [text] : the text states the limitation(s) for the particular mode of supply “Unbound”: measures inconsistent with the market access of national treatment provisions of GATS may exist or be introduced “Unbound*”: unbound because the delivery of a specific service through this mode is technically not feasible (e.g. hairdressing through mode 1 = cross-border supply)

Sample Schedule of Commitments Mode of supply Limitations on Market Access Limitations on National Treatment Additional Comments Horizontal 1. Cross-border supply None None other than differential tax measures with respect to R+D services 2.Consumtion abroad Unbound for subsidies, tax incentives and tax credits 3. Commercial presence Maximum foreign equity stake is 49 per cent Unbound for subsidies. Under Law X, approval is required for equity stakes over 25% 4. Temporary entry of natural persons Unbound except for intracorporate transfers of executives and services sellers Unbound except for categories of natural persons referred to in the market access column

Sample Schedule of Commitments II Mode of supply Limitations on Market Access Limitations on National Treatment Additional Comments Sectoral Architectural services 1. Cross-border supply Commercial presence required unbound 2.Consumtion abroad None none 3. Commercial presence (FDI) 25% of senior management should be nationals Unbound 4. Temporary entry of natural persons Unbound except as indicated in Horizontal commitments

Basic principles underlying specific commitments Market Access National Treatment Most-favored Nation Treatment (unless restrained in line with Art.2)

Specific Commitments: Market Access No limitations with a view to a specific sector unless listed in the schedule as: Limitations on the number of service suppliers Limitations on the total value of service transactions or assets Limitations on the total number of service operations or on the total quantity of service output Limitations on the total number of natural persons Measures which restrict or require specific types of legal entity Limitations on the participation of foreign capital

Specific Commitments: Market Access “With respect to market access through the modes of supply identified in Article 1, each Member shall accord services and service suppliers of any other Member treatment no less favorable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule.” (Art. 16.1)

Specific Commitments: National Treatment In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favorable than that it accords to its own like services and service suppliers (Art. 17.1) A Member may meet the requirements of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers (Art. 17.2)

Specific Commitments: National Treatment Formally identical or formally different treatment shall be considered to be less favorable if it modifies the conditions of competition in favor of services or service suppliers of the Member compared to like services or service suppliers of any other Member (Art. 17.3)

Typical Market Access and National Treatment Barriers I Economic needs test Size limitations for establishments Restrictive licensing practices Fixed equity limits Residency and nationality requirements Restrictions on mobility of key personnel Restrictions on the form of doing business Limitations on the purchase or rental of real estate for the sector Measures requiring the use of local partners or joint ventures to establish in the market Tax treatment discriminating against foreign suppliers

Typical Market Access and National Treatment Barriers II Quantitative limitations on the number of service suppliers Discrimination between domestic and foreign suppliers regarding the application of laws, regulation and practices Restrictions on geographical expansion and discrimination as to the types of activities that can be carried out in different geographical areas Restrictions on the number of employees and nationality and residency requirements for executives and employees Different regulations across subcentral and local governments Limitations on the recognition of qualifications obtained overseas

Horizontal Limitations Imposed by Developing Countries The establishment of commercial presence will be allowed on the basis of a joint venture The foreign supplier will be permitted to have less than a majority share in the equity of such a joint venture A specific number of board members must be nationals of the country The foreign service supplier should use appropriate and advanced technology and managerial experience It should train and pass on the benefit of technology to local employees It should employ, wherever possible, domestic subcontractors It must furnish accurate and prompt records on its operations

“Niche Opportunities” for Exports of Services of Developing Countries Different expert meetings convened by UNCTAD identified 6 sectors in which developing countries have an apparent or potential comparative advantage: Professional and business services (i.e. computer and office services) Health services Tourism Construction Audiovisual services Transport These sectors are all linked to the movement of natural persons

Examples of Critical Intersectoral Linkages by Sector I Linked to: Sector Computer services Environmental services Health services Tourism Accounting/auditing X Air transportation Construction Consulting engineering Insurance Legal services

Examples of Critical Intersectoral Linkages by Sector II Linked to: Sector Computer services Environmental services Health services Tourism Local transportation X Management consulting Research and Development Telecommunication Training

Modification of Schedules Modification or withdrawal of schedules commitments at any time after three years Notification of intent to modify or withdraw a commitment three months in advance Negotiation with other Members affected by the modification with a view to reaching an agreement on compensatory adjustment Compensatory adjustments shall be made on a most-favored-nation basis

Unconditional Obligations: Transparency Domestic regulations Monopolies Business Practices Subsidies MFN Participation of DCs Cover ALL services sectors irrespective of the schedules Unscheduled Sectors Conditional General Obligations Transparency Domestic Regulation Monopolies Payments and Transfers Cover services sectors scheduled Scheduled Sectors

Commitments by Country Group, March 2004 Countries Average number of sectors committed per country Range (lowest/highest number of scheduled sectors LDCs 20 1-110 DCs and transition economies 54 (106)* 1-154 (58-154)* Developed countries 108 87-117 Accessions since 1995 106 37-154 * Transition economies only, Total number of sectors: around 160

Role and Responsibilities of Member Governments A: Unconditional Obligations: Ensure compliance with MFN requirement (Art. II) Publish all measures pertaining to or affecting the operation of the GATS (Art. 3.1) Institute legal complaints mechanisms for affected suppliers (Art. 4.2) Ensure that recognition measures are compatible with the provisions of Art. 7 Prevent monopolies from undermining the MFN requirement (Art. 8.1.) Consult with other Members, upon request, on business practices that may restrain competition (Art. 9.2)

Role and Responsibilities of Member Governments B: Conditional Obligations: Notify any new laws, regulations etc. that significantly affect trade (Art. 3.3.) Administer regulations in a reasonable, objective, and impartial manner (Art. 6.1) Prevent licensing and qualification requirements and technical standards from nullifying or impairing commitments (relevant criteria are specified in Art. 6.5) Prevent monopolies from undermining commitments (Art. 8.1,2,) Ensure absence of restrictions on payments and transfers (Art. 11.1.)

Market access limitation of Member Countries I Limitations on the number of service suppliers: Licence for a new restaurant based on an economic needs test. Annually established quotas for foreign medical practitioners. Government or privately owned monopoly for labour exchange agency services. Nationality requirements for suppliers of services (equivalent to zero quota). Limitations on the total value of transaction or assets: Foreign bank subsidiaries limited to x percent of total domestic assets of all banks. Limitations on the total number of service operations or quantity of service output: Restrictions on broadcasting time available for foreign films.

Market access limitation of Member Countries II Limitations on the total number of natural persons: Foreign labour should not exceed x percent and/or wages xy percent of total. Restrictions or requirements regarding type of legal entity or joint venture: Commercial presence excludes representative offices. Foreign companies required to establish subsidiaries. In sector x, commercial presence must take the form of a partnership. Limitations on the participation of foreign capital: Foreign equity ceiling of x percent for a particular form of commercial presence.

Examples of limitations on national treatment (a) Domestic suppliers of audiovisual services are given preference in the allocation of frequencies for transmission within the national territory. (Such a measure discriminates explicitly on the basis of the origin of the service supplier and thus constitutes formal or de jure denial of national treatment.) (b) A measure stipulates that prior residency is required for the issuing of a licence to supply a service. (Although the measure does not formally distinguish service suppliers on the basis of national origin, it de facto offers less favourable treatment to foreign service suppliers because they are less likely to be able to meet a prior residency requirement than like service suppliers of national origin.)

Resources used ITC: Business Guide to the World Trading System, Geneva 1999 ITC: Business Guide to the General Agreement on Services UNCTAD: Tools for Multilateral Trade Negotiations on Trade in Services (www.unctad.org/commdip) UNCTAD: Advanced Training Tools for Negotiations on Trade in Services (www.unctad.org/commdip) WTO: GATS Training Module (www.wto.org) WTO: GATS, Trade Policy Courses, Chapter 19 WTO: Guidelines for the Scheduling of Specific Commitments under the General Agreement on Trade in Services (GATS), 28 March 2001, (S/L/92) WTO/Trade in Services Division: Services Negotiations under the GATT: Current State of Play (05.01.04)

Annex National Treatment Restrictions of Members (examples form the schedules)

National Treatment Restrictions of Member Countries I Subsidy measures Eligibility for subsidies reserved to nationals Tax measures A 4 per cent federal excise tax is imposed on all non-life insurance premiums that are paid to companies that are not nationally incorporated An excise tax of 10 per cent is applicable on net premiums paid to non-resident insurers Other financial measures (fees, charges, etc.) Charges taken for port services from foreign and national ships may differ in favour of national flag vessels Higher license fees are charged for non-residents

National Treatment Restrictions of Member Countries II Nationality requirements Provision of yacht chartering and cruising reserved to nationals Agents or manages must be citizens Sale or purchase of travellers cheques by individuals requires citizenship status Residency requirements Permanent residency requirements for chiropodists Residency requirement for manages and the mebes of the board of directors of a company Residence requirement for actuarial profession Advisory and auxiliary financial services and asset management: The establishment must be managed by a resident of the province For foreign bank employees residence is required

National Treatment Restrictions of Member Countries III Licensing and qualification requirements In order to work as a mountain guide or ski istructor,passing of an examination is required: access to such exams for foreigners may be restricted Barristers and commercial lawyers in natural law are required to be graduates of national universities Condition of licenses is one year previous residency Three years of prior professional practice in the country required Non-residents must be registered and licensed in order to purchase unprocessed fish from primary producers and/or process fish

National Treatment Restrictions of Member Countries IV Registration requirements Marketing of legal advice activities by foreign companies is restricted to registered law firms It is necessary to be registeed as an accountant, for which it is necessary to be a national or an alien domiciled in the country for at least three years prior to the application Foreign companies are required to have a registered office in the country Certification of certain works involving health and safety is limited to registered engineers, who to become registered, must be ordinarily resident in the country

National Treatment Restrictions of Member Countries V Authorization requirements Loans to non-residents need to be approved by the Central bank Banks: until 30 June 1999, ministerial approval is required for foreign bank subsidiaries to open more than one bank A non-national needs permission to become a director of a financial institution Technology transfer/training requirements Skilled foreign employees required to provide training to locals Foreign service suppliers are required to offer on-the-job raining for national employees The foreign service supplier must prove commitment to recruit and develop more local human resources The foreign service supplier shall use appropriate and advanced technology and managerial experience and shall have the obligation to transfer its technology and pass on its expeience to national personnel

National Treatment Restrictions of Member Countries VI Local content requirements Preferential use of local services to the extent they are available under the conditions of quality, price and delivery equivalent to those of like services of foreign origin With regard to personnel, materials, equipment, facilities and services required in the petroleum operations, priority shall be given to the employment of national subcontractors, provided that they are competitive in delivery, time, price and quality

National Treatment Restrictions of Member Countries VII Ownership of property/land Foreigners may not acquire direct ownership of land in a 100km strip along the frontiers The acquisition, purchase as well as rent or lease of real estate by foreign natural persons and juridical persons requires an authorization by the competent regional authorities which will consider whether important economic, social or cultural interests are affected or not Foreign entities may only acquire real property through participation in joint ventures Non-residents are excluded from the acquisition of real estate