1 THE NEGOTIATIONS ON THE RULES OF THE GENERAL AGREEMENT ON TRADE IN SERVICES Commercial Diplomacy Programme UNCTAD

2 THE GATS RULES SAFEGUARDS SUBSIDIES GOVERNMENT PROCUREMENT The negotiating mandate: Art. X: « there shall be multilateral negotiations on the question of emergency safeguard measures… » Art. XV: « Members shall enter into negotations with the view to developing the necessary multilateral disciplines… » Art. XIII: « there shall be multilateral negotiations on government procurement in services under this Agreement… » UNCTAD

3 SAFEGUARD MEASURES IN THE TRADE IN SERVICES Definition and scope: - Commercial defense measure, I.e. a temporary exception to the commitments of the GATS - Can be “horizontal” or sectorial (under the sectorial model, safeguards apply only to services sectors that really need special protection v. horizontal: general) The safeguards can be applied: - Because of unpredictable circumstances or an emergency situation - In case of an increase in the supply or in the consumption or a similar service - In case of threaten or a serious damage to the national industry - Debate on “unforeseen developments” UNCTAD

4 SAFEGUARD MEASURES Criteria of the “like products” as applied to the trade in goods: - Nature and physical features of the product - Final utilization - Tariff classification - Consumers’ preferences - Elasticity of substitution and supply UNCTAD Possible criteria inspired by the “like product” applied to the trade in services: - Technical features - Final utilization - Classification of the CPC or W120 - Consumer preference - Elasticity of substitution and supply - Conditions provided for in the contracts - How the service is introduced into the market - the consumer needs that it is sought to satisfy

5 THE PROS OF THE SAFEGUARD MEASURES IN SERVICES To provide for an exceptional commercial defense To support the goals of the national policy To facilitate a domestic adjustment, i.e. to counter the possible negative effects of liberalization programmes To strengthen the domestic capacity Safeguards are useful in the trade of goods UNCTAD

6 THE CONS OF THE SAFEGUARD MEASURES IN SERVICES Safeguards may be used against services exported by developing countries Developing countries may have difficulties in implementing these measures The main users of safeguard measures in the trade in goods are the developed countries Statistical data on trade in services is weak and can undermine the implementation of safeguards Safeguards are easy to apply in mode 4, but difficult in mode 3 UNCTAD

7 SAFEGUARD MEASURES IN MODE 3 (COMMERCIAL PRESENCE) The issue of the domesti industry and the acquired rights: Option 1: do not apply the safeguard to mode 3: the foreign suppliers have a local presence and so have acquired rights. Domestic industry could invoke the safeguard but it would not apply to foreign suppliers with a commercial presence. This option guarantees investment involving mode 3 of supply. UNCTAD

8 SAFEGUARD MEASURES IN MODE 3 (COMMERCIAL PRESENCE) Option 2: retroactive application. Safeguard is applied to all foreign suppliers regardless the commercial presence. The foreign suppliers with a commercial presence do not have a recognized right to expand operation. Quantitative restrictions could be applied through the prohibition of future expansion for foreigners with a commercial presence UNCTAD

9 SAFEGUARD MEASURES IN MODE 3 (COMMERCIAL PRESENCE) Option 3: retroactive application limited to the rights effectively exerted (does not protect the commercial expectations of new investors) Entitlements are limited to the application of the schedules of commitments of the member concerned. Very attractive option for countries that do not guarantee national treatment in their domestic regulation UNCTAD

10 RESTRICTIONS TO MFN Article X of the GATS: safeguard measures in services must be based on the MFN principle but Bilateral Investment Treaties: under certain BIT, foreign suppliers are entitled to NT and are not considered as foreign any more. Should the rights given to foreign suppliers with a commercial presence be determined on a case-by-case basis? UNCTAD

11 RESTRICTIONS TO MFN Suggestion that any safeguard mechanism should protect acquired rights and exclude the possibility of disinvestments: depends on the definition of acquired rights. -Should the definition be based on ownership? (e.g. Art. XXVIII) so established foreign suppliers would still be allowed to retain their current equity holdings? Would it be possible to freeze the status quo as a form of safeguard action, preventing any increase in holdings? -Broader definition of acquired rights? Ownership and right from being allowed to operate within a Member’s territory? UNCTAD

12 SAFEGUARD MEASURES How to determine an increase of the supply or the consumption and the threaten or the damage to the national industry: -Indicators provided by: -Taxes -Regulatory mechanisms and chambers of commerce -Balance of payments -Transborder transactions -Criteria based on income, sales, competitivity indicators -Global or national statistical data UNCTAD

13 SAFEGUARD MEASURES Provisional measures: proposal by ASEAN. Measures to remedy situations in which there is a threat of serious injury before any such injury materialized. Proof would be prima facie evidence. Procedures and time limits: safeguard mechanism should be based on investigation that should respect transparency and due process UNCTAD

14 SAFEGUARD MEASURES Measures to be applied and their effectiveness: -Mode 1: difficulty to monitor but the best option would be through internal consumption taxes (more suitable and possibility of disaggregated taxes, e.g. taxes on luxury, etc) -Mode 2: WTO paper on horizontal and sectorial limitations scheduled under Mode 2. Restrictions in this mode are used normally before consumption of the services abroad. UNCTAD

15 SAFEGUARD MEASURES -Mode 3: Safeguards to companies with a commercial presence could lead to disinvestments in the sector concerned. But disinvestments could be avoided through the use of quotas based on historical market share. The measures could take the form of limitations on access by new investors, on the types of activities undertaken. -Mode 4: no interests for developing countries but very easy to apply (e.g. easy to collect statistics). Developed countries could use safeguard in this area more easily. UNCTAD

16 SAFEGUARD MEASURES: CONCERNS FROM THE POINT OF VIEW OF THE DEVELOPING COUNTRIES Provisions on special and differential treatment that could be considered: -De minimis provisions -Greater periods for the investigations realized by the developing countries and for the implementation of the measures -Do not apply safeguards to mode 4 -Possibility to renew the safeguard if the conditions continue -Technical cooperation UNCTAD Other considerations: -Need to strengthen the national authorities in charge of the investigations -Need to introduce flexibility in the provisions on national treatment when implementing safeguards -Introduce national rules on competition -Link this negotiation to the overall results of the mandated negotiations under are. XIX

17 SUBSIDIES IN THE TRADE IN SERVICES How to obtain the information The economic theory: –The distortions created by the subsidies vs. the development goals UNCTAD

18 SUBSIDIES IN THE TRADE IN SERVICES Definition of subsidy in the trade in goods: -financial contribution by a public body -Any form of income or price support -A benefit is thereby conferred -Subsidy is specific UNCTAD General principles of the Agreement on Subsidies and possible application to services: -Active or passive financial contribut6ionprice support -Specificity -Prohibited subsidies -Actionable subsidies -Non-actionable subsidies

19 SUBSIDIES IN THE TRADE IN SERVICES Main problems faced in the trade in services: -Lack of statistical data -Classification (subsidy should be classified and then compared with existing classification system) -Non-differentiation in budget (some budget do not differentiate between goods and services) -Difficulties to measure the commercial impact (experience limited in the area of subsidies in services) -Some services are intertwined UNCTAD

20 SUBSIDIES IN THE TRADE IN SERVICES Link between the subsidies in services and the national treatment: -Under the GATS, subsidies are subject to the general principles, e.g. NT and market access. -Subsidies can be listed as a particular commitment or included as part of a wider commitment in a member’s schedules -It would therefore be impossible to discriminate in granting subsidies, as the same rights would have to be given to foreigners. UNCTAD

21 SUBSIDIES IN THE TRADE IN SERVICES How to deal with the distortions created by the subsidies in services: -Assessment of each activity: prohibited, actionable and non-actionable? But how to classify subsidies to promote development -Sectorial assessment: illustrative list made by each country? Each country would establish its own priorities. -Elements for a national list of criteria (by mode, sector or kind or subsidy)? (cf: passive subsidies in Tourism sector such as non –collection of taxes) UNCTAD

22 SUBSIDIES IN THE TRADE IN SERVICES Cross subsidies Some procedural issues: -How to determine the damage -How to measure the impact of the distortion -How to calculate the compensatory measures -How to determine which measures can be applied UNCTAD

23 SUBSIDIES IN THE TRADE IN SERVICES: CONCERNS FROM THE POINT OF VIEW OF THE DEVELOPING COUNTRIES Special and differential treatment: -Allow for subsidies on mode 1 such as financing of research and development. -No countervailing measures for the least developed countries and restrain for other developing countries -Greater de minimis provisions UNCTAD Other considerations: -Recognize the need for development goals -Make an inventory of frequent subsidies in the developing countries -Prepare a national list of prohibited subsidies -Determine national criteria for the investigations on subsidies -Identify policy spaces to be preserved

24 GOVERNMENT PROCUREMENT IN SERVICES Art. XIII.1 of the GATS « the procurement by governmental agencies of services purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of services for commercial sale » The official goals: -Transparency -Liberalization of the market for government procurement -Gradual elimination of national preferences UNCTAD

25 GOVERNMENT PROCUREMENT IN SERVICES Definition and scope: Who makes the procurement? Public body, private body under concession contract, central, regional or local public authorities? -What kind of transaction? “services purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of services for commercial sale” -What is being procured? All the services sectors under the classification list W120? UNCTAD

26 GOVERNMENT PROCUREMENT IN SERVICES The link with the WTO Working Group on transparency in government procurement Possible content of the negotiations: -MFN -National treatment and market access -Transparency -Dispute settlement UNCTAD

27 GOVERNMENT PROCUREMENT IN SERVICES: CONCERNS FROM THE POINT OF VIEW OF THE DEVELOPING COUNTRIES Special and differential treatment: -Provisions in case of balance of payments deficit -Support to productive industries -Gradual implementation of the commitments -Promotion of the national industry -Technical cooperation -Include a list of national or subregional exceptions -Flexibility for the offers of small and medium enterprises UNCTAD Other considerations: -Recognize the development goals -Link the negotiations on this issue to implementation of art. IV and the mandated negotiations under art. XIX -Avoid commitments too complicated to be implemented -Identify national sectors that need to be supported

28 THE GATS RULES Conclusions: -General conclusions: -The important link with the negotiations on the progressive liberalization -Paradoxes in the utilization of exceptions (e.g. Would the safeguard mechanism be used more often by developed countries than developing countries, as it has been the case for safeguards in goods?) -The value of joint actions (explain) UNCTAD

29 THE GATS RULES Specific conclusions from the national point of view: -On safeguards: horizontal set of rules on emergency safeguards would give developing countries a legitimate way to suspend GATS obligations. Need to establish appropriate structure to apply these measures. Concern with regard to safeguards applied to mode 4. Consistency between the safeguards applied under WTO and regional agreements. -On subsidies: List of priorities for developing countries would allow them to support their domestic suppliers. Distinction between passive and active subsidies should be done -On government procurement: Lest interest for developing countries. Each individual country should determine whether it should allow concession to foreign suppliers, in would allow them to support their domestic suppliers, in order to suit the best its political and economic programme. UNCTAD