Trade in Services and Investment John M. Curtis Canada-India Trade Simulation June 20-24, 2011

CTPL Certificate Program2 Services Trade Matters Services trade is often called "invisible trade” Large and growing share of Canada’s and of India’s GDP and employment: the “new economy" Services statistics everywhere remain a challenge Unlike goods trade, nothing crosses a border Goods trade regulated primarily at the border; services trade is regulated at the point of delivery or consumption.

The Two Models for Services Trade Positive list: The General Agreement on Trade in Services (GATS) Negative list: NAFTA Both models share common elements (eg. market access and national treatment) but negative list inherently broader and takes account of new, emerging services

Services – Classification & Trade How are services classified in international trade? –Goods use the harmonized system of classification –Services use a modified form of a UN classification of services –GATS identifies some 130 categories of services sectors and sub-sectors

Services – Classification & Trade How do services move in international trade? –GATS is based on 4 modes of supply, each of which may be regulated differently 1. Cross-border supply 2. Consumption abroad 3. Commercial presence 4. Presence of natural persons

GATS - Obligations Members must extend unconditional MFN to services and service providers of all other Members, but are permitted to schedule a one-time exemption when first applying GATS Transparency requirements are roughly equivalent to those in the GATT

GATS - Positive List Approach National treatment only applies to sectors/sub-sectors listed in a Member’s schedule, and a listing may include limitations on national treatment Market access is also assured only for listed services, and it may also be limited by conditions in the schedule. In both cases, listing is by service and mode of delivery

GATS – Market Access GATS authorizes the use of 6 limits on market access: 1. On number of service providers 2. On total value of service transactions 3. On total number of service operations 4. On number of persons employed in services 5. Restrictions on type of legal entity used 6. Limits on foreign investment

GATS - TBTs Qualifications, licensing, and other technical standards must not be ‘unnecessary barriers to trade’ in services GATS Council to develop disciplines to ensure: –Objective and transparent criteria (e.g., is a person competent to provide the service?) –No more burdensome than necessary to ensure quality –Licensing procedures are themselves not barriers

GATS -TBTs New technical standards must not nullify previous specific commitments A Member may recognize qualifications, licences, certifications of other, particular Members through harmonization, by agreement or autonomously Other Members should then be given opportunity to obtain similar recognition Such recognition should not = discrimination Members will work towards common standards and recognition criteria

GATS - Comment Given the impracticality of regulating modes 1 & 2, and the nature of market access limitations authorized More of an investment agreement than a trade agreemen t.

Foreign Direct Investment (FDI)

WTO and FDI FDI obligations not in WTO Effort to negotiate an FDI agreement in Doha Round failed

Trade-Related Investment Agreement Deals with trade-in-goods aspects of FDI Prohibits measures – performance requirements – related to exports, use of domestic inputs, export-import balancing, quantitative restrictions

Bilateral Investment Treaties (BITs) Either stand-alone, e.g., Canada's Foreign Investment Protection and Promotion Agreements (FIPAs) or, Incorporated in free trade agreements, e.g., NAFTA Chapter 11.

BITs Coverage National treatment Most-favoured-nation treatment Negative list, i.e., exceptions are specified rather than sectors covered being listed Minimum standard of treatment under international law Performance requirements Expropriation Repatriation of funds Dispute settlement (investor-state)