Specific GATS Commitments

Specific GATS Commitments

Pierre Latrille, Trade in services division

World Trade OrganizationOrganisation Mondiale du CommerceOrganización Mundial del Comercio

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Objectives

Inspired by GATT practice

Force of Law

Transparency of commitments

Possibility of progressive liberalization

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Schedules of Specific Commitments (Article XX)

Content of schedules

Domain common to Articles XVI and XVII

Guide for the preparation of schedules

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General Obligations

Unconditional Obligations Conditional Obligations

MFN

Transparency (publication)

Domestic Regulation (review of decisions)

Business Practices

Monopolies (MFN)

Transparency (notification)

Domestic Regulation (administration of measures of general application;

licensing requirements)

Behaviour of monopolies (MA and NT)

Payments and Transfers

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A blank Schedule...

SCHEDULE OF SPECIFIC COMMITMENTS OF MEMBER X

Sector or

Sub-Sector Limitations on Market

Access Limitations on

National Treatment Additional

Commitments (1) (1) (2) (2) (3) (3)

(4) (4)

(1) (1) (2) (2) (3) (3)

(4) (4)

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The GATS approach to scheduling...

SCHEDULE OF SPECIFIC COMMITMENTS OF MEMBER X

Sector or

Sub-Sector Limitations on Market

Access Limitations on

National Treatment Additional

Commitments (1) (1) (2) (2) (3) (3)

(4) (4)

(1) (1) (2) (2) (3) (3)

(4) (4)

Positive Element: selectionof sectors

in which Market Access and National Treatment is granted

Negative Element: inscription of any

limitations on Market Access and National Treatment

Negotiated commitments

not subject to scheduling under

MA or NT

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GATS approach to scheduling of commitments

Positive list of sectors/sub-sectors “bottom up”

Negative list of limitations

“top down”

Commitments to MA and NT undertaken only for those sectors/subsectors listed

MA and NT apply except for limitations listed or for “unbound” modes of supply

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The 4 Modes of Supply

ServiceSupplier

Service Consumer

Service Supplier supplies servicefrom territory of

one Member

Service Consumer receives service

in territory of anyother Member

Cross border supply - Mode 1

Service supplied into the territory

of another Member

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The 4 Modes of Supply

Service Supplier Service

Consumer

Consumption abroad - Mode 2

Service Consumer

Service supplied in territory of one Member to the service consumer of another Member

Service supplied in territory of one Member to the service consumer of another Member

Service Supplier supplies service in territory of

one Member

Service Supplier supplies service in territory of

one Member

Service Consumer receivesservice in territory of supplierService Consumer receivesservice in territory of supplier

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The 4 Modes of Supply

Service Supplier

Service Consumer

Commercial Presence - Mode 3

Service supplier establishes a commercial presence in the

territory of another Member

Any type of business or professional establishment

Service supplied through commercial presence

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The 4 Modes of Supply

Service Consumer

Natural Persons - Mode 4Service supplied through

presence of natural persons of a Member in

territory of another Member

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The Sectors...

Business and professional Communications, all types Construction Distribution Education Environment Financial Health and social Tourism Recreation & cultural Transport, all types Other

Sectors

Precise definition is critical as itdefines thescope of acommitment

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Description of the Sectors

• MTN. GNS/W/120 of July 1991 divides sectors into 12 groups

• Altogether ~ 160 sub-sectors identified

• Corresponding number of the Central Product classification (CPC), Provisional version

• Note: CPC is a tool, Members may describe sectors by using other definitions

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What types of limitations mustbe scheduled?

• MARKET ACCESS (Article XVI)• Absence of six types of restrictions• (mostly quantitative)

• NATIONAL TREATMENT (Article XVII)

• Non-discrimination with regard to all measures affecting the supply of a service• Any limitations must be inscribed in Schedules for each relevant modes(s).

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Market Access can be conditioned through 6 types of measures to be specified in the Schedule:

(a) Number of service suppliers (e.g. new entries subject to economic needs)

(b) Value of transactions or assets(e.g. assets of foreign banks limited to x percent of total

bank assets)(c)Total number of operations or quantity of output

(e.g. restrictions on broadcasting time for foreign films)(d) Total number of natural persons

(e.g. no more than x foreigners per outlet)(e) Type of legal entity or joint venture (e.g. foreign presence only via subsidiaries)(f) Maximum foreign capital participation

(e.g. foreign equity limited to 49 percent)

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Scheduling Market Access limitations

Each measure must be described concisely indicating the elements which make it inconsistent with Article XVI, including whether it is discriminatory

Numerical Ceilings to be expressed in defined (maximum) quantities in either absolute numbers or percentages

Economic Needs Tests entry should indicate the main criteria on which the test is based e.g. if the authorisation to establish a facility is based on a population criterion, the criterion should be described concisely

Economic Needs Tests (Art. XVI:2 (a)-(d)

• > 250 ENTs by ~ 90 Members

• majority of entries do not specify criteria

• Significance of unspecified ENTs unclear ...

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Article XVI.2(a)

NUMBER OF SUPPLIERS

Public convenience and necessity test (criteria related to approval include: examination of the adequacy of current levels of service; market conditions establishing the requirement for expanded service; the effect of new entrants on public convenience, including the continuity and quality of service, and the fitness, willingness and ability of the applicant to provide proper service).

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Article XVI.2(a)

NUMBER OF SUPPLIERS

The number of licenses for cosmetology schools in Kentucky is limited to 48 total licenses, with a total of 8 licenses allowed for operation of such schools per congressional district.

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Article XVI:2(b)VALUE OF TRANSACTIONS OR ASSETS

20 per cent of the volume of maritime traffic open to competition of all shipping companies.

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Article XVI.2(b)

VALUE OF TRANSACTIONS OR ASSETS

In banking, the Monetary Board shall ensure that at all times seventy per cent (70%) of the resources or assets of the Philippine banking system is held by domestic banks

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Article XVI.2(c)

NUMBER OF TRANSATIONS OR QUANTITY

A foreign bank will be permitted to set up only one local subsidiary.

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Article XVI.2(c)

NUMBER OF TRANSATIONS OR QUANTITY

Import of titles restricted to 100 per year.

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Article XVI.2(d)

NUMBER OF PERSONS EMPLOYED

A speciality restaurant with a minimum of 75-seat capacity shall be allowed to employ one (1) alien Speciality Chef or Sous Chef. In the initial stage of operation of a speciality restaurant and for a maximum period of two (2) years, three (3) more alien speciality chefs or sous chefs may be employed.

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Article XVI.2(d)

NUMBER OF PERSONS EMPLOYED

Access restricted to natural persons only. Economic needs test for medical doctors and dentists who are authorized to treat members of public insurance schemes. The criterion is shortage of doctors and dentists in the given region.

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Article XVI.2(d)

NUMBER OF PERSONS EMPLOYED

In any artistic production or entertainment given in a public place in Peru the proportion of Peruvian performers shall not be less than 80 per cent of the total.

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Article XVI.2(e)

TYPE OF LEGAL ENTITY

Provision through a “GmbH & CoKG” and “EWIV” is prohibited.

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Article XVI.2(e)

TYPE OF LEGAL ENTITY

Provision through SEL (anonyme, à responsabilité limitée ou en commandite par actions) or SCP only.

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Article XVI.2(e)

TYPE OF LEGAL ENTITY

A separate incorporation in Italy in the form of a securities company is required for firms other than banks in order to provide services related to securities dealing.

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Article XVI.2(f)

SHARE OF FOREIGN CAPITAL

Foreign investment up to 49 per cent of the registered capital of enterprises.

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Article XVI.2(f)

SHARE OF FOREIGN CAPITAL

Foreign investors can hold up to 49 per cent of the equity of such enterprises.

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Standard of National Treatment (Article XVII)

• Treatment shall be “no less favourable than accorded to own like services and services suppliers”.

• … “either formally identical or formally different treatment” …

• benchmark: no modification of “the conditions of competition” in favour of domestic like services or service suppliers.

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Typical National Treatment Limitations

Discriminatory subsidies and other financial measures Nationality of certain personnel and residency

requirements Licensing, qualification and registration requirements Technology transfer/training requirements Local content requirements Prohibitions on land/property ownership Limitations on insurance portability, use of education

grants, etc.

See also S/L/92, Anne 1

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Terminology related to “limitations”

• No limitation (full commitment) = “None”

• No commitment technically feasible =

“Unbound*”

• No commitment = “Unbound”

For each mode of supply, Members may enter the following:

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To schedule or not to schedule?

• Measures relating to licensing, qualification, approval, authorisation, registration etc.• Under Market Access only those restrictions

falling under XVI (a)-(f)• Under National Treatment only those

requirements or procedures that are discriminatory

• Additional information (for transparency reasons) should not be scheduled.

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Measures that do not belonginto a schedule?

Do not schedule measures falling under other provisions Article VI (Domestic Regulation) Article XI (Payments and Transfers) Article XII (Balance of Payments) Article XIV (General Exceptions) and relevant Annexes (e.g. prudential

measures in financial services)

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Market Access, Mode 3Number of limitations by type

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National Treatment, Mode 3Number of limitations, 10 most frequent types

0

200

400

600

800

1000

1200

1400

1600

1800

A B D E F G H L M N

Tax Subsidies,grants

Nationalityreq.

Residencyreq.

Licensing,stand., qualif.

Registrat.req.

Authoriz. req. Land Other NT MAlimitations

Horizontal and sectoral limitations Sectoral limitations only

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Overlap between Market Access and National Treatment

Article XX:2:

Relevant measures (e.g.discriminatory quotas, joint venture requirements) shall be inscribed in the column relating to Article XVI (MA). This provides a condition and qualification to Article XVII (NT) as well.

See also S/L/92, para. 18

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How Schedules of Commitments are structured:

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Horizontal Commitments

Tool to avoid repetition in sector specific commitments where measures cover all sectors in a schedule.

Can apply to all or some modes of supply

No legally different character from specific commitments

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Typical Horizontal Commitments

• Measures can relate to one or more modes of supply: restrictions on land ownership, investment, entry of natural

persons discriminatory tax measures

• Horizontal commitments condition all other entries unless otherwise specified: “None” in sector-specific section ->except as set out in

horizontal section Departures must be clearly and consistently indicated

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Scheduling Mode 4 Commitments

• Sector-Specific commitments typically refer to Horizontal commitments• “Unbound, except as indicated in the

horizontal section of the schedule”

• Horizontal Commitments in form of “undertaking”• identifying categories of natural persons;

• duration of temporary stay

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Structure of Mode 4 Commitments(horizontal commitments, 2002)

Executives, Managers, Specialists

28%

Other4%

Contractors3%

Business Visitors

23%

Intra-Corporate Transferees

42%

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Typical Horizontal Commitments in Mode 4

Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence ofnatural persons

Sector orsubsector

Limitations onmarket access

Limitations onnational treatment

Additionalcommitments

I. Horizontal CommitmentsALL SECTORSINCLUDED INTHISSCHEDULE

4) Unbound, except for thetemporary presence for up tothree years of the followingcategories of persons:A. Services Salespersons …B. Intra-corporate Transferees … Executives … Managers … Specialists … Professionals …C. Personnel Engaged in Establishment …

4) Unbound , except formeasures concerning thecategories of naturalpersons referred to in theMarket Access column.

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MFN Exemptions

• Relevant for:

• Bilateral agreements covering services trade

• National laws requiring reciprocal treatment or extending special preferences

• Regional or other economic agreements that do not satisfy the criteria of GATS Article V, e.g. do not cover all sectors, cover a single mode of supply, or do not aim at full liberalization within the grouping

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Relationship between MFN Exemptions and Commitments:

• Possible: More generous treatment of specified trading partners than provided for under scheduled limitations

• Inadmissible: Reciprocity conditions and other discriminatory provisions which would reduce the scope of a commitment

• Precondition: Properly defined MFN exemption

The specific commitments guarantee the minimum conditions owed to all Members

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Relationship between MFN obligations and specific commitments in individual sectors

Specific Commitment?

Envisagedtreatment

Yes No

MFN +(Preferential)

MFN exemptionpossible*

MFN exemptionpossible*

MFN -(Reciprocity)

MFN exemptionimpossible

MFN exemptionpossible*

* To be applied for at the date of entry into force of GATS or under Article IX:3 of the WTO Agreement.

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How an MFN exemption works ...

Type of MFN Exemption

Scheduled Commitment

Result

Preferences on foreign equity participation in retail distribution services

Foreign equity limited to 49%

All suppliers are entitled to 49%. The exemption only permits granting some countries > 49%

Bilateral agreements covering road transport

No commitments scheduled on road transport

Any preferences or discrimination is permissible

Commercial presence of foreign accounting firms is based on reciprocity

Accountancy commitments show no limitations on commercial presence

The exemption is inoperable since all Members must be granted scheduled access

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Relationship between modes of supply

• Commitments extend to the mode of supply in which they are taken

• Mode 4 commitments often related directly only to Mode 3 commitments

• Recommendation: Assess modal links for effective services delivery when making requests and offers

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Role of Additional Commitments (Article XVIII)

Scheduling of measures not falling under Articles XVI or XVII. Such measures may relate to qualifications, standards, licenses,competition disciplines, etc.

See also S/CSC/W/34

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Additional Commitments

• The definition of possible undertakings is open-ended

• They can be unique to a particular Member or Members can agree to a common set of additional commitments

• The Telecom Reference Paper is the first example of plurilatural negotiation of a common set of such undertakings

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Relationship between Schedules and ‘Permissible’ Provisions

• Measures taken in context of Article V (Economic Integration) and Article VII (Recognition) do not need to be scheduled as limitations…

• ...Neither do they need to be listed as MFN exemptions

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• Any limitations and qualifications pertaining to Articles XVI and XVII must be inscribed in Schedules

• Measures falling under other provisions (Articles VI, XII, XIV) should not be scheduled

• Market Access or National Treatment limitations applying across all scheduled sectors may be presented in a horizontal section

• Measures inconsistent with both Market Access and National Treatment obligations must be inscribed in the Market Access column only (Art. XX:2)

Remember ..

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• Avoid confusion between Horizontal Commitments (applying across all scheduled sectors) and Sectoral Commitments

• Schedule limitations as precisely as possible• No general references to domestic laws• No unspecified economic needs tests

• Avoid uncertainties about sector scope and coverage• Use of CPC-numbers whenever possible• Clear definition of sub-sectors if coverage is limited

Recommendations

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Relationship between commitments and actual market conditions:

• Commitments guarantee minimum levels of Market Access and National Treatment

• Members remain free to offer better conditions (subject to MFN principle)

• Commitments may be upgraded at any time to reflect the improved conditions

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Measures/policies not affected by commitments

• Non-discriminatory domestic regulation (standards, licensing requirements, etc.)

• Government procurement

• Private commercial actions (beyond the scope of GATS)

• Actions beyond the modal definition of services trade (e.g. export subsidies or restrictions)

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Must commitments berespected at all costs?

No. The GATS allows Members to renegotiate their commitments against compensation (Article XXI), ignore them for health and other public policy reasons (Article XIV, ‘prudential carve-out’ in financial services) or security concerns (Article XIVbis), and introduce restrictions to protect the Balance of Payments (Article XII).

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Modification of Schedules (Article XXI)

Three-year moratorium

Procedure

Negotiated compensatory adjustments

Arbitration if needed

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