1. Trade in Services

2. Outline of Presentation
Trade in Services
Introduction to International Trade in Services
Approaches to services commitments
WTO General Agreement on Trade in Services (GATS)
The EU-Cariforum EPA
NAFTA
Strategic Trade Policy in Context

3. Strategic Trade Policy in Context
Introduction
Why have international trade rules on services?
Services trade is increasing in economic importance
Services represent more than 20% of world trade
For most of the 1990’s, services trade was increasing 50 % faster than trade in goods
From 2001– 2008 services exports increased
but at slower rate than trade in goods
Strategic Trade Policy in Context

4. Strategic Trade Policy in Context
Introduction
Comparative advantage of developed countries increasingly dependent on services
EU is largest exporter of services (45% of global total)
US exports 14% of global total 35% of all US exports are services
Growing importance of services exports for many developing countries
Caribbean’s tourism sector
India’s IT service outsourcing
Travel and transport account for over 60% of developing countries’ exports
Canada 1.7% of global total - 11th
Strategic Trade Policy in Context

5. Why services trade is increasingly important
Technological changes facilitating trans-border delivery of services
e.g. financial services - e-banking
Separation of services from goods
e.g. warranty services, finance, marketing
Globalisation of firm production functions
Privatisation and deregulation of services
Foreign direct investment
Strategic Trade Policy in Context

6. Strategic Trade Policy in Context
Why few international trade and investment rules regarding services until recently
Complex and diverse in nature
from telecommunications to tugboats
Subject to complex and diverse forms of regulation
Goods trade is primarily regulated at the border
Many instruments of regulation the same from one country to the next and for all goods
Services trade is regulated at the point of delivery or consumption
Source, nature and content of regulation varies by country and service
Services regulation tied to important public policy goals
e.g. health, safety, integrity of financial system
unrelated to trade but with trade effects
Strategic Trade Policy in Context

7. Strategic Trade Policy in Context
Why few international trade and investment rules regarding services until recently
Services delivered in different ways - not just cross border exchange
Different modes of delivery may raise different issues
e.g., investment entry and entry of natural persons raise different issues than cross border supply
Need to permit different levels of commitment for (1) individual sectors and (2) different modes of supply
Strategic Trade Policy in Context

8. Strategic Trade Policy in Context
Service Supplier
Consumption
Abroad
Commercial
Presence
Temporary
Presence
Cross Border Supply
BORDER
Service Consumer
Investment
Strategic Trade Policy in Context

9. Strategic Trade Policy in Context
Why few international trade and investment rules regarding services until recently
Services delivered in different ways - not just cross border exchange
Different modes of delivery may raise different issues
e.g., investment entry and entry of natural persons raise different issues than cross border supply
Need to permit different levels of commitment for (1) individual sectors and (2) different modes of supply
Strategic Trade Policy in Context

10. Choices in Treaty Architecture
WTO GATS
EU-Cariforum EPA
NAFTA and Canadian FTAs
General Approach to Commitments
Positive list
(specify covered activities)
Negative list
(specify activities not covered)
Approach to Investment
Commercial presence covered for service suppliers only
(A mode of services supply)
Commercial presence covered for all types of investors
Investment dealt with in separate chapter
Approach to Movement of People
Dealt with as mode of services supply
Temporary presence of people dealt with in separate chapter
Strategic Trade Policy in Context

11. WTO’s General Agreement on Trade in Services (GATS)
All services are subject to GATS - including services delivered through a commercial presence (i.e. investment)
Over 50% of new investment worldwide is in services
Some obligations apply to all services that are subject to the agreement
E.g. Most Favoured Nation (MFN)
Subject to MFN exemption list (a negative list)
Other obligations apply only to services sectors listed by each WTO Member in its National Schedule (positive list)
E.g. National treatment and market access
Strategic Trade Policy in Context

12. Example of GATS-MFN Exemption
Sector / Sub-sector
Description of the measure indicating its inconsistency with Article II
Countries to which the measure applies
Intended duration
Conditions creating the need for the exemption
All sectors
Canada accepts compulsory arbitration of investor/state investment disputes brought by or in respect of service suppliers of countries with which Canada may have agreements providing for such a procedure
All countries
Indeterminate
Promotion and protection of foreign investment …
Strategic Trade Policy in Context

13. GATS Obligations Applying to All Sectors
Transparency
publication of laws and regulations
Measures affecting trade in services must be administered
in “reasonable, objective and impartial manner”
Must be right to judicial review of administrative decisions
Members must allow WTO Members adequate opportunity to seek to participate in arrangements for recognition of educational and other qualifications
Strategic Trade Policy in Context

14. GATS Obligations Regarding Listed Sectors
Some obligations that apply only to services sectors listed by each WTO Member in its National Schedule and can be limited
National Treatment
Market Access
“Horizontal limitations” by Canada carve out Investment Canada review and other discriminatory measures favouring domestic investors in all listed sectors
BUT subject to limitations
in each National Schedule
Strategic Trade Policy in Context

15. GATS Obligations Regarding Listed Sectors
Market access limitations that a WTO Member must list if it wants to maintain
Limitations on
number of service suppliers
total value of services transactions or assets
total number of service operations or total output
number of employees employed in services
type of entity used
participation of foreign capital
Strategic Trade Policy in Context

16. Strategic Trade Policy in Context
Classification of services under GATS used to list sectors (UN CPC and W/120)
130 categories of services sectors and sub-sectors
Business services
Communications
Construction
Distribution
Education
Environmental services
Health services
Financial services
Tourism
Recreation, culture and sports
Transport
Others
Strategic Trade Policy in Context

17. How to Read GATS Schedule (Example: Health)
Strategic Trade Policy in Context

18. Strategic Trade Policy in Context
Investment Canada Review Carved out of GATS in Canada’s National Schedule of Commitments
A “horizontal limitation”
Strategic Trade Policy in Context

19. GATS Obligations Regarding Listed Sectors (ii)
Additional obligations applying to sectors listed in national schedules of commitments
permit international transfers and payments to settle current transactions
enhanced transparency – domestic regulation (Art. VI)
notify WTO of new laws and regulations affecting trade in services in listed sector
enquiry point regarding regulation of listed sectors
Re: listed sectors
licensing and qualification requirements and technical standards
based on objective transparent criteria and
no more burdensome than necessary to ensure service quality
so as not to impair specific commitments
Negotiations
on more
specific
rules
Strategic Trade Policy in Context

20. Special Provisions for certain sectors and activities
Financial services
Telecommunications
Movement of natural persons
Annex provides that
No obligations regarding access to employment, residence or citizenship on a permanent basis
Air transport
other than aircraft repair, maintenance and specialty air services
Annex on Financial Services
Definition: banking, securities and insurance
Carve out for central bank activities and prudential measures
Strategic Trade Policy in Context

21. Trade and Services in the EU-Cariforum Economic Partnership Agreement
Commitments on Commercial Presence
Same concept as GATS – but applies to all investors not just services suppliers
MFN all sectors re: commitments in future trade agreements
But some sectors excluded
mining, manufacturing and processing of nuclear materials
production of or trade in arms, munitions and war materials
audio-visual services
national maritime cabotage
national and international air transport services
Market Access and National Treatment
(positive list)
In sectors and on terms listed in Annex IV to Agreement
Strategic Trade Policy in Context

22. Trade and Services in the EU-Cariforum Economic Partnership Agreement
Commitments on Cross-Border Trade in Services (GATS Modes 1 and 2)
MFN all sectors re: commitments in future trade agreements
But some sectors excluded
audio-visual services
national maritime cabotage
national and international air transport services
Market Access and National Treatment
In sectors and on terms listed in Annex IV to Agreement
Strategic Trade Policy in Context

23. Strategic Trade Policy in Context
Annex IV of Trade and Services in the EU-Cariforum Economic Partnership Agreement lists commitments
(k) Retail sales of
pharmaceuticals
and retail sales of medical
And orthopaedical goods
(CPC 63211)
and other services supplied by
Pharmacists
AT, BG, CY, FI, MT, PL, RO, SE, SI:
Unbound
BE, DE, DK, EE, ES, FR, IT, HU, IE, LV,
PT, SK:
Authorisation is subject to an
Economic needs test.
Main criteria:
population and geographical density
of existing pharmacies.
Strategic Trade Policy in Context

24. Trade and Services in the EU-Cariforum Economic Partnership Agreement
Separate Chapter on temporary presence of natural persons for business purpose
Key personnel, graduate trainees, business services sellers, contractual services suppliers, independent professionals and short term visitors for business purposes
Separate Chapter on regulation deals with
Mutual recognition, transparency and requirements for administrative procedures
Specific commitments in certain areas
computer services, courier services, telecommunications, financial services, maritime transport, tourism, e-commerce
Strategic Trade Policy in Context

25. NAFTA and Trade in Services (GATS Modes 1 and 2)
NAFTA Chapter 12
Applies to all measures relating to cross-border trade in services and not specifically excluded or reserved (“negative list” approach) except
Air services other than aircraft repair, maintenance and specialty air services
Financial services
Subsides and grants
Government procurement (separate commitments)
Separate chapters for financial and telecommunications services (Chapters 13 and 14)
Separate chapters on investment and movement of persons
Special national treatment rule for provicnes
Annex 1 and 11 same as for investment
Energy-related services dealt with in chapter 6
Strategic Trade Policy in Context 25

26. NAFTA and Trade in Services
NAFTA Chapter 12
Better of
National treatment (Art. 1202)
Most favoured nation treatment (Art. 1203)
No requirements for residency or establishing commercial presence to provide service (Art. 1205)
Can maintain quantitative restrictions but
Must list federal
Notify of new ones
Endeavour to negotiate for removal (Art. 1207, Annex V)
Commitments to liberalize quantitative restrictions, licensing requirements, performance requirements or other non-discriminatory measures (Annex VI)
Subject to
Annex I and II
Reservations
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27. NAFTA and Trade in Services
NAFTA Chapter 12 (Art. 1210)
Endeavour to ensure that licensing and certification requirements and procedures are
Based on objective and transparent criteria and
No more burdensome than necessary to ensure the quality of the service
Not disguised restriction on provision of the service
But recognition of experience, education and qualifications not required
Opportunity to seek recognition required if recognize those of another state
Within 2 years remove any citizenship or permanent residency requirements to be licenced to provide professional service listed in Annex I
Criteria like competence and ability to provide service
Quality not exhaustive of public policy objectives – eg. Universal access
Annex on professional services – that will talk about next time – re: legal services
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28. Carved Out of NAFTA – Excerpt from Canada’s Schedule to Annex I
Sector:
Business Service Industries
Industrial Classification:
SIC Customs Brokers
Type of Reservation:
National Treatment (Article 1202) Local Presence (Article 1106) Senior Management and Boards of Directors (Article 1107)
Level of Government:
Federal
Measures:
Customs Act, R.S.C. 1985, c. 1 (2nd Supp.)
Customs Brokers Licensing Regulations, SOR/
Description:
Phase out:
To be licenced as a customs broker or brokerage in Canada
(a) An individual must be a Canadian citizen…
None
Strategic Trade Policy in Context

29. NAFTA and Trade in Services
Separate chapters on some issues
Temporary presence of natural persons for business purpose (Chapter 16)
Investment (Chapter 11)
Distinct obligations including
prohibition on direct and indirect expropriation
fair and equitable treatment
Cross border provision of trnsportation service can be denied if using equipment not registered by any party
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30. General Categories of Services Issues
Positive vs. negative list
What sectors to include (or carve out)
Limitations
How to deal with different modes of supply
Especially investment and the movement of people
Sector specific commitments
Typical categories of substantive obligations
MFN, NT, Market Access, Recognition, Transparency, Administrative Procedures
Strategic Trade Policy in Context